EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of January 21,
2014, by and among Advanced Cannabis Solutions, Inc., a Colorado corporation,
with headquarters located at 7750 N. Union Blvd., Suite 201, Colorado Springs,
CO 80920 (the "Company"), and the investors listed on the Schedule of Buyers
attached hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and each Buyer is executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Rule 506
of Regulation D ("Regulation D") as promulgated by the United States Securities
and Exchange Commission (the "SEC") under the 1933 Act.
B. The Company has authorized a new series of senior secured convertible
notes of the Company, in substantially the form attached hereto as Exhibit A
(the "Notes"), which Notes shall be convertible into the Company's common stock,
no par value (the "Common Stock") (the shares of Common Stock issuable pursuant
to the terms of the Notes, including, without limitation, upon conversion or
otherwise, collectively, the "Conversion Shares"), in accordance with the terms
of the Notes.
C. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement Warrants, in the form attached
hereto as Exhibit B (the "Warrants"), representing the right to acquire that
number of shares of Common Stock set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers (as exercised, collectively, the "Warrant
Shares").
D. Each Buyer wishes to purchase, and the Company wishes to sell, upon the
terms and conditions stated in this Agreement at the Closing (as defined below)
that aggregate principal amount of Notes set forth opposite such Buyer's name in
column (3) on the Schedule of Buyers attached hereto (which aggregate principal
amount of Notes for all Buyers shall be $7,500,000 at the Closing).
E. Subject to the terms and conditions set forth in Section 1(e) below, the
Buyers and/or other investors acceptable to the Buyers may purchase, and the
Company may sell, up to an additional $22,500,000 aggregate principal amount of
senior secured convertible notes of the Company at one or more additional
closings.
F. Contemporaneously 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
with respect to the Registrable Securities (as defined in the Registration
Rights Agreement) under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
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G. The Notes will rank senior to all outstanding and future indebtedness of
the Company (other than Permitted Senior Indebtedness (as defined in the Notes),
will be guaranteed by all direct and indirect Subsidiaries (as defined in
Section 3(a)) of the Company, currently formed or formed in the future, as
evidenced by a guaranty agreement, in substantially the form attached hereto as
Exhibit D-1 (the "Guaranty Agreement"), and will be secured by a first priority
perfected security interest in all or substantially all of the current and
future assets of the Company and all direct and indirect Subsidiaries of the
Company, currently formed or formed in the future, as evidenced by a pledge and
security agreement, in substantially the form attached hereto as Exhibit D-2,
(as amended or modified from time to time in accordance with its terms, the
"Security Agreement" and together with the Guaranty Agreement and any ancillary
documents related to the Security Agreement and the Guaranty Agreement
(including, without limitation, Deed of Trust, Security Agreement and Fixture
Filing, Assignment of Leases and Rents, Environmental Indemnity Agreement, and
other documentation relating to perfecting a security interest in real estate
owned by the Company each in a form and substance acceptable to Buyer in its
sole discretion, the "Security Documents").
H. The Notes, the Conversion Shares, the Warrants and the Warrant Shares
collectively are referred to herein as the "Securities".
NOW, THEREFORE, the Company and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF NOTES AND WARRANTS.
(a) Purchase of Notes. Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6 and 7 below, the Company shall issue and sell
to each Buyer, and each Buyer severally, but not jointly, agrees to purchase
from the Company on the Closing Date (as defined below), a principal amount of
Notes as is set forth opposite such Buyer's name in column (3) on the Schedule
of Buyers (the "Closing").
(b) Closing. The date and time of the Closing (the "Closing Date") shall be
10:00 a.m., New York City time, on the date hereof (or such other date and time
as is mutually agreed to by the Company and each Buyer), or such subsequent
date, after notification of satisfaction (or waiver) of the conditions to the
Closing set forth in Sections 6 and 7 below, at the offices of counsel for Full
Circle Capital Corporation ("Full Circle").
(c) Purchase Price. The aggregate purchase price for the Notes to be
purchased by each Buyer at the Closing (the "Purchase Price") shall be the
amount set forth opposite each Buyer's name in column (5) of the Schedule of
Buyers. Each Buyer shall pay $980 for each $1,000 of principal amount of Notes
and related Warrants to be purchased by such Buyer at the Closing.
(d) Form of Payment. On the Closing Date, (i) each Buyer shall pay its
Purchase Price to the Company for the Notes to be issued and sold to such Buyer
at the Closing (less, in the case of Full Circle, the amounts withheld pursuant
to Section 4(g)), by wire transfer of immediately available funds in accordance
with the Company's written wire instructions and (ii) the Company shall deliver
to each Buyer the Notes (allocated in the principal amounts as such Buyer shall
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request) which such Buyer is then purchasing hereunder, duly executed on behalf
of the Company and registered in the name of such Buyer or its designee.
(e) Purchase of Warrants. Effective upon the execution of this Agreement,
the Company shall issue and sell to each Buyer, and each Buyer severally, but
not jointly, shall purchase from the Company, Warrants to acquire up to that
number of Warrant Shares as is set forth opposite such Buyer's name in column
(4) on the Schedule of Buyers. The purchase price per Warrant shall be $0.50 per
Warrant. The aggregate purchase price for the Warrants by all Buyers shall be
referred to herein as the "Warrant Purchase Price". On the date hereof, (i) each
Buyer shall pay its portion of the Warrant Purchase Price to the Company for the
Warrants to be issued and sold to such Buyer (less, in the case of Full Circle,
$100,000 to be withheld for legal and other expenses), by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions and (ii) the Company shall deliver to each Buyer the Warrants
(allocated in the amounts as such Buyer shall request) which such Buyer is
purchasing hereunder, duly executed on behalf of the Company and registered in
the name of such Buyer or its designee.
(f) Additional Closings. Subject to the prior written consent of the
Required Holders in their sole discretion, and the approval of the investment
committees of the Buyers comprising the Required Holders, during the eighteen
(18) month period following the Closing Date, the Company may request that the
Buyers purchase from the Company up to an additional $22,500,000 aggregate
principal amount of senior secured convertible notes of the Company in one or
more additional closings. It is contemplated that the terms and conditions of
the purchase of such notes will be on similar terms to those contained in the
Transaction Documents (but without the issuance of additional Warrants), but,
notwithstanding the foregoing, any such purchase of notes shall be required to
be on terms and conditions satisfactory to the Required Holders, as determined
acceptable to the Required Holders at the time of each request by the Company,
at the sole and absolute discretion of Buyers constituting the Required Holders,
and the documentation with respect to such purchase shall be required to be
similarly satisfactory to the Required Holders.
2. BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not
jointly, represents and warrants with respect to only itself that:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Notes
and the Warrants and (ii) upon conversion of the Notes and exercise of the
Warrants (other than pursuant to a Cashless Exercise (as defined in the
Warrants)) will acquire the Conversion Shares issuable pursuant to the Notes and
the Warrant Shares issuable upon exercise of the Warrants, for its own account
and not with a view towards, or for resale in connection with, the public sale
or distribution thereof, except pursuant to sales registered or exempted under
the 1933 Act; provided, however, that by making the representations herein, such
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. Such Buyer is acquiring the Securities hereunder in the ordinary
course of its business. Such Buyer does not presently have any agreement or
understanding, directly or indirectly, with any Person (as defined below) to
distribute any of the Securities. For purposes of this Agreement, "Person" means
an individual, a limited liability company, a partnership, a joint venture, a
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corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(b) Accredited Investor Status. Such Buyer is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been 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 that have
been requested by such Buyer. Such Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or its
advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
herein. Such Buyer understands that its investment in the Securities involves a
high degree of risk. Such Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.
(e) No Governmental Review. Such Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in
the Registration Rights Agreement: (i) the Securities have not been and are not
being registered under the 1933 Act or any state securities laws, and may not be
offered for sale, sold, assigned or transferred unless (A) subsequently
registered thereunder, (B) such Buyer shall have delivered to the Company an
opinion of counsel, in a generally acceptable form, to the effect that such
Securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration, or (C) such Buyer
provides the Company with reasonable assurance that such Securities can be sold,
assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the
1933 Act, as amended, (or a successor rule thereto) (collectively, "Rule 144");
(ii) any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the Securities under circumstances in which the seller
(or the Person) through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) 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 the Securities under the 1933 Act or any state securities
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laws or to comply with the terms and conditions of any exemption thereunder.
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 and such pledge of Securities shall not be deemed to be a transfer,
sale or assignment of the Securities hereunder, and no Buyer effecting a pledge
of Securities shall be required to provide the Company with any notice thereof
or otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document (as defined in Section 3(b)), including, without
limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other
instruments representing the Notes and the Warrants and, until such time as the
resale of the Conversion Shares and the Warrant Shares have been registered
under the 1933 Act as contemplated by the Registration Rights Agreement, the
stock certificates representing the Conversion Shares and the Warrant Shares,
except as set forth below, shall bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of such
stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
[CONVERTIBLE] [EXERCISABLE] HAVE BEEN][THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES 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 OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE
FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)
UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID 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.]
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped or issue to such holder by electronic delivery at the applicable balance
account at The Depository Trust Company ("DTC"), if, (i) such Securities are
registered for resale under the 1933 Act, (ii) in connection with a sale,
assignment or other transfer, such holder provides the Company with an opinion
of counsel, in a generally acceptable form, to the effect that such sale,
assignment or transfer of the Securities may be made without registration under
the applicable requirements of the 1933 Act, or (iii) the Securities can be
sold, assigned or transferred pursuant to Rule 144 or Rule 144A. The Company
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shall be responsible for the fees of its transfer agent and all DTC fees
associated with such issuance.
(h) Validity; Enforcement. This Agreement and the Registration Rights
Agreement have been duly and validly authorized, executed and delivered on
behalf of such Buyer and shall constitute the legal, valid and binding
obligations of such Buyer enforceable against such Buyer in accordance with
their respective terms, except as such enforceability may be limited by general
principles of equity or to applicable bankruptcy, insolvency, reorganization,
moratorium, liquidation and other similar laws relating to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.
Notwithstanding the foregoing, Buyer does not make any warranty or
representation as to the enforceability of this Agreement, the Registration
Rights Agreement, or any related agreements to the extent any such agreement is
deemed illegal and therefore unenforceable by applicable federal law.
(i) No Conflicts. The execution, delivery and performance by such Buyer of
this Agreement and the Registration Rights Agreement and the consummation by
such Buyer of the transactions contemplated hereby and thereby will not (i)
result in a violation of the organizational documents of such Buyer or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which such Buyer 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 Buyer, 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 Buyer to
perform its obligations hereunder. Notwithstanding the foregoing, such Buyer
does not make any representation or warranty with respect to any laws, rules or
regulations relating to marijuana.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
(a) Organization and Qualification. Each of the Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns any of the capital stock or holds an
equity or similar interest) are entities duly organized and validly existing in
good standing under the laws of the jurisdiction in which they are formed, and
have the requisite power and authorization to own, lease and operate their
properties and assets and to carry on their business as now being conducted.
Each of the Company and its Subsidiaries is duly qualified as a foreign entity
to do business and is in good standing in every jurisdiction in which its
ownership of property or the nature of the business conducted by it makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not reasonably be expected to have a
Material Adverse Effect. As used in this Agreement, "Material Adverse Effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries, individually or taken as a whole,
or on the transactions contemplated hereby or in the other Transaction Documents
or by the agreements and instruments to be entered into in connection herewith
or therewith, or on the authority or ability of the Company to perform its
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obligations under the Transaction Documents. The Company has no Subsidiaries
except as set forth on Schedule 3(a).
(b) Authorization; Enforcement; Validity. The Company has the requisite
power and authority to enter into and perform its obligations under this
Agreement, the Notes, the Warrants, the Registration Rights Agreement, the
Irrevocable Transfer Agent Instructions (as defined in Section 5(b)), the
Security Documents and each of the other agreements entered into by the parties
hereto in connection with the transactions contemplated by this Agreement
(collectively, the "Transaction Documents") and to issue the Securities in
accordance with the terms hereof and thereof. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby, including, without limitation, the
issuance of the Notes and the Warrants, the reservation for issuance and the
issuance of the Conversion Shares and the reservation for issuance and issuance
of Warrant Shares issuable upon exercise of the Warrants have been duly
authorized by the Company's Board of Directors and (other than the filing with
the SEC of one or more Registration Statements (as defined in the Registration
Rights Agreement) in accordance with the requirements of the Registration Rights
Agreement and other filings as may be required by state securities agencies) no
further filing, consent, or authorization is required by the Company, its Board
of Directors or its stockholders. This Agreement and the other Transaction
Documents have been duly executed and delivered by the Company, and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of applicable creditors' rights and
remedies. Each of the Subsidiaries party to any of the Transaction Documents (as
defined below) has the requisite power and authority to enter into and perform
its obligations under such Transaction Documents. The execution and delivery by
the Subsidiaries party to any of the Transaction Documents of such Transaction
Documents and the consummation by such Subsidiaries of the transactions
contemplated thereby have been duly authorized by such Subsidiaries' respective
boards of directors (or other applicable governing body) and (other than filings
as may be required by state securities agencies) no further filing, consent, or
authorization is required by such Subsidiaries, their respective boards of
directors (or other applicable governing body) or stockholders (or other
applicable owners of equity of such Subsidiaries). The Transaction Documents to
which any of the Subsidiaries are parties have been duly executed and delivered
by such Subsidiaries, and constitute the legal, valid and binding obligations of
such Subsidiaries, enforceable against them in accordance with their respective
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of applicable creditors' rights and remedies.
(c) Issuance of Securities. The issuance of the Notes and the Warrants are
duly authorized and, upon issuance, shall be validly issued and free from all
taxes, liens and charges with respect to the issue thereof. As of the Closing, a
number of shares of Common Stock shall have been duly authorized and reserved
for issuance which equals or exceeds 130% of the maximum number of (the
"Required Reserved Amount") (i) Conversion Shares issuable pursuant to the terms
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of the Notes (without taking into account any limitations on the issuance
thereof pursuant to the terms of the Notes), and (ii) Warrant Shares issuable
upon exercise of the Warrants (without taking into account any limitations on
the exercise of the Warrants set forth in the Warrants). As of the date hereof,
Schedule 3(c) sets forth (x) the number of shares of the Company's Common Stock
that are authorized and unissued and (y) the number of shares of the Company's
issued and outstanding Common Stock are owned by Persons who are "affiliates"
(as defined in Rule 405 of the 1933 Act and calculated based on the assumption
that only officers, directors and holders of at least 10% of the Company's
issued and outstanding Common Stock are "affiliates" without conceding that any
such Persons are "affiliates" for purposes of federal securities laws) of the
Company or any of its Subsidiaries, in each case as of the Closing Date. Upon
conversion of the Notes in accordance with the Notes or exercise of the Warrants
in accordance with the Warrants, as the case may be, the Conversion Shares and
the Warrant Shares, respectively, will be validly issued, fully paid and
nonassessable and free from all preemptive or similar rights, taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock. Assuming the accuracy of each
of the representations and warranties set forth in Section 2 of this Agreement,
the offer and issuance by the Company of the Securities is exempt from
registration under the 1933 Act.
(d) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and any of its Subsidiaries parties to any
of the Transaction Documents and the consummation by the Company and any of its
Subsidiaries of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Notes and the Warrants and reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not (i) result in a violation of any memorandum of association, articles of
incorporation, certificate of formation, any certificate of designations or
other constituent documents of the Company or any of its Subsidiaries, any
capital stock of the Company or any of its Subsidiaries or the articles of
association or bylaws of the Company or any of its Subsidiaries or (ii) conflict
with, or constitute a default (or an event which with notice or lapse of time or
both would become a default) in any respect under, or give to others any rights
of termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including foreign, federal and state
securities laws and regulations and the rules and regulations of the OTC
Bulletin Board (the "Principal Market") and applicable laws of the State of
Colorado and any other state laws) 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.
(e) Consents. Neither the Company nor any of its Subsidiaries is required
to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency or any regulatory or
self-regulatory agency or any other Person in order for it to execute, deliver
or perform any of its obligations under or contemplated by the Transaction
Documents, in each case in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company or
any of its Subsidiaries is required to obtain pursuant to the preceding sentence
have been obtained or effected on or prior to the Closing Date, and the Company
and its Subsidiaries are unaware of any facts or circumstances that might
prevent the Company or any of its Subsidiaries from obtaining or effecting any
of the registration, application or filings pursuant to the preceding sentence.
The Company is not in violation of the listing requirements of the Principal
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Market and has no knowledge of any facts that would reasonably lead to delisting
or suspension of the Common Stock in the foreseeable future. The issuance by the
Company of the Securities shall not have the effect of delisting or suspending
the Common Stock from the Principal Market.
(f) Acknowledgment Regarding Buyer's Purchase of Securities. The Company
acknowledges and agrees that each Buyer 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 and that no Buyer is (i) an officer
or director of the Company or any of its Subsidiaries, (ii) an "affiliate" of
the Company or any of its Subsidiaries (as defined in Rule 144) or (iii) to the
knowledge of the Company, a "beneficial owner" of more than 10% of the shares of
Common Stock (as defined for purposes of Rule 13d-3 of the Securities Exchange
Act of 1934, as amended (the "1934 Act")). The Company further acknowledges that
no Buyer is acting as a financial advisor or fiduciary of the Company or any of
its Subsidiaries (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby, and any advice
given by a Buyer or any of its representatives or agents in connection with the
Transaction Documents and the transactions contemplated hereby and thereby is
merely incidental to such Buyer's purchase of the Securities. The Company
further represents to each Buyer that the Company's decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives.
(g) No General Solicitation; Placement Agent's Fees. Neither the Company,
nor any of its Subsidiaries or affiliates, nor any Person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D) in connection with the offer or sale of the
Securities. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or brokers' commissions (other than for
persons engaged by any Buyer or its investment advisor) relating to or arising
out of the transactions contemplated hereby. The Company shall pay, and hold
each Buyer harmless against, any liability, loss or expense (including, without
limitation, attorney's fees and out-of-pocket expenses) arising in connection
with any such claim. Neither the Company nor any of its Subsidiaries has engaged
any placement agent or other agent in connection with the sale of the
Securities.
(h) No Integrated Offering. None of the Company, its Subsidiaries, any of
their affiliates, and any Person acting on their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of any of
the Securities under the 1933 Act, whether through integration with prior
offerings or otherwise, or cause this offering of the Securities to require
approval of stockholders of the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without limitation, under
the rules and regulations of any exchange or automated quotation system on which
any of the securities of the Company are listed or designated. None of the
Company, its Subsidiaries, their affiliates and any Person acting on their
behalf will take any action or steps referred to in the preceding sentence that
would require registration of any of the Securities under the 1933 Act or cause
the offering of the Securities to be integrated with other offerings for
purposes of any such applicable stockholder approval provisions.
9
(i) Dilutive Effect. The Company understands and acknowledges that the
number of Conversion Shares issuable pursuant to terms of the Notes and the
number of Warrant Shares issuable upon exercise of the Warrants will increase in
certain circumstances. The Company further acknowledges that its obligation to
issue Conversion Shares pursuant to the terms of the Notes in accordance with
this Agreement and the Notes and its obligation to issue the Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Warrants is,
in each case, absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company.
(j) Application of Takeover Protections; Rights Agreement. The Company and
its 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 Articles of Incorporation (as defined in
Section 3(r)) or the laws of the jurisdiction of its formation which is or could
become applicable to any Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and any Buyer's ownership of the Securities. The Company has not
adopted a stockholder rights plan or similar arrangement relating to
accumulations of beneficial ownership of Common Stock or a change in control of
the Company.
(k) SEC Documents; Financial Statements. Except as disclosed in Schedule
3(k), during the two (2) years prior to the date hereof, 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 1934
Act (all of the foregoing filed prior to the date hereof, and all exhibits
included therein and financial statements, notes and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC Documents"). The Company has delivered to the Buyers or their respective
representatives true, correct and complete copies of the SEC Documents not
available on the EDGAR system. As of their respective filing 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 the light of the circumstances under which they
were made, not misleading. As of their respective filing dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyers which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement or in the
disclosure schedules to this Agreement, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
10
statements therein, in the light of the circumstance under which they are or
were made, not misleading.
(l) Absence of Certain Changes. Except as disclosed in Schedule 3(l), since
September 30, 2012, there has been no material adverse change and no material
adverse development in the business, assets, properties, operations, condition
(financial or otherwise), results of operations or prospects of the Company or
its Subsidiaries. Except as disclosed in Schedule 3(l), since September 30,
2012, neither the Company nor any of its Subsidiaries has (i) declared or paid
any dividends, (ii) sold any assets, individually or in the aggregate, in excess
of $75,000 outside of the ordinary course of business or (iii) had capital
expenditures, individually or in the aggregate, in excess of $75,000. Neither
the Company nor any of its Subsidiaries has taken any steps to seek protection
pursuant to any bankruptcy law nor does the Company have any knowledge or reason
to believe that its creditors intend to initiate involuntary bankruptcy
proceedings or any actual knowledge of any fact that would reasonably lead a
creditor to do so. The Company and its Subsidiaries, individually and on a
consolidated basis, are not as of the date hereof, and after giving effect to
the transactions contemplated hereby to occur at the Closing, will not be
Insolvent (as defined below). For purposes of this Section 3(l), "Insolvent"
means, with respect to any Person, (i) the present fair saleable value of such
Person's assets is less than the amount required to pay such Person's total
Indebtedness (as defined in Section 3(s)), (ii) such Person is unable to pay its
debts and liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured, (iii) such Person intends to incur or
believes that it will incur debts that would be beyond its ability to pay as
such debts mature or (iv) such Person has unreasonably small capital with which
to conduct the business in which it is engaged as such business is now conducted
and is proposed to be conducted.
(m) No Undisclosed Events, Liabilities, Developments or Circumstances. No
event, liability, development or circumstance has occurred or exists, or is
contemplated to occur with respect to the Company, its Subsidiaries or their
respective business, properties, prospects, operations or financial condition,
that would be required to be disclosed by the Company under applicable
securities laws on a registration statement on Form S-1 filed with the SEC
relating to an issuance and sale by the Company of its Common Stock and which
has not been publicly announced.
(n) Conduct of Business; Regulatory Permits. Neither the Company nor any of
its Subsidiaries is in violation of any term of or in default under any
certificate of designations of any outstanding series of preferred stock of the
Company (if any), its Articles of Incorporation or Bylaws (as defined in Section
3(r)) or their organizational charter or memorandum of association or articles
of incorporation or articles of association or bylaws, respectively. Neither the
Company nor any of its Subsidiaries is in violation of any judgment, decree or
order or any statute, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, and neither the Company nor any of its Subsidiaries
will conduct its business in violation of any of the foregoing, except for
possible violations which could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. Without limiting the
generality of the foregoing, the Company is not in violation of any of the
rules, regulations or requirements of the Principal Market and has no knowledge
11
of any facts or circumstances that would reasonably lead to delisting or
suspension of the Common Stock by the Principal Market in the foreseeable
future. Except as set forth in Schedule 3(n), during the two (2) years prior to
the date hereof, the Common Stock has been designated for quotation on the
Principal Market. Except as set forth in Schedule 3(n), during the two (2) years
prior to the date hereof, (i) trading in the Common Stock has not been suspended
by the SEC or the Principal Market and (ii) the Company has received no
communication, written or oral, from the SEC or the Principal Market regarding
the suspension or delisting of the Common Stock from the Principal Market. The
Company and its Subsidiaries possess all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, except where the
failure to possess such certificates, authorizations or permits would not have,
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any such Subsidiary has received any notice of proceedings relating
to the revocation or modification of any such certificate, authorization or
permit.
(o) Certain 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 of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company or any of its Subsidiaries (i) used
any corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; (ii) made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any unlawful bribe, rebate, payoff, influence payment, kickback or other
unlawful payment to any foreign or domestic government official or employee.
(p) Sarbanes-Oxley Act. The Company is in compliance with any and all
applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as
of the date hereof, and any and all applicable rules and regulations promulgated
by the SEC thereunder that are effective as of the date hereof.
(q) Transactions With Affiliates. Except as set forth on Schedule 3(q),
none of the officers, directors or employees of the Company or any of its
Subsidiaries is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for ordinary course services as employees, officers
or directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such officer, director or employee or, to the knowledge of the Company or any of
its Subsidiaries, any corporation, partnership, trust or other entity in which
any such officer, director, or employee has a substantial interest or is an
officer, director, trustee or partner.
(r) Equity Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock and (ii)
5,000,000 shares of preferred stock, no par value, of which as of the date
hereof, no shares are issued and outstanding. Schedule 3(r) sets forth the
number of shares of Common Stock that are issued and outstanding, the number of
shares of Common Stock that are reserved for issuance pursuant to the Company's
stock option and purchase plans and the number of shares of Common Stock that
are reserved for issuance pursuant to securities (other than the aforementioned
options, the Notes and the Warrants) exercisable or exchangeable for, or
convertible into, Common Stock, in each case as of the Closing Date. All of such
outstanding shares have been, or upon issuance will be, validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(r): (i) none of
the Company's capital stock is subject to preemptive rights or any other similar
12
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, or exercisable or exchangeable for, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its Subsidiaries; (iii) there
are no outstanding debt securities, notes, credit agreements, credit facilities
or other agreements, documents or instruments evidencing Indebtedness of the
Company or any of its Subsidiaries or by which the Company or any of its
Subsidiaries is or may become bound; (iv) there are no financing statements
securing obligations in any material amounts, either singly or in the aggregate,
filed in connection with the Company or any of its Subsidiaries; (v) there are
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except pursuant to the Registration Rights Agreement); (vi) there are no
outstanding securities or instruments of the Company or any of its Subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
Subsidiaries is or may become bound to redeem a security of the Company or any
of its Subsidiaries; (vii) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) the Company does not have any stock appreciation rights
or "phantom stock" plans or agreements or any similar plan or agreement; and
(ix) the Company and its Subsidiaries have no liabilities or obligations
required to be disclosed in the SEC Documents but not so disclosed in the SEC
Documents, other than those incurred in the ordinary course of the Company's or
any of its Subsidiaries respective businesses and which, individually or in the
aggregate, do not or would not have a Material Adverse Effect. The Company has
furnished or made available to the Buyers true, correct and complete copies of
the Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "Articles of Incorporation"), and the Company's Bylaws, as amended
and as in effect on the date hereof (the "Bylaws"), and the terms of all
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock and the material rights of the holders thereof in respect thereto.
(s) Indebtedness and Other Contracts. Except as disclosed in Schedule 3(s),
neither the Company nor any of its Subsidiaries (i) has any outstanding
Indebtedness (as defined below), (ii) is a party to any contract, agreement or
instrument, the violation of which, or default under which, by the other
party(ies) to such contract, agreement or instrument could reasonably be
expected to result in a Material Adverse Effect, (iii) is in violation of any
term of or in default under any contract, agreement or instrument relating to
any Indebtedness, except where such violations and defaults would not result,
individually or in the aggregate, in a Material Adverse Effect, or (iv) is a
party to any contract, agreement or instrument relating to any Indebtedness, the
performance of which, in the judgment of the Company's officers, has or is
13
expected to have a Material Adverse Effect. Schedule 3(s) provides a detailed
description of the material terms of any such outstanding Indebtedness. For
purposes of this Agreement: (x) "Indebtedness" of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services,
including, without limitation, "capital leases" in accordance with United States
generally accepted accounting principles (other than trade payables entered into
in the ordinary course of business consistent with past practice), (C) all
reimbursement or payment obligations with respect to letters of credit, surety
bonds and other similar instruments, (D) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so evidenced
incurred in connection with the acquisition of property, assets or businesses,
(E) all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with respect
to any property or assets acquired with the proceeds of such indebtedness (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property), (F) all
monetary obligations under any leasing or similar arrangement which, in
connection with United States generally accepted accounting principles,
consistently applied for the periods covered thereby, is classified as a capital
lease, (G) all indebtedness referred to in clauses (A) through (F) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person which owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and (y) "Contingent Obligation" means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto.
(t) Absence of Litigation. There is no action, suit, proceeding, inquiry or
investigation before or by the Principal Market, any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries, the Common Stock or any of the Company's Subsidiaries or any
of the Company's or its Subsidiaries' officers or directors, whether of a civil
or criminal nature or otherwise, in their capacities as such, except as set
forth in Schedule 3(t). The matters set forth in Schedule 3(t) would not
reasonably be expected to have a Material Adverse Effect.
(u) 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, and as hereafter more specifically described and mandated in the
Security Documents, which upon execution by the Company or its applicable
Subsidiary shall be incorporated herein by this reference. Neither the Company
nor any such Subsidiary has been refused any insurance coverage sought or
applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
14
as may be necessary to continue its business at a cost that would not have a
Material Adverse Effect.
(v) Employee Relations.
(i) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or employs any member of a union. The
Company and its Subsidiaries believe that their relations with their
employees are good. No executive officer of the Company or any of its
Subsidiaries (as defined in Rule 501(f) of the 1933 Act) has notified the
Company or any such Subsidiary that such officer intends to leave the
Company or any such Subsidiary or otherwise terminate such officer's
employment with the Company or any such Subsidiary. No executive officer of
the Company or any of its Subsidiaries, to the knowledge of the Company or
any of its Subsidiaries, is, or is now expected to be, in violation of any
material term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer does not subject the Company or
any of its Subsidiaries to any liability with respect to any of the
foregoing matters.
(ii) The Company and its Subsidiaries are in compliance with all
federal, state, local and foreign laws and regulations respecting labor,
employment and employment practices and benefits, terms and conditions of
employment and wages and hours, except where failure to be in compliance
would not, either individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect.
(w) Title. 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, in each case free and clear of all liens, encumbrances and defects
except such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and any of its Subsidiaries. Any 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.
(x) Intellectual Property Rights. The Company and its Subsidiaries own or
possess adequate rights or licenses to use all trademarks, trade names, service
marks, service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor ("Intellectual Property
Rights") necessary to conduct their respective businesses as now conducted.
Except as set forth in Schedule 3(x), none of the Company's Intellectual
Property Rights have expired or terminated or have been abandoned or are
expected to expire or terminate or are expected to be abandoned, within three
years from the date of this Agreement. The Company does not have any knowledge
of any infringement by the Company or its Subsidiaries of Intellectual Property
Rights of others. There is no claim, action or proceeding being made or brought,
or to the knowledge of the Company or any of its Subsidiaries, being threatened,
against the Company or any of its Subsidiaries regarding its Intellectual
15
Property Rights. Neither the Company nor any of its Subsidiaries is aware of any
facts or circumstances which might give rise to any of the foregoing
infringements or claims, actions or proceedings. The Company and its
Subsidiaries have taken reasonable security measures to protect the secrecy,
confidentiality and value of all of their Intellectual Property Rights.
(y) Environmental Laws. The Company and its Subsidiaries (i) are in
compliance with any and all Environmental Laws (as hereinafter defined), (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval where, in each of the foregoing clauses (i), (ii) and (iii), the
failure to so comply could be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect. 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.
(z) Subsidiary Rights. The Company or one of its Subsidiaries has the
unrestricted right to vote, and (subject to limitations imposed by applicable
law) to receive dividends and distributions on, all capital securities of its
Subsidiaries as owned by the Company or such Subsidiary.
(aa) Investment Company Status. The Company is not, and upon consummation
of the sale of the Securities, and for so long any Buyer holds any Securities,
will not be, an "investment company," a company controlled by an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
(bb) Tax Status. The Company and each of its Subsidiaries (i) has made or
filed all U.S. federal, state and foreign 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 and (iii) has set aside
on its books provision reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim.
(cc) Internal Accounting and Disclosure Controls. The Company and each of
its Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
16
conformity with generally accepted accounting principles 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 difference. The
Company maintains disclosure controls and procedures (as such term is defined in
Rule 13a-15 under the 1934 Act) that are effective in ensuring that information
required to be disclosed by the Company in the reports that it files or submits
under the 1934 Act is recorded, processed, summarized and reported, within the
time periods specified in the rules and forms of the SEC, including, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in the reports that it files or submits under the
1934 Act is accumulated and communicated to the Company's management, including
its principal executive officer or officers and its principal financial officer
or officers, as appropriate, to allow timely decisions regarding required
disclosure. During the twelve months prior to the date hereof neither the
Company nor any of its Subsidiaries has received any notice or correspondence
from any accountant relating to any material weakness in any part of the system
of internal accounting controls of the Company or any of its Subsidiaries.
(dd) Off Balance Sheet Arrangements. There is no transaction, arrangement,
or other relationship between the Company and an unconsolidated or other off
balance sheet entity that is required to be disclosed by the Company in its 1934
Act filings and is not so disclosed or that otherwise would be reasonably likely
to have a Material Adverse Effect.
(ee) Ranking of Notes. No Indebtedness of the Company or any of its
Subsidiaries is senior to or ranks pari passu with the Notes in right of
payment, whether with respect of payment of redemptions, interest, damages or
upon liquidation or dissolution or otherwise.
(ff) Compliance with State Marijuana Laws. Neither the Company nor any of
its Subsidiaries grows, harvests, distributes or sells marijuana or any
substances that violate United States law or the Controlled Substances Act, 21
U.S.C. ss. 801 et seq., or any laws, rules or regulations of the State of
Colorado. The existing and anticipated future activities of the Company and each
of its Subsidiaries are, and will be, in clear and unambiguous compliance with
the laws of the states in which such Company and Subsidiaries conduct, and
intend to conduct, business, including, but not limited to, any state or local
laws, regulations or ordinances permitting, restricting or otherwise relating to
the cultivation, sale, distribution and/or use of marijuana ("State Marijuana
Laws"). Neither the Company nor any of its Subsidiaries is required to apply
for, or obtain, any license under any State Marijuana Law.
(gg) Transfer Taxes. On the Closing Date, all stock transfer or other taxes
(other than income or similar taxes) which are required to be paid in connection
with the sale and transfer of the Securities to be sold to each Buyer hereunder
will be, or will have been, fully paid or provided for by the Company, and all
laws imposing such taxes will be or will have been complied with.
17
(hh) Manipulation of Price. The Company has not, and to its knowledge no
one acting on its behalf has, (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to cause or
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.
(ii) Acknowledgement Regarding Buyers' Trading Activity. The Company
acknowledges and agrees that (i) none of the Buyers has been asked to agree, nor
has any Buyer agreed, to desist from purchasing or selling, long and/or short,
securities of the Company, or "derivative" securities based on securities issued
by the Company or to hold the Securities for any specified term; (ii) any Buyer,
and counter-parties in "derivative" transactions to which any such Buyer is a
party, directly or indirectly, presently may have a "short" position in the
Common Stock, and (iii) each Buyer shall not be deemed to have any affiliation
with or control over any arm's length counter-party in any "derivative"
transaction. The Company further understands and acknowledges that one or more
Buyers may engage in hedging and/or trading activities at various times during
the period that the Securities are outstanding, including, without limitation,
during the periods that the value of the Conversion Shares and/or the Warrant
Shares are being determined and (b) such hedging and/or trading activities, if
any, can reduce the value of the existing stockholders' equity interest in the
Company both at and after the time the hedging and/or trading activities are
being conducted. The Company acknowledges that such aforementioned hedging
and/or trading activities do not constitute a breach of this Agreement, the
Notes, the Warrants or any of the documents executed in connection herewith.
(jj) U.S. Real Property Holding Corporation. The Company is not, has never
been, and so long as any Securities remain outstanding, shall not become, a U.S.
real property holding corporation within the meaning of Section 897 of the
Internal Revenue Code of 1986, as amended, and the Company shall so certify upon
any Buyer's request.
(kk) Bank Holding Company Act. Neither the Company nor any of its
Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956,
as amended (the "BHCA") and to regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). Neither the Company nor any of
its Subsidiaries or affiliates owns or controls, directly or indirectly, five
percent (5%) or more of the outstanding shares of any class of voting securities
or twenty-five percent (25%) or more of the total equity of a bank or any entity
that is subject to the BHCA and to regulation by the Federal Reserve. Neither
the Company nor any of its Subsidiaries or affiliates exercises a controlling
influence over the management or policies of a bank or any entity that is
subject to the BHCA and to regulation by the Federal Reserve.
(ll) No Additional Agreements. Neither the Company nor any of its
Subsidiaries has any agreement or understanding with any Buyer with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.
18
(mm) Disclosure. The Company confirms that neither it nor any other Person
acting on its behalf has provided any of the Buyers or their agents or counsel
with any information that constitutes or could reasonably be expected to
constitute material, nonpublic information. The Company understands and confirms
that each of the Buyers will rely on the foregoing representations in effecting
transactions in securities of the Company. All disclosure provided to the Buyers
regarding the Company, or any of its Subsidiaries, their business and the
transactions contemplated hereby, including the disclosure schedules to this
Agreement, furnished by or on behalf of the Company is true and correct and does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
press release issued by the Company or any of its Subsidiaries during the twelve
(12) months preceding the date of this Agreement did not at the time of release
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or information 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. The
Company acknowledges and agrees that no Buyer makes or has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 2.
(nn) Shell Company Status. The Company is not, and has never been, an
issuer identified in Rule 144(i)(1) of the 1933 Act.
(oo) Stock Option Plans. Each stock option granted by the Company was
granted (i) in accordance with the terms of the applicable stock option plan of
the Company and (ii) with an exercise price at least equal to the fair market
value of the Common Stock on the date such stock option would be considered
granted under GAAP and applicable law. No stock option granted under the
Company's stock option plan has been backdated. The Company has not knowingly
granted, and there is no and has been no policy or practice of the Company to
knowingly grant, stock options prior to, or otherwise knowingly coordinate the
grant of stock options with, the release or other public announcement of
material information regarding the Company or its Subsidiaries or their
financial results or prospects.
(pp) No Disagreements with Accountants and Lawyers. There are no material
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company's
ability to perform any of its obligations under any of the Transaction
Documents. In addition, on or prior to the date hereof, the Company had
discussions with its accountants about its financial statements previously filed
with the SEC. Based on those discussions, the Company has no reason to believe
that it will need to restate any such financial statements or any part thereof.
(qq) No Disqualification Events. With respect to Securities to be offered
and sold hereunder in reliance on Rule 506 under the 1933 Act ("Regulation D
19
Securities"), none of the Company, any of its predecessors, any affiliated
issuer, any director, executive officer, other officer of the Company
participating in the offering hereunder, any beneficial owner of 20% or more of
the Company's outstanding voting equity securities, calculated on the basis of
voting power, nor any promoter (as that term is defined in Rule 405 under the
1933 Act) connected with the Company in any capacity at the time of sale (each,
an "Issuer Covered Person" and, together, "Issuer Covered Persons") is subject
to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i) to
(viii) under the 1933 Act (a "Disqualification Event"), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event. The Company has complied, to the extent
applicable, with its disclosure obligations under Rule 506(e), and has furnished
to the Buyers a copy of any disclosures provided thereunder.
(rr) Other Covered Persons. The Company is not aware of any Person (other
than any Issuer Covered Person) that has been or will be paid (directly or
indirectly) remuneration for solicitation of Buyers or potential purchasers in
connection with the sale of any Regulation D Securities.
(ss) Representations and Warranties Relating to Leases, Rents and Other
Matters. Except as set forth in Schedule 3(ss), (a) Company or its Subsidiary
is, and shall remain, the absolute owner of the landlord's interest in the
leasehold estates, ground leases, leases, subleases, licenses, or other
agreements affecting the use, enjoyment or occupancy of the Company Property
(defined below) now or later existing (including any use or occupancy
arrangements created pursuant to the Bankruptcy Code and all extensions and
amendments thereto (collectively, the "Leases"); (b) Company and/or its
Subsidiary has and shall maintain the right, power and authority to assign,
transfer, and set over all of its right, title and interest in, to and under the
Leases and all cash, security deposits, advance rentals, or similar payments
relating thereto (collectively, the "Rents") and no other person has any right,
title or interest therein; (c) all Leases are valid and in full force and effect
and have not been modified, amended or terminated, nor have any of the terms and
conditions of the Leases been waived, except as expressly stated in the Leases;
(d) other than that which may have been previously granted to Buyers, there are
no outstanding assignments or pledges of the Leases or Rents; (e) there are no
outstanding leasing commissions due under the Leases for the initial term or for
any extensions, renewals or expansions; (f) there are no existing defaults or
any state of facts which, with the giving of notice and/or passage of time,
would constitute a default under the Leases by any party thereto; (g) no tenant
has any defense, set-off or counterclaim against Company; (h) each tenant is in
possession of its leased premises and paying Rent and other charges as provided
in its Lease; (i) no Rents have been or will later be anticipated, discounted,
released, waived, compromised or otherwise discharged, except as may be
expressly permitted by the applicable Lease; (j) except as specified in the
Leases and shown on the rent roll delivered to Buyers in connection with the
funding of any Notes (the "Rent Roll"), there are no (i) unextinguished rent
concessions, abatements or other inducements relating to the Leases, or (ii)
options or other rights to acquire any interest in any Company Property in favor
of any tenant; (k) the Rent Roll shall disclose all currently existing Leases
and is true, complete and accurate in all respects; and (l) all warranties and
representations made herein, in the any deed of trust, mortgage, deed to secure
debt or other similar instrument, executed and delivered by Borrower, as
"Trustor," "Mortgagor," or "Grantor", for the benefit of Buyers as
"Beneficiary," "Mortgagee" or "Grantee" ("Instrument(s)"), for an or in any
20
other document are true and do not omit to state any facts necessary to prevent
the same from being misleading as of the date hereof.
(tt) OFAC Lists. That (a) neither Company or any Subsidiary, nor any
persons or entities holding any legal or beneficial interest whatsoever in
Company or Subsidiary (whether directly or indirectly), are named on any list of
persons, entities, and governments issued by the Office of Foreign Assets
Control of the United States Department of the Treasury ("OFAC") pursuant to
Executive Order 13224 - Blocking Property and Prohibiting Transactions with
Persons Who Commit, Threaten to Commit, or Support Terrorism ("Executive Order
13224"), as in effect on the date hereof, or any similar list issued by OFAC or
any other department or agency of the United States of America (collectively,
the "OFAC Lists") or will knowingly conduct business with or engage in any
transaction with any person or entity named on any of the OFAC Lists or any
person or entity included in, owned by, controlled by, acting for or on behalf
of, providing assistance, support, sponsorship, or services of any kind to, or
otherwise associated with any of the persons or entities referred to or
described in the OFAC Lists; provided, however, that (i) with respect to
individual beneficiaries of any governmental plans (collectively, the
"Individual Beneficiaries"), the foregoing representations and warranties are
limited to Company's actual knowledge, and (ii) with respect to individual
shareholders of any publicly traded company holding an interest in Company
(collectively, the "Individual Shareholders"), the foregoing representations and
warranties are limited to Company's actual knowledge; (b) neither Company, nor
any persons or entities holding any legal or beneficial interest whatsoever in
Company (whether directly or indirectly), are included in, owned by, controlled
by, acting for or on behalf of, providing assistance, support, sponsorship, or
services of any kind to, or otherwise associated with any of the persons or
entities referred to or described in the OFAC Lists; provided, however, that (i)
with respect to any Individual Beneficiaries holding interests in Company, the
foregoing representations and warranties are limited to Company's actual
knowledge, and (ii) with respect to any Individual Shareholders holding
interests in Company, the foregoing representations and warranties are limited
to Company's actual knowledge; and (c) Company has not knowingly conducted
business with or engaged in any transaction with any person or entity named on
any of the OFAC Lists or any person or entity included in, owned by, controlled
by, acting for or on behalf of, providing assistance, support, sponsorship, or
services of any kind to, or otherwise associated with any of the persons or
entities referred to or described in the OFAC Lists.
4. COVENANTS.
(a) Best Efforts. Each party shall use its best efforts timely to satisfy
each of the covenants and the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
(b) Form D and Blue Sky. 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 in order to obtain an exemption for or to qualify the Securities for
sale to the Buyers at the 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 the Buyers on or prior to the Closing Date. The Company shall
21
make all filings and reports relating to the offer and sale of the Securities
required under applicable securities or "Blue Sky" laws of the states of the
United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in
the Registration Rights Agreement) shall have sold all of the Conversion Shares
and Warrant Shares and none of the Notes or Warrants are outstanding (the
"Reporting Period"), 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 no longer require or
otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from the sale and
exercise of the Warrants solely for the Company's corporate expenses, and not
for any (i) expenses of any of the Company's Subsidiaries, or (ii) real
property-related expenditures, acquisitions or improvements. The Company will
use the proceeds from the sale of the Notes solely as set forth on Schedule
4(d).
(e) Financial Information. The Company agrees to send the following to each
Investor during the Reporting Period (i) unless the following are filed with the
SEC through EDGAR and are available to the public through the EDGAR system,
within one (1) Business Day after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K (or any analogous reports under the 1934 Act) and any
registration statements (other than on Form S-8) or amendments filed pursuant to
the 1933 Act, (ii) on the same day as the release thereof, facsimile or e-mailed
copies of all press releases issued by the Company or any of its Subsidiaries,
and (iii) copies of any notices and other information made available or given to
the stockholders of the Company generally, contemporaneously with the making
available or giving thereof to the stockholders. As used herein, "Business Day"
means any day other than Saturday, Sunday or other day on which commercial banks
in The City of New York are authorized or required by law to remain closed.
(f) Listing. The Company shall promptly secure the listing of all of the
Registrable Securities (as defined in the Registration Rights Agreement) upon
each national securities exchange and automated quotation system, if any, upon
which the Common Stock is then listed (subject to official notice of issuance)
and shall maintain such listing of all Registrable Securities from time to time
issuable under the terms of the Transaction Documents. The Company shall
maintain the authorization for quotation of the Common Stock on the Principal
Market or any other Eligible Market (as defined in the Warrants). Neither the
Company nor any of its Subsidiaries shall take any action which would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 4(f).
(g) Fees. The Company shall reimburse Full Circle (a Buyer) or its
designee(s) for all costs and expenses incurred in connection with the
transactions contemplated by the Transaction Documents (including all legal fees
22
and disbursements in connection therewith, documentation and implementation of
the transactions contemplated by the Transaction Documents and due diligence in
connection therewith), which amount may be withheld by such Buyer from its
Purchase Price at the Closing to the extent not previously reimbursed by the
Company. The Company shall be responsible for the payment of any placement
agent's fees, financial advisory fees, or broker's commissions (other than for
Persons engaged by any Buyer) relating to or arising out of the transactions
contemplated hereby. The Company shall pay, and hold each Buyer harmless
against, any liability, loss or expense (including, without limitation,
reasonable attorney's fees and out-of-pocket expenses) arising in connection
with any claim relating to any such payment. Except as otherwise set forth in
the Transaction Documents, each party to this Agreement shall bear its own
expenses in connection with the sale of the Securities to the Buyers.
(h) Pledge of Securities. The Company acknowledges and agrees that the
Securities may be pledged by an Investor in connection with a bona fide margin
agreement or other loan or financing arrangement that is secured by the
Securities. The pledge of Securities shall not be deemed to be a transfer, sale
or assignment of the Securities hereunder, and no Investor effecting a pledge of
Securities shall be required to provide the Company with any notice thereof or
otherwise make any delivery to the Company pursuant to this Agreement or any
other Transaction Document, including, without limitation, Section 2(f) hereof;
provided that an Investor and its pledgee shall be required to comply with the
provisions of Section 2(f) hereof in order to effect a sale, transfer or
assignment of Securities to such pledgee. The Company hereby agrees to execute
and deliver such documentation as a pledgee of the Securities may reasonably
request in connection with a pledge of the Securities to such pledgee by an
Investor.
(i) Disclosure of Transactions and Other Material Information. On or before
8:30a.m., New York City time, on the date hereof, the Company shall issue a
press release describing the terms of the transaction contemplated by the
Transaction Documents. On or before 8:30 a.m., New York City time, on January
27, 2014, the Company shall file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the Transaction Documents in the form
required by the 1934 Act and attaching the material Transaction Documents
(including, without limitation, this Agreement (and all schedules and exhibits
to this Agreement), the form of the Notes, the form of the Registration Rights
Agreement and the Security Documents as exhibits to such filing (including all
attachments), the "8-K Filing"). Effective upon the filing of the 8-K Filing,
the Company acknowledges and agrees that any and all confidentiality and similar
obligations under any agreement, whether written or oral, between the Company,
any of its Subsidiaries or any of their respective officers, directors,
affiliates, employees or agents, on the one hand, and each Buyer or any of its
affiliates, on the other hand, shall terminate. From and after the filing of the
8-K Filing with the SEC, no Buyer shall be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of their respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing. The Company shall not, and shall cause each of its
Subsidiaries and its and each of their respective officers, directors, employees
and agents, not to, provide any Buyer with any material, nonpublic information
regarding the Company or any of its Subsidiaries from and after the filing of
the 8-K Filing with the SEC without the express prior written consent of such
Buyer. If a Buyer has, or believes it has, received any such material, nonpublic
information regarding the Company or any of its Subsidiaries from the Company,
any of its Subsidiaries or any of their respective officers, directors,
affiliates or agents, it may provide the Company with written notice thereof.
The Company shall, within two (2) Trading Days of receipt of such notice, make
public disclosure of such material, nonpublic information. In the event of a
breach of the foregoing covenant by the Company, any of its Subsidiaries, or any
of its or their respective officers, directors, employees and agents, in
23
addition to any other remedy provided herein or in the Transaction Documents, a
Buyer shall have the right to make a public disclosure, in the form of a press
release, public advertisement or otherwise, of such material, nonpublic
information without the prior approval by the Company, its Subsidiaries, or any
of its or their respective officers, directors, employees or agents. No Buyer
shall have any liability to the Company, its Subsidiaries, or any of its or
their respective officers, directors, employees, stockholders or agents for any
such disclosure. To the extent that the Company delivers any material,
non-public information to a Buyer without such Buyer's consent, the Company
hereby covenants and agrees that such Buyer shall not have any duty of
confidentiality with respect to, or a duty not to trade on the basis of, such
material, non-public information. Subject to the foregoing, neither the Company,
its Subsidiaries nor any Buyer shall issue any press releases 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 any Buyer, to make any press release or other public disclosure with
respect to such transactions (i) in substantial conformity with the 8-K Filing
and contemporaneously therewith and (ii) as is required by applicable law and
regulations (provided that in the case of clause (i) each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release). Except for the Registration Statement
required to be filed pursuant to the Registration Rights Agreement, without the
prior written consent of any applicable Buyer, neither the Company nor any of
its Subsidiaries or affiliates shall disclose the name of such Buyer in any
filing, announcement, release or otherwise.
(j) Additional Notes; Variable Securities; Dilutive Issuances. So long as
any Buyer beneficially owns any Notes, the Company will not issue any Notes
other than to the Buyers as contemplated hereby and the Company shall not issue
any other securities that would cause a breach or default under the Notes. For
so long as any Notes remain outstanding, the Company shall not, in any manner,
issue or sell any rights, warrants or options to subscribe for or purchase
Common Stock or directly or indirectly convertible into or exchangeable or
exercisable for Common Stock at a price which varies or may vary with the market
price of the Common Stock, including by way of one or more reset(s) to any fixed
price unless the conversion, exchange or exercise price of any such security
cannot be less than the then applicable Conversion Price (as defined in the
Notes) with respect to the Common Stock into which any Note is convertible or
the then applicable Exercise Price (as defined in the Warrants) with respect to
the Common Stock into which any Warrant is exercisable.
(k) Corporate Existence. So long as any Buyer beneficially owns any
Securities, the Company shall (i) maintain its corporate existence and (ii) not
be party to any Fundamental Transaction (as defined in the Notes) unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and the Warrants.
(l) Reservation of Shares. So long as any Buyer owns any Securities, the
Company shall take all action necessary to at all times have authorized, and
reserved for the purpose of issuance, no less than the 130% of the maximum
24
number of (i) Conversion Shares (without taking into account any limitations on
the issuance thereof pursuant to the terms of the Notes), and (ii) shares of
Common Stock issuable upon exercise of the Warrants then outstanding (without
taking into account any limitations on the exercise of the Warrants set forth in
the Warrants). If at any time the number of shares of Common Stock authorized
and reserved for issuance is not sufficient to meet the Required 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 stockholders to authorize additional
shares to meet the Company's obligations under Section 3(c), in the case of an
insufficient number of authorized shares, obtain stockholder 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
Required Reserved Amount.
(m) Conduct of Business. The business of the Company and its Subsidiaries
shall not be conducted in violation of any law, ordinance or regulation of any
governmental entity, except where such violations would not result, either
individually or in the aggregate, in a Material Adverse Effect. Without limiting
the generality of the foregoing, neither the Company nor its Subsidiaries shall
grow, harvest, distribute or sell marijuana or any substances that violate
United States law or the Controlled Substances Act, 21 U.S.C. ss. 801, et seq.,
any laws, rules or regulations of the State of Colorado, nor engage in
activities that would require such Company or any such Subsidiary to obtain a
license under any State Marijuana Law. The business of the Company and its
Subsidiaries shall be conducted in clear and unambiguous compliance with State
Marijuana Laws and in accordance with the principles set forth in the relevant
guidance issued by the U.S. Department of Justice and any other federal
government agency, including, but not limited to, the memorandum issued by the
Deputy Attorney General dated August 29, 2013. The exception in the first
sentence of this Section 3(m), with respect to violations not resulting in a
Material Adverse Effect, shall not apply to the two preceding sentences.
(n) Additional Issuances of Securities.
(i) For purposes of this Section 4(n), the following definitions shall
apply.
(1) "Common Stock Equivalents" means, collectively, Options and
Convertible Securities.
(2) "Convertible Securities" means any stock or securities (other than
Options) convertible into or exercisable or exchangeable for shares of
Common Stock.
(3) "Options" means any rights, warrants or options to subscribe for
or purchase Common Stock or Convertible Securities.
(4) "Subsequent Placement" means any direct or indirect, offer, sale,
grant of any option to purchase, or other disposition of (or announcement
of any offer, sale, grant or any option to purchase or other disposition
of) any of the Company's or the Company's Subsidiaries' debt, equity or
25
equity equivalent securities, including without limitation any debt,
preferred stock or other instrument or security that is, at any time during
its life and under any circumstances, convertible into or exchangeable or
exercisable for Common Stock or Common Stock Equivalents.
(ii) Except as may be otherwise expressly provided in the Notes, from
the date hereof until the earlier of (A) the eighteen (18) month
anniversary of the Closing Date and (B) the date that the Company has sold
at least $30 million aggregate principal amount of senior secured notes of
the Company to the Buyers (including the Notes to be sold to the Buyers on
the Closing Date), the Company shall not, except for sales of senior
secured convertible notes to the Buyers and except with the prior written
consent of the Required Holders, (i) directly or indirectly, offer, sell,
grant any option to purchase, or otherwise dispose of (or announce any
offer, sale, grant or any option to purchase or other disposition of) any
of its or its Subsidiaries' debt, whether or not such debt is, at any time
during its life and under any circumstances, convertible into or
exchangeable or exercisable for Common Stock or Common Stock Equivalents or
(ii) be party to any solicitations, negotiations or discussions with regard
to the foregoing.
(iii) From the date hereof until the three (3) year anniversary of the
Closing Date, the Company shall not, (i) directly or indirectly, effect any
Subsequent Placement or (ii) be party to any solicitations, negotiations or
discussions with regard to the foregoing unless the Company shall have
first complied with this Section 4(n)(iii).
(1) The Company shall deliver to each Buyer an irrevocable written
notice (the "Offer Notice") of any proposed or intended issuance or sale or
exchange (the "Offer") of the securities being offered (the "Offered
Securities") in a Subsequent Placement, which Offer Notice shall (w)
identify and describe the Offered Securities, (x) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the
number or amount of the Offered Securities to be issued, sold or exchanged,
(y) identify the persons or entities (if known) to which or with which the
Offered Securities are to be offered, issued, sold or exchanged and (z)
offer to issue and sell to or exchange with such Buyers all of the Offered
Securities, allocated among such Buyers (a) based on such Buyer's pro rata
portion of the aggregate principal amount of Notes purchased hereunder (the
"Basic Amount"), and (b) with respect to each Buyer that elects to purchase
its Basic Amount, any additional portion of the Offered Securities
attributable to the Basic Amounts of other Buyers as such Buyer shall
indicate it will purchase or acquire should the other Buyers subscribe for
less than their Basic Amounts (the "Undersubscription Amount"), which
process shall be repeated until the Buyers shall have an opportunity to
subscribe for any remaining Undersubscription Amount.
(2) To accept an Offer, in whole or in part, such Buyer must deliver a
written notice to the Company prior to the end of the tenth (10th) Business
Day after such Buyer's receipt of the Offer Notice (the "Offer Period"),
setting forth the portion of such Buyer's Basic Amount that such Buyer
elects to purchase and, if such Buyer shall elect to purchase all of its
Basic Amount, the Undersubscription Amount, if any, that such Buyer elects
to purchase (in either case, the "Notice of Acceptance"). If the Basic
Amounts subscribed for by all Buyers are less than the total of all of the
Basic Amounts, then each Buyer who has set forth an Undersubscription
26
Amount in its Notice of Acceptance shall be entitled to purchase, in
addition to the Basic Amounts subscribed for, the Undersubscription Amount
it has subscribed for; provided, however, that if the Undersubscription
Amounts subscribed for exceed the difference between the total of all the
Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Buyer who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of
the Available Undersubscription Amount as the Basic Amount of such Buyer
bears to the total Basic Amounts of all Buyers that have subscribed for
Undersubscription Amounts, subject to rounding by the Company to the extent
its deems reasonably necessary. Notwithstanding anything to the contrary
contained herein, if the Company desires to modify or amend the terms and
conditions of the Offer prior to the expiration of the Offer Period, the
Company may deliver to the Buyers a new Offer Notice and the Offer Period
shall expire on the tenth (10th) Business Day after such Buyer's receipt of
such new Offer Notice.
(3) The Company shall have five (5) Business Days from the expiration
of the Offer Period above to offer, issue, sell or exchange all or any part
of such Offered Securities as to which a Notice of Acceptance has not been
given by the Buyers (the "Refused Securities") pursuant to a definitive
agreement (the "Subsequent Placement Agreement") but only to the offerees
described in the Offer Notice (if so described therein) and only upon terms
and conditions (including, without limitation, unit prices and interest
rates) that are not more favorable to the acquiring Person or Persons or
less favorable to the Company than those set forth in the Offer Notice and
(ii) to publicly announce (a) the execution of such Subsequent Placement
Agreement, and (b) either (x) the consummation of the transactions
contemplated by such Subsequent Placement Agreement or (y) the termination
of such Subsequent Placement Agreement, which shall be filed with the SEC
on a Current Report on Form 8-K with such Subsequent Placement Agreement
and any documents contemplated therein filed as exhibits thereto.
(4) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4(n)(iii)(3) above), then each Buyer may, at its sole
option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that
shall be not less than the number or amount of the Offered Securities that
such Buyer elected to purchase pursuant to Section 4(n)(iii)(2) above
multiplied by a fraction, (i) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell
or exchange (including Offered Securities to be issued or sold to Buyers
pursuant to Section 4(n)(iii)(3) above prior to such reduction) and (ii)
the denominator of which shall be the original amount of the Offered
Securities. In the event that any Buyer so elects to reduce the number or
amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or
amount of the Offered Securities unless and until such securities have
again been offered to the Buyers in accordance with Section 4(n)(iii)(1)
above.
(5) Upon the closing of the issuance, sale or exchange of all or less
than all of the Refused Securities, the Buyers shall acquire from the
Company, and the Company shall issue to the Buyers, the number or amount of
27
Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 4(n)(iii)(3) above if the Buyers have so elected, upon
the terms and conditions specified in the Offer. The purchase by the Buyers
of any Offered Securities is subject in all cases to the preparation,
execution and delivery by the Company and the Buyers of a purchase
agreement relating to such Offered Securities reasonably satisfactory in
form and substance to the Buyers and their respective counsel.
(6) Any Offered Securities not acquired by the Buyers or other persons
in accordance with Section 4(n)(iii)(3) above may not be issued, sold or
exchanged until they are again offered to the Buyers under the procedures
specified in this Agreement.
(7) The Company and the Buyers agree that if any Buyer elects to
participate in the Offer, (x) neither the Subsequent Placement Agreement
with respect to such Offer nor any other transaction documents related
thereto (collectively, the "Subsequent Placement Documents") shall include
any term or provisions whereby any Buyer shall be required to agree to any
restrictions in trading as to any securities of the Company owned by such
Buyer prior to such Subsequent Placement, and (y) any registration rights
set forth in such Subsequent Placement Documents shall be similar in all
material respects to the registration rights contained in the Registration
Rights Agreement.
(8) Notwithstanding anything to the contrary in this Section 4(n) and
unless otherwise agreed to by the Buyers, the Company shall either confirm
in writing to the Buyers that the transaction with respect to the
Subsequent Placement has been abandoned or shall publicly disclose its
intention to issue the Offered Securities, in either case in such a manner
such that the Buyers will not be in possession of material non-public
information, by the fifteenth (15th) Business Day following delivery of the
Offer Notice. If by the fifteenth (15th) Business Day following delivery of
the Offer Notice no public disclosure regarding a transaction with respect
to the Offered Securities has been made, and no notice regarding the
abandonment of such transaction has been received by the Buyers, such
transaction shall be deemed to have been abandoned and the Buyers shall not
be deemed to be in possession of any material, non-public information with
respect to the Company. Should the Company decide to pursue such
transaction with respect to the Offered Securities, the Company shall
provide each Buyer with another Offer Notice and each Buyer will again have
the right of participation set forth in this Section 4(n)(iii). The Company
shall not be permitted to deliver more than one such Offer Notice to the
Buyers in any 60 day period.
(iv) If any Investor's exercise of its rights contained in subsection
(iii) of this Section 4(n) will cause the Company to be out of compliance
with the listing rules of the Principal Market, such Investor will waive
such rights to the extent of such non-compliance. The restrictions
contained in subsection (iii) of this Section 4(n) shall not apply in
connection with the issuance of any Excluded Securities (as defined in the
Notes).
(o) Notice of Disqualification Events. The Company shall notify each Buyer
in writing, prior to the Closing Date of (i) any Disqualification Event relating
28
to any Issuer Covered Person and (ii) any event that would, with the passage of
time, become a Disqualification Event relating to any Issuer Covered Person.
(p) Collateral Agent.
(i) Each Buyer hereby (a) appoints Full Circle as the collateral agent
hereunder and under the Security Documents (in such capacity, the
"Collateral Agent"), and (b) authorizes the Collateral Agent (and its
officers, directors, employees and agents) to take such action on such
Buyer's behalf in accordance with the terms hereof and thereof. The
Collateral Agent shall not have, by reason hereof or pursuant to any
Security Documents, a fiduciary relationship in respect of any Buyer.
Neither the Collateral Agent nor any of its officers, directors, employees
and agents shall have any liability to any Buyer for any action taken or
omitted to be taken in connection hereof or the Security Documents except
to the extent caused by its own gross negligence or willful misconduct, and
each Buyer agrees to defend, protect, indemnify and hold harmless the
Collateral Agent and all of its officers, directors, employees and agents
(collectively, the "Collateral Agent Indemnitees") from and against any
losses, damages, liabilities, obligations, penalties, actions, judgments,
suits, fees, costs and expenses (including, without limitation, reasonable
attorneys' fees, costs and expenses) incurred by such Collateral Agent
Indemnitee, whether direct, indirect or consequential, arising from or in
connection with the performance by such Collateral Agent Indemnitee of the
duties and obligations of Collateral Agent pursuant hereto or any of the
Security Documents.
(ii) The Collateral Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person, and with
respect to all matters pertaining to this Agreement or any of the other
Transaction Documents and its duties hereunder or thereunder, upon advice
of counsel selected by it.
(iii) The Collateral Agent may resign from the performance of all its
functions and duties hereunder and under the Notes and the Security
Documents at any time by giving at least ten (10) Business Days prior
written notice to the Company and each holder of the Notes. Such
resignation shall take effect upon the acceptance by a successor Collateral
Agent of appointment as provided below. Upon any such notice of
resignation, the holders of a majority of the outstanding principal amount
of Notes shall appoint a successor Collateral Agent. Upon the acceptance of
the appointment as Collateral Agent, such successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Collateral Agent, and the retiring Collateral Agent
shall be discharged from its duties and obligations under this Agreement,
the Notes and the Security Agreement. After any Collateral Agent's
resignation hereunder, the provisions of this Section 4(p) shall inure to
its benefit. If a successor Collateral Agent shall not have been so
appointed within said ten (10) Business Day period, the retiring Collateral
Agent shall then appoint a successor Collateral Agent who shall serve until
such time, if any, as the holders of a majority of the outstanding
principal amount of Notes appoints a successor Collateral Agent as provided
above.
29
(iv) The Company hereby covenants and agrees to take all actions as
promptly as practicable reasonably requested by either the holders of a
majority of the outstanding principal amount of Notes or the Collateral
Agent (or its successor), from time to time pursuant to the terms of this
Section 4(p), to secure a successor Collateral Agent satisfactory to such
requesting part(y)(ies), in their sole discretion, including, without
limitation, by paying all fees of such successor Collateral Agent, by
having the Company agree to indemnify any successor Collateral Agent and by
each of the Company executing a collateral agency agreement or similar
agreement and/or any amendment to the Security Documents reasonably
requested or required by the successor Collateral Agent.
(q) Compliance Procedures. On or prior to the Closing Date, the Company and
its Subsidiaries shall adopt and implement a compliance program designed to
ensure that the Company and each Subsidiary and their tenants' respective
operations, including, but not limited to the cultivation, production, sale,
distribution and use of any marijuana grown, sold or distributed at any
property, location or facility leased by the Company or its Subsidiaries, are in
clear and unambiguous compliance with all applicable laws, rules and
regulations, including, but not limited to State Marijuana Laws and in
accordance with the principles set forth in the relevant guidance issued by the
U.S. Department of Justice and any other federal government agency, including,
but not limited to, the memorandum issued by the Deputy Attorney General dated
August 29, 2013 (the "Compliance Program"). The Compliance Program shall be in
form and substance satisfactory to the Required Holders (as such Required
Holders shall determine in their sole discretion) and shall include, at a
minimum, written policies and procedures; training of employees; screening of
employees; due diligence on lessees of the properties owned by the Company or
its Subsidiaries; the obtaining of appropriate representations, warranties and
other contractual provisions from such lessees; the appointment of a compliance
officer; monitoring; periodic compliance certifications by employees and
lessees; acceptable zoning and land use rights and compliance; and periodic
testing or evaluation of the effectiveness of such Compliance Program.
(r) After Acquired Real Property. Upon the acquisition by the Company or
any of its Subsidiaries after the date hereof of any interest (whether fee or
leasehold) in any real property (wherever located) (each such interest being a
"New Facility") (i) with a Current Value (as defined below) in excess of
$100,000 in the case of a fee interest, or (ii) requiring the payment of annual
rent exceeding in the aggregate $5,000 in the case of leasehold interest,
immediately so notify the Collateral Agent, setting forth with specificity a
description of the interest acquired, the location of the real property, any
structures or improvements thereon and either an appraisal or the Company's
good-faith estimate of the current value of such real property (for purposes of
this Section, the "Current Value"). The Collateral Agent shall notify the
Company whether it intends to require a Deed of Trust (and/or any other Real
Property Deliverables) or landlord's waiver with respect to such New Facility.
Upon receipt of such notice requesting a Mortgage (and/or any other Real
Property Deliverables) or landlord's waiver, the Person that has acquired such
New Facility shall promptly furnish the same to the Collateral Agent. The
Company shall pay all fees and expenses, including reasonable attorneys' fees
and expenses, and all title insurance charges and premiums, in connection with
the Company's obligations under this Section 4(s). As used herein, "Real
Property Deliverables" means a lien or other collateral interest right in a New
Facility.
30
(s) Notice of Litigation. The Company shall promptly disclose to the Buyers
any action, suit, proceeding, inquiry or investigation before or by the
Principal Market, any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries, the Common Stock or
any of the Company's Subsidiaries or any of the Company's or its Subsidiaries'
officers or directors, whether of a civil or criminal nature or otherwise, in
their capacities as such.
(t) INTENTIONALLY OMITTED.
(u) Closing Documents. On or prior to fourteen (14) calendar days after the
Closing Date, the Company agrees to deliver, or cause to be delivered, to each
Buyer a complete closing set of the executed Transaction Documents, Securities
and any other documents required to be delivered to any party pursuant to
Section 7 hereof or otherwise.
(v) Continuation of Existence. Neither the Company nor its Subsidiaries
shall (a) dissolve, terminate, or otherwise dispose of, directly, indirectly or
by operation of law, all or substantially all of its assets; (b) reorganize or
change its legal structure without the Buyer's prior written consent; (c) change
its name, address, or the name under which Company nor its Subsidiaries conducts
its business without promptly notifying Buyers; or (d) do anything to cause any
representations or warranties to become untrue. Company and its Subsidiaries
shall (i) maintain its existence as a limited liability company duly organized,
validly existing, and in good standing and qualified to transact business under
the laws of its State of organization and the State of Colorado and (ii) shall
maintain all necessary approvals, governmental and otherwise, and full power and
authority to own its properties (including its Property(ies)) and carry on its
business.
(w) Leasing Restrictions. Company or its Subsidiary shall lease the Company
Properties at market rents and on market terms (based on the type, quality and
location of such Property) using the standard lease form that has been approved
by the Required Holders, and Company or its Subsidiary shall not lease any
portion of the Company Properties for any use not reasonably approved by Buyers.
All Leases shall be bona fide, binding contracts, duly authorized and executed
with third-party tenants unrelated to Company.
(x) Covenants Relating to Leases and Rents. Company or its Subsidiary shall
not, except with the prior written consent of the Required Holders in each
instance, (a) sell, assign, pledge, mortgage or otherwise transfer or encumber
(except hereby) any of the Leases, Rents or any right, title or interest of
Company or its Subsidiary therein; (b) accept prepayments of any Rents for a
period of more than one (1) month in advance of the due dates thereof (provided,
however, that Company or its Subsidiary may accept prepayments of Rents for
periods of more than one (1) month with respect to no more than fifteen percent
(15%) of the leasable area in any Property); (c) in any manner intentionally or
materially impair the value of its Property or the benefit to Buyers; (d) waive,
excuse, condone, discount, set off, compromise, or in any manner release or
discharge any tenant from any of its obligations under the Leases; (e) except as
otherwise permitted hereby, enter into any settlement of any action or
proceeding arising under, or in any manner connected with, the Leases or with
the obligations of the landlord or the tenants thereunder; or (f) modify, cancel
31
or terminate any guaranties under any Lease. Company shall or cause, at its sole
cost and expense, duly and timely keep, observe, perform, comply with and
discharge all of the material obligations of the landlord under the Leases, or
cause the foregoing to be done, and Company shall not take any actions that
would, either presently or with the passage of time, cause a default by Company
or its Subsidiary under any of the Leases. Company shall give Buyers prompt
notice of any Lease with a tenant it enters into subsequent to the date hereof,
together with a certified copy of such Lease. At Company's expense, Company
shall (i) deliver to the Buyers, within ten (10) days after sending such notice,
copies of all notices of default Company has sent to any tenant, (ii) enforce
the Leases and all remedies available to Company or its Subsidiary upon any
tenant's default, (iii) upon the Buyers's request, deliver to Buyers copies of
all papers served in connection with any such enforcement proceedings, and (iv)
upon Buyers' request, consult with Buyers, their agents and attorneys with
respect to the conduct thereof. Company or its Subsidiaries shall not enter into
any settlement of any such proceeding without the Required Holders's prior
written consent.
(y) Subject to the terms and conditions of the Compliance Program described
in Section 4(q) of this Agreement, to be adopted by the Company and its
Subsidiaries, and approved by the Related Buyers, Company and its Subsidiaries
shall permit representatives of Buyers to enter upon the Company Properties, to
inspect the improvements, and business operations within the improvements.
Company and its Subsidiaries shall at all times cooperate with the
representatives of Buyers in connection with or in aid of the performance of
Buyers' functions under this Agreement. Notwithstanding anything to the contrary
in this Agreement or in the Transactional Documents, the Buyers shall have no
duty or obligation confirm observance or satisfaction of the Compliance
Procedures, or to enter any of the Company Properties for purposes of
inspection, or otherwise, to confirm observance and satisfaction of the
Compliance Procedures, or otherwise be responsible or accountable for the
Company's, its Subsidiaries' and their tenants' respective operations,
including, but not limited compliance with State Marijuana Laws and in
accordance with the principles set forth in the relevant guidance issued by the
U.S. Department of Justice and any other federal government agency, including,
but not limited to, the memorandum issued by the Deputy Attorney General dated
August 29, 2013.
(z) OFAC Covenants.
(i) Company hereby covenants and agrees that it and its Subsidiaries
will comply at all times with the requirements of Executive Order 13224;
the International Emergency Economic Powers Act, 50 U.S.C. Sections
1701-06; the United and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L.
107-56; the Iraqi Sanctions Act, Pub. L. 101-513, 104 Stat. 2047-55; the
United Nations Participation Act, 22 U.S.C. Section 287c; the Antiterrorism
and Effective Death Penalty Act, (enacting 8 U.S.C. Section 219, 18 U.S.C.
Section 2332d, and 18 U.S.C. Section 2339b); the International Security and
Development Cooperation Act, 22 U.S.C. Section 2349 aa-9; the Terrorism
Sanctions Regulations, 31 C.F.R. Part 595; the Terrorism List Governments
Sanctions Regulations, 31 C.F.R. Part 596; and the Foreign Terrorist
Organizations Sanctions Regulations, 31 C.F.R. Part 597 and any similar
laws or regulations currently in force or hereafter enacted (collectively,
the "Anti-Terrorism Regulations").
(ii) Company hereby covenants and agrees that if it becomes aware or
receives any notice that Company, any Subsidiary, or any person or entity
32
holding any legal or beneficial interest whatsoever (whether directly or
indirectly) in Company, is named on any of the OFAC Lists (such occurrence,
an "OFAC Violation"), then Company will immediately (i) give notice to
Buyers of such OFAC Violation, and (ii) comply with all Laws applicable to
such OFAC Violation (regardless of whether the party included on any of the
OFAC Lists is located within the jurisdiction of the United States of
America), including, without limitation, the Anti-Terrorism Regulations,
and Company hereby authorizes and consents to Buyers' taking any and all
steps Buyers deems necessary to comply with all applicable laws applicable
to any such OFAC Violation, including, without limitation, the requirements
of the Anti-Terrorism Regulations (including the "freezing" and/or
"blocking" of assets).
(iii) Upon Buyers' request from time to time during the term of the
Notes, Company agrees to deliver a certification confirming that the
representations and warranties set forth herein remain true and correct as
of the date of such certificate and confirming Borrower's and any
guarantor's compliance with this Section.
5. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. The Company shall maintain at its principal executive offices
(or such other office or agency of the Company as it may designate by notice to
each holder of Securities), a register for the Notes and the Warrants in which
the Company shall record the name and address of the Person in whose name the
Notes and the Warrants have been issued (including the name and address of each
transferee), the principal amount of Notes held by such Person, the number of
Conversion Shares issuable pursuant to the terms of the Notes and the number of
Warrant Shares issuable upon exercise of the Warrants held by such Person. The
Company shall keep the register open and available at all times during business
hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, in form
and substance acceptable to the Required Holders in their sole discretion (the
"Irrevocable Transfer Agent Instructions") to issue certificates or credit
shares to the applicable balance accounts at DTC, registered in the name of each
Buyer or its respective nominee(s), for the Conversion Shares and the Warrant
Shares issued at the Closing or upon conversion of the Notes or exercise of the
Warrants in such amounts as specified from time to time by each Buyer to the
Company upon conversion of the Notes or exercise of the Warrants. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5(b), and stop transfer instructions to
give effect to Section 2(f) hereof, 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 other Transaction Documents. If a Buyer effects a sale, assignment or
transfer of the Securities in accordance with Section 2(f), the Company shall
permit the transfer and shall promptly instruct its transfer agent to issue one
or more certificates or credit shares to the applicable balance accounts at DTC
in such name and in such denominations as specified by such Buyer to effect such
sale, transfer or assignment. In the event that such sale, assignment or
transfer involves the Conversion Shares or the Warrant Shares sold, assigned or
transferred pursuant to an effective registration statement or pursuant to Rule
144, the transfer agent shall issue such Securities to the Buyer, assignee or
transferee, as the case may be, without any restrictive legend. The Company
acknowledges that a breach by it of its obligations hereunder will cause
33
irreparable harm to a Buyer. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5(b) will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5(b), that a Buyer shall be entitled,
in addition to all other available remedies, to an order and/or injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Notes
and the related Warrants to each Buyer 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 the Company's sole benefit
and may be waived by the Company at any time in its sole discretion by providing
each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents
to which it is a party and delivered the same to the Company.
(ii) Such Buyer shall have delivered to the Company the Purchase Price
(less, in the case of Full Circle, the amounts withheld pursuant to Section
4(g)) for the Notes and the related Warrants being purchased by such Buyer
at the Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be true
and correct 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 which shall be true and correct as of such specified
date), and such 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 such Buyer at
or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Notes and the
related 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 each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion by providing the Company with prior written
notice thereof:
(i) The Company shall have duly executed and delivered to such Buyer
(A) each of the Transaction Documents, (B) the Notes (allocated in such
principal amounts as such Buyer shall request), being purchased by such
Buyer at the Closing pursuant to this Agreement and (C) the related
Warrants (allocated in such amounts as such Buyer shall request) being
purchased by such Buyer at the Closing pursuant to this Agreement.
(ii) Company or its Subsidiary shall have granted Buyers, through the
Transaction Documents, a first priority security interest and lien against
34
each of the Company Properties (defined below) and fixtures relating
thereto, and all other Company furniture, fixtures and equipment contained
within or relating to the Company Properties;
(iii) Such Buyer shall have received the opinion of (A) Hart & Hart,
LLC, the Company's outside counsel, dated as of the Closing Date and (B)
Vincente Sederberg, the Company's outside real estate counsel, dated as of
the Closing Date, in each case in form and substance acceptable to such
Buyer in its sole discretion.
(iv) The Company shall have delivered to such Buyer a copy of the
Irrevocable Transfer Agent Instructions, which instructions shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(v) The Company shall have delivered to such Buyer a certificate
evidencing the formation and good standing of the Company and each of its
Subsidiaries in such entity's jurisdiction of formation issued by the
Secretary of State (or comparable office) of such jurisdiction, as of a
date within ten (10) days of the Closing Date.
(vi) The Company shall have delivered to such Buyer 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 conducts business, as of a date within
ten (10) days of the Closing Date.
(vii) The Company shall have delivered to such Buyer a certified copy
of the Articles of Incorporation as certified by the Secretary of State (or
comparable office) of the State of Colorado within ten (10) days of the
Closing Date.
(viii) The Company shall have delivered to such Buyer a certificate,
executed by the Secretary of the Company and dated as of the Closing Date,
as to (i) the resolutions consistent with Section 3(b) as adopted by the
Company's Board of Directors in a form reasonably acceptable to such Buyer,
(ii) the Articles of Incorporation and (iii) the Bylaws, each as in effect
at the Closing, in form and substance acceptable to the Required Holders in
their sole discretion.
(ix) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the respective Closing Date
as though made at that time (except for representations and warranties that
speak as of a specific date which shall be true and correct as of such
specified date) and the Company shall have performed, satisfied and
complied in all respects with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to the Closing Date. Such Buyer
shall have received a certificate, 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 in
form and substance acceptable to the Required Holders in their sole
discretion.
(x) The Company shall have delivered to such Buyer a letter from the
Company's transfer agent certifying the number of shares of Common Stock
outstanding as of a date within five (5) days of the Closing Date.
35
(xi) The Common Stock (I) shall be designated for quotation or listed
on the Principal Market and (II) shall not have been suspended, as of the
Closing Date, by the SEC or the Principal Market from trading on the
Principal Market nor shall suspension by the SEC or the Principal Market
have been threatened, as of the Closing Date, either (A) in writing by the
SEC or the Principal Market or (B) by falling below the minimum listing
maintenance requirements of the Principal Market.
(xii) The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.
(xiii) Each Subsidiary shall have executed and delivered to such Buyer
the Guaranty Agreement.
(xiv) The Security Documents shall have been executed and delivered to
each Buyer, and the Company, in accordance with the terms of the Security
Agreement, shall have delivered to the Collateral Agent, with a copy to
each Buyer, along with such other documents, and taken such other actions,
as in each case, shall be necessary or, in the opinion of the Collateral
Agent, desirable, to perfect the security interests purported to be created
by the Security Agreement.
(xv) Contemporaneously with the Closing, the Company shall have formed
one or more Subsidiaries to purchase certain real estate at locations to be
mutually approved by the Company and the Required Holders (the "Acquired
Properties") and such Subsidiaries shall have purchased such Acquired
Properties.
(xvi) The Company shall have obtained and delivered to each Buyer an
appraisal by a real estate appraiser reasonably acceptable to the Required
Holders for each of the Acquired Properties that shows an appraised value
equal to or greater than 75% of the purchase price to be paid by the
applicable Subsidiary of the Company for each such Acquired Property.
(xvii) In accordance with the terms of the Security Documents, the
Company shall have delivered to the Collateral Agent (i) certificates
representing the Pledged Shares (as defined in the Security Agreement),
along with duly executed blank stock powers and (ii) appropriate financing
statements on Form UCC-1 to be duly filed in such office or offices as may
be necessary or, in the opinion of the Collateral Agent, desirable to
perfect the security interests purported to be created by each Security
Document.
(xviii) Buyer shall have been provided the following for its review
and approval, and such approval shall be granted or withheld at Buyers sole
discretion:
(1) A lender's title insurance policy, to be issued at the
Company's or its Subsidiary's sole cost and expense, made in favor of
the Buyers, committing to issue to Buyers, as lender, extended
coverage title insurance policy ("Title Policy") for each of the
respective Acquired Properties and any then owned real estate
(collectively, the "Company Properties"), in an amount equal to the
greater of Note(s) being secured by the respective Company Property or
36
the purchase price of said Company Property, subject only to those
certain exceptions to title acceptable to Buyers, in their sole and
absolute discretion;
(2) A Phase I environmental inspection prepared by an
environmental engineering company acceptable to Buyers ("Phase I"),
acquired at Company's sole cost and expense, of each of the Company
Properties and certified to Buyers, acceptable to Buyers in their sole
and absolute discretion. In the event the Phase I recommends a Phase
II environmental inspection, the Company shall promptly order such
Phase II environmental inspection at its sole cost and expense,
certified to the Buyers, which shall be acceptable to Buyers at their
sole and absolute discretion;
(3) Insurance policies insuring the Company Properties against
fire and casualty, and insuring the Company or its Subsidiary against
general liability, each naming the Buyers as "additional insured", in
a form and substance acceptable to Buyers, as more particularly
described in the Security Documents;
(4) Company shall have furnished to Buyers, at Company's sole
cost and expense, a current ALTA improvement survey plat ("Survey") of
each Company Property acceptable to Buyers and the title company
issuing the Title Policy indicating, without limitation, that all
foundations or other improvements currently constructed are located
within the lot lines, without infringement on established easements or
rights-of-way and not in violation of any ordinance including zoning
ordinances which impose lot line setback requirements and parking
requirements. The survey shall show the legal description of each
Company Property as it will be insured by the title company, the
courses and distances of each Company Property lot lines, all
appurtenant and servient easements, setbacks, building lines and width
of abutting streets, distance to nearest intersecting streets
affording ingress and egress to and from each Company Property, and
the location and dimensions of all encroachments, improvements, above
or below ground easements and utilities, and designated parking
spaces. The surveyor shall also certify whether or not any portion of
the improvements is located within a Federal Emergency Management
Agency identified flood-prone area of a community and if located
thereon, state the map number and whether or not the Property appears
in the "Flood Hazard Area." The survey must be certified as accurate
by a licensed surveyor in the State of Colorado and contain a
certificate imprinted thereon in the form approved by the ALTA stating
that the survey is made for the benefit of the Buyers and the title
company issuing the Title Policy;
(5) Company and/or its Subsidiaries have all necessary (i)
certificates, licenses, and other approvals, governmental and
otherwise, for the operation of the Company Properties and the conduct
of its business and (ii) zoning, building code, land use,
environmental and other similar permits or approvals, all of which are
currently in full force and effect and not subject to revocation,
suspension, forfeiture, or modification, acceptable to Buyers at their
sole and absolute discretion. Company Properties and their use and
occupancy are in full compliance with all applicable laws, and Company
and/or its Subsidiaries have received no notice of any violation or
potential violation of the applicable laws which have not been
37
remedied or satisfied, and the zoning classification of Company
Properties permits the use of such Company Properties as intended;
(6) Company's and/or its Subsidiaries' Company Properties are
free from damage caused by fire or other casualty;
(7) Evidence that all costs and expenses for labor, materials,
supplies, and equipment used in the construction of the improvements
for Company's and/or its Subsidiaries' Company Properties have been
paid in full;
(8) Rent Roll relating to any Company Properties;
(9) Evidence that all taxes, fees and other charges relating to
the Company Properties, and in connection with the execution, delivery
and recording of the Security Documents shall have been paid, and all
delinquent taxes, assessments or other governmental charges or liens
affecting the Company Property, if any, shall have been paid. Company
shall provide a treasurer's tax certificates disclosing that no
general and special taxes or assessments encumbering the Company
Properties are delinquent and that the Company Properties do not lie
within any special or general assessment district except as approved
by the Buyers; and
(10) Evidence that any and all other requirements which may be
set forth in the Security Documents, as determined necessary by
Buyers, in their sole and absolute discretion.
(xix) Within two (2) Business Days prior to the Closing, the Company
shall have delivered or caused to be delivered to each Buyer (A) certified
copies of UCC search results, listing all effective financing statements
which name as debtor the Company or any of its Subsidiaries filed in the
prior five years to perfect an interest in any assets thereof, together
with copies of such financing statements, none of which, except as
otherwise agreed in writing by the Buyers, shall cover any of the
Collateral (as defined in the Security Documents) and the results of
searches for any tax lien and judgment lien filed against such Person or
its property, which results, except as otherwise agreed to in writing by
the Buyers shall not show any such Liens (as defined in the Security
Documents); and (B) a perfection certificate, duly completed and executed
by the Company and each of its Subsidiaries, in form and substance
satisfactory to the Buyers.
(xx) The Collateral Agent and such Buyer shall be satisfied that the
Collateral Agent has been granted, and holds, for the benefit of the
Collateral Agent and such Buyer, a perfected, first priority Lien on, and
security interest in, all of the Collateral, subject only to Permitted
Liens.
(xxi) Contemporaneously with the Closing, the applicable Subsidiaries
that own the Company Properties shall have entered into a lease (each, a
"Tenant Lease") with a tenant for each of the Company Properties on terms
and by lease form satisfactory to the Required Holders and with a
termination date not earlier than two years following the Maturity Date (as
defined in the Notes).
38
(xxii) The Company shall have instituted the Policies and Procedures,
all on terms satisfactory to the Required Holders in their sole discretion.
(xxiii) The Company shall have delivered to such Buyer disclosure
schedules to this Agreement in form and substance acceptable to such Buyer
in its sole discretion.
(xxiv) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. TERMINATION. In the event that the Closing shall not have occurred with
respect to a Buyer on or before ninety (90) calendar days from the date hereof
due to the Company's or such Buyer's failure to satisfy the conditions set forth
in Sections 6 and 7 above (and the nonbreaching party's failure to waive such
unsatisfied condition(s)), the nonbreaching party shall have the option to
terminate this Agreement with respect to such breaching party at the close of
business on such date by delivering a written notice to that effect to each
other party to this Agreement and without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse Full Circle or its
designee(s), as applicable, for the expenses described in Section 4(g) above.
9. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such 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 HEREBY IRREVOCABLY
WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
39
(b) Counterparts. This Agreement may be executed in two or more identical
counterparts, all of which 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; provided that a facsimile signature shall be
considered due execution and shall be binding upon the signatory thereto with
the same force and effect as if the signature were an original, not a facsimile
signature.
(c) Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) Severability. If any provision of this Agreement is prohibited by law
or otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this
Agreement so long as this Agreement as so modified continues to express, without
material change, the original intentions of the parties as to the subject matter
hereof and the prohibited nature, invalidity or unenforceability of the
provision(s) in question does not substantially impair the respective
expectations or reciprocal obligations of the parties or the practical
realization of the benefits that would otherwise be conferred upon the parties.
The parties will endeavor in good faith negotiations to replace the prohibited,
invalid or unenforceable provision(s) with a valid provision(s), the effect of
which comes as close as possible to that of the prohibited, invalid or
unenforceable provision(s).
(e) Entire Agreement; Amendments. This Agreement and the other Transaction
Documents supersede all other prior oral or written agreements between the
Buyers, the Company, their affiliates and Persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein and therein 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 any Buyer makes any representation, warranty, covenant
or undertaking with respect to such matters. Provisions of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of at least a majority of the
aggregate number of Registrable Securities issued or issuable hereunder and
under the Notes and Warrants (the "Required Holders"); provided, further, that
the provisions of Section 4(p) cannot be amended without the additional prior
written approval of the Collateral Agent or its successor. Any amendment or
waiver effected in accordance with this Section 9(e) shall be binding upon each
Buyer and holder of Securitas and the Company. No such amendment shall be
effective to the extent that it applies to less than all of the Buyers or
holders of Securities. No consideration shall be offered or paid to any Person
to amend or consent to a waiver or modification of any provision of any of the
Transaction Documents unless the same consideration (other than the
reimbursement of legal fees) also is offered to all of the parties to the
Transaction Documents, holders of Notes or holders of the Warrants, as the case
may be. The Company has not, directly or indirectly, made any agreements with
any Buyers relating to the terms or conditions of the transactions contemplated
by the Transaction Documents except as set forth in the Transaction Documents.
Without limiting the foregoing, the Company confirms that, except as set forth
40
in this Agreement, no Buyer has made any commitment or promise or has any other
obligation to provide any financing to the Company or otherwise.
(f) Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party) or by electronic mail; or (iii) one Business
Day after deposit with an overnight courier service, in each case properly
addressed to the party to receive the same. The addresses, facsimile numbers and
e-mail addresses for such communications shall be:
If to the Company:
Advanced Cannabis Solutions, Inc.
7750 N. Union Blvd., Suite 201
Colorado Springs, CO 80920
Telephone: (719) 434-1991
Facsimile: (719) 590-4888
Attention: Robert Fricthel
E-mail: Robert@advcannabis.com
With a copy to:
Hart & Hart, LLC
1624 Washington Street
Denver, CO 80203
Telephone: 303-839-0061
Facsimile: 303-839-5414
Attention: William Hart, Esq.
E-mail: harttrinen@aol.com
If to the Transfer Agent:
Corporate Stock Transfer
3200 Cherry Creek Drive South
Suite 430
Denver, CO 80209
Telephone: (303) 282-4800
Facsimile: (303) 777-3094
Attention: Carylyn Bell
E-mail: cbell@corporatestock.com
If to a Buyer, to its address, facsimile number and e-mail address set forth on
the Schedule of Buyers, with copies to such Buyer's representatives as set forth
41
on the Schedule of Buyers, or to such other address, facsimile number and/or
e-mail address and/or to the attention of such other Person as the recipient
party has specified by written notice given to each other party five (5) days
prior to the effectiveness of such change. Written confirmation of receipt (A)
given by the recipient of such notice, consent, waiver or other communication,
(B) mechanically or electronically generated by the sender's facsimile machine
or e-mail containing the time, date, recipient facsimile number and an image of
the first page of such transmission or (C) provided by an overnight courier
service shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from an overnight courier service in accordance with clause (i), (ii)
or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors and assigns,
including any purchasers of the Notes or the Warrants. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Required Holders, including by way of a Fundamental
Transaction (unless the Company is in compliance with the applicable provisions
governing Fundamental Transactions set forth in the Notes and the Warrants). A
Buyer may assign some or all of its rights hereunder without the consent of the
Company, in which event such assignee shall be deemed to be a Buyer hereunder
with respect to such assigned rights.
(h) No 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, except that each Indemnitee shall have the right to
enforce the obligations of the Company with respect to Section 9(k).
(i) Survival. Unless this Agreement is terminated under Section 8, the
representations and warranties of the Company and the Buyers contained in
Sections 2 and 3, and the agreements and covenants set forth in Sections 4, 5
and 9 shall survive the consummation of the transactions contemplated hereby.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
(j) 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
any 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.
(k) Indemnification. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents, the Company shall defend, protect, indemnify and hold harmless each
Buyer, each other holder of the Securities, the Collateral Agent and all of
their stockholders, partners, members, officers, directors, employees and direct
or indirect investors and any of the foregoing Persons' agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
42
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby or
(c) any cause of action, suit or claim brought or made against such Indemnitee
by a third party (including for these purposes a derivative action brought on
behalf of the Company) and arising out of or resulting from (i) the execution,
delivery, performance or enforcement of the Transaction Documents or any other
certificate, instrument or document contemplated hereby or thereby, (ii) any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Securities, (iii) any
disclosure made by such Buyer pursuant to Section 4(i), or (iv) the status of
such Buyer or holder of the Securities as an investor in the Company pursuant to
the transactions contemplated by the Transaction Documents. To the extent that
the foregoing undertaking by the Company may be unenforceable for any reason,
the Company shall make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities that is permissible under applicable law.
Notwithstanding anything to the contrary contained herein, the Company's
obligation to indemnify a Buyer pursuant to this Section 9(k) shall not apply to
Indemnified Liabilities arising solely by virtue of a breach by such Buyer of
such Buyer's representation and warranty set forth in Section 2(i). Except as
otherwise set forth herein, the mechanics and procedures with respect to the
rights and obligations under this Section 9(k) shall be the same as those set
forth in Section 6 of the Registration Rights Agreement.
(l) 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.
(m) Remedies. Each Buyer and each holder of the Securities shall have all
rights and remedies set forth in the Transaction Documents and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. Furthermore, the
Company recognizes that in the event that it fails to perform, observe, or
discharge any or all of its obligations under the Transaction Documents, any
remedy at law may prove to be inadequate relief to the Buyers. The Company
therefore agrees that the Buyers shall be entitled to seek temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages and without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the
contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Buyer exercises a right, election, demand or
option under a Transaction Document and the Company does not timely perform its
related obligations within the periods therein provided, then such Buyer may
rescind or withdraw, in its sole discretion from time to time upon written
43
notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that the Company makes a payment or
payments to the Buyers hereunder or pursuant to any of the other Transaction
Documents or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other Person under any law (including, without limitation, any
bankruptcy law, foreign, state or federal law, common law or equitable cause of
action), then to the extent of any such restoration the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
(p) Independent Nature of Buyers' Obligations and Rights. The obligations
of each Buyer under any Transaction Document are several and not joint with the
obligations of any other Buyer, and no Buyer shall be responsible in any way for
the performance of the obligations of any other Buyer under any Transaction
Document. Nothing contained herein or in any other Transaction Document, and no
action taken by any Buyer pursuant hereto or thereto, shall be deemed to
constitute the Buyers as, and the Company acknowledges that the Buyers do not so
constitute, a partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Buyers are in any way acting in concert
or as a group, and the Company shall not assert any such claim with respect to
such obligations or the transactions contemplated by the Transaction Documents
and the Company acknowledges that the Buyers are not acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Documents. The Company acknowledges and each Buyer confirms that it
has independently participated in the negotiation of the transaction
contemplated hereby with the advice of its own counsel and advisors. Each Buyer
shall be entitled to independently protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement or out of any other
Transaction Documents, and it shall not be necessary for any other Buyer to be
joined as an additional party in any proceeding for such purpose.
(q) Usury Savings Clause. It is the intent of the Buyers and the Company in
the making of the Notes to contract in strict compliance with applicable usury
law. In the furtherance thereof, Company and Buyers stipulate and agree that
none of the terms and provisions contained herein, or in any of the applicable
Transaction Documents, or in any other instrument executed in connection
herewith, shall ever be construed to create a contract to pay for the use,
forbearance, or detention of money, interest at a rate in excess of the maximum
interest rate permitted to be charged by applicable law; that neither any
Company nor any guarantor, endorser, or other party now or hereafter becoming
liable for payment of the Notes or obligations associated therewith shall ever
be required to pay interest on the amounts evidenced by the Notes or required by
the Transaction Documents at a rate in excess of the maximum interest that may
be lawfully charged under applicable law, and the provisions of this Section
shall control over all other provisions of this Agreement, the Notes, the
Instruments, any Transaction Documents, and any other instruments now or
hereafter executed in connection herewith which may be in apparent conflict
herewith. Buyers expressly disavow any intention to charge or collect excessive
or unearned interest or finance charges in the event that maturity of the
obligations evidenced by the Notes are accelerated. If the maturity of the Notes
shall be accelerated for any reason or if the principal of the obligations
44
evidenced by the Notes are paid prior to the end of the term described in the
Notes, and as a result thereof the interest received for the actual period of
existence of the obligations described in the Notes exceeds the applicable
maximum lawful rate, Buyers shall, at its option, either refund to Company the
amount of such excess or credit the amount of such excess against the principal
balance of the obligations evideneced by the Notes then outstanding (without
prepayment premium or similar charge) and thereby shall render inapplicable any
and all penalties of any kind provided by applicable law as a result of such
excess interest. In the event that Buyers or any other holder of the Notes shall
contract for, charge, or receive any amount or amounts which are deemed to
constitute interest which would increase the effective interest rate on the
obligations evidenced by the Notes to a rate in excess of that permitted to be
charged by applicable law, all such amounts deemed to constitute interest in
excess of the lawful rate shall, upon such determination, at the option of
Buyers (or other holder of the Notes), be either immediately returned to Company
or credited against the principal balance of the amounts then outstanding
(without prepayment premium or similar charge), in which event any and all
penalties of any kind under applicable law as a result of such excess interest
shall be inapplicable. By execution of this Agreement, Company acknowledge that
they believe the obligations evidenced by the Notes to be non-usurious, and
agrees that if, at any time, Company should have reason to believe that the
obligations evidenced by the Notes is in fact usurious, they will give Buyers
(or other holder of the Notes) notice of such condition, and Company agree that
Buyers (or other holder of the Notes) shall have ninety (90) days in which to
make appropriate refund or other adjustment in order to correct such condition
if in fact such exists. The term "applicable law" as used in this Section shall
mean the laws of the State of New York or the laws of the United States,
whichever laws allow the greater rate of interest, as such laws now exist or may
be changed or amended or come into effect in the future.
[Signature Page Follows]
45
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
COMPANY:
ADVANCED CANNABIS SOLUTIONS, INC.
By:/s/ Robert L. Frichtel
-------------------------------
Name: Robert L. Fricthel
Title: President
46
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective
signature page to this Securities Purchase Agreement to be duly executed as of
the date first written above.
BUYERS:
FULL CIRCLE CAPITAL CORPORATION
By:/s/ Greg J. Felton
------------------------------
Name: Greg J. Felton
Title: President
47
SCHEDULE OF BUYERS
(1) (2) (3) (4) (5)
Address and Aggregate
Principal Amount of Number of Purchase
Buyer Facsimile Number Notes Warrant Shares Price
------- ------------------ --------- -------------- --------
Full Circle 800 Westchester Avenue, $7,500,000 1,000,000 $7,350,000
Capital Suite S-620
Corporation Rye Brook, NY 10573
Attention: Gregg Felton
Facsimile: (914) 220-6301
Telephone: (914) 220-6300
E-mail: gfelton@fccapital.com
48
EXHIBITS
Exhibit A Form of Notes
Exhibit B Form of Warrants
Exhibit C Form of Registration Rights Agreement
Exhibit D-1 Form of Guaranty Agreement
Exhibit D-2 Form of Security Agreement
SCHEDULES
Schedule 3(a) Subsidiaries
Schedule 3(c) Issuance of Securities
Schedule 3(k) SEC Documents
Schedule 3(l) Absence of Certain Changes
Schedule 3(n) Regulatory Permits
Schedule 3(q) Transactions with Affiliates
Schedule 3(r) Equity Capitalization
Schedule 3(s) Indebtedness and Other Contracts
Schedule 3(t) Absence of Litigation
Schedule 3(x) Intellectual Property Rights
Schedule 4(d) Use of Proceeds
Schedule 3(ss)
49