EXHIBIT 4.7
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 12,
2003, by and among FullCircle Registry, Inc., a Nevada corporation, with
headquarters located at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Company"), and each of the purchasers set forth on
the signature pages hereto (the "Buyers").
WHEREAS:
(a) The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
rules and regulations as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "1933 Act");
(b) Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement (i) 12% convertible
debentures of the Company, in the form attached hereto as Exhibit "A", in the
aggregate principal amount of Six Hundred Thousand Dollars ($600,000) (together
with any debenture(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof, the
"Debentures"), convertible into shares of common stock, par value $.001 per
share, of the Company (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in such Debentures and (ii) warrants, in
the form attached hereto as Exhibit "B", to purchase One Million Eight Hundred
Thousand (1,800,000) shares of Common Stock (the "Warrants").
(c) Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such principal amount of Debentures and number of Warrants as is
set forth immediately below its name on the signature pages hereto; and
(d) Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW, THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
(i) PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
(1) Purchase of Debentures and Warrants. On the Closing Date (as
defined below), the Company shall issue and sell to each Buyer and
each Buyer severally agrees to purchase from the Company such
principal amount of Debentures and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
(2) Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Debentures and the
Warrants to be issued and sold to it at the Closing (as defined below)
(the "Purchase Price") by wire transfer of immediately available funds
to the Company, in accordance with the Company's written wiring
instructions, against delivery of the Debentures in the principal
amount equal to the Purchase Price and the number of Warrants as is
set forth immediately below such Buyer's name on the signature pages
hereto, and (ii) the Company shall deliver such Debentures and
Warrants duly executed on behalf of the Company, to such Buyer,
against delivery of such Purchase Price.
(3) Closing Date. Subject to the satisfaction (or written waiver)
of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Debentures and the
Warrants pursuant to this Agreement (the "Closing Date") shall be
12:00 noon, Eastern Standard Time on February 12, 2003 or such other
mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at such location as may be agreed to by the parties.
(ii) BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
(1) Investment Purpose. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable
upon conversion of or otherwise pursuant to the Debentures
(including, without limitation, such additional shares of Common
Stock, if any, as are issuable (i) on account of interest on the
Debentures, (ii) as a result of the events described in Sections
1.3 and 1.4(g) of the Debentures and Section 2(c) of the
Registration Rights Agreement or (iii) in payment of the Standard
Liquidated Damages Amount (as defined in Section 2(f) below)
pursuant to this Agreement, such shares of Common Stock being
collectively referred to herein as the "Conversion Shares") and
the Warrants and the shares of Common Stock issuable upon
exercise thereof (the "Warrant Shares" and, collectively with the
Debentures, Warrants and Conversion Shares, the "Securities") for
its own account and not with a present view towards the public
sale or distribution thereof, except pursuant to sales registered
or exempted from registration under the 1933 Act; provided,
however, that by making the representations herein, the Buyer
does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
(2) Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D
(an "Accredited Investor").
(3) Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein
in order to determine the availability of such exemptions and the
eligibility of the Buyer to acquire the Securities.
(4) Information. The Buyer and its advisors, if any, have
been, and for so long as the Debentures and Warrants remain
outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been, and for so long as the
Debentures and Warrants remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company.
Notwithstanding the foregoing, the Company has not disclosed to
the Buyer any material nonpublic information and will not
disclose such information unless such information is disclosed to
the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to
rely on the Company's representations and warranties contained in
Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
(5) Governmental Review. The Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or
endorsement of the Securities.
(6) Transfer or Re-sale. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the sale
or re-sale of the Securities has not been and is not being
registered under the 1933 Act or any applicable state securities
laws, and the Securities may not be transferred unless (a) the
Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered
to the Company an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in
comparable transactions to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration, which opinion shall be accepted
by the Company, (c) the Securities are sold or transferred to an
"affiliate" (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) ("Rule 144")) of the Buyer who agrees
to sell or otherwise transfer the Securities only in accordance
with this Section 2(f) and who is an Accredited Investor, (d) the
Securities are sold pursuant to Rule 144, or (e) the Securities
are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) ("Regulation S"), and the Buyer shall have
delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in
corporate transactions, which opinion shall be accepted by the
Company; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said
Rule and further, if said Rule is not applicable, any re-sale of
such Securities under circumstances in which the seller (or the
person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the ▇▇▇▇ ▇▇▇) may require
compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither
the Company nor any other person is under any obligation to
register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or
anything else contained herein to the contrary, the Securities
may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement. In the event that
the Company does not accept the opinion of counsel provided by
the Buyer with respect to the transfer of Securities pursuant to
an exemption from registration, such as Rule 144 or Regulation S,
within three (3) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of
three percent (3%) of the outstanding amount of the Debentures
per month plus accrued and unpaid interest on the Debentures,
prorated for partial months, in cash or shares at the option of
the Buyer ("Standard Liquidated Damages Amount"). If the Buyer
elects to be paid the Standard Liquidated Damages Amount in
shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment.
(7) Legends. The Buyer understands that the Debentures and
the Warrants and, until such time as the Conversion Shares and
Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement or otherwise
may be sold pursuant to Rule 144 or Regulation S without any
restriction as to the number of securities as of a particular
date that can then be immediately sold, the Conversion Shares and
Warrant Shares may bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against
transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, that registration is
not required under said Act or unless sold pursuant to Rule 144 or
Regulation S under said Act."
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the 1933 Act, which opinion shall be accepted by the Company so that the
sale or transfer is effected or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144 or
Regulation S. The Buyer agrees to sell all Securities, including those
represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
(8) Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered
on behalf of the Buyer, and this Agreement constitutes, and upon
execution and delivery by the Buyer of the Registration Rights
Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their
terms.
(9) Residency. The Buyer is a resident of the jurisdiction
set forth immediately below such Buyer's name on the signature
pages hereto.
(iii) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
(1) Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and
other) to own, lease, use and operate its properties and to carry on its
business as and where now owned, leased, used, operated and conducted.
Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company
and the jurisdiction in which each is incorporated. The Company and each of
its Subsidiaries is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which its ownership or use
of property or the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect. "Material Adverse
Effect" means any material adverse effect on the business, operations,
assets, financial condition or prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization,
whether incorporated or unincorporated, in which the Company owns, directly
or indirectly, any equity or other ownership interest.
(2) Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants and to consummate the transactions contemplated hereby and
thereby and to issue the Securities, in accordance with the terms
hereof and thereof, (ii) the execution and delivery of this Agreement,
the Registration Rights Agreement, the Debentures and the Warrants by
the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the
issuance of the Debentures and the Warrants and the issuance and
reservation for issuance of the Conversion Shares and Warrant Shares
issuable upon conversion or exercise thereof) have been duly
authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed
and delivered by the Company by its authorized representative, and
such authorized representative is the true and official representative
with authority to sign this Agreement and the other documents executed
in connection herewith and bind the Company accordingly, and (iv) this
Agreement constitutes, and upon execution and delivery by the Company
of the Registration Rights Agreement, the Debentures and the Warrants,
each of such instruments will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms.
(3) Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 50,000,000 shares of Common
Stock, of which 22,406,030 shares are issued and outstanding, 400,000
shares are reserved for issuance pursuant to the Company's stock
option plans, 970,000 shares are reserved for issuance pursuant to
securities (other than the Debentures and the Warrants) exercisable
for, or convertible into or exchangeable for shares of Common Stock
and 5,892,994 shares are reserved for issuance upon conversion of the
Debentures and the Additional Debentures (as defined in Section 4(l))
and exercise of the Warrants and the Additional Warrants (as defined
in Section 4(l)) (subject to adjustment pursuant to the Company's
covenant set forth in Section 4(h) below); and (ii) 5,000,000 shares
of preferred stock, of which 210,750 shares are issued and
outstanding. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject
to preemptive rights or any other similar rights of the shareholders
of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever
relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, (ii) there
are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or
their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered
by the issuance of the Debentures, the Warrants, the Conversion Shares
or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Articles of Incorporation as in effect
on the date hereof ("Articles of Incorporation"), the Company's
By-laws, as in effect on the date hereof (the "By-laws"), and the
terms of all securities convertible into or exercisable for Common
Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written
update of this representation signed by the Company's Chief Executive
or Chief Financial Officer on behalf of the Company as of the Closing
Date.
(4) Issuance of Shares. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance and, upon conversion of
the Debentures and exercise of the Warrants in accordance with their
respective terms, will be validly issued, fully paid and
non-assessable, and free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders
of the Company and will not impose personal liability upon the holder
thereof.
(5) Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon
the issuance of the Conversion Shares and Warrant Shares upon
conversion of the Debenture or exercise of the Warrants. The Company
further acknowledges that its obligation to issue Conversion Shares
and Warrant Shares upon conversion of the Debentures or exercise of
the Warrants in accordance with this Agreement, the Debentures and the
Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
shareholders of the Company.
(6) No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement, the Debentures and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) will not (i) conflict with or
result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or result
in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default)
under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent,
patent license or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law,
rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any
self-regulatory organizations to which the Company or its securities
are subject) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its
Subsidiaries is bound or affected (except for such conflicts,
defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a
Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Articles of Incorporation, By-laws
or other organizational documents and neither the Company nor any of
its Subsidiaries is in default (and no event has occurred which with
notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under, and neither the Company nor any of its
Subsidiaries has taken any action or failed to take any action that
would give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party
or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any,
are not being conducted, and shall not be conducted so long as a Buyer
owns any of the Securities, in violation of any law, ordinance or
regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and
any applicable state securities laws, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency,
self regulatory organization or stock market or any third party in
order for it to execute, deliver or perform any of its obligations
under this Agreement, the Registration Rights Agreement, the
Debentures or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Debentures and Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon
conversion of the Debentures and the Warrant Shares upon exercise of
the Warrants. Except as disclosed in Schedule 3(f), all consents,
authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof. The Company is
not in violation of the listing requirements of the Over-the-Counter
Bulletin Board (the "OTCBB") and does not reasonably anticipate that
the Common Stock will be delisted by the OTCBB in the foreseeable
future. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(7) SEC Documents; Financial Statements. Except as disclosed in
Schedule 3(g), the Company has timely filed all reports, schedules,
forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the
foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents
(other than exhibits to such documents) incorporated by reference
therein, being hereinafter referred to herein as the "SEC Documents").
The Company has delivered to each Buyer true and complete copies of
the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in
all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to
the SEC Documents, and none of the SEC Documents, at the time they
were filed with the SEC, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to
be amended or updated under applicable law (except for such statements
as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with United
States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case
of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly
present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth
in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to December 31, 2001 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating
results of the Company.
(8) Absence of Certain Changes. Since December 31, 2001, there
has been no material adverse change and no material adverse
development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of
the Company or any of its Subsidiaries.
(9) Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its
Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i)
contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
(10) Patents, Copyrights, etc.
a. The Company and each of its Subsidiaries owns or
possesses the requisite licenses or rights to use all patents,
patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3(j) hereof, to
the best of the Company's knowledge, as presently contemplated to
be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company's
knowledge threatened, which challenges the right of the Company
or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated
(and, except as set forth in Schedule 3(j) hereof, to the best of
the Company's knowledge, as presently contemplated to be operated
in the future); to the best of the Company's knowledge, the
Company's or its Subsidiaries' current and intended products,
services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is
unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and each of its Subsidiaries
have taken reasonable security measures to protect the secrecy,
confidentiality and value of their Intellectual Property.
b. All of the Company's computer software and computer
hardware, and other similar or related items of automated,
computerized or software systems that are used or relied on by
the Company in the conduct of its business or that were, or
currently are being, sold or licensed by the Company to customers
(collectively, "Information Technology"), are Year 2000
Compliant. For purposes of this Agreement, the term "Year 2000
Compliant" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be
used prior to, during and after the calendar Year 2000, and the
Information Technology used during each such time period will
accurately receive, provide and process date and time data
(including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries,
including the years 1999 and 2000, and leap-year calculations,
and will not malfunction, cease to function, or provide invalid
or incorrect results as a result of the date or time data, to the
extent that other information technology, used in combination
with the Information Technology, properly exchanges date and time
data with it. The Company has delivered to the Buyers true and
correct copies of all analyses, reports, studies and similar
written information, whether prepared by the Company or another
party, relating to whether the Information Technology is Year
2000 Compliant, if any.
(11) No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company's officers has or is
expected in the future to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is a party to any contract or
agreement which in the judgment of the Company's officers has or is
expected to have a Material Adverse Effect.
(12) Tax Status. Except as set forth on Schedule 3(l), the
Company and each of its Subsidiaries has made or filed all federal,
state and foreign income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate
for the payment of all unpaid and unreported taxes) and 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 and 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. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any
such claim. The Company has not executed a waiver with respect to the
statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on Schedule
3(l), none of the Company's tax returns is presently being audited by
any taxing authority.
(13) Certain Transactions. Except as set forth on Schedule 3(m)
and except for arm's length transactions pursuant to which the Company
or any of its Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant
of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than
for services as employees, officers and directors), including any
contract, agreement or other arrangement providing for the furnishing
of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or other entity in which
any officer, director, or any such employee has a substantial interest
or is an officer, director, trustee or partner.
(14) Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and
provided to the Buyers pursuant to Section 2(d) hereof and otherwise
in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions,
which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the
Company's reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the
1933 Act).
(15) Acknowledgment Regarding Buyers' Purchase of Securities. The
Company acknowledges and agrees that the Buyers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. The Company further
acknowledges that no Buyer is acting as a financial advisor or
fiduciary of the Company (or in any similar capacity) with respect to
this Agreement and the transactions contemplated hereby and any
statement made by any Buyer or any of their respective representatives
or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely
incidental to the Buyers' purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent
evaluation of the Company and its representatives.
(16) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to
the Buyers. The issuance of the Securities to the Buyers will not be
integrated with any other issuance of the Company's securities (past,
current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities.
(17) No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, transaction
fees or similar payments relating to this Agreement or the
transactions contemplated hereby.
(18) Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now
being conducted (collectively, the "Company Permits"), and there is no
action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with,
or in default or violation of, any of the Company Permits, except for
any such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect. Since December 31, 2001, neither the Company nor any
of its Subsidiaries has received any notification with respect to
possible conflicts, defaults or violations of applicable laws, except
for notices relating to possible conflicts, defaults or violations,
which conflicts, defaults or violations would not have a Material
Adverse Effect.
(19) Environmental Matters.
a. Except as set forth in Schedule 3(s), there are, to the
Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or
contractual obligations which may give rise to any common law
environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or
similar federal, state, local or foreign laws and neither the
Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to
the Company's knowledge, threatened in connection with any of the
foregoing. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection
of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface
or subsurface strata), including, without limitation, laws
relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or
hazardous substances or wastes (collectively, "Hazardous
Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well
as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered,
promulgated or approved thereunder.
b. Other than those that are or were stored, used or
disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently
owned, leased or used by the Company or any of its Subsidiaries,
and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any
of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except
in the normal course of the Company's or any of its Subsidiaries'
business.
c. Except as set forth in Schedule 3(s), there are no
underground storage tanks on or under any real property owned,
leased or used by the Company or any of its Subsidiaries that are
not in compliance with applicable law.
(20) Title to Property. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them which is
material to the business of the Company and its Subsidiaries,
including any companies acquired by the Company or its Subsidiaries,
in each case free and clear of all liens, encumbrances and defects
except such as are described in Schedule 3(t) or such as would not
have a Material Adverse Effect. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would
not have a Material Adverse Effect.
(21) Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against
such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the
Company and its Subsidiaries are engaged. Neither the Company nor any
such Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
Material Adverse Effect. The Company has provided to Buyer true and
correct copies of all policies relating to directors' and officers'
liability coverage, errors and omissions coverage, and commercial
general liability coverage.
(22) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the Company's board of directors, 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 generally accepted accounting
principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(23) Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the
course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any
direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices
Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
(24) Solvency. The Company (after giving effect to the
transactions contemplated by this Agreement) is solvent (i.e., its
assets have a fair market value in excess of the amount required to
pay its probable liabilities on its existing debts as they become
absolute and matured) and currently the Company has no information
that would lead it to reasonably conclude that the Company would not,
after giving effect to the transaction contemplated by this Agreement,
have the ability to, nor does it intend to take any action that would
impair its ability to, pay its debts from time to time incurred in
connection therewith as such debts mature. The Company did not receive
a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions
contemplated by this Agreement, does not anticipate or know of any
basis upon which its auditors might issue a qualified opinion in
respect of its current fiscal year.
(25) No Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement
will not be an "investment company" required to be registered under
the Investment Company Act of 1940 (an "Investment Company"). The
Company is not controlled by an Investment Company.
(26) Breach of Representations and Warranties by the Company. If
the Company breaches any of the representations or warranties set
forth in this Section 3, and in addition to any other remedies
available to the Buyers pursuant to this Agreement, the Company shall
pay to the Buyer the Standard Liquidated Damages Amount in cash or in
shares of Common Stock at the option of the Buyer, until such breach
is cured. If the Buyers elect to be paid the Standard Liquidated
Damages Amounts in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.
(iv) COVENANTS.
(1) Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of
this Agreement.
(2) Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to
provide a copy thereof to each Buyer promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant
to this Agreement 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 any such action so taken
to each Buyer on or prior to the Closing Date.
(3) Reporting Status; Eligibility to Use Form S-3, SB-2 or Form
S-1. The Company's Common Stock is registered under Section 12(g) of
the 1934 Act. The Company represents and warrants that it meets the
requirements for the use of Form S-3 (or if the Company is not
eligible for the use of Form S-3 as of the Filing Date (as defined in
the Registration Rights Agreement), the Company may use the form of
registration for which it is eligible at that time) for registration
of the sale by the Buyer of the Registrable Securities (as defined in
the Registration Rights Agreement). So long as the Buyer beneficially
owns any of the Securities, the Company shall timely file all reports
required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file
reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company
further agrees to file all reports required to be filed by the Company
with the SEC in a timely manner so as to become eligible, and
thereafter to maintain its eligibility, for the use of Form S-3. The
Company shall issue a press release describing the materials terms of
the transaction contemplated hereby as soon as practicable following
the Closing Date but in no event more than two (2) business days of
the Closing Date, which press release shall be subject to prior review
by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in
writing by the Buyers or unless required by applicable law or
regulation, and then only to the extent of such requirement.
(4) Use of Proceeds. The Company shall use the proceeds from the
sale of the Debentures and the Warrants in the manner set forth in
Schedule 4(d) attached hereto and made a part hereof and shall not,
directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other
person (except in connection with its currently existing direct or
indirect Subsidiaries)
(5) Future Offerings. Subject to the exceptions described below,
the Company will not, without the prior written consent of a
majority-in-interest of the Buyers, not to be unreasonably withheld,
negotiate or contract with any party to obtain additional equity
financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market
price of the Common Stock on the date of issuance (taking into account
the value of any warrants or options to acquire Common Stock issued in
connection therewith) or (B) the issuance of convertible securities
that are convertible into an indeterminate number of shares of Common
Stock or (C) the issuance of warrants during the period (the "Lock-up
Period") beginning on the Closing Date and ending on the later of (i)
two hundred seventy (270) days from the Closing Date and (ii) one
hundred eighty (180) days from the date the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective
(plus any days in which sales cannot be made thereunder). In addition,
subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
("Future Offerings") during the period beginning on the Closing Date
and ending two (2) years after the end of the Lock-up Period unless it
shall have first delivered to each Buyer, at least twenty (20)
business days prior to the closing of such Future Offering, written
notice describing the proposed Future Offering, including the terms
and conditions thereof and proposed definitive documentation to be
entered into in connection therewith, and providing each Buyer an
option during the fifteen (15) day period following delivery of such
notice to purchase its pro rata share (based on the ratio that the
aggregate principal amount of Debentures purchased by it hereunder
bears to the aggregate principal amount of Debentures purchased
hereunder) of the securities being offered in the Future Offering on
the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence and the preceding sentence
are collectively referred to as the "Capital Raising Limitations"). In
the event the terms and conditions of a proposed Future Offering are
amended in any respect after delivery of the notice to the Buyers
concerning the proposed Future Offering, the Company shall deliver a
new notice to each Buyer describing the amended terms and conditions
of the proposed Future Offering and each Buyer thereafter shall have
an option during the fifteen (15) day period following delivery of
such new notice to purchase its pro rata share of the securities being
offered on the same terms as contemplated by such proposed Future
Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant
to Rule 415 under the ▇▇▇▇ ▇▇▇) or (ii) issuances of securities as
consideration for a merger, consolidation or purchase of assets, or in
connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product
or license by the Company. The Capital Raising Limitations also shall
not apply to the issuance of securities upon exercise or conversion of
the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional
options or warrants, or the issuance of additional securities, under
any Company stock option or restricted stock plan approved by the
shareholders of the Company.
(6) Expenses. At the Closing, the Company shall reimburse Buyers
for expenses incurred by them in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the other agreements to be executed in connection herewith
("Documents"), including, without limitation, attorneys' and
consultants' fees and expenses, transfer agent fees, fees for stock
quotation services, fees relating to any amendments or modifications
of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow
fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to
the Buyers for all fees and expenses immediately upon written notice
by the Buyer or the submission of an invoice by the Buyer If the
Company fails to reimburse the Buyer in full within three (3) business
days of the written notice or submission of invoice by the Buyer, the
Company shall pay interest on the total amount of fees to be
reimbursed at a rate of 15% per annum.
(7) Financial Information. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns,
or sells all of the Securities: (i) within ten (10) days after the
filing with the SEC, a copy of its Annual Report on Form 10-KSB, its
Quarterly Reports on Form 10-KSB and any Current Reports on Form 8-K;
(ii) within one (1) day after release, copies of all press releases
issued by the Company or any of its Subsidiaries; and (iii)
contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such shareholders.
(8) Authorization and Reservation of Shares. The Company shall at
all times have authorized, and reserved for the purpose of issuance, a
sufficient number of shares of Common Stock to provide for the full
conversion or exercise of the outstanding Debentures and Warrants and
issuance of the Conversion Shares and Warrant Shares in connection
therewith (based on the Conversion Price of the Debentures or Exercise
Price of the Warrants in effect from time to time) and as otherwise
required by the Debentures. The Company shall not reduce the number of
shares of Common Stock reserved for issuance upon conversion of
Debentures and exercise of the Warrants without the consent of each
Buyer. The Company shall at all times maintain the number of shares of
Common Stock so reserved for issuance at an amount ("Reserved Amount")
equal to no less than two (2) times the number that is then actually
issuable upon full conversion of the Debentures and Additional
Debentures and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Debentures or the
Exercise Price of the Warrants in effect from time to time). If at any
time the number of shares of Common Stock authorized and reserved for
issuance ("Authorized and Reserved Shares") is below the Reserved
Amount, the Company will promptly take all corporate action necessary
to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to
authorize additional shares to meet the Company's obligations under
this Section 4(h), in the case of an insufficient number of authorized
shares, obtain shareholder approval of an increase in such authorized
number of shares, and voting the management shares of the Company in
favor of an increase in the authorized shares of the Company to ensure
that the number of authorized shares is sufficient to meet the
Reserved Amount. If the Company fails to obtain such shareholder
approval within thirty (30) days following the date on which the
number of Authorized and Reserved Shares exceeds the Reserved Amount,
the Company shall pay to the Borrower the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer. If the Buyer elects to be paid the Standard Liquidated Damages
Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment. In order to ensure that the
Company has authorized a sufficient amount of shares to meet the
Reserved Amount at all times, the Company must deliver to the Buyer at
the end of every month a list detailing (1) the current amount of
shares authorized by the Company and reserved for the Buyer; and (2)
amount of shares issuable upon conversion of the Debentures and upon
exercise of the Warrants and as payment of interest accrued on the
Debentures for one year. If the Company fails to provide such list
within five (5) business days of the end of each month, the Company
shall pay the Standard Liquidated Damages Amount, in cash or in shares
of Common Stock at the option of the Buyer, until the list is
delivered. If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued
at the Conversion Price at the time of payment.
(9) Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance)
and, so long as any Buyer owns any of the Securities, shall maintain,
so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time
issuable upon conversion of the Debentures or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any
of the Securities, maintain the listing and trading of its Common
Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq
National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange ("NYSE"), or the American
Stock Exchange ("AMEX") and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or
rules of the National Association of Securities Dealers ("NASD") and
such exchanges, as applicable. The Company shall promptly provide to
each Buyer copies of any notices it receives from the OTCBB and any
other exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for
listing on such exchanges and quotation systems.
(10) Corporate Existence. So long as a Buyer beneficially owns
any Debentures or Warrants, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company's assets, where the surviving
or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered
into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
(11) No Integration. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances
that would require registration of the Securities being offered or
sold hereunder under the 1933 Act or cause the offering of the
Securities to be integrated with any other offering of securities by
the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
(12) Subsequent Investment. The Company and the Buyers agree
that, upon filing by the Company of the Registration Statement to be
filed pursuant to the Registration Rights Agreement (the "Filing
Date"), the Buyers shall purchase additional debentures ("Filing
Debentures") in the aggregate principal amount of Two Hundred Thousand
Dollars ($200,000) and additional warrants (the "Filing Warrants") to
purchase an aggregate of 600,000 shares of Common Stock, for an
aggregate purchase price of Two Hundred Thousand Dollars ($200,000),
with the closing of such purchase to occur within ten (10) days of the
Filing Date; provided, however, that the obligation of each Buyer to
purchase the Filing Debentures and the Filing Warrants is subject to
the satisfaction, at or before the closing of such purchase and sale,
of the conditions set forth in Section 7. The Company and the Buyers
further agree that, upon the declaration of effectiveness of the
Registration Statement to be filed pursuant to the Registration Rights
Agreement (the "Effective Date"), the Buyers shall purchase additional
debentures (the "Effectiveness Debentures" and, collectively with the
Filing Debentures, the "Additional Debentures") in the aggregate
principal amount of Two Hundred Thousand Dollars ($200,000) and
additional warrants (the "Effectiveness Warrants" and, collectively
with the Filing Warrants, the "Additional Warrants") to purchase an
aggregate of 600,000 shares of Common Stock, for an aggregate purchase
price of Two Hundred Thousand Dollars ($200,000), with the closing of
such purchase to occur within ten (10) days of the Effective Date;
provided, however, that the obligation of each Buyer to purchase the
Effectiveness Debentures and the Effectiveness Warrants is subject to
the satisfaction, at or before the closing of such purchase and sale,
of the conditions set forth in Section 7; and, provided, further, that
there shall not have been a Material Adverse -------- ------- Effect
as of such effective date. The terms of the Additional Debentures and
the Additional Warrants shall be identical to the terms of the
Debentures and Warrants, as the case may be, to be issued on the
Closing Date. The Common Stock underlying the Additional Debentures
and the Additional Warrants shall be Registrable Securities (as
defined in the Registration Rights Agreement) and shall be included in
the Registration Statement to be filed pursuant to the Registration
Rights Agreement.
(13) Breach of Covenants. If the Company breaches any of the
covenants set forth in this Section 4, and in addition to any other
remedies available to the Buyers pursuant to this Agreement, the
Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the
Buyer, until such breach is cured. If the Buyers elect to be paid the
Standard Liquidated Damages Amount in shares, such shares shall be
issued at the Conversion Price at the time of payment.
(v) TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the
name of each Buyer or its nominee, for the Conversion Shares and Warrant
Shares in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Debentures or exercise of the Warrants in
accordance with the terms thereof (the "Irrevocable Transfer Agent
Instructions"). Prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and
Warrant Shares may be sold pursuant to Rule 144 without any restriction as
to the number of Securities as of a particular date that can then be
immediately sold, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred
to in this Section 5, and stop transfer instructions to give effect to
Section 2(f) hereof (in the case of the Conversion Shares and Warrant
Shares, prior to registration of the Conversion Shares and Warrant Shares
under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the
number of Securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any,
upon re-sale of the Securities. If a Buyer provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of
such Securities may be made without registration under the 1933 Act and
such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion
Shares and Warrant Shares, promptly instruct its transfer agent to issue
one or more certificates, free from restrictive legend, in such name and in
such denominations as specified by such Buyer. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable
harm to the Buyers, by vitiating the intent and purpose of the transactions
contemplated hereby. Accordingly, the Company acknowledges that the remedy
at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the
necessity of showing economic loss and without any bond or other security
being required.
(vi) CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the
Closing Date of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
(1) The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the
Company.
(2) The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
(3) The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when
made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and the applicable Buyer shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the applicable Buyer at or prior to the Closing Date.
(4) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority
of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which prohibits the
consummation of any of the transactions contemplated by this
Agreement.
(vii) CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Debentures and Warrants
at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions, provided that these conditions
are for such Buyer's sole benefit and may be waived by such Buyer at any
time in its sole discretion:
(1) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
(2) The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) and Warrants
in accordance with Section 1(b) above.
(3) The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
(4) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing Date. The Buyer shall have received a certificate or certificates,
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by such Buyer including, but not limited to
certificates with respect to the Company's Articles of Incorporation,
By-laws and Board of Directors' resolutions relating to the transactions
contemplated hereby.
(5) No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(6) No event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company.
(7) The Conversion Shares and Warrant Shares shall have been
authorized for quotation on the OTCBB and trading in the Common Stock on
the OTCBB shall not have been suspended by the SEC or the OTCBB.
(8) The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
(9) The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
(viii) GOVERNING LAW; MISCELLANEOUS.
(1) Governing Law. THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE PARTIES HERETO HEREBY
SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER
THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING
HEREIN SHALL AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING
UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES,
INCLUDING ATTORNEYS' FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION
WITH SUCH DISPUTE.
(2) Counterparts; Signatures by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original but all of which shall constitute one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may
be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
(3) Headings. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of,
this Agreement.
(4) Severability. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
(5) Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with
respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the party to be charged with
enforcement.
(6) Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular
United States mail, or upon receipt, if delivered personally or by courier
(including a recognized overnight delivery service) or by facsimile, in
each case addressed to a party. The addresses for such communications shall
be:
If to the Company:
FullCircle Registry, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
PNC Plaza, Suite 2310
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
With a copy to:
Walstrand & Associates
▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇- 2204
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
If to a Buyer: To the address set forth immediately below such Buyer's name on
the signature pages hereto.
With copy to:
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Each party shall provide notice to the other party of any change in address.
(7) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights
or obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may
assign its rights hereunder to any person that purchases Securities in a
private transaction from a Buyer or to any of its "affiliates," as that
term is defined under the 1934 Act, without the consent of the Company.
(8) Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(9) Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence
investigation conducted by or on behalf of the Buyers. The Company agrees
to indemnify and hold harmless each of the Buyers and all their officers,
directors, employees and agents for loss or damage arising as a result of
or related to any breach or alleged breach by the Company of any of its
representations, warranties and covenants set forth in Sections 3 and 4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they
are incurred.
(10) Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, OTCBB or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of each of the
Buyers, to make any press release or SEC, OTCBB (or other applicable
trading market) or NASD filings with respect to such transactions as is
required by applicable law and regulations (although each of the Buyers
shall be consulted by the Company in connection with any such press release
prior to its release and shall be provided with a copy thereof and be given
an opportunity to comment thereon).
(11) Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
(12) No Strict Construction. 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.
(13) Remedies. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the Buyers by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach
of its obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions
of this Agreement, that the Buyers shall be entitled, in addition to all
other available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce
specifically the terms and provisions hereof, without the necessity of
showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused this
Agreement to be duly executed as of the date first above written.
FULLCIRCLE REGISTRY, INC.
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
AJW PARTNERS, LLC
By: SMS Group, LLC
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Delaware
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $57,500
Number of Warrants: 172,500
Aggregate Purchase Price: $57,500
AJW OFFSHORE, LTD.
By: First Street Manager II, LLC
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: Cayman Islands
ADDRESS: AJW Offshore, Ltd.
▇.▇. ▇▇▇ ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, B.W.I.
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $85,000
Number of Warrants: 255,000
Aggregate Purchase Price: $85,000
AJW QUALIFIED PARTNERS, LLC
By: AJW Manager, LLC
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Manager
RESIDENCE: New York
ADDRESS: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Principal Amount of Debentures: $57,500
Number of Warrants: 172,500
Aggregate Purchase Price: 57,500