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Exhibit 10.1
 
SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of August 4,
2010, by and among Telkonet, Inc., a Utah corporation (the “Company”), and each
purchaser identified on the signature pages hereto (each, including its
successors and assigns, a “Purchaser” and collectively, the “Purchasers”).
 
RECITALS
 
A. The Company and each Purchaser is 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 (the “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) that aggregate number of shares of the Company’s Series B Preferred Stock,
par value $0.001 per share (the “Series B Preferred Stock”), set forth below
such Purchaser’s name on the signature page of this Agreement (which aggregate
amount for all Purchasers together shall be 267 shares of Series B Preferred
Stock and shall be 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 shares of Common Stock equal to the
quotient resulting from dividing (A) the product of twenty-five percent (25%)
multiplied by the Subscription Amount for such Purchaser by (B) the Warrant
Exercise Price, rounded up to the nearest whole share (the shares of Common
Stock issuable upon exercise of or otherwise pursuant to the Warrants
collectively are referred to herein as the “Warrant Shares”).  The Shares shall
be convertible into shares of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) (the shares of Common Stock issuable upon conversion
of the Shares collectively are referred to herein as the “Conversion Shares”),
and shall have the rights, preferences and restrictions set forth in the
Articles of Amendment of the Amended and Restated Articles of Incorporation of
the Company, in the form attached hereto as Exhibit B (the “Articles of
Amendment”).

C. In addition to selling Shares and Warrants as set forth in the foregoing
Recital, the Company wishes to issue as a commitment fee to each of the
Purchasers, upon the terms and conditions stated in this Agreement, an
additional Warrant to each of the Purchasers, to acquire up to that number of
Warrant Shares equal to the quotient resulting from dividing (A) the product of
twenty-five percent (25%) multiplied by the Subscription Amount for such
Purchaser by (B) the Warrant Exercise Price, rounded up to the nearest whole
share.

D. The Shares, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the “Securities”.

E.  Contemporaneously with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit C (the “Registration Rights
Agreement”), pursuant to which, among other things, the Company will agree to
provide certain registration rights with respect to the Conversion Shares and
the Warrant Shares under the Securities Act and the rules and regulations
promulgated thereunder and applicable state securities laws.

 
 

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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 hereby
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:
 
“Action” means any action, suit, inquiry, notice of violation, proceeding
(including any partial proceeding such as a deposition) or investigation pending
or, to the Company’s Knowledge, threatened in writing against the Company, any
Subsidiary or any of their respective properties or any officer, director or
employee of the Company or any Subsidiary acting in his or her capacity as an
officer, director or employee before or by any federal, state, county, local or
foreign court, arbitrator, governmental or administrative agency, regulatory
authority, stock market, stock exchange or trading facility.
 
 “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, as such terms are used in and
construed under Rule 405 under the Securities Act.  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.
 
“Agreement” has the meaning set forth in the Preamble.
 
“Articles of Amendment” has the meaning set forth in the Recitals.
 
“Board of Directors ” means the board of directors of the Company.
 
“Business Day” means any day except Saturday, Sunday, any day which is a federal
legal holiday in the United States or any day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.
 
“Closing” means the Initial Closing and the Subsequent Closings unless otherwise
specified.
 
“Commission” has the meaning set forth in the Recitals.
 

 
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“Common Stock” has the meaning set forth in the Recitals, and also includes any
other class of securities into which the Common Stock may hereafter be
reclassified or changed into.
 
“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” has the meaning set forth in the Preamble.
 
“Company Deliverables” has the meaning set forth in Section 2.2(a).

“Company’s Knowledge” means with respect to any statement made to the Company’s
Knowledge, that the statement is based upon the actual knowledge of the
executive officers of the Company 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.
 
“Conversion Shares” has the meaning set forth in the Recitals.
 
“Disclosure Materials” has the meaning set forth in Section 3.1(h).
 
“Disclosure Schedules” has the meaning set forth in Section 3.1.
 
 “Environmental Laws” has the meaning set forth in Section 3.1(cc).
 
“Escrow Agent” has the meaning set forth in Section 2.1(c).

“Escrow Amount” the meaning set forth in Section 2.1(c).
 
“Evaluation Date” has the meaning set forth in Section 3.1(t).
 
“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.
 
“General Counsel” means Howard J. Barr, the General Counsel of the Company.
 

 
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“Initial Closing” means the initial closing of the purchase and sale of the
Shares and the Warrants pursuant to this Agreement.
 
“Initial Closing Date” means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all of the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are
satisfied or waived, as the case may be, or such other date as the parties may
agree.
 
“Intellectual Property Rights” has the meaning set forth in Section 3.1(p).
 
“Lien” means any lien, charge, claim, encumbrance, security interest, right of
first refusal, preemptive right or other restrictions of any kind.
  
“Material Adverse Effect” means a material adverse effect on the results of
operations, assets, prospects, business or financial condition of the Company
and the Subsidiaries, taken as a whole, except that any of the following, either
alone or in combination, shall not be deemed a Material Adverse Effect:
(i) effects caused by changes or circumstances affecting general market
conditions in the U.S. economy or which are generally applicable to the industry
in which the Company operates, provided that such effects are not borne
disproportionately by the Company, (ii) effects resulting from or relating to
the announcement or disclosure of the sale of the Securities or other
transactions contemplated by this Agreement, or (iii) effects caused by any
event, occurrence or condition resulting from or relating to the taking of any
action in accordance with this Agreement.
 
“Material Contract” means any contract of the Company that has been filed or was
required to have been filed as an exhibit to the SEC Reports pursuant to Item
601(b)(4) or Item 601(b)(10) of Regulation S-K.

“Material Permits” has the meaning set forth in Section 3.1(n).
 
“New York Courts” means the state and federal courts sitting in the City of New
York, Borough of Manhattan.
 
“Outside Date” means August 11, 2010.
 
“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.
 
“Principal Trading Market” means the Trading Market on which the Common Stock is
primarily listed on and quoted for trading.
 

 
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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.
 
 “Purchase Price” means $5,000 per share of Series B Preferred Stock.
 
“Purchaser” or “Purchasers” has the meaning set forth in the Recitals.
 
“Purchaser Deliverables” has the meaning set forth in Section 2.2(b).
 
“Registration Rights Agreement” has the meaning set forth in the Recitals.
 
“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).
 
“Regulation D” has the meaning set forth in the Recitals.
 
“Required Approvals” has the meaning set forth in Section 3.1(e).
 
 “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” has means the Securities and Exchange Commission.
 
“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)(viii).
 
“Securities Act” has the meaning set forth in the Recitals.
 
“Series B Preferred Stock” has the meaning set forth in the Recitals.
 
“Shares” has the meaning set forth in the Recitals.
 
“Short Sales” include, without limitation, (i) all “short sales” as defined in
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 (ii) sales and other
transactions through non-U.S. broker dealers or foreign regulated brokers (but
shall not be deemed to include the location and/or reservation of borrowable
shares of Common Stock).
 
“Stock Certificates” has the meaning set forth in Section 2.2(a)(ii).
 

 
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“Subscription Amount” means, with respect to each Purchaser, the aggregate
amount to be paid for the Shares and the related Warrants purchased hereunder as
indicated on such Purchaser’s signature page to this Agreement next to the
heading “Aggregate Purchase Price (Subscription Amount)” in United States
dollars and in immediately available funds.
 
 “Subsequent Closing” and “Subsequent Closings” have the meanings set forth in
Section 2.1(b).

“Subsequent Closing Date” means the Trading Day when all of the Transaction
Documents have been executed and delivered by the applicable parties thereto,
and all of the conditions set forth in Sections 5A.1 and 5A.2 hereof are
satisfied or waived, as the case may be, or such other date as the parties may
agree which date(s) shall be no later than the Outside Date.
 
“Subsidiary” means any subsidiary of the Company as set forth on Schedule
3.1(a), and shall, where applicable, include any subsidiary of the Company
formed or acquired after the date hereof.
 
“Trading Affiliate” has the meaning set forth in Section 3.2(h).
 
“Trading Day” means (i) a day on which the Common Stock is listed or quoted and
traded on its Principal 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 in the “pink sheets”
by Pink Sheets LLC (or any similar organization or agency succeeding to its
functions of reporting prices); provided, that in the event that the Common
Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then
Trading Day shall mean a Business Day.
  
“Trading Market” means whichever of the New York Stock Exchange, NYSE Amex, the
NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market
or the 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 explicitly contemplated hereunder.
 
“Transfer Agent” means StockTrans, the current transfer agent of the Company,
with a mailing address of 44 West Lancaster Avenue, Ardmore, Pennsylvania 19003,
and a facsimile number of 610-649-7302, or any successor transfer agent for the
Company.
 
“Warrants” has the meaning set forth in the Recitals to this Agreement.
 
“Warrant Exercise Price” has the meaning set forth in Section 2.1(a).
 

 
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“Warrant Shares” has the meaning set forth in the Recitals.
 
ARTICLE II.
PURCHASE AND SALE
 
2.1 Closing.
 
(a) Amount.  Subject to the terms and conditions set forth in this Agreement, at
the Initial Closing or a Subsequent Closing, as applicable, the Company shall
issue and sell to each Purchaser, and each Purchaser shall, severally and not
jointly, purchase from the Company, such number of shares of Series B Preferred
Stock equal to the quotient resulting from dividing (i) the Subscription Amount
for such Purchaser by (ii) the Purchase Price, rounded down to the nearest whole
Share.  In addition, (A) each Purchaser shall receive a Warrant to purchase a
number of Warrant Shares equal to the quotient resulting from dividing (I) the
product of twenty-five percent (25%) multiplied by the Subscription Amount for
such Purchaser by (II) the Warrant Exercise Price, rounded up to the nearest
whole share, as indicated below such Purchaser’s name on the signature page to
this Agreement and (B) each Purchaser shall receive an additional Warrant to
purchase a number of Warrant Shares equal to the quotient resulting from
dividing (I) the product of twenty-five percent (25%) multiplied by the
Subscription Amount for such Purchaser by (II) the Warrant Exercise Price,
rounded up to the nearest whole share, as indicated below such Purchaser’s name
on the signature page to this Agreement. The Warrants shall have an exercise
price equal to the greater of (i) the closing bid price of a share of Common
Stock on August 4. 2010 or (ii) the volume-weighted average price of a share of
Common Stock measured over the 30-day period immediately preceding August 4,
2010, per Warrant Share (the “Warrant Exercise Price”).
 
(b) Initial Closing; Subsequent Closings.  The Initial Closing of the purchase
and sale of the Shares shall take place at the offices of the Company on the
Initial Closing Date or at such other locations or remotely by facsimile
transmission or other electronic means as the parties may mutually agree.  In
the event there is more than one closing (each such closing after the Initial
Closing, a “Subsequent Closing” and collectively, the “Subsequent Closings”),
the term “Closing” shall apply to the Initial Closing and the Subsequent
Closings unless otherwise specified.
  
(c) Form of Payment.  Except as may otherwise be agreed to among the Company and
one or more of the Purchasers, on or prior to the Business Day immediately prior
to the Initial Closing Date or a Subsequent Closing Date, as applicable, each
Purchaser shall wire its Subscription Amount, in United States dollars and in
immediately available funds, to a non-interest bearing escrow account
established by the Company with JPMorgan Chase Bank, N.A.  (the “Escrow Agent”)
as set forth on Exhibit H hereto (the aggregate amounts received being held in
escrow by the Escrow Agent are referred to herein as the “Escrow Amount”).  On
the Initial Closing Date or a Subsequent Closing Date, as applicable, (i) the
Company shall instruct the Escrow Agent to deliver, in immediately available
funds, the applicable portion of the Escrow Amount to the Company, (ii) the
Company shall irrevocably instruct the Transfer Agent to deliver to each
Purchaser 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 the number of Shares such Purchaser is purchasing as is set forth on
such Purchaser’s signature page to this Agreement next to the heading “Number of
Shares to be Acquired”, within three (3) Trading Days after the Initial Closing
or such Subsequent Closing, as applicable, and (iii) the Company shall deliver
to (A) each Purchaser one or more Warrants, free and clear of all restrictive
and other legends (except as expressly provided in Section 4.1(b) hereof),
evidencing the number of Warrants such Purchaser is purchasing as is set forth
on such Purchaser’s signature page to this Agreement next to the heading
“Underlying Shares Subject to Warrant” and (B) each Purchaser one or more
Warrants, free and clear of all restrictive and other legends (except as
expressly provided in Section 4.1(b) hereof), evidencing the number of Warrants
as is set forth on such Purchaser’s signature page to this Agreement next to the
heading “Underlying Shares Subject to Additional Warrant,” within three (3)
Trading Days after the Initial Closing or such Subsequent Closing, as
applicable.
 

 
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2.2 Closing Deliveries.    (a)  On or prior to the Initial 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) facsimile copies of one or more stock certificates evidencing the Shares
subscribed for by such Purchaser hereunder, registered in the name of such
Purchaser as set forth on the Stock Certificate Questionnaire included as
Exhibit D-2 hereto (the “Stock Certificate”), with the original Stock
Certificates delivered within three (3) Trading Days of the Initial Closing or
such Subsequent Closing, as applicable;
 
(iii) (A) facsimile copies of one or more Warrants, executed by the Company and
registered in the name of such Purchaser as set forth on the Stock Certificate
Questionnaire included as Exhibit D-2 hereto, pursuant to which such Purchaser
shall have the right to acquire such number of Warrant Shares equal to the
quotient resulting from dividing (I) the product of twenty-five percent (25%)
multiplied by the Subscription Amount for such Purchaser by (II) the Warrant
Exercise Price, rounded up to the nearest whole share, and (B) facsimile copies
of one or more additional Warrants, executed by the Company and registered in
the name of such Purchaser as set forth on the Stock Certificate Questionnaire
included as Exhibit D-2 hereto, pursuant to which such Purchaser shall have the
right to acquire such number of Warrant Shares equal to the quotient resulting
from dividing (I) the product of twenty-five percent (25%) multiplied by the
Subscription Amount for such Purchaser by (II) the Warrant Exercise Price,
rounded up to the nearest whole share, on the terms set forth therein, with the
original Warrants delivered within three (3) Trading Days of the Initial Closing
or such Subsequent Closing, as applicable;

(iv) The Company shall have received a waiver and consent, the form and
substance of which shall be reasonably satisfactory to the Purchasers, from the
purchasers party with the Company to that certain Securities Purchase Agreement
dated as of November 16, 2009 to this Agreement and the transactions
contemplated hereby;

  

 
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(v) a legal opinion of General Counsel, dated as of the Initial Closing Date and
in the form attached hereto as Exhibit E, executed by such counsel and addressed
to the Purchasers;
 
(vi) the Registration Rights Agreement, duly executed by the Company;
 
(vii) a certificate of the Secretary of the Company (the “Secretary’s
Certificate”), dated as of the Initial Closing Date, (a) certifying the
resolutions adopted by the Board of Directors of the Company or a duly
authorized committee thereof approving the transactions contemplated by this
Agreement and the other Transaction Documents and the issuance of the
Securities, (b) certifying the current versions of the certificate or articles
of incorporation, as amended by the Articles of Amendment, and by-laws of the
Company and (c) certifying as to the signatures and authority of persons signing
the Transaction Documents and related documents on behalf of the Company, in the
form attached hereto as Exhibit G;
 
(viii) the Compliance Certificate referred to in Section 5.1(h);
 
(ix) a certificate evidencing the formation and good standing of the Company
issued by the Secretary of State (or comparable office) of the State of Utah, as
of a date within three (3) Business Days of the Initial Closing Date;
 
(x) a certificate evidencing the Company’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) of each jurisdiction in which the Company is qualified to do business as
a foreign corporation, as of a date within three (3) Business Days of the
Initial Closing Date;
 
(xi) a copy of the Articles of Amendment, as filed with the Secretary of State
(or comparable office) of the State of Utah; and
 
(b) On or prior to the Initial Closing and in the case of 2.2(b)(ii) pursuant to
Section 2.1(c), 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, in the amount set forth as the “Purchase Price” indicated below
such Purchaser’s name on the applicable signature page hereto under the heading
“Aggregate Purchase Price (Subscription Amount)” by wire transfer to the Escrow
Account, as set forth on Exhibit H attached hereto; provided, however, in the
event such Purchaser is acquiring Shares and Warrants at a Subsequent Closing,
such Purchaser shall deliver its Subscription Amount on the applicable
Subsequent Closing Date.
 
(iii) the Registration Rights Agreement, duly executed by such Purchaser;
 

 
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(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,
satisfactory to the Company, 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.  Except (i) as set forth in
the schedules delivered herewith (the “Disclosure Schedules”), which Disclosure
Schedules shall be deemed a part hereof and shall qualify any representation
made herein to the extent of the disclosure contained in the corresponding
section of the Disclosure Schedules, or (ii) disclosed in the SEC Reports, the
Company hereby represents and warrants as of the date hereof and the Initial
Closing Date (except for the representations and warranties that speak as of a
specific date, which shall be made as of such date), to each of the Purchasers:
 
(a) Subsidiaries.  The Company has no direct or indirect Subsidiaries other than
those listed in Schedule 3.1(a) hereto.  Except as disclosed in Schedule 3.1(a)
hereto, 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 to subscribe for or
purchase securities.
 
(b) Organization and Qualification.  The Company and each of its Subsidiaries is
an entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite corporate power and authority to own or
lease and use its properties and assets and to carry on its business as
currently conducted.  The Company and each of its Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would not
have or reasonably be expected to result in a Material Adverse Effect, and no
Proceeding has been instituted in any such jurisdiction revoking, limiting or
curtailing or seeking to revoke, limit or curtail such power and authority or
qualification.
 
(c) Authorization; Enforcement; Validity.  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 Company’s
execution and delivery of each of the Transaction Documents to which it is a
party 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 reservation for issuance and the  subsequent issuance of
the Conversion Shares upon the conversion of the Shares and 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 in
connection therewith other than in connection with the Required Approvals.  Each
of the Transaction Documents to which it is a party has been (or upon delivery
will have been) duly executed by the Company and is, or when delivered in
accordance with the terms hereof, will constitute the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) 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, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies and (iii) insofar as indemnification and
contribution provisions may be limited by applicable law.
 

 
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(d) No Conflicts.  The execution, delivery and performance by the Company of the
Transaction Documents to which it is a party and the consummation by the Company
of the transactions contemplated hereby or thereby (including, without
limitation, the issuance of the Shares and Warrants and the reservation for
issuance and issuance of the Conversion Shares and the Warrant Shares) do not
and will not (i) conflict with or violate any provisions of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or otherwise
result in a violation of the organizational documents of the Company, (ii)
conflict with, or constitute a default (or an event that with notice or lapse of
time or both would result in a default) under, result in the creation of any
Lien upon any of the properties or assets of the Company or any Subsidiary or
give to others any rights of termination, amendment, acceleration or
cancellation (with or without notice, lapse of time or both) of, any Material
Contract, or (iii) subject to the Required Approvals, conflict with or result in
a violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company or
a Subsidiary is subject (including federal and state securities laws and
regulations 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 in the case of clauses
(ii) and (iii) such as would not, individually or in the aggregate,
have  or  reasonably be expected to result in a Material Adverse Effect.
 
(e) Filings, Consents and Approvals.  Neither the Company nor any of its
Subsidiaries is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents (including the issuance of the Securities), other than (i)
the waivers and consents required in accordance with Section 2.2(a)(iv) of this
Agreement, (ii) 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, (iv) the
filing of a Notice of Sale of Securities on Form D with the Commission under
Regulation D of the Securities Act, (v) the filing of any requisite notices
and/or application(s) to the Principal Trading Market for the issuance and sale
of the Securities and the listing of the Conversion Shares and the Warrant
Shares for trading or quotation, as the case may be, thereon in the time and
manner required thereby, (vi) the filings required in accordance with Section
4.5 of this Agreement and (vii) those that have been made or obtained prior to
the date of this Agreement (collectively, the “Required Approvals”).
 

 
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(f) Issuance of the Securities.  The 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 and 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.  The Conversion Shares issuable upon
conversion of the 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.  The Warrants 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, 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. The Warrant Shares issuable upon exercise of the
Warrants have been duly authorized and, when issued and paid for in accordance
with the terms of the Transaction Documents and the Warrants 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.
 
(g) 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 set forth in Schedule 3.1(g) hereto.  The
Company has not issued any capital stock since the date of its most recently
filed SEC Report other than (i) to reflect stock option and warrant exercises
that do not, individually or in the aggregate, have a material affect on the
issued and outstanding capital stock, options and other securities and (ii)
issuances of capital stock to certain of the Company’s current and former
members of the Company’s Board of Directors in satisfaction of fees owed in
connection with service on the Board of Directors as described in Schedule
3.1(g) hereto.   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 that have not been effectively waived
as of the Initial Closing Date. Except as set forth in Schedule 3.1(g) hereto or
a result of the purchase and sale of the Shares and Warrants, there are no
outstanding options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exercisable or exchangeable for, or giving any
Person any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional shares of Common Stock
or Common Stock Equivalents. The issuance and sale of the Shares and Warrants
will not 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 any of such securities. All of the outstanding
shares of capital stock of the Company are validly issued, fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities. No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities. There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the Company’s Knowledge, between or among any of the
Company’s stockholders.
 

 
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(h) SEC Reports; Disclosure Materials.  The Company has filed all reports,
schedules, forms, statements and other documents 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 or regulation to file such material) (the foregoing
materials, including the exhibits thereto and documents incorporated by
reference therein, being collectively referred to herein as the “SEC Reports”,
and the SEC Reports, together with the Disclosure Schedules, being collectively
referred to as 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 filing 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. The Company has
never been an issuer subject to Rule 144(i) under the Securities Act.  Each of
the Material Contracts to which the Company or any Subsidiary is a party or to
which the property or assets of the Company or any of its Subsidiaries are
subject has been filed as an exhibit to the SEC Reports.
 
(i) 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 taken as a
whole as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial year-end audit adjustments.
 

 
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(j) Material Changes.  Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof, (i) there have been no
events, occurrences or developments that have had or would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect, (ii) the Company has not incurred any material liabilities (contingent
or otherwise) other than (A) trade payables and accrued expenses incurred in the
ordinary course of business consistent with past practice and (B) liabilities
not required to be reflected in the Company's financial statements pursuant to
GAAP or disclosed in filings made with the Commission, (iii) the Company has not
altered materially its method of accounting or the manner in which it keeps its
accounting books and records, (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 or
issued pursuant to existing Company stock option or stock purchase plans or
executive and director compensation arrangements disclosed in the SEC Reports.
Except for the issuance of the Shares and Warrants contemplated by this
Agreement, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made that has not been publicly disclosed at least one (1)
Trading Day prior to the date that this representation is made.
 
(k) Litigation.  Except as set forth in Schedule 3.1(k) hereto, there is no
Action which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
except as specifically disclosed in the SEC Reports, would, if there were an
unfavorable decision, individually or in the aggregate, have or reasonably be
expected to result in a Material Adverse Effect.
 
(l) Employment Matters.  No material labor dispute exists or, to the Company’s
Knowledge, is imminent with respect to any of the employees of the Company which
would have or reasonably be expected to result in a Material Adverse
Effect.  None of the Company’s or any Subsidiary’s employees is a member of a
union that relates to such employee’s relationship with the Company, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and each Subsidiary believes that its relationship
with its employees is good.
 
(m) Compliance.  Except as set forth in Schedule 3.1(m) hereto, neither the
Company nor any of its Subsidiaries (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 of its
Subsidiaries under), nor has the Company or any of its Subsidiaries received
written notice of a claim that it is in default under or that it is in violation
of, any Material Contract (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 in violation of, or in receipt of written notice that it is
in violation of, any statute, rule or regulation of any governmental authority
applicable to the Company, except in each case as would not, individually or in
the aggregate, have or reasonably be expected to result in a Material Adverse
Effect.
  
(n) Regulatory Permits. The Company and each of its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct its
respective business as currently conducted and as described in the SEC Reports,
except where the failure to possess such permits, individually or in the
aggregate, has not and would not have or reasonably be expected to result in a
Material Adverse Effect (“Material Permits”), and neither the Company nor any of
its Subsidiaries has received any notice of Proceedings relating to the
revocation or modification of any such Material Permits.
 

 
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(o) Title to Assets.  All real property and facilities held under lease by the
Company and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
 
(p) Patents and Trademarks.  To the Company’s Knowledge, the Company and the
Subsidiaries own, possess, license or have other rights to use, all patents,
patent applications, trade and service marks, trade and service mark
applications and registrations, trade names, trade secrets, inventions,
copyrights, licenses, technology, know-how and other intellectual property
rights and similar rights described in the SEC Reports as necessary or material
for use in connection with their respective businesses and which the failure to
so have would have or reasonably be expected to result in a Material Adverse
Effect (collectively, the “ Intellectual Property Rights”).  Neither the Company
nor any Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person.  Except as set forth in Schedule 3.1(p)
hereto, there is no pending or, to the Company’s Knowledge, threatened action,
suit, proceeding or claim by any Person that the Company’s business as now
conducted infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of another.  To the Company’s
Knowledge, there is no existing infringement by another Person of any of the
Intellectual Property Rights that would have or would reasonably be expected to
have a Material Adverse Effect. The Company and its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of all of their Intellectual Property Rights, except where failure to do so
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
 
(q) Insurance.  The Company and each of the Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in such
amounts as the Company believes to be prudent and customary in the businesses
and locations in which the Company and the Subsidiaries are engaged, including,
but not limited to, directors and officers insurance coverage.  Neither the
Company nor any of its Subsidiaries has received any notice of cancellation of
any such insurance, nor, to the Company’s Knowledge, will it or any Subsidiary
be unable to renew their respective existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.
 
(r) Transactions with Affiliates and Employees.  Except as set forth in the SEC
Reports, 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 (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.
 

 
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(s) Internal Accounting Controls.  The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset and liability accountability, (iii) access to assets or incurrence of
liabilities is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets and
liabilities is compared with the existing assets and liabilities at reasonable
intervals and appropriate action is taken with respect to any differences.
 
(t) Sarbanes-Oxley; Disclosure Controls.  Except as set forth in the SEC
Reports, the Company is in compliance in all material respects with all of the
provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of
the Initial Closing Date. The Company has established disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) for the Company and designed such disclosure controls and
procedures to ensure that information required to be disclosed by the Company in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report 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, there have been no changes in the Company’s internal control
over financial reporting (as such term is defined in the Exchange Act) that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
 
(u) Certain Fees.   Other than the fees and expenses set forth in Section 6.1
hereof or as set forth in Schedule 3.1(u) hereto, no person or entity will have,
as a result of the transactions contemplated by this Agreement, any valid right,
interest or claim against or upon the Company or a Purchaser for any commission,
fee or other compensation pursuant to any agreement, arrangement or
understanding entered into by or on behalf of the Company. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this
paragraph (u) that may be due in connection with the transactions contemplated
by the Transaction Documents.  The Company shall indemnify, pay, and hold each
Purchaser harmless against, any liability, loss or expense (including, without
limitation, attorneys’ fees and out-of-pocket expenses) arising in connection
with any such right, interest or claim.
 
(v) Private Placement. Assuming the accuracy of the Purchasers’ representations
and warranties set forth in Section 3.2 of this Agreement and the accuracy of
the information disclosed in the Accredited Investor Questionnaires provided by
the Purchasers, no registration under the Securities Act is required for the
offer and sale of the Securities by the Company to the Purchasers under the
Transaction Documents. The issuance and sale of the Securities hereunder does
not contravene the rules and regulations of the Trading Market.
 

 
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(w) Investment Company.  The Company is not, and immediately after receipt of
payment for the Shares and Warrants, will not be or be an “investment company”
within the meaning of the Investment Company Act of 1940, as amended. The
Company shall conduct its business in a manner so that it will not become
subject to the Investment Company Act of 1940, as amended.
 
(x) Registration Rights.  Other than each of the Purchasers or as set forth in
Schedule 3.1(x) hereto, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the Company other
than those securities which are currently registered on an effective
registration statement on file with the Commission.
 
(y) Listing and Maintenance Requirements.  Other than as set forth in Schedule
3.1(y) hereto, the Company’s Common Stock is registered pursuant to Section
12(b) or 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.  Other than as set forth in Schedule 3.1(y)
hereto, the Company has not, in the twelve (12) months preceding the date
hereof, received written notice from any Trading Market on which the Common
Stock is listed or quoted to the effect that the Company is not in compliance
with the listing or maintenance requirements of such Trading Market.  Other than
as set forth in Schedule 3.1(y) hereto, the Company is in compliance with all
listing and maintenance requirements of the Principal Trading Market on the date
hereof.
 
(z) Application of Takeover Protections; Rights Agreements.  The Company and the
Board of Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company's 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.
 
(aa) No Integrated Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, none of the Company,
its Subsidiaries nor, to the Company’s Knowledge, any of its Affiliates or any
Person acting on its behalf has, directly or indirectly, at any time within the
past six (6) 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 on which any of the securities of the
Company are listed or designated.
 

 
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(bb) Tax Matters.  Other than as set forth in Schedule 3.1(bb) hereto, the
Company and each of 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 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 provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply, except, in the case of clauses (i) and (ii) above, where the
failure to so pay or file any such tax, assessment, charge or return would not
have or reasonably be expected to result in a Material Adverse Effect.  There
are no unpaid taxes in any material amount claimed to be due by the Company or
any of its Subsidiaries by the taxing authority of any jurisdiction.
 
(cc) Environmental Matters.  To the Company’s Knowledge, neither the Company nor
any of its Subsidiaries (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, or (iv) is subject
to any claim relating to any Environmental Laws; which violation, contamination,
liability or claim has had or would have, individually or in the aggregate, a
Material Adverse Effect.
 
(dd) No General Solicitation. Neither the Company nor, to the Company’s
Knowledge, any person acting on behalf of the Company has offered or sold any of
the Securities by any form of general solicitation or general advertising.
 
(ee) Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company
acknowledges and agrees that each of the Purchasers is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated hereby and thereby.  The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Securities. The Company
further represents to each Purchaser that the Company’s decision to enter into
this Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
 

 
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(ff) Regulation M Compliance.  The Company has not, and to the Company’s
Knowledge no one 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 security of the Company to facilitate the sale or resale of
any of the Securities, (ii) sold, bid for, purchased, or paid any compensation
for soliciting purchases of, any of the Securities or (iii) paid or agreed to
pay to any Person any compensation for soliciting another to purchase any other
securities of the Company.
 
(gg) No Additional Agreements.  The Company does not have any agreement or
understanding with any Purchaser with respect to the transactions contemplated
by the Transaction Documents other than as specified in the Transaction
Documents.
  
3.2 Representations and Warranties of the Purchasers.  Each Purchaser hereby,
for itself and for no other Purchaser, represents and warrants as of the date
hereof and as of the Initial Closing Date 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 and delivery of this Agreement by such Purchaser and
performance by such Purchaser of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate or, if such Purchaser is
not a corporation, such partnership, limited liability company or other
applicable like action, on the part of such Purchaser.  Each Transaction
document to which it is a party has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the 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.
 
(b) 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, (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 (including
federal and state securities laws) 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.
 

 
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(c) 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 Shares and, upon
conversion of the Shares, will acquire the Conversion Shares issuable upon
conversion thereof, and Warrants and, upon exercise of the Warrants, will
acquire the Warrant Shares issuable upon exercise thereof as principal for its
own account and not with a view to, or for distributing or reselling such
Securities or any part thereof in violation of the Securities Act or any
applicable state securities laws, provided, however, that by making the
representations herein, such Purchaser does not agree to hold any of the
Securities for any minimum period of time and reserves the 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 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.  Such Purchaser is acquiring the Securities hereunder in
the ordinary course of its business. Such Purchaser does not presently have any
agreement, plan or understanding, directly or indirectly, with any Person to
distribute or effect any distribution of any of the Securities (or any
securities which are derivatives thereof) to or through any person or entity;
such Purchaser is not a registered broker-dealer under Section 15 of the
Exchange Act or an entity engaged in a business that would require it to be so
registered as a broker-dealer.
 
(d) Purchaser Status.  At the time such Purchaser was offered the Shares and
Warrants, 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.
 
(e) General Solicitation.  Such Purchaser is not purchasing the Securities as a
result of any advertisement, article, notice or other communication regarding
the Securities published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general advertisement.
 
(f) 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.
 
(g) Access to Information.  Such Purchaser acknowledges that it has had the
opportunity to review 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 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.  Such Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed decision with respect to its acquisition of the Securities.
 

 
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(h) Certain Trading Activities.  Other than with respect to the transactions
contemplated herein, since the time that such Purchaser was first contacted by
the Company or any other Person regarding the transactions contemplated hereby,
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, and (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 purchases or sales of the securities of the Company (including,
without limitation, any Short Sales involving the Company’s securities).
Notwithstanding the foregoing, in the case of a Purchaser and/or Trading
Affiliate that is, individually or collectively, a multi-managed investment bank
or vehicle whereby separate portfolio managers manage separate portions of such
Purchaser's or Trading Affiliate’s assets and the portfolio managers have no
direct knowledge of the investment decisions made by the portfolio managers
managing other portions of such Purchaser's or Trading Affiliate’s assets, the
representation set forth above shall apply only with respect to the portion of
assets managed by the portfolio manager that have knowledge about the financing
transaction contemplated by this Agreement.  Other than to other Persons party
to this Agreement, such Purchaser has maintained the confidentiality of all
disclosures made to it in connection with this transaction (including the
existence and terms of this transaction). Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
short sales or similar transactions in the future.
 
(i) 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.
 
(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.
 

 
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(k) Reliance on Exemptions.  Such Purchaser understands that the Securities
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,
acknowledgements 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) Regulation M. Such Purchaser is aware that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of Common Stock and other
activities with respect to the Common Stock by the Purchasers.
 
(n) Residency.  Such Purchaser’s residence (if an individual) or offices in
which its investment decision with respect to the Securities was made (if an
entity) are located at the address immediately below such Purchaser’s name on
its signature page hereto.
 
The Company and each of the Purchasers acknowledge and agree that no party to
this Agreement has made or makes any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in this Article III and the Transaction Documents.
 
ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1 Transfer Restrictions.
 
(a) Compliance with Laws.  Notwithstanding any other provision of this Article
IV, each Purchaser covenants that the Securities may be disposed of only
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
(i) pursuant to an effective registration statement, (ii) to the Company  or
(iii) pursuant to Rule 144 (provided that the Purchaser provides the Company
with reasonable assurances (in the form of seller and, if applicable, broker
representation letters) that the securities may be sold pursuant to such rule),
the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor and reasonably acceptable to the
Company, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.  As a
condition of transfer, any such transferee shall agree in writing to be bound by
the terms of this Agreement and the Registration Rights Agreement and shall have
the rights of a Purchaser under this Agreement and the Registration Rights
Agreement with respect to such transferred Securities.
 

 
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(b) Legends.  Certificates evidencing the Securities shall bear any legend as
required by the “blue sky” laws of any state and a restrictive legend in
substantially the following form, 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] [THESE SECURITIES HAVE NOT BEEN REGISTERED]
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR
APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) 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 AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 UNDER THE SECURITIES ACT.  NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
 
(c) Removal of Legends.  The legend set forth in Section 4.1(b) above shall be
removed and the Company shall issue a certificate without such legend or any
other legend to the holder of the applicable Securities upon which it is
stamped, if (i) such Securities are registered for resale under the Securities
Act, (ii) such Securities are sold or transferred pursuant to Rule 144 (if the
transferor is not an Affiliate of the Company), or (iii) such Securities are
eligible for sale under Rule 144, without the requirement for the Company to be
in compliance with the current public information required under Rule 144 as to
such securities and without volume or manner-of-sale restrictions.

4.2      Reservation of Common Stock.  The Company shall take all commercially
reasonable action necessary to at all times have authorized, and reserved for
the purpose of issuance from and after the Initial Closing Date, the number of
shares of Common Stock issuable upon conversion of the Shares and exercise of
the Warrants issued at the Closing (without taking into account any limitations
on exercise of the Warrants set forth in the Warrants).
 
4.3 Furnishing of Information.  In order to enable the Purchasers to sell the
Securities under Rule 144, for a period of twelve (12) months from the Initial
Closing, the Company shall use its commercially reasonable efforts 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. During such twelve (12) month period, if
the Company is not required to file reports pursuant to the Exchange Act, 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 Securities under Rule 144.
 

 
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4.4 Integration.  The Company shall not, and shall use its commercially
reasonable 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 such that it
would require stockholder approval prior to the closing of such other
transaction unless stockholder approval is obtained before the closing of such
subsequent transaction.
 
4.5 Securities Laws Disclosure; Publicity.  By 9:00 A.M., New York City time, on
the Trading Day immediately following the date hereof, the Company shall issue a
press release disclosing all material terms of the transactions contemplated
hereby.  On or before 9:00 A.M., New York City time, on the second (2nd) Trading
Day immediately following the execution of this Agreement, the Company will file
a Current Report on Form 8-K with the Commission describing the terms of the
Transaction Documents (and including as exhibits to such Current Report on Form
8-K the material Transaction Documents (including, without limitation, this
Agreement, the form of Warrant and the Registration Rights Agreement)).   Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are required
to be publicly disclosed by the Company as described in this Section 4.5, such
Purchaser will maintain the confidentiality of all disclosures made to it in
connection with this transaction (including the existence and terms of this
transaction).
 
4.6 Use of Proceeds.  The Company shall use the net proceeds from the sale of
the Shares and Warrants hereunder for working capital and general corporate
purposes, including but not limited to inventory procurement, repayment of
outstanding indebtedness  and the satisfaction of judgments.
 
4.7 Principal Trading Market Listing.  In the time and manner required by the
Principal Trading Market, the Company shall prepare and file with such Principal
Trading Market an additional shares listing application, if any, covering all of
the Conversion Shares and Warrant Shares and shall use its commercially
reasonable efforts, if any, to take all steps necessary to cause all of the
Conversion Shares and Warrant Shares to be approved for listing on the Principal
Trading Market as promptly as possible thereafter.     
 
4.8 Form D; Blue Sky.  The Company agrees to timely file a Form D with respect
to the Securities as required under Regulation D and to provide a copy thereof,
promptly upon the written request of any Purchaser.  The Company, on or before
the Initial Closing Date, shall take such action as the Company shall reasonably
determine is necessary in order to obtain an exemption for or to qualify the
Securities for sale to the Purchasers under applicable securities or “Blue Sky”
laws of the states of the United States (or to obtain an exemption from such
qualification) and shall provide evidence of such actions promptly upon the
written request of any Purchaser.
 

 
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4.9 Delivery of Shares and Warrants After Closing. The Company shall deliver, or
cause to be delivered, the respective Shares and Warrants purchased by each
Purchaser to such Purchaser within three (3) Trading Days of the Initial Closing
or such Subsequent Closing, as applicable.
 
4.10 Short Sales and Confidentiality After The Date Hereof.  Each Purchaser
shall not, and shall cause its Trading Affiliates not to, engage, directly or
indirectly, in any Net Short Sales (as hereinafter defined) from the period
commencing on the date hereof and ending on the earliest of (x) the twenty-four
(24) month anniversary of the Initial Closing Date or (y) the date that such
Purchaser no longer holds any Securities.  For purposes of this Section 4.10, a
“Net Short Sale” by any Purchaser shall mean a sale of Common Stock by such
Purchaser that is marked as a short sale and that is made at a time when there
is no equivalent offsetting long position in Common Stock held by such
Purchaser.  For purposes of determining whether there is an equivalent
offsetting position in Common Stock held by the Purchaser, Warrant Shares that
have not yet been issued pursuant to the exercise of Warrants shall be deemed to
be held long by the Purchaser, and the amount of shares of Common Stock held in
a long position shall be all Conversion Shares and unexercised Warrant Shares
(ignoring any exercise limitations included therein) issuable to such Purchaser
on such date, plus any shares of Common Stock or Common Stock Equivalents
otherwise then held by such Purchaser.  Notwithstanding the foregoing, in the
event that a Purchaser is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser's assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser's assets, the
representation set forth above shall apply only with respect to the portion of
assets managed by the portfolio manager that have knowledge about the financing
transaction contemplated by this Agreement.  Each Purchaser understands and
acknowledges, severally and not jointly with any other Purchaser, that the
Commission currently takes the 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, as set forth in Item 65, Section 5 under Section A, of
the Manual of Publicly Available Telephone Interpretations, dated July 1997,
compiled by the Office of Chief Counsel, Division of Corporation Finance.
 
4.11 Increases in Authorized Shares. If at any time while the Series B Preferred
Stock or Warrants remain outstanding the Company does not have a sufficient
number of authorized and unreserved shares of Common Stock to satisfy its
obligations with respect to the Series B Preferred Stock or the Warrants, then
the Company shall use its commercially reasonable efforts to increase the
Company’s authorized shares of Common Stock to an amount sufficient to allow the
Company to satisfy its obligations with respect to the Series B Preferred Stock
or the Warrants.
 
4.12 Reserved

 
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4.13 Reserved.
 
4.14 Reserved.
 
4.15 Reserved. 

4.16 Reserved.
 
ARTICLE V.
CONDITIONS PRECEDENT TO THE INITIAL CLOSING

5.1 Conditions Precedent to the Obligations of the Purchasers to Purchase
Securities.  The obligation of each Purchaser to acquire Shares and Warrants at
the Initial Closing is subject to the fulfillment to such Purchaser’s
satisfaction, on or prior to the Initial 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
(except for those representations and warranties which are qualified as to
materiality, in which case such representations and warranties shall be true and
correct in all respects) as of the date when made and as of the Initial Closing
Date, as though made on and as of such date, except for such representations and
warranties that speak as of a specific date.
 
(b) Performance.  The Company 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 Initial 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.
 
(d) Consents.  The Company shall have obtained in a timely fashion any and all
consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Securities (including all Required
Approvals), 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 has had or would reasonably be
expected to have a Material Adverse Effect.
 
(f) Company Deliverables.  The Company shall have delivered the Company
Deliverables in accordance with Section 2.2(a).
 

 
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(g) Compliance Certificate.  The Company shall have delivered to each Purchaser
a certificate, dated as of the Initial Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, certifying to the fulfillment
of the conditions specified in Sections 5.1(a) and (b) in the form attached
hereto as Exhibit H.
 
(h) Termination.  This Agreement shall not have been terminated as to such
Purchaser in accordance with Section 6.16 herein.
 
5.2 Conditions Precedent to the Obligations of the Company to sell
Securities.  The Company’s obligation to sell and issue the Shares and Warrants
at the Initial Closing to the Purchasers is subject to the fulfillment to the
satisfaction of the Company on or prior to the Initial 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 (except for those representations and warranties which are qualified as
to materiality, in which case such representations and warranties shall be true
and correct in all respects) as of the date when made, and as of the Initial
Closing Date as though made on and as of such date, except for representations
and warranties that speak as of a specific date.
 
(b) Performance.  Such 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 such
Purchaser at or prior to the Initial Closing Date.
 
(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.
 
(d) Consents.  The Company shall have obtained in a timely fashion any and all
consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Securities, all of which shall be
and remain so long as necessary in full force and effect.
 
(e) Purchasers Deliverables.  In the case of each Purchaser acquiring Shares and
Warrants at the Initial Closing, such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).  In the case of each
Purchaser acquiring Shares and Warrants at a Subsequent Closing, such Purchaser
shall have delivered its Purchaser Deliverables in accordance with Section
2.2(b) (other than its Subscription Amount pursuant to Section 2.2(b)(ii) which
will be delivered on the applicable Subsequent Closing Date).
 
(f) Termination. This Agreement shall not have been terminated as to such
Purchaser in accordance with Section 6.16 herein.
 

 
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ARTICLE V.A.
CONDITIONS PRECEDENT TO SUBSEQUENT CLOSINGS

5A.1 Conditions Precedent to the Obligations of the Purchasers to Purchase
Securities.  The obligation of each Purchaser to acquire Shares and Warrants at
a Subsequent Closing is subject to the fulfillment to such Purchaser’s
satisfaction, on or prior to the applicable Subsequent Closing Date, of each of
the following conditions, any of which may be waived by such Purchaser (as to
itself only):

(a) Initial Closing.  The Initial Closing shall have occurred.

5A.2 Conditions Precedent to the Obligations of the Company to sell
Securities.  The Company’s obligation to sell and issue the Shares and Warrants
at a Subsequent Closing to the Purchasers is subject to the fulfillment to the
satisfaction of the Company on or prior to the applicable Subsequent Closing
Date of the following conditions, any of which may be waived by the Company:

(a) Initial Closing.  The Initial Closing shall have occurred.

(b) Purchaser Deliverables.  Such Purchaser shall have delivered its
Subscription Amount in accordance with Section 2.2(b)(ii).
  
ARTICLE VI.
MISCELLANEOUS
 
6.1 Fees and Expenses.  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.
 
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 (provided the sender receives
a machine-generated confirmation of successful transmission) at the facsimile
number specified in this Section 6.3 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 6.3 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 with next day delivery specified, 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:
 

 
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If to the Company:  
Telkonet, Inc.
10200 Innovation Drive
Suite 300
Milwaukee, WI 53226
Telephone No.: 414.223.0473
Facsimile No.: 414.258.8307
Attention: Jason Tienor
E-mail: jtienor@telkonet.com
       
With a copy to:
Telkonet, Inc.
10200 Innovation Drive
Suite 300
Milwaukee, WI 53226
Telephone No.: 240.912.1841
Facsimile No.: 414.258.8307
Attention: Howard J. Barr
E-mail: hbarr@telkonet.com
       
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, modified, supplemented or amended except in a written
instrument signed, in the case of an amendment, by the Company and the
Purchasers of at least a majority in interest of the Securities still held by
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 Securities.
 
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.
 

 
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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 each
Purchaser.  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 the Transaction Documents 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.
 
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 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.
 
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.
 

 
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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, or by e-mail delivery of a “.pdf” format data file, 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 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 and the Transfer Agent 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 and the
Transfer Agent for any losses in connection therewith or, if required by the
Transfer Agent, a bond in such form and amount as is required by the Transfer
Agent.  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.
 
6.13 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 agree 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.
 
6.14 Adjustments in Share Numbers and Prices. In the event of any stock split,
subdivision, dividend or distribution payable in shares of Common Stock (or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly shares of Common Stock), combination or other
similar recapitalization or event occurring after the date hereof and prior to
the Closing, each reference in any Transaction Document to a number of shares or
a price per share shall be deemed to be amended to appropriately account for
such event.
 

 
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6.15 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.  Each Purchaser has been
represented by its own separate legal counsel in its review and negotiation of
the Transaction Documents.  The Company has elected to provide all Purchasers
with the same terms and Transaction Documents for the convenience of the Company
and not because it was required or requested to do so by any Purchaser.
 
6.16 Termination. This Agreement may be terminated and the sale and purchase of
the Shares and the Warrants abandoned at any time prior to the Initial Closing
by either the Company or any Purchaser (with respect to itself only) upon
written notice to the other, if the Initial Closing has not been consummated on
or prior to 5:00 P.M., New York City time, on the Outside Date; provided,
however, that the right to terminate this Agreement under this Section 6.16
shall not be available to any Person whose failure to comply with its
obligations under this Agreement has been the cause of or resulted in the
failure of the Initial Closing to occur on or before such time.  Nothing in this
Section 6.16 shall be deemed to release any party from any liability for any
breach by such party of the terms and provisions of this Agreement or the other
Transaction Documents or to impair the right of any party to compel specific
performance by any other party of its obligations under this Agreement or the
other Transaction Documents.  In the event of a termination pursuant to this
Section 6.16, the Company shall promptly notify all non-terminating
Purchasers.  Upon a termination in accordance with this Section 6.16, the
Company and the terminating Purchaser(s) shall not have any further obligation
or liability (including arising from such termination) to the other, and no
Purchaser will have any liability to any other Purchaser under the Transaction
Documents as a result therefrom.

The Next Page is the Signature Page

 
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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:    /s/ Jason Tienor       
Name: Jason Tienor
Title: Chief Executive Officer
 

 
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SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT

 
 

 
NAME OF PURCHASER: ____________________________

By:                                                     
Name:
Title:

 
Aggregate Purchase Price (Subscription Amount): $_____________
 
Number of Shares to be Acquired: ______________________
 
Underlying Shares Subject to Warrant: ____________________
(25% of the number of Shares to be acquired)

Underlying Shares Subject to Additional Warrant:
(25% of the number of Shares to be acquired)
 

Tax ID No.: ____________________
 
Address for Notice:
 
__________________________________
__________________________________
__________________________________

Telephone No.:   _______________________

Facsimile No.:   ________________________

E-mail Address:   ________________________

Attention:  _______________________

 

 
Delivery Instructions:
(if different than above)

c/o  _______________________________

Street:   ____________________________

City/State/Zip: ______________________

Attention: __________________________

Telephone No.: ____________________________
 

 
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EXHIBITS:
 
A:
Form of Warrant
B:
Form of Articles of Amendment
C:
Form of Registration Rights Agreement
D-1:
Accredited Investor Questionnaire
D-2:
Stock Certificate Questionnaire
E:
Form of Opinion of General Counsel
F:
Form of Opinion of Secretary’s Certificate
G:
Form of  Officer’s Certificate
H:
Form of  Wire Instructions
   

SCHEDULES:
 
3.1(a) Subsidiaries
3.1(g) Capitalization
3.1(k) Litigation
3.1(m) Compliance
3.1(p) Patents and Trademarks
3.1(u) Certain Fees
3.1(x) Registration Rights – Will need to include the Series A shareholders
3.1(y) Listing and Maintenance Requirements
3.1(bb) Tax Matters
 
 
 
 
 
 
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