SECURITIES PURCHASE AGREEMENT

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to exemptions from registration under the Securities Act (as defined below), the Company desires to issue and sell to each Investor, and each Investor, severally and not jointly, desires to purchase from the Company, shares of the Company’s Common Stock, as more fully described in this Agreement.

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

ARTICLE 1.

DEFINITIONS

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

“ Action ” as to any Person, means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or threatened in writing against or affecting such Person, any of such Person’s Subsidiaries or any of such Person’s or such Subsidiaries’ respective properties, before or by any court, arbitrator, governmental or administrative agency, regulatory authority (federal, state, county, local or foreign), stock market, stock exchange or trading facility.

“ Additional Shares” shall have the meaning as set forth in Section 4.14 (a).

“ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

“ Available Undersubscription Amount ” has the meaning set forth in Section 4.13(c) .

“ Basic Amount ” has the meaning set forth in Section 4.13(b) .

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

“ Buy-In ”   has the meaning set forth in Section 4.1(c) .

 

“ Closing ” means the closing of the purchase and sale of the Shares on the Closing Date.

“ Closing Date ” means September 18, 2009, or such other date as the parties may agree.

“ Commission ” means the Securities and Exchange Commission.

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

“ Company ”   has the meaning set forth in the recitals to this Agreement.

“ Company Entities ” means the Company and any entities which hereafter become Subsidiaries of the Company.

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

“ Company Counsel ” means Reed Smith LLP, 355 Grand Avenue, Suite 2900, Los Angeles, CA 90071.

“ Company Deliverables ” has the meaning set forth in Section 2.2(a) .

“ Company Party ” has the meaning set forth in Section 4.8 .

“ Disclosure Materials ” has the meaning set forth in Section 3.1(h) .

“ Effective Date ” means the date that the Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission.

“ Evaluation Date ”   has the meaning set forth in Section 3.1(t) .

“ Exchange ” has the meaning set forth in the recitals to this Agreement.

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

“ GAAP ” means U.S. generally accepted accounting principles.

“ Intellectual Property Rights ” has the meaning set forth in Section 3.1(q) .

“ Investment Amount ” means, with respect to each Investor, the Investment Amount indicated on such Investor’s signature page to this Agreement, which is also reflected on the Schedule of Investors attached hereto as Appendix A .

 

“ Investor Deliverables ” has the meaning set forth in Section 2.2(b) .

“ Investor Party ” has the meaning set forth in Section 4.7 .

“ Investor Warrants ” shall mean the warrant certificates in the form of Exhibit A , attached hereto and made a part hereof, respecting the holders’ rights to purchase 5,000,000 shares of Common Stock in the aggregate, at a price per share of $0.01.

 “ Lien ” means any lien, charge, encumbrance, security interest, right of first refusal, right of participation or other restrictions of any kind.

“ Losses ” has the meaning set forth in Section 4.7 .

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

“ Money Laundering Laws ” has the meaning set forth in Section 3.1(ee) .

“ New York Courts ” means the state and federal courts sitting in the City of New York, Borough of Manhattan.

“ Notice of Acceptance ” has the meaning set forth in Section 4.13(c) .

“ Offer ” has the meaning set forth in Section 4.13(b) .

“ Offer Notice ” has the meaning set forth in Section 4.13(b) .

“ Offer Period ” has the meaning set forth in Section 4.13(c) .

“ Offered Securities ” has the meaning set forth in Section 4.13(b) .

“ OFAC ” has the meaning set forth in Section 3.1(dd) .

“ Outside Date ” means the fifteenth calendar day (if such calendar day is a Trading Day and if not, then the first Trading Day following such fifteenth calendar day) following the date of this Agreement.

“ Per Share Purchase Price ” equals $0.50.

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

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

 

“ Refused Securities ” has the meaning set forth in Section 4.13(d) .

“ Registrable Securities ” shall mean, collectively, the Shares , the Warrant Shares, and the Additional Shares.

“ Registration Rights Agreement ” means the Registration Rights Agreement, dated as of the date hereof, among the Company and the Investors, in the form of Exhibit B hereto.

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

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

“ SEC Reports ” has the meaning set forth in Section 3.1(h) .

“ Securities ” has the meaning set forth in Section 4.1(c) .

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

“ Share Delivery Date ” has the meaning set forth in Section 4.1(c) .

“ Shares ” means the 10,000,000 shares of Common Stock being issued and sold to the Investors by the Company hereunder (not including the Warrant Shares).

“ Short Sales ” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, swaps and similar arrangements (including on a total return basis), and sales and other transactions through non-US broker dealers or foreign regulated brokers.

“ Subsequent Placement ” has the meaning set forth in Section 4.13(a) .

“ Subsequent Placement Agreement ” has the meaning set forth in Section 4.13(f) .

“ Subsidiary ” of any Person means any “subsidiary” as defined in Rule 1-02(x) of the Regulation S-X promulgated by the Commission under the Exchange Act of such Person.

“ Trading Day ” means (i) a day on which the Common Stock is traded on a Trading Market or (ii) if the Common Stock is not listed or quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i) or (ii) hereof, then Trading Day shall mean a Business Day.

 

“ Trading Market ” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

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

“ Transfer Agent ” means Empire Stock Transfer Inc., the current transfer agent of the Company with a mailing address of 2470 Saint Rose Pkwy, Suite 304, Henderson, Nevada 89074, and a facsimile number of (702) 974-1444, and any successor transfer agent of the Company.

“ Trigger Date ” has the meaning set forth in Section 4.13(a) .

“ Undersubscription Amount ” has the meaning set forth in Section 4.13(b) .

“ Warrant Shares ” shall mean, collectively, the Common Stock to be issued under the Investor Warrants.

ARTICLE 2.

PURCHASE AND SALE

2.1            Closing .  Subject to the terms and conditions set forth in this Agreement the Closing shall occur in two tranches.  At the first Closing (the “First Closing”), which shall occur on the date hereof,  the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, Three Million  shares of Common Stock of the total Shares representing such One Million Five Hundred Thousand ($1,500,000) of the Investor’s Investment Amount, calculated as the quotient of such portion of Investor’s Investment Amount divided by the Per Share Purchase Price.  Five (5)  days after the Effectiveness Date (as that date is defined in the Registration Rights Agreement), with regard to all of the Shares and the Warrant Shares, the Company shall issue and sell to the Investor, and the Investor shall have the unconditional obligation to purchase from the Company, Seven Million   (7,000,000) shares of Common Stock of the total Shares, representing  Three Million Five Hundred Thousand ($3,500,000) of the Investor’s Investment Amount, calculated as the quotient of such portion of Investor’s Investment Amount divided by the Per Share Purchase Price (the “Second Closing”).  The First Closing shall take place at the offices of Sichenzia Ross Friedman Ference LLP on the Closing Date or at such other location or time as the parties may agree.  The Second Closing shall take place at the offices of Sichenzia Ross Friedman Ference LLP five (5) days after Effectiveness Date or at such other location or time as the parties may agree.

2.2            Closing Deliveries .  (a)  At the First Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “ Company Deliverables ”):

(i)           a single certificate, dated the date of the First Closing, issued to each Investor, respectively, representing 3,000,000 Shares registered in the name of the Investor;

 

(ii)           an Investor Warrant, dated the date of the First Closing, issued to the Investor, representing the Investor’s right to purchase 1,500,000 aggregate Warrant Shares at an exercise price per Share of $0.01;

(iii)           the legal opinion of Company Counsel, in agreed form, addressed to the Investors; and

(b)           By the First Closing, the Investor shall deliver or cause to be delivered the agreements specified in Section 5.2(d) , each duly signed by the Investor (collectively, the “ Investor Deliverables ”).

(c)           Upon receipt of the Company Deliverables on the date of the First Closing, the Investor shall deliver to the Company, $1,500,000, in United States Dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose.

(d)           At the Second Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “ Company Deliverables” ):

(i)           a single certificate, dated the date of the Second Closing, issued to the Investor, representing 7,000,000 Shares registered in the name of the Investor;

(ii)           an Investor Warrant, dated the date of the Second Closing, issued to the Investor, representing the Investor’s right to purchase 3,500,000 aggregate Warrant Shares at an exercise price per Share of $0.01;

(e)           At the Second Closing, the Investor shall deliver to the Company $3,500,000, in United States Dollars and in immediately available funds, by wire transfer to an account designated in writing by the Company for such purpose.

ARTICLE 3.

REPRESENTATIONS AND WARRANTIES

3.1            Representations and Warranties of the Company .  The Company hereby makes the following representations and warranties to each Investor:

(a)            Subsidiaries .  The Company has no direct or indirect Subsidiaries.

(b)            Organization and Qualification .  The Company is duly incorporated, validly existing and in good standing under the laws of the State of Nevada, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  The Company is not in violation of any of the provisions of its Articles of Incorporation or Bylaws.  The Company is duly qualified to conduct its businesses 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, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

 

(c)            Authorization; Enforcement .  The Company has the requisite corporate and other power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder.  The execution and delivery of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company, and no further action is required by it in connection with such authorization.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors’ rights and remedies or by other equitable principles of general application.

(d)            No Conflicts .  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated thereby do not and will not (i) conflict with or violate any provision of the Company’s Articles of Incorporation or Bylaws, 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, 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 debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any United States court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company 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.

(e)            Filings, Consents and Approvals .  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any United States court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, (ii) filings required by state securities laws, (iii) the filing of a Notice of Sale of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filings required in accordance with Section 4.4 , (v) filings, consents and approvals required by the rules and regulations of the applicable Trading Market, (vi) those that have been made or obtained prior to the date of this Agreement, and (vi) other post closing securities filings or notifications required to be made under federal or state securities laws.

(f)            Issuance of the Shares and the Investor Warrants .  The Shares and the Investor Warrants have been duly authorized and, when issued and paid for in accordance with the Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens.  As of the Closing, the Company has reserved from its duly authorized capital stock the shares of Common Stock issuable pursuant to this Agreement in order to issue the Shares and the Investor Warrants.

 

(g)            Capitalization .  The number of shares and type of all authorized, issued and outstanding capital stock of the Company, and all shares of Common Stock reserved for issuance under the Company’s various option and incentive plans, is specified in Schedule 3.1(g) .  Except as specified in Schedule 3.1(g) , no securities of the Company are entitled to preemptive or similar rights, and 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 specified in Schedule 3.1(g) , there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or 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 or rights convertible or exchangeable into shares of Common Stock.  The issue and sale of the Shares and the Investor Warrants hereunder will not, immediately or with the passage of time, obligate the Company or any Subsidiary to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of Company or Subsidiary securities to adjust the exercise, conversion, exchange or reset price under such securities.

(h)            SEC Reports .  Except as set forth on Schedule 3.1(h) to this Agreement, the Company has timely filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (or such shorter period as the Company was required by law to file such reports), (the foregoing materials being collectively referred to herein as the “ SEC Reports ” and, together with Appendix B hereto and the schedules to this Agreement, the “ Disclosure Materials ”) or has timely filed for a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the applicable rules and regulations of the Commission promulgated thereunder, 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.

(i)            Financial Statements .  As of their respective dates, the financial statements of the Company included in the SEC Reports complied as to form in all material respects with applicable accounting requirements and the applicable published rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements were prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto, and fairly present, in all material respects, the financial position of the Company 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..

(j)            Press Releases .  To the knowledge of the Company, the press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading.

 

(k)            Material Changes .  Except as specified on Schedule 3.1(k) or in the Disclosure Materials, since June 30, 2009 (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, accrued expenses and other liabilities incurred in the ordinary course of business consistent with past practice, and (B) liabilities not in excess of $100,000 in the aggregate not required to be reflected in the Company’s or its Subsidiaries’ financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.  The Company does not have pending before the Commission any request for confidential treatment of information.

(l)            Litigation .  There is no Action which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Shares or the Warrants, or (ii) if there were an unfavorable decision, individually or in the aggregate, result in a loss or liability in an amount in excess of $10,000 or have or could reasonably be expected to have a Material Adverse Effect.  Neither the Company, nor any director or officer of the Company (in his or her capacity as such), is or has been, the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, except as specifically disclosed in the SEC Reports.  There has not been, and to the knowledge of the Company, there is not pending any investigation by the Commission involving the Company or any of its respective current or former directors or officers (in his or her capacity as such).  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.

(m)            Labor Relations .  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company.  Except as disclosed on Schedule 3.1(n) , the Company has no employment or labor contracts, agreements or other understandings with any Person.

(n)            Indebtedness; Compliance .  Except as disclosed on Schedule 3.1(n) , the Company is not a party to any indenture, debt, capital lease obligations, mortgage, loan or credit agreement by which it or any of its properties is bound.  The Company is not (i) in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by such entity under), nor has the Company received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) in violation of any order of any court, arbitrator or governmental body, or (iii) in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.  The Company is in compliance with all effective requirements of the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations thereunder that are applicable to it, except where such noncompliance could not have or reasonably be expected to result in a Material Adverse Effect.

 

(o)            Regulatory Permits .  The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its businesses as described in the SEC Reports, except where the failure to possess such permits could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such permits.

(p)            Title to Assets .  There is no real property that is material to the respective business of the Company, except as disclosed in the Disclosure Materials.  The Company has good and marketable title in all personal property owned by it that is material to its business, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company. Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases of which the Company is in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(q)            Patents and Trademarks .  Set forth on Schedule 3.1(q) is a list of patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that the Company owns or has the rights to use (collectively, the “ Intellectual Property Rights ”).  The Intellectual Property Rights constitute all of the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary and material to the business of the Company in connection with its businesses as described in the Disclosure Materials. The Company has not received a written notice that the Intellectual Property Rights used by it violates or infringes upon the rights of any Person.  Except as otherwise disclosed in the Disclosure Materials, to the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights.  To the knowledge of the Company, no former or current employee, no former or current consultant, and no third-party joint developer of the Company has any Intellectual Property Rights that are necessary and material to the business of the Company made, developed, conceived, created or written by the aforesaid employee, consultant or third-party joint developer during the period of his or her retention by, or joint venture with, the Company which has been asserted against the Company. The Intellectual Property Rights and the owner thereof or agreement through which they are licensed to the Company are set forth in the Disclosure Materials.

(r)            Insurance .  The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses it is engaged and in the country in which the Company operates.  The Company has no reason to believe that it will not be able to renew its existing respective insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business on terms consistent with market for the Company’s lines of business.

 

(s)            Transactions With Affiliates and Employees; Customers .  Except as set forth in the Disclosure Materials , none of the officers, directors or 5% or more shareholders of the Company, and, to the knowledge of the Company, none of the employees of the Company, is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Person or, to the knowledge of the Company, any entity in which any officer, director, or such employee or 5% or more shareholder has a substantial interest or is an officer, director, trustee or partner.  The Company does not owe any money or other compensation to any of their respective officers or directors or shareholders, except to extent of contracts and ordinary course compensation arrangements specified in Schedule 3.1(s) .  No material customer of the Company has indicated its intention to diminish its relationship with the Company, and the Company has no knowledge from which it could reasonably conclude that any such customer relationship may be adversely affected.

(t)            Internal Accounting Controls .  Except as set forth in the Disclosure Materials , the Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company is establishing disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company Entities is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s Form 10-K or 10-Q, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures in accordance with Item 307 of Regulation S-K under the Exchange Act for the Company’s most recently ended fiscal quarter or fiscal year-end (such date, the “ Evaluation Date ”).  The Company presented in its most recently filed Form 10-K or Form 10-Q the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.

(u)            Solvency .  Based on the financial condition of the Company, as of the Closing Date (and assuming that the Closing shall have occurred), (i) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof and (ii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

 

(v)            Certain Fees .  Except as described in Schedule 3.1(v) , no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement.  The Investors shall have no obligation with respect to any fees or with respect to any claims (other than such fees or commissions owed by an Investor pursuant to written agreements executed by such Investor which fees or commissions shall be the sole responsibility of such Investor) made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

(w)            Certain Registration Matters .  Assuming the accuracy of the Investors’ representations and warranties set forth in Sections 0 , no registration under the Securities Act is required for the offer and sale of the Shares and the Warrants by the Company to the Investors under the Transaction Documents.  The Company is eligible to register its Common Stock for resale by the Investors under Form S-1 promulgated under the Securities Act.  Except as specified in Schedule 3.1(w) the Company has not granted or agreed to grant to any Person other than the Investors pursuant to the Registration Rights Agreement any rights (including “piggy-back” registration rights) to have any securities of the Company registered with the Commission or any other governmental authority that have not been satisfied.

(x)            Listing and Maintenance Requirements .  Except as specified in the SEC Reports, the Company has not, in the two years preceding the date hereof, received notice from any Trading Market to the effect that the Company is not in compliance with the listing or maintenance requirements thereof.  The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with the listing and maintenance requirements for continued listing of the Common Stock on the Trading Market on which the Common Stock is currently listed or quoted.  The issuance and sale of the Shares or the Investor Warrants under the Transaction Documents does not contravene the rules and regulations of the Trading Market on which the Common Stock is currently listed or quoted, and no approval of the stockholders of the Company thereunder is required for the Company to issue and deliver to the Investors the Shares and the Investor Warrants or the Warrant Shares as contemplated by the Transaction Documents.

(y)            Investment Company .  The Company is not, and is not an Affiliate of, and immediately following the Closing will not have become, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

(z)            Application of Takeover Protections .  The Company has taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Investors as a result of the Investors and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including, without limitation, the Company’s issuance of the Shares and the Investors’ ownership of the Shares, the Investor Warrants or the Warrant Shares.

 

(aa)            No Add