SECURITIES PURCHASE AGREEMENT
Exhibit
10.1
This
Securities Purchase Agreement (this “Agreement”)
is
dated as of February 1, 2007, by and among Telkonet, Inc., a Utah corporation
(the “Company”),
and
the purchasers identified on the signature pages hereto (each, a “Purchaser”
and
collectively, the “Purchasers”).
RECITALS
A. The
Company and each Purchaser are executing and delivering this agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the “Securities
Act”),
and
Rule 506 of Regulation D (“Regulation
D”)
as
promulgated by the United States Securities and Exchange Commission under the
Securities Act.
B. Each
Purchaser, severally and not jointly, wishes to purchase, and the Company wishes
to sell, upon the terms and conditions stated in this Agreement, (i) an
aggregate of 4,000,000 shares of the Company’s Common Stock, par value $0.001
per share (the “Common
Stock”),
at a
purchase price of $2.50 per share (the “Per
Share Purchase Price”)
(collectively referred to herein as the “Shares”),
and
(ii) warrants, in substantially the form attached hereto as Exhibit
A
(the
“Warrants”)
to
acquire up to that number of additional shares of Common Stock set forth below
such Purchaser’s name on the signature page hereto (as exercised, collectively,
the “Warrant
Shares”)
C. The
Shares, the Warrants and the Warrant Shares issued pursuant to this Agreement
are collectively referred to herein as the “Securities”.
D. Contemporaneous
with the sale of the Shares and the Warrants, the parties hereto will enter
into
a Registration Rights Agreement, in the form attached hereto as Exhibit
B
(the
“Registration
Rights Agreement”),
pursuant to which, among other things, the Company will agree to provide certain
registration rights under the Securities Act and applicable state securities
laws.
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 Purchasers agree as
follows:
ARTICLE
I.
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:
“Affiliate”
means,
with respect to any Person, any other Person that, directly or indirectly
through one or more intermediaries, Controls, is controlled by or is under
common control with such Person. With respect to a Purchaser, any investment
fund or managed account that is managed on a discretionary basis by the same
investment manager as such Purchaser will be deemed to be an Affiliate of such
Purchaser.
“Business
Day”
means a
day, other than a Saturday or Sunday, on which banks in New York City are open
for the general transaction of business.
“Buy-In”
has
the
meaning set forth in Section 4.1(c).
“Buy-In
Price”
has
the
meaning set forth in Section 4.1(c).
“Closing”
means
the closing of the purchase and sale of the Shares and the Warrants pursuant
to
this Agreement.
“Closing
Date”
means
the Business Day on which all of the conditions set forth in Sections 2.1 and
2.2 hereof are satisfied, or such other date as the parties may
agree.
"Commission"
means
the United States Securities and Exchange Commission.
“Common
Stock”
has the
meaning set forth in the Recitals, and also includes any securities into which
the Common Stock may hereafter be reclassified.
“Common
Stock Equivalents”
means
any securities of the Company or any Subsidiary which would entitle the holder
thereof to acquire at any time Common Stock, 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
Xxxxx & Xxxxxxxxx LLP.
“Company
Deliverables”
has
the
meaning set forth in Section 2.2(a).
“Company’s
Knowledge”
means
with respect to any statement made to the knowledge of a party, that the
statement is based upon the actual knowledge of the officers of such party
having responsibility for the matter or matters that are the subject of the
statement.
“Control”
(including the terms “controlling”, “controlled by” or “under common control
with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Disclosure
Materials”
has the
meaning set forth in Section 3.1(h).
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“Effective
Date”
means
the date on which the initial Registration Statement required by Section 2(a)
of
the Registration Rights Agreement is first declared effective by the
Commission.
“Effectiveness
Deadline”
means
the date on which the initial Registration Statement is required to be declared
effective by the Commission under the terms of the Registration Rights
Agreement.
“Environmental
Laws”
has
the
meaning set forth in Section 3.1(l).
“Evaluation
Date”
has
the
meaning set forth in Section 3.1(v).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, or any successor statute,
and
the rules and regulations promulgated thereunder.
“GAAP”
means
U.S. generally accepted accounting principles, as applied by the
Company.
“Indemnified
Person”
has
the
meaning set forth in Section 4.7(b).
“Intellectual
Property Rights”
has the
meaning set forth in Section 3.1(r).
“Lead
Investors”
means
those Purchasers which are managed by ________________.
“Lien”
means
any lien, charge, encumbrance, security interest, right of first refusal,
preemptive right or other restrictions of any kind.
“Losses”
has
the
meaning set forth in Section 4.7(a).
“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, prospects, business or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (iii) a material adverse impairment to the Company's ability to perform
on a
timely basis its obligations under any Transaction Document.
“Material
Contract”
means
any contract of the Company that was filed as an exhibit to the SEC Filings
pursuant to Item 601(b)(4) or Item 601(b)(10) of Regulation S-K.
“New
York Courts”
means
the state and federal courts sitting in the City of New York, Borough of
Manhattan.
“Person”
means an
individual, corporation, partnership, limited liability company, trust, business
trust, association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.
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“Proceeding”
means an
action, claim, suit, investigation or proceeding (including, without limitation,
an investigation or partial proceeding, such as a deposition), whether commenced
or threatened in writing.
“Purchaser
Deliverables”
has
the
meaning set forth in Section 2.2(b).
“Purchaser
Party”
has the
meaning set forth in Section 4.7.
“Registration
Statement”
means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Registrable
Securities (as defined in the Registration Rights Agreement).
“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).
“Secretary’s
Certificate”
has
the
meaning set forth in Section 2.2(a)(vi).
“Short
Sales”
include,
without limitation, all “short sales” as defined in Rule 3b-3 of the Exchange
Act and Rule 200 promulgated under Regulation SHO under the Exchange Act,
whether or not against the box, and all types of direct and indirect stock
pledges, forward sale contracts, options, puts, calls, short sales, swaps,
“put
equivalent positions” (as defined in Rule 16a-1(h) under the Exchange Act) and
similar arrangements (including on a total return basis), and sales and other
transactions through non-US broker dealers or foreign regulated brokers having
the effect of hedging the securities or investment made under this
Agreement.
“Subscription
Amount”
means
with respect to each Purchaser, the Subscription Amount indicated on such
Purchaser’s signature page to this Agreement.
“Subsidiary”
means
any “significant subsidiary” as defined in Rule 1-02(w) of the Regulation S-X
promulgated by the Commission under the Exchange Act.
“Trading
Affiliate”
has
the
meaning set forth in Section 3.2(g).
“Trading
Day”
means
(i) a day on which the Common Stock is listed or quoted and traded on its
primary Trading Market (other than the OTC Bulletin Board), or (ii) if the
Common Stock is not listed on a Trading Market (other than the OTC Bulletin
Board), a day on which the Common Stock is traded in the over-the-counter
market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock
is
not quoted on any Trading Market, a day on which the Common Stock is quoted
in
the over-the-counter market as reported by the National Quotation Bureau
Incorporated (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),
(ii) and (iii) hereof, then Trading Day shall mean a Business Day.
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“Trading
Market”
means
whichever of the New York Stock Exchange, the American Stock Exchange, 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 schedules and exhibits attached hereto, the Warrants, the
Registration Rights Agreement, and any other documents or agreements executed
in
connection with the transactions contemplated hereunder.
“Transfer
Agent”
means
StockTrans.
ARTICLE
II.
PURCHASE
AND SALE
2.1 Closing.
Subject
to the terms and conditions set forth in this Agreement, at the Closing, the
Company shall issue and sell to each Purchaser, and each Purchaser shall,
severally and not jointly, purchase from the Company, the Shares and Warrants
representing such Purchaser’s Subscription Amount. The Closing shall take place
at the offices of Xxxxxxxxxx Xxxxxxx PC, 1251 Avenue of the Xxxxxxxx,
00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000, on the Closing Date or at such other location or
time
as the parties may agree.
2.2 Closing
Deliveries.
(a) At
the
Closing, the Company shall issue, deliver or cause to be delivered to each
Purchaser the following (the “Company
Deliverables”):
(i) this
Agreement, duly executed by the Company;
(ii) one
or
more stock certificates, free and clear of all restrictive and other legends
(except as expressly provided in Section 4.1(b) hereof), evidencing a number
of
Shares equal to the quotient obtained by dividing (a) such Purchaser’s
Subscription Amount by (b) the Per Share Purchase Price;
(iii) a
Warrant, executed by the Company and registered in the name of such Purchaser,
pursuant to which such Purchaser shall have the right to acquire such number
of
Warrant Shares equal to 65% of the number of Shares issuable to such Purchaser
pursuant to this Agreement;
(iv) a
legal
opinion of Company Counsel, in the form set forth in Exhibit
C
hereto,
executed by such counsel and addressed to the Purchasers;
(v) the
Registration Rights Agreement, duly executed by the Company;
(vi) a
certificate of the Secretary of the Company (the “Secretary’s
Certificate”),
dated
as of the Closing Date, certifying the resolutions adopted by the Board of
Directors of the Company approving the transactions contemplated by this
Agreement and the other Transaction Documents and the issuance of the
Securities, certifying the current versions of the Articles of Incorporation
and
by-laws of the Company and certifying as to the signatures and authority of
persons signing the Transaction Documents and related documents on behalf of
the
Company; and
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(b) At
the
Closing, each Purchaser shall deliver or cause to be delivered to the Company
the following (the “Purchaser
Deliverables”):
(i) this
Agreement, duly executed by such Purchaser;
(ii) its
Subscription Amount, in United States dollars and in immediately available
funds;
(iii) the
Registration Rights Agreement, duly executed by such Purchaser;
(iv) a
fully
completed and duly executed Selling Stockholder Questionnaire in the form
attached as Annex B to the Registration Rights Agreement; and
(v) a
fully
completed and duly executed Accredited Investor Questionnaire and Stock
Certificate Questionnaire in the forms attached hereto as Exhibits
D-1
and
D-2,
respectively.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
3.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchasers that, except as set
forth in the Schedules delivered herewith:
(a) Subsidiaries.
The
Company has no direct or indirect Subsidiaries other than those listed in the
Company’s Form 10-K Report for the year ended December 31, 2005. Except as
disclosed therein, the Company owns, directly or indirectly, all of the capital
stock or comparable equity interests of each Subsidiary free and clear of any
and all Liens and all the issued and outstanding shares of capital stock or
comparable equity interest of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights.
(b) Organization
and Qualification.
The
Company and each Subsidiary is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own or lease and use its properties and assets
and to carry on its business as currently conducted. Neither the Company nor
any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, bylaws or other organizational or
charter documents. Each of the Company and the Subsidiaries is duly qualified
to
conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary or appropriate, 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.
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(c) Authorization;
Enforcement.
The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents
to
which it is a party and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction Documents
to
which it is a party by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including, but not limited to,
the
sale and delivery of the Shares and the Warrants and the subsequent issuance
of
the Warrant Shares upon exercise of the Warrants have been duly authorized
by
all necessary corporate action on the part of the Company and no further
corporate action is required by the Company, its Board of Directors or its
stockholders. Each Transaction Document to which it is a party 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 the Company 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. There are no stockholders
agreements, voting agreements, or other similar arrangements with respect to
the
Company’s capital stock to which the Company is a party or, to the Company’s
Knowledge, between or among any of the Company’s stockholders.
(d) No
Conflicts.
The
execution, delivery and performance of the Transaction Documents and the
consummation by the Company of the transactions contemplated hereby or thereby
(including without limitation, the issuance of the Shares, pursuant to Section
2.2, the issuance of the Warrants pursuant to this Agreement and the
registration of the Registrable Securities under the Registration Rights
Agreement) do not and will not (i) conflict with or violate any provision of
the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or other organizational or charter documents, (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, equity or other instrument (evidencing
a
Company or Subsidiary debt, equity issuance obligation or otherwise) or other
understanding to which the Company or any Subsidiary is a party or by which
any
property or asset of the Company or any Subsidiary is bound, or affected, except
to the extent that such conflict, default, termination, amendment, acceleration
or cancellation right could not reasonably be expected to have a Material
Adverse Effect, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company or a Subsidiary is subject
(including federal and state securities laws and regulations and the rules
and
regulations, assuming the correctness of the representations and warranties
made
by the Purchasers herein, of any self-regulatory organization to which the
Company or its securities are subject, including all applicable Trading
Markets), or by which any property or asset of the Company or a Subsidiary
is
bound or affected, except to the extent that such violation described in this
clause (iii) could not, individually or in the aggregate, have or reasonably
be
expected to result in a Material Adverse Effect.
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(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 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 applicable 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 filing
of
any requisite notices and/or application(s) to each applicable Trading Market
for the issuance and sale of the Common Stock and the Warrants and the listing
of the Common Stock for trading or quotation, as the case may be, thereon in
the
time and manner required thereby, (v) the filings required in accordance with
Section 4.5 and (vi) those that have been made or obtained prior to the date
of
this Agreement.
(f) Issuance
of the Securities.
The
Shares and the Warrant Shares have been duly authorized and, when issued and
paid for in accordance with the terms of the Transaction Documents, will be
duly
and validly issued, fully paid and nonassessable, free and clear of all Liens
other than restrictions on transfer provided for in the Transaction Documents
or
imposed by applicable securities laws and shall not be subject to preemptive
or
similar rights of stockholders. Assuming the accuracy of the representations
and
warranties of the Purchasers, the Shares and the Warrant Shares will be issued
in compliance with all applicable federal and state securities laws.
(g) No
Anti-dilution Trigger.
Except
as set forth in Schedule
3.1(g),
the
issuance and sale of the Securities pursuant to Section 2.2 and the issuance
of
the Warrant Shares upon exercise of the Warrants in accordance with their terms,
will not, immediately or with the passage of time or the giving of notice or
both, obligate the Company to issue shares of Common Stock or other securities
to any Person (other than the Purchasers) and will not result in a right of
any
holder of Company securities to adjust the exercise, conversion, exchange or
reset price under such securities.
(h) Capitalization.
The
number of shares and type of all authorized, issued and outstanding capital
stock, options and other securities of the Company (whether or not presently
convertible into or exercisable or exchangeable for shares of capital stock
of
the Company) is specified in the SEC Reports. 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 set forth on Schedule
3.1(h),
there
are no outstanding options, warrants or 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 the Company’s capital stock, or
contracts, commitments, understandings or arrangements by which the Company
or
any Subsidiary is or may become bound to issue additional shares of capital
stock of the Company, or options, securities or rights convertible or
exchangeable into shares of capital stock. Except as set forth on Schedule
3.1(h)
and
customary adjustments resulting from stock dividends, stock splits, combination
of shares, reorganizations, recapitalizations, reclassifications or other
similar events, there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders). All of the outstanding shares of capital stock
of
the Company are duly authorized, validly issued, fully paid and non-assessable,
have been issued in compliance with all applicable federal and state security
laws, and none of such outstanding shares was issued in violation of any
preemptive rights or similar rights to subscribe for or purchase any capital
stock of the Company.
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(i) SEC
Reports.
The
Company has filed all reports required to be filed by it under the Exchange
Act,
including pursuant to Section 13(a) or 15(d) thereof, for the two years
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 this Agreement and the Schedules to this Agreement (if any),
the“Disclosure
Materials”)
on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As
of
their respective dates, or to the extent corrected by a subsequent restatement,
the SEC Reports complied in all material respects with the requirements of
the
Securities Act and the Exchange Act and the 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.
(j) Financial
Statements. The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time
of
filing (or to the extent corrected by a subsequent restatement). Such financial
statements have been 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 except that unaudited financial
statements may not contain all footnotes required by GAAP, and fairly present
in
all material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations
and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, year-end audit adjustments.
(k) Tax
Matters.
Each of
the Company and its Subsidiaries (i) has accurately and timely prepared and
filed all foreign, federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, (ii)
has
paid all material taxes and other governmental assessments and charges that
are
material in amount, shown or determined to be due on such returns, reports
and
declarations, except those being contested in good faith, with respect to which
adequate reserves have been set aside on the books of the Company and (iii)
has
set aside on its books provision reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports
or
declarations apply. There are no unpaid taxes in any material amount claimed
to
be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for such claim.
(l) Material
Changes.
Since
the date of the latest audited financial statements included within the SEC
Reports, except as specifically disclosed in the SEC Reports, (i) there has
been
no event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade
payables, accrued expenses and other liabilities incurred in the ordinary course
of business consistent with past practice and (B) liabilities not required
to be
reflected in the Company's financial statements pursuant to GAAP or required
to
be disclosed in filings made with the Commission, (iii) the Company has not
altered its method of accounting or the manner in which it keeps its accounting
books and records, or changed 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 (other than in connection with repurchases of unvested
stock issued to employees of the Company) and (v) the Company has not issued
any
equity securities to any officer, director or Affiliate, except Common Stock
issued in the ordinary course as dividends on outstanding preferred stock and
pursuant to existing Company stock option or stock purchase plans or executive
and director corporate arrangements disclosed in the SEC Reports and (vi) there
has not been any material change or amendment to, or any waiver of any material
right under, any contract under which the Company, any subsidiary thereof,
or
any of their assets is bound or subject. The Company does not have pending
before the Commission any request for confidential treatment of
information.
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(m) Environmental
Matters.
To the
Company’s Knowledge, neither the Company nor any Subsidiary (i) is in violation
of any statute, rule, regulation, decision or order of any governmental agency
or body or any court, domestic or foreign, relating to the use, disposal or
release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, “Environmental
Laws”),
(ii)
owns or operates any real property contaminated with any substance that is
in
violation of any Environmental Laws, (iii) is liable for any off-site disposal
or contamination pursuant to any Environmental Laws, and (iv) is subject to
any
claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or could reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate; and there is no pending or,
to
the Company’s Knowledge, threatened investigation that might lead to such a
claim.
(n) Litigation.
There
is no Proceeding which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the issuance
of the Securities or (ii) except as specifically disclosed in the SEC Reports,
could, if there were an unfavorable decision, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof (in his
or
her capacity thereof), is or has been during the ten-year period prior to the
closing Date the subject of any Proceeding involving a claim of violation of
or
liability under federal or state securities laws or a claim of breach of
fiduciary duty. There has not been and to the Company’s Knowledge, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company (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 or any subsidiary under the Exchange Act or the Securities
Act.
(o) Employment
Matters.
The
Company and its Subsidiaries are in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and hours,
except where the failure to be in compliance would not, either individually
or
in the aggregate, reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any of its Subsidiaries is a party to any collective
bargaining agreement. The Company and its Subsidiaries believe that their
relations with their employees are satisfactory. No executive officer of the
Company or any of its Subsidiaries (as defined in Rule 501(f) of the Securities
Act) has notified the Company or any such Subsidiary that such officer intends
to leave the Company or any such Subsidiary or otherwise terminate such
officer’s employment with the Company or any such Subsidiary.
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(p) Compliance.
Neither
the Company nor any Subsidiary, except in each case as could not, individually
or in the aggregate, have or reasonably be expected to result in a Material
Adverse Effect (i) is 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 the Company or any Subsidiary under), nor has
the
Company or any Subsidiary 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) is in violation of any order of any court, arbitrator or
governmental body having jurisdiction over the Company or its properties or
assets, or (iii) is or has been in violation of, or in receipt of notice that
it
is in violation of, any statute, rule or regulation of any governmental
authority applicable to the Company.
(q) Regulatory
Permits.
The
Company and the Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as described in
the
SEC Reports, except where the failure to possess such permits, individually
or
in the aggregate, has not resulted and could not reasonably be expected to
result in a Material Adverse Effect, and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such permits.
(r) Title
to Assets.
The
Company and the Subsidiaries have good and marketable title in fee simple to
all
real property owned by them that is material to their respective businesses
and
good and marketable title in all personal property owned by them that is
material to their respective businesses, in each case free and clear of all
Liens, except for Liens that do not, individually or in the aggregate, have
or
result in a Material Adverse Effect. Any real property and facilities held
under
lease by the Company and the Subsidiaries are held by them under valid,
subsisting and enforceable leases of which the Company and the Subsidiaries
are
in material compliance.
(s) Patents
and Trademarks.
The
Company and its subsidiaries own, possess, license or have other rights to
use
all foreign and domestic patents, patent applications, trade and service marks,
trade and service xxxx registrations, trade names, copyrights, licenses,
inventions, trade secrets, technology, Internet domain names, know-how and
other
intellectual property (collectively, the “Intellectual
Property”)
necessary for the conduct of their respective businesses as now conducted or
as
proposed to be conducted. Except as set forth in the SEC Reports and except
where such violations or infringements would not reasonably be expected to
result in a Material Adverse Effect, (a) to the Company’s Knowledge, there
are no rights of third parties to any such Intellectual Property; (b) to the
Company’s Knowledge, and except as set forth on Schedule
3.1(s),
there
is no infringement by third parties of any such Intellectual Property; (c)
there
is no pending or, to the Company’s Knowledge, threatened action, suit,
proceeding or claim by others challenging the Company’s and its Subsidiaries’
rights in or to any such Intellectual Property, and the Company is unaware
of
any facts which would form a reasonable basis for any such claim; (d) there
is
no pending or, to the Company’s Knowledge, threatened action, suit, proceeding
or claim by others challenging the validity or scope of any such Intellectual
Property; and (e) there is no pending or, to the Company’s Knowledge, threatened
action, suit, proceeding or claim by others that the Company and its
Subsidiaries infringe or otherwise violate any patent, trademark, copyright,
trade secret or other proprietary rights of others, and the Company is unaware
of any other fact which would form a reasonable basis for any such
claim.
-11-
(t) Insurance.
The
Company and the Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiaries are
engaged. Neither the Company nor any Subsidiary has any Knowledge that it will
be unable to renew its existing insurance coverage for the Company and the
Subsidiaries as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue its business without
a
significant increase in cost.
(u) Transactions
With Affiliates and Employees.
Except
as set forth in the SEC Reports made on or prior to the date hereof, none of
the
officers or directors of the Company and, to the Company’s Knowledge, none of
the employees of the Company is presently a party to any transaction with the
Company or any Subsidiary or to a presently contemplated transaction (other
than
for services as employees, officers and directors) that would be required to
be
disclosed pursuant to Item 404 of Regulation S-K promulgated under the
Securities Act. The Company is in compliance with applicable requirements of
the
Sarbanes Oxley Act of 2002 and applicable rules and regulations promulgated
by
the Commission thereunder, except where such noncompliance would not result
in,
individually or in the aggregate, a Material Adverse Effect.
(v) Internal
Accounting Controls.
The
Company and the Subsidiaries maintain 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.
(w) Internal
Controls. The
Company has established disclosure controls and procedures (as defined in 1934
Act Rules 13a-15 and 15d-15) for the Company and designed such disclosure
controls and procedures to ensure that material information relating to the
Company is made known to the certifying officers by others within those
entities, particularly during the period in which the Company’s most recently
filed periodic report under the Exchange Act was being prepared. The Company's
certifying officers have evaluated the effectiveness of the Company's disclosure
controls and procedures as of the end of the most recent periodic reporting
period under the Exchange Act (such date, the “Evaluation
Date”).
The
Company presented in its most recently filed periodic report under the Exchange
Act the conclusions of the certifying officers about the effectiveness of the
disclosure controls and procedures based on their evaluations as of the
Evaluation Date. Since the Evaluation Date, except with respect to the
remediation of the material weakness in internal control over financial
reporting and the ineffectiveness of disclosure controls and procedures as
described in the SEC Filings, there have been no significant changes in the
Company's internal control over financial reporting (as such term is defined
in
Item 308(c) of Regulation S-K) or, to the Company's Knowledge, in other factors
that could significantly affect the Company's internal control over financial
reporting. The Company maintains and will continue to maintain a standard system
of accounting established and administered in accordance with GAAP and the
applicable requirements of the Exchange Act.
-12-
(x) Certain
Fees.
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 Purchasers shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by a Purchaser pursuant to agreements (whether written or
oral)
between such Purchaser and any third party which fees or commissions shall
be
the sole responsibility of such Purchaser) 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.
(y) Private
Placement.
Assuming the accuracy of the Purchasers’ representations and warranties set
forth in Section 3.2(b)-(e), no registration under the Securities Act is
required for the offer and sale of the Shares and Warrant Shares by the Company
to the Purchasers under the Transaction Documents. The Company is eligible
to
register the Shares and the Warrant Shares for resale by the Purchasers using
Form S-3 promulgated under the Securities Act. Except as specified in
Schedule
3.1(y),
the
Company has not granted or agreed to grant to any Person 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 or waived.
(z) No
Directed Selling Efforts or General Solicitation.
Neither
the Company, nor any of its Affiliates, nor any Person acting on its or their
behalf has conducted any “general solicitation” or “general advertising” (as
those terms are used in Regulation D) in connection with the offer or sale
of
any of the Securities.
(aa) No
Integrated Offering.
Neither
the Company nor any of its Affiliates, nor any Person acting on its or their
behalf has, directly or indirectly, at any time within the past six months
made
any offers or sales of any Company security or solicited any offers to buy
any
security, under circumstances that would (i) eliminate the availability of
the
exemption from registration under Regulation D under the Securities Act in
connection with the offer and sale by the Company of the Securities as
contemplated hereby or (ii) cause the offering of the Securities pursuant to
the
Transaction Documents to be integrated with prior offerings by the Company
for
purposes of any applicable law, regulation or stockholder approval provisions,
including, without limitation, under the rules and regulations of any Trading
Market.
-13-
(bb) Listing
and Maintenance Requirements.
The
Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange
Act, and the Company has taken no action designed to terminate the registration
of the Common Stock under the Exchange Act nor has the Company received any
notification that the Commission is contemplating terminating such registration.
Except as specified in the SEC Reports, the Company has not, in the two years
preceding the date hereof, received notice (written or oral) from any Trading
Market to the effect that the Company is not in compliance with the listing
or
maintenance requirements thereof. The Company is in compliance in all material
respects 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 Securities 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
shareholders of the Company thereunder is required for the Company to issue
and
deliver to the Purchasers the maximum number of Securities contemplated by
Transaction Documents.
(cc) Investment
Company.
Neither
the Company nor any of its Subsidiaries is required to be registered as, and
is
not an Affiliate of, and immediately following the Closing will not be required
to register as, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.
(dd) Questionable
Payments. Neither
the Company nor any of its Subsidiaries, nor, to the Company’s Knowledge,
directors, officers, employees, agents or other Persons acting on behalf of
the
Company or any of its Subsidiaries has, in the course of its actions for, or
on
behalf of, the Company: (a) used any corporate funds for unlawful contributions,
gifts, entertainment or other unlawful expenses relating to foreign or domestic
political activity; (b) made any direct or indirect unlawful payments to any
foreign or domestic governmental officials or employees from corporate funds;
(c) violated in any material respect any provision of the Foreign Corrupt
Practices Act of 1977, as amended or (d) made any other unlawful bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
(ee) Application
of Takeover Protections.
There
is no control share acquisition, business combination, poison pill (including
any distribution under a rights agreement) or other similar anti-takeover
provision under the Company's charter documents or the laws of its state of
incorporation that is or could reasonably be expected to become applicable
to
any of the Purchasers as a result of the Purchasers and the Company fulfilling
their obligations or exercising their rights under the Transaction Documents,
including without limitation the Company's issuance of the Securities and the
Purchasers' ownership of the Securities.
-14-
(ff) Disclosure.
The
Company confirms that neither it nor any Person acting on its behalf has
provided any Purchaser or its respective agents or counsel with any information
that constitutes or might constitute material, non-public information except
insofar as the existence, provisions and terms of the Transaction Documents
and
the proposed transactions hereunder may constitute such information. The Company
understands and confirms that the Purchasers will rely on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, furnished by or on behalf of the Company
in the Transaction Documents (including the Company’s representations and
warranties set forth in this Agreement) are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit
to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(gg) Manipulation
of Price.
The
Company has not, and to its Knowledge no Person acting on its behalf has, (i)
taken, directly or indirectly, any action designed to cause or to result in
the
stabilization or manipulation of the price of any Company security to facilitate
the sale or resale of any such securities, (ii) sold, bid for, purchased, or,
paid any compensation for soliciting purchases of, any of the Company
securities, or (iii) paid or agreed to pay to any Person any compensation for
soliciting another to purchaser any Company securities.
(hh) No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers
formerly or presently employed by the Company, and the Company is current with
respect to any fees owed to its accountants and lawyers.
Each
Purchaser acknowledges and agrees that the Company has not made or does not
make
any representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.1.
3.2 Representations
and Warranties of the Purchasers.
Each
Purchaser hereby, for itself and for no other Purchaser, represents and warrants
to the Company as follows:
(a) Organization;
Authority.
Such
Purchaser is an entity duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization with the requisite
corporate or partnership power and authority to enter into and to consummate
the
transactions contemplated by the applicable Transaction Documents and otherwise
to carry out its obligations hereunder and thereunder. The execution, delivery
and performance by such Purchaser of the transactions contemplated by this
Agreement has been duly authorized by all necessary corporate and shareholder
or, if such Purchaser is not a corporation, such partnership and partner,
limited liability company and member or other applicable like action, on the
part of such Purchaser and no further action is required by such Purchaser
or
its board or directors, shareholders, partners or members, as applicable. Each
of this Agreement and the Registration Rights Agreement has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance with
terms
hereof, will constitute the valid and legally binding obligation of such
Purchaser, 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.
-15-
(b) Investment
Intent.
Such
Purchaser understands that the Securities are “restricted securities” and have
not been registered under the Securities Act or any applicable state securities
law and is acquiring the Securities and, upon exercise of the Warrants will
acquire the Warrant Shares issuable upon exercise thereof, as principal for
its
own account for investment purposes only and not with a view to or for
distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of
this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities or Warrant Shares
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws. Subject to the immediately preceding
sentence, nothing contained herein shall be deemed a representation or warranty
by such Purchaser to hold the Securities for any period of time. Such Purchaser
is acquiring the Securities hereunder in the ordinary course of its business.
Such Purchaser does not have any agreement, plan or understanding, directly
or
indirectly, with any Person to distribute any of the Securities.
(c) Purchaser
Status.
At the
time such Purchaser was offered the Securities, it was, and at the date hereof
it is, and on each date on which it exercises the Warrants it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities Act. Such
Purchaser is not a registered broker-dealer under Section 15 of the Exchange
Act.
(d) Experience
of Such Purchaser.
Such
Purchaser, 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 the prospective investment
in the Securities, and has so evaluated the merits and risks of such investment.
Such Purchaser is able to bear the economic risk of an investment in the
Securities and, at the present time, is able to afford a complete loss of such
investment.
(e) Access
to Information.
Such
Purchaser acknowledges that it reviewed the Disclosure Materials and has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning
the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information (other than material
non-public information) about the Company and the Subsidiaries and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment;
and
(iii) the opportunity to obtain such additional information that the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the
investment. Neither such inquiries nor any other investigation conducted by
or
on behalf of such Purchaser or its representatives or counsel shall modify,
amend or affect such Purchaser's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations
and
warranties contained in the Transaction Documents.
-16-
(f) Residency.
Such
Purchaser has, if an entity, its principal place of business or, if an
individual, its primary residence in the jurisdiction set forth immediately
below such Purchaser’s name on the signature pages hereto.
(g) Certain
Trading Activities.
Since
the earlier to occur of (1) the time that such Purchaser was first contacted
by
the Company, or any other Person regarding an investment in the Company and
(2)
the 10th
day
prior to the date of this Agreement, neither the Purchaser nor any Affiliate
of
such Purchaser which (x) had knowledge of the transactions contemplated hereby,
(y) has or shares discretion relating to such Purchaser’s investments or trading
or information concerning such Purchaser’s investments, including in respect of
the Securities, or (z) is subject to such Purchaser’s review or input concerning
such Affiliate’s investments or trading (collectively, “Trading
Affiliates”)
has
directly or indirectly, nor has any Person acting on behalf of or pursuant
to
any understanding with such Purchaser or Trading Affiliate, effected or agreed
to effect any transactions in the securities of the Company (including, without
limitation, any Short Sales involving the Company’s securities), except for the
transactions contemplated by this Agreement. Prior to the Effective Date,
such
Purchaser shall
not, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any Short Sales in the securities of the Company, except in
compliance with all applicable law. Each Purchaser agrees that it will not
use
any of the Shares or Warrant Shares acquired pursuant to this Agreement to
cover
any short position in the Common Stock if doing so would be in violation of
applicable securities laws. Each Purchaser acknowledges that it is aware that
the Commission has published its position that covering a short position
established prior to effectiveness of a resale registration statement with
shares included in such registration statement would be a violation of Section
5
of the Securities Act.
(h) Brokers
and Finders.
No
Person will have, as a result of the transactions contemplated by this
Agreement, any valid right, interest or claim against or upon the Company,
or
any Purchaser for any commission, fee or other compensation pursuant to any
agreement, arrangement or understanding entered into by or on behalf of the
Purchaser.
(i) Limited
Ownership.
The
purchase by such Purchaser of the Securities issuable to it at the Closing
will
not result in such Purchaser (individually or together with other Person with
whom such Purchaser has identified, or will have identified, itself as part
of a
“group” in a public filing made with the Commission 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 Closing shall have occurred. Such
Purchaser does not presently intend to, alone or together with others, make
a
public filing with the Commission 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 Closing (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 Closing shall have
occurred.
(j) Independent
Investment Decision.
Such
Purchaser has independently evaluated the merits of its decision to purchase
Securities pursuant to the Transaction Documents, and such Purchaser confirms
that it has not relied on the advice of any other Purchaser’s business and/or
legal counsel in making such decision. Such Purchaser understands that nothing
in this Agreement or any other materials presented by or on behalf of the
Company to the Purchaser in connection with the purchase of the Securities
constitutes legal, tax or investment advice. Such Purchaser has consulted such
legal, tax and investment advisors as it, in its sole discretion, has deemed
necessary or appropriate in connection with its purchase of the Securities.
-17-
(k) Reliance
on Exemptions.
Such
Purchaser 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 Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings
of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the
Securities.
(l) No
Governmental Review.
Such
Purchaser 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.
(m) No
Conflicts.
The
execution, delivery and performance by such Purchaser of this Agreement and
the
Registration Rights Agreement and the consummation by such Purchaser of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the organizational documents of such Purchaser 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 Purchaser is a party, or (iii) result in a violation
of
any law, rule, regulation, order, judgment or decree applicable to such
Purchaser, 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 Purchaser to perform its obligations hereunder.
The
Company acknowledges and agrees that no Purchaser has made or makes any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.2.
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
4.1 (a) Compliance
with Laws.
Notwithstanding any other provision of this Article IV, each Purchaser covenants
that the Securities may only be disposed of pursuant to an effective
registration statement under, and in compliance with the requirements of, the
Securities Act, or pursuant to an available exemption from, or in a transaction
not subject to, the registration requirements of the Securities Act, and in
compliance with any applicable state and federal securities laws. In connection
with any transfer of the Securities other than pursuant to an effective
registration statement, pursuant to Rule 144(k) or in connection with a pledge
as contemplated in Section 4.1(b), except as otherwise provided herein, the
transferor will provide to the Company an opinion of counsel selected by the
transferor, which counsel and the form and substance of which opinion shall
be
reasonably satisfactory to the Company and its legal counsel, to the effect
that
such transfer does not require registration of such transferred Securities
under
the Securities Act.
-18-
(b) Legends.
Certificates evidencing the Securities will contain the following legend, until
such time as they are not required under Section 4.1(c):
NEITHER
THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS.
The
Company acknowledges and agrees that a Purchaser may from time to time pledge,
and/or grant a security interest in some or all of the legended Securities,
in
connection with applicable securities laws, pursuant to a bona fide margin
agreement in compliance with a bona fide margin loan. Such a pledge would not
be
subject to approval or consent of the Company and no legal opinion of legal
counsel to the pledgee, secured party or pledgor shall be required in connection
with the pledge, but such legal opinion shall be required in connection with
a
subsequent transfer or foreclosure following default by the Purchaser transferee
of the pledge. No notice shall be required of such pledge but Purchaser’s
transferee shall promptly notify the Company of the pledge. Each Purchaser
acknowledges that the Company shall not be responsible for any pledges relating
to, or the grant of any security interest in, any of the Securities or for
any
agreement, understanding or arrangement between any Purchaser and its pledgee
or
secured party. Provided that the Company is in compliance with the terms of
this
Section 4.1(b), the Company’s indemnification obligations pursuant to this
Agreement shall not extend to any Proceeding or Losses arising out of or related
to this Section 4.1(b).
(c) Removal
of Legends.
Certificates evidencing Securities shall not be required to contain such legend
or any other legend (i) while a registration statement (including the
Registration Statement) covering the resale of such Securities is effective
under the Securities Act, (ii) following any sale of such Securities pursuant
to
Rule 144 (assuming the transferor is not an affiliate of the Company), (iii)
if
such Securities are eligible for sale under Rule 144(k) (to the extent that
the
applicable Purchaser provides a certification or legal opinion to the Company
to
that effect), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including controlling judicial
interpretations and pronouncements issued by the Commission). The Company shall
cause its counsel to issue a standing legal opinion to the Transfer Agent
promptly after the Effective Date, if required by the Company’s transfer agent
to effect the removal of the legends hereunder. Any fees (with respect to the
transfer agent, counsel to the Company or otherwise) associated with the
issuance of such opinion or the removal of such legend shall be borne by the
Company. If any portion of the Warrant is exercised at a time when there is
an
effective registration statement to cover the resale of the Warrant Shares,
or
if such Warrant Shares may be sold under Rule 144(k), then such Warrant Shares
shall be issued free of all legends. Following the Effective Date or at such
earlier time as a legend is no longer required for certain Securities, the
Company will no later than three Trading Days following the delivery by a
Purchaser to the Company or the Transfer Agent (with notice to the Company)
of
(i) a legended certificate representing such Shares or Warrant Shares (endorsed
or with stock powers attached, signatures guaranteed, and otherwise in form
necessary to affect the reissuance and/or transfer) or (ii) an Exercise Notice
in the manner stated in the Warrants to affect the exercise of such Warrant
in
accordance with its terms and an opinion of counsel to the extent required
by
Section 4.1(a), deliver or cause to be delivered to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends. The Company may not make any notation on its records or give
instructions to the Transfer Agent that enlarge the restrictions on transfer
set
forth in this Section. If within three (3) Trading Days after the Company’s
receipt of a legended certificate representing such Securities (the
“Delivery
Date”),
the
Company shall fail to issue and deliver to such Purchaser a certificate
representing such Securities that is free from all restrictive and other
legends, and if on or after such Delivery Date the Purchaser purchases (in
an
open market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Purchaser of shares of Common Stock that the
Purchaser anticipated receiving from the Company without any restrictive legend
(a “Buy-In”),
then
the Company shall, within three (3) Trading Days after the Purchaser’s request
and in the Purchaser’s sole discretion, either (i) pay cash to the Purchaser in
an amount equal to the Purchaser’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the
“Buy-In
Price”),
at
which point the Company’s obligation to deliver such certificate shall terminate
and such shares shall be cancelled, or (ii) promptly honor its obligation to
deliver to the Purchaser a certificate or certificates representing such number
of shares of Common Stock that would have been issued if the Company timely
complied with its obligations hereunder and pay cash to the Purchaser in an
amount equal to the excess (if any) of the Buy-In Price over the product of
(a)
such number of shares of Common Stock that the Company was required to deliver
to the Purchaser on the Delivery Date, times (b) the closing bid price of the
Common Stock on the Delivery Date.
-19-
(d) In
addition to the rights and remedies provided for in Section 4.1(c) regarding
failing to issue or deliver certificates, the Purchaser shall be entitled to
such other remedies at law and in equity as may be available including without
limitation specific performance and injunctive relief, and, in any event, the
Company shall pay to such Purchaser, in cash, as partial liquidated damages
and
not as a penalty, an amount equal to 1.0% of the aggregate Buy-In Price
(increasing to 2.0% of the aggregate Buy-In Price five Trading Days after such
damages have begun to accrue) of the securities that were required to be
delivered, for each Trading Day after the Delivery Date until all such
certificates have been received by such Purchaser. The amounts payable under
Sections 4.1(c) and (d) shall be payable by the Company to such Purchaser upon
Purchaser’s demand therefore, and shall accrue interest at the rate of 10% per
annum after such demand until paid.
4.2 Reservation
of Common Stock.
The
Company shall maintain a reserve from its duly authorized shares of Common
Stock
for issuance pursuant to the Transaction Documents in such amount as may be
required to fulfill its obligations in full under the Transaction Documents.
In
the event that at any time the then authorized shares of Common Stock are
insufficient for the Company to satisfy its obligations in full under the
Transaction Documents, the Company shall promptly take such actions as may
be
required to increase the number of authorized shares.
4.3 Furnishing
of Information.
As long
as any Purchaser owns the Securities, the Company covenants to timely file
(or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act. As long as any Purchaser owns Securities, if
the
Company is not required to file reports pursuant to such laws, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) such information as is required for the Purchasers to sell the
Shares and Warrant Shares under Rule 144. The Company further covenants that
it
will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person
to
sell the Shares and Warrant Shares without registration under the Securities
Act
within the limitation of the exemptions provided by Rule 144.
-20-
4.4 No
Integration.
The
Company shall not, and shall use its best efforts to ensure that no Affiliate
of
the Company shall, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in Section 2 of the Securities
Act) that will be integrated with the offer or sale of the Securities in a
manner that would require the registration under the Securities Act of the
sale
of the Securities to the Purchasers, or that will be integrated with the offer
or sale of the Securities for purposes of the rules and regulations of any
Trading Market.
4.5 Subsequent
Registrations.
Other
than pursuant to the Registration Statement, prior to the Effective Date, the
Company shall not file any registration statement (other than on Form S-8 or,
with the prior written consent of Purchasers, which consent shall not be
unreasonably withheld, conditioned or delayed, on Form S-4 in connection with
a
strategic acquisition by the Company) with the Commission with respect to any
securities of the Company.
4.6 Securities
Laws Disclosure; Publicity.
By 9:00
a.m. (New York City time) on the Trading Day immediately following the execution
of this Agreement and, if the Agreement is executed on a day other than the
Closing Date, then also by 9:00 a.m. (New York City time) on the Trading Day
following the Closing Date, the Company shall issue press releases disclosing
the transactions contemplated hereby and the Closing. On the second Trading
Day
following the execution of this Agreement, the Company will file a Current
Report on Form 8-K with the Commission describing the material terms of the
Transaction Documents (and including as exhibits to such Current Report on
Form
8-K the Transaction Documents), and on the second Trading Day following the
Closing Date, the Company will file an additional Current Report on Form 8-K
to
disclose the Closing. Thereafter, the Company shall timely file any filings
and
notices required by the Commission and the Trading Market on which the Common
Stock is listed. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser, or include the name of any Purchaser in
any
press release or filing with the Commission (other than the Registration
Statement) or any regulatory agency or Trading Market, without the prior written
consent of such Purchaser, except to the extent such disclosure is required
by
law or Trading Market regulations, in which case the Company shall promptly
provide the Purchasers with prior notice of such disclosure.
4.7 Indemnification.
(a) Indemnification
of Purchasers.
In
addition to the indemnity provided in the Registration Rights Agreement, the
Company will indemnify and hold the Purchasers and their directors, officers,
shareholders, partners, employees and agents (each, a “Purchaser
Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation (collectively, “Losses”)
that
any such Purchaser Party may suffer or incur as a result of or relating to
any
misrepresentation, breach or inaccuracy of any representation, warranty,
covenant or agreement made by the Company in any Transaction Document. In
addition to the indemnity contained herein, the Company will reimburse each
Purchaser Party for its reasonable legal and other expenses (including the
cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred. If and to the extent
that such indemnification is unenforceable for any reason, the Company shall
make the maximum contribution to the payment and satisfaction of such losses
permissible under applicable law.
-21-
(b) Conduct
of Indemnification Proceedings.
Promptly
after receipt by any Person (the “Indemnified
Person”)
of
notice of any demand, claim or circumstances which would or might give rise
to a
claim or the commencement of any action, proceeding or investigation in respect
of which indemnity may be sought pursuant to Section
4.7(a),
such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Person, and shall assume the payment of all
fees and expenses; provided,
however, that
the
failure of any Indemnified Person so to notify the Company shall not relieve
the
Company of its obligations hereunder except to the extent that the Company
is
actually and materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of
such Indemnified Person unless: (i) the Company and the Indemnified Person
shall
have mutually agreed to the retention of such counsel; or (ii) in the reasonable
judgment of counsel to such Indemnified Person representation of both parties
by
the same counsel would be inappropriate due to actual or potential differing
interests between them. The Company shall not be liable for any settlement
of
any proceeding effected without its written consent, which consent shall not
be
unreasonably withheld, delayed or conditioned, but if settled without such
consent, or if there is a final judgment for the plaintiff, the Company shall
indemnify and hold harmless such Indemnified Person from and against any Losses
by reason of such settlement or judgment. Without the prior written consent
of
the Indemnified Person, the Company shall not effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person
is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional release
of such Indemnified Person from all liability arising out of such
proceeding.
4.8 Non-Public
Information.
The
Company covenants and agrees that neither it nor any other Person acting on
its
behalf will provide or has provided any Purchaser or its agents or counsel
with
any information that the Company believes constitutes material non-public
information (other than the contemplated Transaction Documents and the
transactions contemplated thereby), unless prior thereto such Purchaser shall
have executed a written agreement regarding the confidentiality and use of
such
information. The Company understands and confirms that each Purchaser shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
4.9 Listing
of Securities.
Promptly following the date hereof, the Company shall take all necessary action
to cause the Shares and the Warrant Shares to be approved for trading on the
American Stock Exchange. Further, if the Company applies to have its Common
Stock or other securities listed on any other Trading Market, it shall include
in such application the Shares and the Warrant Shares and will take such other
action as is necessary to cause the Shares and the Warrant Shares to be listed
on such other Trading Market as promptly as practicable. The Company will use
commercially reasonable efforts to continue the listing and trading of its
Common Stock on a Trading Market and, in accordance, therewith, will use
commercially reasonable efforts to comply in all respects with the Company’s
reporting, filing and other obligations applicable to issuers whose securities
are listed on such Trading Market.
-22-
4.10 Use
of
Proceeds.
The
Company intends to use the net proceeds from the sale of the Securities
hereunder for working capital and general corporate purposes and to fund
strategic acquisitions by the Company; provided, however, such proceeds shall
not be used (x) to redeem any Common Stock or Common Stock Equivalents, (y)
to
settle any outstanding Proceeding, or (z) to pay any indebtedness for borrowed
money or amounts owing to any directors, officers, employees, consultants or
other Affiliates.
4.11 Lock-Up
Agreements.
The
Company will cause Xxxxx Xxxxxx and Xxxxxx Xxxxxxx to furnish to the Purchasers,
on or prior to the date of this Agreement, a letter or letters, in the form
attached hereto as Exhibit
E,
pursuant to which each such person shall agree not to, during the period ending
30 days after the Effective Date, without the prior written consent of the
Purchasers, directly or indirectly, (1) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock
or
any securities convertible into or exercisable or exchangeable for Common Stock;
or (2) enter into any swap or other arrangement that transfers to another,
in
whole or in part, any of the economic consequences of ownership of the Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock, whether any such transaction described in clause (1) or (2) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise.
ARTICLE
V.
CONDITIONS
PRECEDENT TO CLOSING
5.1 Conditions
Precedent to the Obligations of the Purchasers to Purchase
Securities.
The
obligation of each Purchaser to acquire Securities at the Closing is subject
to
the fulfillment to such Purchase’s satisfaction, on or prior to the Closing
Date, of each of the following conditions, any of which may be waived by such
Purchaser (as to itself only):
(a) Representations
and Warranties.
The
representations and warranties of the Company contained herein shall be true
and
correct in all material respects as of the date when made and as of the Closing
Date, as though made on and as of such date.
(b) Performance.
The
Company and each other Purchaser shall have performed, satisfied and complied
in
all material respects with all covenants, agreements and conditions required
by
the Transaction Documents to be performed, satisfied or complied with by it
at
or prior to the Closing.
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any
of
the transactions contemplated by the Transaction Documents.
-23-
(d) Consents. The
Company shall have obtained in a timely fashion any and all consents, permits,
approvals, registrations and waivers necessary or appropriate for consummation
of the purchase and sale of the Securities, and all of which shall be and remain
so long as necessary in full force and effect.
(e) Adverse
Changes.
Since
the date of execution of this Agreement, no event or series of events shall
have
occurred that reasonably could have or result in a Material Adverse Effect;
(f) No
Suspensions of Trading in Common Stock; Listing.
Trading
in the Common Stock shall not have been suspended by the Commission or any
Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding
the
Company) at any time since the date of execution of this Agreement, and the
Common Stock shall have been at all times since such date listed for trading
on
a Trading Market;
(g) Company
Deliverables.
The
Company shall have delivered the Company Deliverables in accordance with Section
2.2(a);
(h) Lock-Up
Agreements.
The
Company shall have delivered, or caused to be delivered, the letters referred
to
in Section 4.11, executed by Xxxxx Xxxxxx and Xxxxxx Xxxxxxx; and
(i) Compliance
Certificate.
The
Company shall have delivered to each Purchaser a certificate, dated as of the
Closing Date and signed by its Chief Executive Officer or its Chief Financial
Officer, dated as of the Closing Date, certifying to the fulfillment of the
conditions specified in Sections 5.1(a), (b), (c), (d) and (f).
5.2 Conditions
Precedent to the Obligations of the Company to sell Securities.
The
Company's obligation to sell and issue the Securities at the Closing is subject
to the fulfillment to the satisfaction of the Company on or prior to the Closing
Date of the following conditions, any of which may be waived by the
Company:
(a) Representations
and Warranties.
The
representations and warranties made by the Purchasers in Section
3.2
hereof
shall be true and correct in all material respects as of the date when made,
and
as of the Closing Date as though made on and as of such date.
(b) Performance.
The
Purchasers shall have performed, satisfied and complied in all material respects
with all covenants, agreements and conditions required by the Transaction
Documents to be performed, satisfied or complied with by the Purchasers at
or
prior to the Closing;
-24-
(c) No
Injunction.
No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction that prohibits the consummation of any
of
the transactions contemplated by the Transaction Documents; and
(d) Purchasers
Deliverables.
Each
Purchaser shall have delivered its Purchaser Deliverables in accordance with
Section 2.2(b).
ARTICLE
VI.
MISCELLANEOUS
6.1 Fees
and Expenses.
At
Closing, the Company shall reimburse the reasonable fees and expenses of the
Lead Investors in an amount of $15,000 in connection with the transactions
contemplated by this Agreement, which fees shall include, without limitation,
the fees and expenses associated with the negotiation, preparation and execution
and delivery of this Agreement and the other Transaction Documents and any
amendments, modifications or waivers thereto. The Company and the Purchasers
shall each pay the fees and expenses of their respective advisers, counsel,
accountants and other experts, if any and all other expenses incurred by such
party in connection with the negotiation, preparation, execution, delivery
and
performance of this Agreement. The Company shall pay all Transfer Agent fees,
stamp taxes and other taxes and duties levied in connection with the sale and
issuance of the Securities. Each party acknowledges that Xxxxxxxxxx Xxxxxxx
PC
has rendered legal advice to the Lead Investors, and not to such party in
connection with the transactions contemplated hereby, and that such party has
relied for such matters on the advice of its own respective
counsel.
6.2 Entire
Agreement.
The
Transaction Documents, together with the Exhibits and Schedules thereto, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersede all prior agreements, understandings, discussions and
representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules. At or after the Closing, and without further consideration, the
Company and the Purchasers will execute and deliver to the other such further
documents as may be reasonably requested in order to give practical effect
to
the intention of the parties under the Transaction Documents.
6.3 Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (a) the date of transmission, if such notice or communication
is delivered via facsimile or e-mail (provided the sender receives a
machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section prior to 5:00 p.m. (New York City time) on
a
Trading Day, (b) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number
specified in this Section on a day that is not a Trading Day or later than
5:00
p.m. (New York City time) on any Trading Day, (c) the Trading Day following
the
date of mailing, if sent by U.S. nationally recognized overnight courier
service, or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as
follows:
-25-
|
If to the Company:
|
Telkonet,
Inc.
|
00000
Xxxxxx Xxxxxxx Xxxxxxx
Xxxxxxxxxx,
Xxxxxxxx 00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
Attention:
Chief Financial Officer
| With a copy to: |
Xxxxx
& Xxxxxxxxx LLP
|
0000
Xxxxxxxxxxx Xxxxxx, XX
Xxxxx
0000
Xxxxxxxxxx,
X.X. 00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
Attention:
Xxxxxxx X. Xxxxx, Esq.
If
to a
Purchaser: To
the
address set forth under such Purchaser’s name on the signature
page hereof;
or
such
other address as may be designated in writing hereafter, in the same manner,
by
such Person.
6.4 Amendments;
Waivers; No Additional Consideration.
No
provision of this Agreement may be waived or amended except in a written
instrument signed, in the case of an amendment, by the Company and each of
the
Purchasers or, in the case of a waiver, by the party against whom enforcement
of
any such waiver is sought. No waiver of any default with respect to any
provision, condition or requirement of this Agreement shall be deemed to be
a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. No consideration shall be offered or
paid
to any Purchaser to amend or consent to a waiver or modification of any
provision of any Transaction Document unless the same consideration is also
offered to all Purchasers who then hold Shares.
6.5 Construction.
The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent, and no rules of strict
construction will be applied against any party. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden
of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction
Documents.
-26-
6.6 Successors
and Assigns.
The
provisions of this Agreement shall inure to the benefit of and be binding upon
the parties and their successors and permitted assigns. This Agreement, or
any
rights or obligations hereunder, may not be assigned by the Company without
the
prior written consent of the Purchasers. Any Purchaser may assign its rights
hereunder in whole or in part to any Person to whom such Purchaser assigns
or
transfers any Securities in compliance with this agreement and applicable law,
provided such transferee shall agree in writing to be bound, with respect to
the
transferred Securities, by the terms and conditions of this Agreement that
apply
to the “Purchasers”.
6.7 No
Third-Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person, except each Purchaser Party
is an intended third party beneficiary of Section 4.7 and may enforce the
provisions of such Section directly against the parties with obligations
thereunder .
6.8 Governing
Law.
All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by and construed and enforced in accordance
with the internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all Proceedings
concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether
brought against a party hereto or its respective Affiliates, employees or
agents) shall be commenced exclusively in the New York Courts. Each party hereto
hereby irrevocably submits to the exclusive jurisdiction of the New York Courts
for the adjudication of any dispute hereunder or in connection herewith or
with
any transaction contemplated hereby or discussed herein (including with respect
to the enforcement of the any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Proceeding, any claim that
it is not personally subject to the jurisdiction of any such New York Court,
or
that such Proceeding has been commenced in an improper or inconvenient forum.
Each party hereto hereby irrevocably waives personal service of process and
consents to process being served in any such Proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence
of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto hereby irrevocably waives, to the fullest extent permitted
by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence a Proceeding to enforce any provisions
of
a Transaction Document, then the prevailing party in such Proceeding shall
be
reimbursed by the other party for its reasonable attorney’s fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such Proceeding.
6.9 Survival.
Subject
to applicable statute of limitations, the representations, warranties,
agreements and covenants contained herein shall survive the Closing and the
delivery of the Securities.
-27-
6.10 Execution.
This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of
the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.
6.11 Severability.
If any
provision of this Agreement is held to be invalid or unenforceable in any
respect, the validity and enforceability of the remaining terms and provisions
of this Agreement shall not in any way be affected or impaired thereby and
the
parties will attempt to agree upon a valid and enforceable provision that is
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
6.12 Rescission
and Withdrawal Right. Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) the Transaction Documents, whenever any Purchaser exercises
a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions
and rights
6.13 Replacement
of Securities.
If any
certificate or instrument evidencing any Securities is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
the execution by the holder thereof of a customary lost certificate affidavit
of
that fact and an agreement to indemnify and hold harmless the Company for any
reasonable losses in connection therewith. The applicants for a new certificate
or instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Securities. If a
replacement certificate or instrument evidencing any Securities is requested
due
to a mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.
6.14 Remedies.
In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, each of the Purchasers and the Company
will
be entitled to specific performance under the Transaction Documents. The parties
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance
of
any such obligation (other than in connection with any action for a temporary
restraining order) the defense that a remedy at law would be
adequate.
-28-
6.15 Payment
Set Aside.
To the
extent that the Company makes a payment or payments to any Purchaser pursuant
to
any Transaction Document or a Purchaser enforces or exercises its rights
thereunder, and such payment or payments or the proceeds of such enforcement
or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation,
any
bankruptcy law, state or federal law, common law or equitable cause of action),
then to the extent of any such restoration the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full
force
and effect as if such payment had not been made or such enforcement or setoff
had not occurred.
6.16 Independent
Nature of Purchasers' Obligations and Rights.
The
obligations of each Purchaser under any Transaction Document are several and
not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. The decision of each Purchaser to
purchase Securities pursuant to the Transaction Documents has been made by
such
Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary which
may
have been made or given by any other Purchaser or by any agent or employee
of
any other Purchaser, and no Purchaser and any of its agents or employees shall
have any liability to any other Purchaser (or any other Person) relating to
or
arising from any such information, materials, statement or opinions. Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as
a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or
as
a group with respect to such obligations or the transactions contemplated by
the
Transaction Documents. Each Purchaser acknowledges that no other Purchaser
has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Securities or enforcing its
rights under the Transaction Documents. Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation
the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose. The Company acknowledges
that each of the Purchasers has been provided with the same Transaction
Documents for the purpose of closing a transaction with multiple Purchasers
and
not because it was required or requested to do so by any Purchaser. The
Company’s obligations to each Purchaser under this Agreement are identical to
its obligations to each other Purchaser other than such differences resulting
solely from the number of Securities purchased by such Purchaser, but regardless
of whether such obligations are memorialized herein or in another agreement
between the Company and a Purchaser.
[Signatures
on next page]
-29-
IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as
of
the date first indicated above.
TELKONET,
INC.
By:_______________________________________
Name:
Title:
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE
PAGES FOR PURCHASERS FOLLOW]
-30-
NAME
OF PURCHASER
By:_____________________________________
Name:
Title:
Subscription
Amount $______________
Tax
ID
No. _______________________
ADDRESS
FOR NOTICE
c/o:_____________________________________
Street:___________________________________
City/State/Zip:_____________________________
Attention:________________________________
Telephone
No.:____________________________
Facsimile
No.:_____________________________
Deliver
Instructions
(if
different than above)
c/o
_______________________________
Street:
____________________________
City/State/Zip:
_______________________
Attention:
___________________________
Tel
No.:
____________________________
-31-
Exhibit
A
FORM
OF WARRANT
-32-
Exhibit
B
FORM
OF REGISTRATION RIGHTS AGREEMENT
-33-
INSTRUCTION
SHEET FOR PURCHASER
(to
be
read in conjunction with the entire
A. Complete
the following items in the Securities Purchase Agreement:
1. Complete
and execute the Purchaser Signature Page. The Agreement must be executed by
an
individual authorized to bind the Purchaser.
2. Exhibit
D-1 - Stock Certificate Questionnaire:
Provide
the information requested by the Stock Certificate Questionnaire;
3. Exhibit
D-2 - Purchaser Certificate:
Provide
the information requested by the Certificate for Corporate, Partnership, Trust,
Foundation and Joint Purchasers, as applicable.
4. Return,
via facsimile, the signed Securities Purchase Agreement including the properly
completed Exhibits D-1 and D-2, to:
Xxxxx
& Xxxxxxxxx LLP
0000
Xxxxxxxxxxx Xxxxxx, XX
Xxxxx
0000
Xxxxxxxxxx,
X.X. 00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
Attention:
Xxxxxxx X. Xxxxx, Esq.
5. After
completing instruction number five (5) above, deliver the original signed
Securities Purchase Agreement including the properly completed Exhibits D-1
and
D-2 to:
Xxxxx
& Xxxxxxxxx LLP
0000
Xxxxxxxxxxx Xxxxxx, XX
Xxxxx
0000
Xxxxxxxxxx,
X.X. 00000
Telephone
No.: (000) 000-0000
Facsimile
No.: (000) 000-0000
Attention:
Xxxxxxx X. Xxxxx, Esq.
|
B.
|
Instructions
regarding the transfer of funds for the purchase of Shares will be
telecopied to the Purchaser by the Company at a later
date.
|
-34-
|
C.
|
Upon
the resale of any Shares by the Purchaser after the Registration
Statement
covering any Shares is effective, as described in the Purchase Agreement,
the Purchaser
must deliver a current prospectus, and annual and quarterly reports
of the
Company to the buyer.
|
-35-
Exhibit
C
OPINION
OF COMPANY COUNSEL
1. The
Company is a corporation duly incorporated and validly existing under, and
by
virtue of, the laws of the State of Utah and is in good standing under such
laws. The Company has requisite corporate power to own and operate its
properties and assets, and to carry on its business as presently conducted.
The
Company is qualified to do business as a foreign corporation in the state of
Maryland.
2. The
Company has all requisite legal and corporate power to execute and deliver
the
Agreement, to sell and issue the Common Stock and the Warrants under the
Agreement, to issue the Warrant Shares issuable upon exercise of the Warrants
and to carry out and perform its obligations under the terms of the Agreement.
3. The
shares of Common Stock have been duly authorized and when issued, delivered
and
paid for in accordance with the terms of the Agreement, will be validly issued,
fully paid and nonassessable. The Warrants have been duly authorized and when
issued, delivered and paid for in accordance with the terms of the Agreement,
will be validly issued. The Warrant Shares have been duly and validly reserved,
and, when issued in accordance with the terms of the Agreement, the Warrant
and
the Company’s Certificate of Incorporation, will be validly issued, fully paid
and nonassessable.
4. All
corporate action on the part of the Company necessary for the authorization,
execution and delivery of the Agreement by the Company, the authorization,
sale,
issuance and delivery of the Common Stock, the Warrants and the Warrant Shares
and the performance by the Company of its obligations under the Agreement has
been taken. The Agreement has been duly and validly executed and delivered
by
the Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
5. The
execution and delivery by the Company of the Agreement, the performance by
the
Company of its obligations under the Agreement, and the issuance of the Common
Stock and the Warrants do not violate any provision of the Certificate of
Incorporation or Bylaws, or any provision of the Utah Corporations Law, any
applicable federal or Maryland state law, or rule or regulation known to us
to
be customarily applicable to transactions of this nature. The execution and
delivery by the Company of the Agreement, the performance by the Company of
its
obligations under the Agreement, and the issuance of the Common Stock, the
Warrants and the Warrant Shares do not violate, or constitute a default under,
any contract or agreement filed as an exhibit to the Company’s Form 10-K for the
fiscal year ended December 31, 2005 or the Company’s Form 10-Q for the fiscal
quarters ended March 31, 2006, June 30, 2006 and September 30, 2006 with the
Securities and Exchange Commission pursuant to Item 601(b)(10) of Regulation
S-K
to which the Company is a party or by which the Company is bound.
6. Except
as
identified in the Agreement, to our knowledge, there are no actions, suits,
proceedings or investigations pending against the Company or its properties
before any court or governmental agency nor, to our knowledge, has the Company
received any written threat thereof.
-36-
7. No
consent, approval or authorization of or designation, declaration or filing
with
any governmental authority on the part of the Company is required in connection
with the valid execution and delivery of the Agreement, the offer, sale or
issuance of the Common Stock or the Warrants or the consummation by the Company
of any other transaction contemplated by the Agreement except the filing of
a
Form D pursuant to Regulation D under the Securities Act of 1933, as
amended.
8. Subject
to the accuracy of the Investors’ representations in Section 3.2 of the
Agreement, the offer, sale and issuance of the Common Stock and the Warrants
in
conformity with the terms of the Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended.
-37-
Exhibit
D-1
Telkonet,
Inc.
STOCK
CERTIFICATE QUESTIONNAIRE
Please
provide us with the following information:
|
1.
|
The
exact name that the Shares are to be registered in (this is the name
that
will appear on the stock certificate(s)). You may use a nominee name
if
appropriate:
|
|
|
2.
|
The
relationship between the Purchaser of the Shares and the Registered
Holder
listed in response to item 1 above:
|
|
|
3.
|
The
mailing address, telephone and telecopy number of the Registered
Holder
listed in response to item 1 above:
|
|
|
4.
|
The
Tax Identification Number of the Registered Holder listed in response
to
item 1 above:
|
-38-
Exhibit
D-2
Telkonet,
Inc.
CERTIFICATE
FOR CORPORATE, PARTNERSHIP,
TRUST,
FOUNDATION AND JOINT PURCHASERS
If
the
investor is a corporation, partnership, trust, pension plan, foundation, joint
purchaser (other than a married couple) or other entity, an authorized officer,
partner, or trustee must complete, date and sign this Certificate.
CERTIFICATE
The
undersigned certifies that the representations and responses below are true
and
accurate:
(a) The
investor has been duly formed and is validly existing and has full power and
authority to invest in the Company. The person signing on behalf of the
undersigned has the authority to execute and deliver the Securities Purchase
Agreement on behalf of the Purchaser and to take other actions with respect
thereto.
(b) Indicate
the form of entity of the undersigned:
____ Limited
Partnership
____ General
Partnership
____ Corporation
____RevocableTrust
(identify each grantor and indicate under what circumstances the trust is
revocable by the grantor):
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
(Continue
on a separate piece of paper, if necessary.)
____ Other
type of Trust (indicate type of trust and, for trusts other than pension trusts,
name the grantors and beneficiaries):
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
(Continue
on a separate piece of paper, if necessary.)
____ Other
form of organization (indicate form of organization
___________________________________________________________________________________________________________
-39-
(c) Indicate
the approximate date the undersigned entity was
formed:_____________________________.
(d) In
order
for the Company to offer and sell the Shares in conformance with state and
federal securities laws, the following information must be obtained regarding
your investor status. Please initial
each category
applicable to you as an investor in the Company.
| ___ |
1. A
bank as defined in Section 3(a)(2) of the Securities Act, or any
savings
and loan association or other institution as defined in Section 3(a)(5)(A)
of the Securities Act whether acting in its individual or fiduciary
capacity;
|
| ___ |
2. A
broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934;
|
| ___ |
3. An
insurance company as defined in Section 2(13) of the Securities
Act;
|
| ___ |
4. An
investment company registered under the Investment Company Act of
1940 or
a business development company as defined in Section 2(a)(48) of
that
Act;
|
| ___ |
5. A
Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958;
|
| ___ |
6. A
plan established and maintained by a state, its political subdivisions,
or
any agency or instrumentality of a state or its political subdivisions,
for the benefit of its employees, if such plan has total assets in
excess
of $5,000,000;
|
| ___ |
7. An
employee benefit plan within the meaning of the Employee Retirement
Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either
a
bank, savings and loan association, insurance company, or registered
investment advisor, or if the employee benefit plan has total assets
in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited
investors;
|
| ___ |
8. A
private business development company as defined in Section 202(a)(22)
of
the Investment Advisers Act of
1940;
|
| ___ |
9. An
organization described in Section 501(c)(3) of the Internal Revenue
Code,
corporation, Massachusetts or similar business trust, or partnership,
not
formed for the specific purpose of acquiring the Shares, with total
assets
in excess of $5,000,000;
|
-40-
| ___ |
10. A
trust, with total assets in excess of $5,000,000, not formed for
the
specific purpose of acquiring the Shares, whose purchase is directed
by a
sophisticated person as described in Rule 506(b)(2)(ii) of the Exchange
Act;
|
| ___ |
11. An
entity in which all
of
the equity owners qualify under any of the above subparagraphs. If
the
undersigned belongs to this investor category only, list the equity
owners
of the undersigned, and the investor category which each such equity
owner
satisfies:
|
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
(Continue
on a separate piece of paper, if necessary.)
Please
set forth in the space provided below the (i) states, if any, in the U.S. in
which you maintained your principal office during the past two years and the
dates during which you maintained your office in each state, (ii) state(s),
if
any, in which you are incorporated or otherwise organized and (iii) state(s),
if
any, in which you pay income taxes.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
Dated:___________________,
2007
_____________________________
Name
of
investor
__________________________________________
Signature
and title of authorized officer, partner or trustee
-41-
Exhibit
E
FORM
OF LOCK-UP AGREEMENT
February
1, 2007
The
Purchasers Identified on the
Signature Pages
to
the
Purchase Agreement (as defined below):
Ladies
and Gentlemen:
The
undersigned understands that you propose to enter into a Securities Purchase
Agreement (the “Purchase Agreement”) with Telkonet, Inc. (the “Company”)
providing for the offering (the “Offering”) by the Company of shares (the
“Shares”) of common stock, par value $0.001 per share (the “Common Stock”), and
warrants to acquire additional shares of Common Stock (the “Warrants” and,
together with the Shares and the shares of Common Stock issuable upon exercise
of the Warrants, the “Securities”).
To
induce
you to enter into the Purchase Agreement, the undersigned agrees that, without
your prior written consent, the undersigned will not, directly or indirectly,
(1) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock; or (2) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, during
the period specified in the following paragraph (the “Lock-Up Period”).
The
Lock-Up Period will commence on the date hereof and will continue until, and
include, the date that is thirty (30) days after the date of effectiveness
of a
registration statement filed with the Securities and Exchange Commission
covering the resale of the Securities (the “Lock-Up Period”).
Notwithstanding
the foregoing, the undersigned may transfer any or all of the Common Stock
or
other Company securities if the transfer is by gift, will or intestacy;
provided,
however,
that it
shall be a condition to the transfer that the transferee execute an agreement
stating that the transferee is receiving and holding the securities subject
to
the provisions of this Lock-Up Agreement.
In
addition, the undersigned hereby waives any and all notice requirements and
rights with respect to registration of securities pursuant to any agreement,
understanding or otherwise setting forth the terms of any security of the
Company held by the undersigned, including any registration rights agreement
to
which the undersigned and the Company may be party; provided
that
such waiver shall apply only to the proposed Offering, and any other action
taken by the Company in connection with the proposed Offering.
The
undersigned hereby agrees that, to the extent that the terms of this Lock-Up
Agreement conflict with or are in any way inconsistent with any registration
rights agreement to which the undersigned and the Company may be a party, this
Lock-Up Agreement supersedes such registration rights agreement.
-42-
The
undersigned hereby represents and warrants that the undersigned has full power
and authority to enter into this Lock-Up Agreement. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of
the
undersigned and any obligations of the undersigned shall be binding upon the
heirs, personal representatives, successors and assigns of the
undersigned.
|
Signature:
________________________________
Print
Name:
______________________________
|
|
|
|
|
|
Number
of shares owned
subject
to warrants, options
or
convertible securities:
_______________________
_______________________
_______________________
|
Certificate
numbers:
_______________________
_______________________
_______________________
|
-43-
