SECURITIES PURCHASE AGREEMENT
THIS
SECURITIES PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of
June 14, 2006, by and among friendlyway Corporation, a Nevada corporation (the
"Company"), and the purchasers listed on the Schedule of Purchasers attached
hereto (each a “Purchaser” and collectively, the “Purchasers”).
RECITALS
WHEREAS,
the Company has authorized the sale to the Purchasers of its Senior Subordinated
Secured Convertible Term Notes in the aggregate principal amount of up to One
Million Eight Hundred Thousand Dollars ($1,800,000) (each as amended, modified
or supplemented from time to time, a "Note"), which Notes are convertible into
shares of the Company's common stock, $0.001 par value per share (the "Common
Stock") at an initial fixed conversion price of $0.14 per share of Common Stock
("Initial Conversion Price");
WHEREAS,
the Company wishes to issue warrants to the Purchasers to purchase in the
aggregate up to approximately 33.3% of the number of shares of Common Stock
issuable upon conversion of the total amount being invested by the Purchasers,
or up to Four Million One Hundred Fifty Thousand Nine Hundred Sixty Nine
(4,150,969) shares of Common Stock (subject to adjustment as set forth therein)
if all of the Notes are sold hereunder;
WHEREAS,
the Purchasers desire to purchase the Notes and the Warrants (as defined in
Section 2) on the terms and conditions set forth herein; and
WHEREAS,
the Company desires to issue and sell the Notes and the Warrants to the
Purchasers on the terms and conditions set forth herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing recitals and the mutual promises,
representations, warranties and covenants hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1.
Agreement
to Sell and Purchase.
Pursuant
to the terms and conditions set forth in this Agreement, on the Closing Date
(as
defined in Section 3), the Company agrees to sell to the Purchasers, and the
Purchasers, severally and not jointly, hereby agree to purchase from the
Company, a Note in the principal amount and at the purchase price set forth
opposite such Purchaser's name on Schedule
I
hereto,
convertible in accordance with the terms thereof into shares of the Company's
Common Stock in accordance with the terms of such Note and this Agreement.
It is
understood and agreed that the purchases by the Purchasers are to be separate
transactions. The purchase of the Notes on the Closing Date shall be known
as
the "Offering." A form of the Note is annexed hereto as Exhibit
A.
The
Notes will mature on the Maturity Date (as defined in the Notes). Collectively,
the Notes, the Warrants and Common Stock issuable upon conversion of the Notes
and upon exercise of the Warrants are referred to as the
"Securities."
1
2.
Warrants;
Placement Agent Fees.
On the
Closing Date:
(a)
The
Company will issue and deliver to each Purchaser a Warrant to purchase up to
that number of shares of the Company's Common Stock set forth opposite the
name
of such Purchaser on Schedule I hereto (as amended, modified or supplemented
from time to time, a "Warrant"). The Warrants must be delivered on the Closing
Date. A form of Warrant is annexed hereto as Exhibit
B.
All the
representations, covenants, warranties, undertakings, and indemnification,
and
other rights made or granted to or for the benefit of the Purchasers by the
Company are hereby also made and granted in respect of the Warrants and shares
of the Company's Common Stock issuable upon exercise of the Warrants (the
"Warrant Shares").
(b)
The
Company shall pay or issue to Xxxxx Securities Corp., as placement agent of
the
Offering (the “Placement Agent”) (i) an
agency
fee in an amount equal to ten percent (10%) of the aggregate principal amount
of
Notes purchased at each Closing and (ii) a warrant to purchase ten percent
(10%)
of the shares of Common Stock into which the Notes are initially convertible
and
the Warrants are initially exercisable. The foregoing fees and warrants are
referred to herein as the "Xxxxx Compensation." In addition, the Company shall
promptly make payment to a law firm designated by Xxxxx Securities Corp., for
up
to $35,000, of legal fees and expenses (“Legal Expense
Obligation”).
(c)
The
Closing Payment and the expenses referred to in the preceding clauses (net
of
deposits, if any, previously paid by the Company) shall be paid at Closing
out
of funds held pursuant to an Escrow Agreement (as defined below) and a
disbursement letter (the "Disbursement Letter").
3.
Closing,
Delivery, Payment and Certain Conditions.
3.1
Closing.
The
initial closing of the purchase and sale of a minimum of $500,000 of Notes
and
Warrants (the “Minimum Amount”) under this Agreement (the “Initial Closing”)
shall be held at the offices of Xxxxx
Securities Corp. (“Xxxxx”), 000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx (or
remotely via the exchange of documents and signatures), on or before July 31,
2006, which date may be extended by the Company and Xxxxx to a date not later
than August 31, 2006 (the
date
of the Initial Closing is hereinafter referred to as the “Initial Closing
Date”). The
subsequent closing(s) of the purchase and sale of up to an additional $1,300,000
of Notes and Warrants in excess of the Minimum Amount (the “Maximum Amount”)
under this Agreement (the “Subsequent Closing(s)”) shall take place at a time
agreed upon by the Company and the Purchasers participating in the respective
Subsequent Closing (the date(s) of the Subsequent Closing(s) is hereinafter
referred to as the “Subsequent Closing Date(s)”), all of which shall occur in
any event no later than August 31, 2006. The Purchasers agree that any
additional persons or entities that acquire Notes and Warrants at any
“Subsequent Closing” shall become “Purchasers” under this Agreement with all the
rights and obligations attendant thereto, upon their execution of this Agreement
without further action by any other Purchasers. For
purposes of this Agreement, the terms “Closing” and “Closing Date”, unless
otherwise indicated, refer to the applicable closing and closing date of the
Initial Closing or the Subsequent Closing(s), as the case may be.
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3.2
Delivery.
At the
Closing on the Closing Date, the Company will deliver to the Purchasers, among
the other Related Agreements (as defined below), Notes in the form attached
as
Exhibit
A
representing the aggregate principal amount of up to $1,800,000 and Warrants
in
the form attached as Exhibit
B
in each
Purchaser's name representing in the aggregate approximately 33.3% of
the
number of shares of the Company's Common Stock issuable through conversion
of
the Notes, and each Purchaser will deliver to the Company, among other things,
the amounts set forth to be delivered by it in the Disbursement Letter by
certified funds or wire transfer.
3.3
Conversion
and Lockup.
Prior
to the date of an effective registration statement covering the resale of the
Common Stock issuable upon conversion of the Notes and exercise of the Warrants
(“Resale Registration Statement”), the Company shall have caused its officers,
directors, controlling shareholders and certain other persons requested by
the
Purchasers to agree to "lockup" and not sell their shares of Common Stock of
the
Company, pursuant to documentation, and on terms and conditions, acceptable
to
the Purchasers.
3.4
Pledge
Requirement.
Prior
to the Closing Date, Xxxxxxx Xxxxxxx, the CEO and President of the Company,
shall execute a Pledge Agreement pursuant to which Xxxxxxx shall pledge to
Atlantic Professional Association, Inc., as agent for the Purchasers a first
lien and security interest in such number of shares of the Company’s stock owned
by him that equates to 200% of the aggregate principal balance of the Notes
issued hereunder at each Closing which pledge shall remain in effect until
complete repayment of the Notes. The valuation of such shares shall be based
upon the volume weighted average price (“VWAP”) of the Company’s common stock
for the ten (10) trading days prior to the Closing.
4.
Representations
and Warranties of the Company.
The
Company hereby represents and warrants to the Purchasers as follows (which
representations and warranties are supplemented by the Company's filings under
the Securities Exchange Act of 1934, as amended, made prior to the date of
this
Agreement (collectively, the "Exchange Act Filings"), copies of which have
been
provided to the Purchasers):
4.1
Organization,
Good Standing and Qualification.
Each of
the Company and each of its Subsidiaries (as defined below) is a corporation,
partnership or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each of the Company and each of its Subsidiaries has the
corporate, partnership or limited liability company, as the case may be, power
and authority to own and operate its properties and assets, to execute and
deliver (i) this Agreement, (ii) the Notes and the Warrants to be issued in
connection with this Agreement, (iii) the Registration Rights Agreement relating
to the Securities dated as of the date hereof among the Company, the Placement
Agent and the Purchasers (as amended, modified or supplemented from time to
time, the "Registration Rights Agreement"), in the form attached as Exhibit
C,
(iv)
the Subsidiary Guaranty dated as of the date hereof made by certain Subsidiaries
of the Company (as amended, modified or supplemented from time to time, the
"Subsidiary Guaranty"), in the form attached as Exhibit
D,
(v) the
Security Agreement dated as of the date hereof among the Company, certain
Subsidiaries of the Company, and Atlantic Professional Association, Inc., as
agent for the Purchasers (as amended, modified or supplemented from time to
time, the "Security Agreement"), in the form attached as Exhibit
E,
(vi)
the Pledge Agreement dated as of the date hereof among the Company, Xxxxxxx
Xxxxxxx, and Atlantic Professional Association, Inc., as agent for the
Purchasers (as amended, modified or supplemented from time to time, the "Pledge
Agreement"), in the form attached as Exhibit
F,
(vii)
the Escrow Agreement dated as of the date hereof among the Company, the
Placement Agent and Signature Bank, the escrow agent, in the form attached
as
Exhibit
G
hereto
(as amended, modified or supplemented from time to time, the "Escrow Agreement")
and (viii) all other agreements related to this Agreement and the Term Note
and
referred to herein (the preceding clauses (ii) through (vii), collectively,
the
"Related Agreements"), to issue and sell the Notes and the shares of Common
Stock issuable upon conversion of the Notes (the "Note Shares"), to issue and
sell the Warrants and the Warrant Shares, and to carry out the provisions of
this Agreement and the Related Agreements and to carry on its business as
presently conducted. Each of the Company and each of its Subsidiaries is duly
qualified and is authorized to do business and is in good standing as a foreign
corporation, partnership or limited liability company, as the case may be,
in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so has not, or would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on
the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company and its Subsidiaries, taken
individually and as a whole (a "Material Adverse Effect").
3
4.2
Subsidiaries.
Each
direct and indirect Subsidiary of the Company, the direct owner of such
Subsidiary and its percentage ownership thereof, is set forth on Schedule
4.2.
For the
purpose of this Agreement, a "Subsidiary" of any person or entity means (i)
a
corporation or other entity whose shares of stock or other ownership interests
having ordinary voting power (other than stock or other ownership interests
having such power only by reason of the happening of a contingency) to elect
a
majority of the directors of such corporation, or other persons or entities
performing similar functions for such person or entity, are owned, directly
or
indirectly, by such person or entity or (ii) a corporation or other entity
in
which such person or entity owns, directly or indirectly, more than 50% of
the
equity interests at such time.
4.3
Capitalization;
Voting Rights.
(a)
The
authorized capital stock of the Company, as of the date hereof consists of
105,000,000 shares, of which 100,000,000 are shares of Common Stock, par value
$0.001 per share, 25,428,130 shares of which are issued and outstanding, and
5,000,000 are shares of preferred stock, par value $0.001 per share, none of
which are issued and outstanding. The authorized capital stock of each
Subsidiary of the Company is set forth on Schedule
4.3.
4
(b)
Except as disclosed on Schedule
4.3,
other
than: (i) the shares reserved for issuance under the Company's stock option
plans; and (ii) shares which may be granted pursuant to this Agreement and
the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal), proxy
or stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Except as
disclosed on Schedule
4.3,
neither
the offer, issuance or sale of any of the Notes or the Warrants, or the issuance
of any of the Note Shares or Warrant Shares, nor the consummation of any
transaction contemplated hereby will result in a change in the price or number
of any securities of the Company outstanding, under anti-dilution or other
similar provisions contained in or affecting any such securities.
(c)
All
issued and outstanding shares of the Company's Common Stock: (i) have been
duly
authorized and validly issued and are fully paid and nonassessable; and (ii)
were issued in compliance in all material respects with all applicable state
and
federal laws concerning the issuance of securities.
(d)
The
rights, preferences, privileges and restrictions of the shares of the Common
Stock are as stated in the Company's Articles of Incorporation, as amended
to
date (the "Charter"). The Note Shares and Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the provisions
of
this Agreement and the Company's Charter, the Securities will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Securities may be subject to restrictions on
transfer under state and/or federal securities laws as set forth herein or
as
otherwise required by such laws at the time a transfer is proposed.
4.4
Authorization;
Binding Obligations.
All
corporate, partnership or limited liability company, as the case may be, action
on the part of the Company and each of its Subsidiaries (including the
respective officers and directors) necessary for the authorization of this
Agreement and the Related Agreements, the performance of all obligations of
the
Company and its Subsidiaries hereunder and under the other Related Agreements
at
the Closing and, the authorization, sale, issuance and delivery of the Notes
and
the Warrants has been taken or will be taken prior to the Closing. This
Agreement and the Related Agreements, when executed and delivered and to the
extent it is a party thereto, will be valid and binding obligations of each
of
the Company and each of its Subsidiaries, enforceable against each such person
in accordance with their terms, except:
(a)
as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
and
(b)
general principles of equity that restrict the availability of equitable or
legal remedies.
5
The
sale
of the Notes and the subsequent conversion of the Notes into Note Shares are
not
and will not be subject to any preemptive rights or rights of first refusal
that
have not been properly waived or complied with. The issuance of the Warrants
and
the subsequent exercise of the Warrants for Warrant Shares are not and will
not
be subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.
4.5
Liabilities.
Neither
the Company nor any of its Subsidiaries has any contingent liabilities in excess
of $75,000, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
4.6
Agreements;
Action.
Except
as set forth on Schedule
4.6
or as
disclosed in any Exchange Act Filings:
(a)
there
are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which the Company or any
of
its Subsidiaries is a party or by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, the Company in excess
of $50,000 (other than obligations of, or payments to, the Company arising
from
purchase or sale agreements entered into in the ordinary course of business);
or
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than licenses arising from
the
purchase of "off the shelf" or other standard products); or (iii) provisions
restricting the development, manufacture or distribution of the Company's
products or services; or (iv) indemnification by the Company with respect to
infringements of proprietary rights.
(b)
Since
January 31, 2006, neither the Company nor any of its Subsidiaries has: (i)
declared or paid any dividends, or authorized or made any distribution upon
or
with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or any other liabilities (other than ordinary
course obligations) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000, in excess of
$100,000 in the aggregate; (iii) made any loans or advances to any person in
excess, individually or in the aggregate, of $100,000, other than ordinary
course advances for travel expenses; or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory
in
the ordinary course of business.
(c)
For
the purposes of subsections (a) and (b) above, all indebtedness, liabilities,
agreements, understandings, instruments, contracts and proposed transactions
involving the same person or entity (including persons or entities the Company
has reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.
4.7
Obligations
to Related Parties.
Except
as set forth on Schedule
4.7,
there
are no obligations of the Company or any of its Subsidiaries to officers,
directors, stockholders or employees of the Company or any of its Subsidiaries
other than:
(a)
for
payment of salary for services rendered and for bonus payments;
6
(b)
reimbursement for reasonable expenses incurred on behalf of the Company and
its
Subsidiaries;
(c)
for
other standard employee benefits made generally available to all employees
(including stock option agreements outstanding under any stock option plan
approved by the Board of Directors of the Company); and
(d)
obligations listed in the Company's financial statements or disclosed in any
of
its Exchange Act Filings. Except as described above or set forth on Schedule
4.7,
none of
the officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $50,000 or have any direct or indirect ownership interest in any
firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with
the
Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company) which may compete
with
the Company. Except as described above, no officer, director or stockholder,
or
any member of their immediate families, is, directly or indirectly, interested
in any material contract with the Company and no agreements, understandings
or
proposed transactions are contemplated between the Company and any such person.
Except as set forth on Schedule
4.7,
the
Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
4.8
Changes.
Since
January 31, 2006, except as disclosed in any Exchange Act Filing or in any
Schedule to this Agreement or in any of the Related Agreements, there has not
been:
(a)
any
change in the business, assets, liabilities, condition (financial or otherwise),
properties, operations or prospects of the Company or any of its Subsidiaries,
which individually or in the aggregate has had, or would reasonably be expected
to have, individually or in the aggregate, a Material Adverse
Effect;
(b)
any
resignation or termination of any officer, key employee or group of employees
of
the Company or any of its Subsidiaries;
(c)
any
material change, except in the ordinary course of business, in the contingent
obligations of the Company or any of its Subsidiaries by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d)
any
damage, destruction or loss, whether or not covered by insurance, which has
had,
or would reasonably be expected to have, individually or in the aggregate,
a
Material Adverse Effect;
(e)
any
waiver by the Company or any of its Subsidiaries of a material right under
a
written contract or of a material debt owed to it;
7
(f)
any
direct or indirect loans made by the Company or any of its Subsidiaries to
any
stockholder, employee, officer or director of the Company or any of its
Subsidiaries, other than advances made in the ordinary course of
business;
(g)
any
material change in any compensation arrangement or agreement with any employee,
officer, director or stockholder of the Company or any of its
Subsidiaries;
(h)
any
labor organization activity related to the Company or any of its
Subsidiaries;
(i)
any
debt, obligation or liability incurred, assumed or guaranteed by the Company
or
any of its Subsidiaries, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(j)
any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets owned by the Company or any of its
Subsidiaries;
(k)
any
change in any material agreement to which the Company or any of its Subsidiaries
is a party or by which either the Company or any of its Subsidiaries is bound
which either individually or in the aggregate has had, or would reasonably
be
expected to have, individually or in the aggregate, a Material Adverse
Effect;
(l)
any
other event or condition of any character that, either individually or in the
aggregate, has had, or would reasonably be expected to have, individually or
in
the aggregate, a Material Adverse Effect; or
(m)
any
arrangement or commitment by the Company or any of its Subsidiaries to do any
of
the acts described in subsection (a) through (m) above.
4.9
Title
to Properties and Assets; Liens, Etc.
Except
as set forth on Schedule
4.9,
each of
the Company and each of its Subsidiaries has good and valid title to its
properties and assets, and good title to its leasehold estates, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than:
(a)
those
resulting from taxes which have not yet become delinquent;
(b)
minor
liens and encumbrances which do not materially detract from the value of the
property subject thereto or materially impair the operations of the Company
or
any of its Subsidiaries; and
(c)
those
that have otherwise arisen in the ordinary course of business.
All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company and its Subsidiaries are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. Except as set forth on Schedule
4.9,
the
Company and its Subsidiaries are in compliance with all material terms of each
lease to which any of them is a party or is otherwise bound.
8
4.10
Intellectual
Property.
Except
as set forth on Schedule
4.10:
(a)
Each
of the Company and each of its Subsidiaries owns or possesses sufficient legal
rights to all patents, trademarks, service marks, trade names, copyrights,
trade
secrets, licenses, information and other proprietary rights and processes
necessary for its business as now conducted and to the Company's knowledge,
as
presently proposed to be conducted (the "Intellectual Property"), without any
known infringement of the rights of others. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing proprietary rights,
nor is the Company or any of its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person
or
entity other than such licenses or agreements arising from the purchase of
"off
the shelf" or standard products.
(b)
Neither the Company nor any of its Subsidiaries has received any communications
alleging that the Company or any of its Subsidiaries has violated any of the
patents, trademarks, service marks, trade names, copyrights or trade secrets
or
other proprietary rights of any other person or entity, nor is the Company
or
any of its Subsidiaries aware of any basis therefor.
(c)
The
Company does not believe it is or will be necessary to utilize any inventions,
trade secrets or proprietary information of any of its employees made prior
to
their employment by the Company or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to the Company or any of its Subsidiaries.
4.11
Compliance
with Other Instruments.
Neither
the Company nor any of its Subsidiaries is in violation or default of (x) any
term of its Charter or Bylaws, or (y) of any provision of any indebtedness,
mortgage, indenture, contract, agreement or instrument to which it is party
or
by which it is bound or of any judgment, decree, order or writ, which violation
or default, in the case of this clause (y), has had, or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect. The execution, delivery and performance of and compliance with this
Agreement and the Related Agreements to which it is a party, and the issuance
and sale of the Notes by the Company and the other Securities by the Company
each pursuant hereto and thereto, will not, with or without the passage of
time
or giving of notice, result in any such material violation, or be in conflict
with or constitute a default under any such term or provision, or result in
the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or any of its Subsidiaries or the
suspension, revocation, impairment, forfeiture or nonrenewal of any permit,
license, authorization or approval applicable to the Company, its business
or
operations or any of its assets or properties.
4.12
Litigation.
Except
as set forth on Schedule
4.12
hereto,
there is no action, suit, proceeding or investigation pending or, to the
Company's knowledge, currently threatened against the Company or any of its
Subsidiaries that prevents the Company or any of its Subsidiaries from entering
into this Agreement or the other Related Agreements, or from consummating the
transactions contemplated hereby or thereby, or which has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect or any change in the current equity ownership of the
Company or any of its Subsidiaries, nor is the Company aware that there is
any
basis to assert any of the foregoing. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company or any of its Subsidiaries currently pending or which the Company or
any
of its Subsidiaries intends to initiate.
9
4.13
Tax
Returns and Payments.
Each of
the Company and its Subsidiaries has timely filed all tax returns (federal,
state and local) required to be filed by it. All taxes shown to be due and
payable on such returns, any assessments imposed, and all other taxes due and
payable by the Company or any of its Subsidiaries on or before the Closing,
have
been paid or will be paid prior to the time they become delinquent. Except
as
set forth on Schedule
4.13,
neither
the Company nor any of its Subsidiaries has been advised:
(a)
that
any of its returns, federal, state or other, have been or are being audited
as
of the date hereof; or
(b)
of
any deficiency in assessment or proposed judgment to its federal, state or
other
taxes.
The
Company has no knowledge of any liability for any tax to be imposed upon its
properties or assets as of the date of this Agreement that is not adequately
provided for.
4.14
Employees.
Except
as set forth on Schedule
4.14,
neither
the Company nor any of its Subsidiaries has any collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company or any
of
its Subsidiaries. Except as disclosed in the Exchange Act Filings or on
Schedule
4.14,
neither
the Company nor any of its Subsidiaries is a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of
the
Company or any of its Subsidiaries, nor any consultant with whom the Company
or
any of its Subsidiaries has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the right of any such individual to be employed by, or to contract
with, the Company or any of its Subsidiaries because of the nature of the
business to be conducted by the Company or any of its Subsidiaries; and to
the
Company's knowledge the continued employment by the Company or any of its
Subsidiaries of its present employees, and the performance of the Company's
and
its Subsidiaries' contracts with its independent contractors, will not result
in
any such violation. Neither the Company nor any of its Subsidiaries is aware
that any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere in any material respect with their duties to the Company or any of
its
Subsidiaries. Neither the Company nor any of its Subsidiaries has received
any
notice alleging that any such violation has occurred. Except for employees
who
have a current effective employment agreement with the Company or any of its
Subsidiaries, no employee of the Company or any of its Subsidiaries has been
granted the right to continued employment by the Company or any of its
Subsidiaries or to any material compensation following termination of employment
with the Company or any of its Subsidiaries. Except as set forth on Schedule
4.14,
the
Company is not aware that any officer, key employee or group of employees
intends to terminate his, her or their employment with the Company or any of
its
Subsidiaries, nor does the Company or any of its Subsidiaries have a present
intention to terminate the employment of any officer, key employee or group
of
employees.
10
4.15
Registration
Rights and Voting Rights.
Except
as set forth on Schedule
4.15,
neither
the Company nor any of its Subsidiaries is presently under any obligation,
and
neither the Company nor any of its Subsidiaries has granted any rights, to
register any of the Company's or its Subsidiaries' presently outstanding
securities or any of its securities that may hereafter be issued. Except as
set
forth on Schedule
4.15
or
except as disclosed in Exchange Act Filings, neither the Company nor any of
its
Subsidiaries has entered into any agreement with respect to the voting of equity
securities of the Company or any of its Subsidiaries.
4.16
Compliance
with Laws; Permits.
Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct
of
its business or the ownership of its properties which has had, or would
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. No governmental orders, permissions, consents,
approvals or authorizations are required to be obtained and no registrations
or
declarations are required to be filed in connection with the execution and
delivery of this Agreement or any other Related Agreement and the issuance
of
any of the Securities, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing,
as
will be filed in a timely manner. Each of the Company and its Subsidiaries
has
all material franchises, permits, licenses and any similar authority necessary
for the conduct of its business as now being conducted by it, the lack of which
would, either individually or in the aggregate, reasonably be expected to have
a
Material Adverse Effect.
4.17
Environmental
and Safety Laws.
Neither
the Company nor any of its Subsidiaries is in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or
regulation.
4.18
Valid
Offering.
Assuming the accuracy of the representations and warranties of the Purchasers
contained in this Agreement, the offer, sale and issuance of the Securities
will
be exempt from the registration requirements of the Securities Act of 1933,
as
amended (the "Securities Act"), and will have been registered or qualified
(or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities
laws.
11
4.19
Full
Disclosure.
Each of
the Company and each of its Subsidiaries have provided the Purchasers with
all
information requested by the Purchasers in connection with their decision to
purchase the Note and the Warrant, including all information the Company and
its
Subsidiaries believe is reasonably necessary to make such investment decision.
Neither this Agreement, the Related Agreements, or the exhibits and schedules
hereto and thereto contain any untrue statement of a material fact nor omit
to
state a material fact necessary in order to make the statements contained herein
or therein, in light of the circumstances in which they are made, not
misleading.
4.20
Insurance.
Each of
the Company and each of its Subsidiaries have general commercial, product
liability, fire and casualty insurance policies with coverages which the Company
believes are customary for companies similarly situated to the Company and
its
Subsidiaries in the same or similar business.
4.21
SEC
Reports.
Except
as set forth on Schedule
4.21,
the
Company has filed all reports and other documents required to be filed by it
under the Securities Xxxxxxxx Xxx 0000, as amended (the "Exchange Act"). The
Company has furnished the Purchasers with copies of: (i) its Annual Reports
on
Form 10-KSB for its fiscal year ended October 31, 2005; (ii) its Quarterly
Report on Form 10-QSB for its fiscal quarter ended January 31, 2006 and (iii)
its Current Report on Form 8-K filed on May 3, 2006 (collectively, the "SEC
Reports"). Except as set forth on Schedule
4.21,
each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as
of
their respective filing dates, contained any untrue statement of a material
fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
4.22
Listing.
The
Company's Common Stock is listed for trading on the Over the Counter Bulletin
Board ("OTCBB") and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that its Common Stock will
not
be eligible to be traded on the OTCBB or that its Common Stock does not meet
all
requirements for such trading.
4.23
No
Integrated Offering.
Neither
the Company, nor any of its Subsidiaries or affiliates, nor any person acting
on
its or 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 cause the Offering to be integrated with prior offerings by the Company
for purposes of the Securities Act and which would prevent the Company from
selling the Securities pursuant to Rule 506 under the Securities Act, or any
applicable exchange-related stockholder approval provisions, nor will the
Company or any of its affiliates or Subsidiaries take any action or steps that
would cause the offering of the Securities to be integrated with other
offerings.
12
4.24
Stop
Transfer.
The
Securities are restricted securities as of the date of this Agreement. Neither
the Company nor any of its Subsidiaries will issue any stop transfer order
or
other order impeding the sale and delivery of any of the Securities at such
time
as the Securities are registered for public sale or an exemption from
registration is available, except as required by state and federal securities
laws.
4.25
Dilution.
The
Company specifically acknowledges that its obligation to issue the shares of
Common Stock upon conversion of the Notes and exercise of the Warrants is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.26
Patriot
Act.
The
Company certifies that, to the best of Company's knowledge, neither the Company
nor any of its Subsidiaries has been designated, and is not owned or controlled,
by a "suspected terrorist" as defined in Executive Order 13224. The Company
hereby acknowledges that the Purchasers seek to comply with all applicable
laws
concerning money laundering and related activities. In furtherance of those
efforts, the Company hereby represents, warrants and agrees that: (i) none
of
the cash or property that the Company or any of its Subsidiaries will pay or
will contribute to the Purchasers has been or shall be derived from, or related
to, any activity that is deemed criminal under United States law; and (ii)
no
contribution or payment by the Company or any of its Subsidiaries to the
Purchasers, to the extent that they are within the Company's and/or its
Subsidiaries' control shall cause the Purchasers to be in violation of the
United States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchasers if any of these representations ceases to be true and
accurate regarding the Company or any of its Subsidiaries. The Company agrees
to
provide the Purchasers any additional information regarding the Company or
any
of its Subsidiaries that the Purchasers deem necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. The Company understands and agrees that if at any time it is
discovered that any of the foregoing representations are incorrect, or if
otherwise required by applicable law or regulation related to money laundering
or similar activities, the Purchasers may undertake appropriate actions to
ensure compliance with such applicable law or regulation, including but not
limited to segregation and/or redemption of the Purchasers' investment in the
Company. The Company further understands that the Purchasers may release
confidential information about the Company and its Subsidiaries and, if
applicable, any underlying beneficial owners, to proper authorities if the
Purchasers, in their sole reasonable discretion, after consultation with legal
counsel, determine that it is in the best interests of the Purchasers in light
of relevant rules and regulations under the laws set forth in subsection (ii)
above.
5.
Representations
and Warranties of the Purchaser.
Each
Purchaser, severally and not jointly, hereby represents and warrants to the
Company as follows (such representations and warranties do not lessen or obviate
the representations and warranties of the Company set forth in this
Agreement):
13
5.1
Prohibited
Transactions.
During
the last thirty (30) days prior to the date hereof, such Purchaser has not,
directly or indirectly, effected or agreed to effect any short sale, whether
or
not against the box, established any “put equivalent position” (as defined in
Rule 16a-1(h) under the 0000 Xxx) with respect to the Common Stock, granted
any
other right (including, without limitation, any put or call option) with respect
to the Common Stock or with respect to any security that includes, relates
to or
derived any significant part of its value from the Common Stock or otherwise
sought to hedge its position in the Securities (each, a “Prohibited
Transaction”). Prior to the earliest to occur of (i) the termination of this
Agreement, (ii) the effective date of the Resale Registration Statement (iii)
the Effectiveness Date (as defined in the Registration Rights Agreement), such
Purchaser shall not engage, directly or indirectly, in a Prohibited Transaction.
Such Purchaser acknowledges that the representations, warranties and covenants
contained in this Section 5.1 are being made for the benefit of the Purchasers
as well as the Company and that each of the other Purchasers shall have an
independent right to assert any claims against such Purchaser arising out of
any
breach or violation of the provisions of this Section 5.1.
5.2
Organization,
Good Standing and Qualification.
Such
Purchaser, if not an individual, is a corporation, partnership, limited duration
company or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization. Each non-individual Purchaser has the corporate, partnership,
limited duration company or limited liability company, as the case may be,
power
and authority to own and operate its properties and assets, to execute and
deliver (i) this Agreement, and (ii) all applicable Related Agreements, to
purchase the Notes and the Note Shares, to purchase the Warrants and the Warrant
Shares, and to carry out the provisions of this Agreement and the Related
Agreements. Each of the Purchasers is duly qualified and is authorized to do
business and is in good standing as a foreign corporation, partnership, limited
duration company or limited liability company, as the case may be, in such
Purchasers jurisdictions of organization.
5.3
Requisite
Power and Authority.
Such
Purchaser has all necessary power and authority under all applicable provisions
of law to execute and deliver this Agreement and the Related Agreements and
to
carry out their provisions. All company action on such Purchaser's part required
for the lawful execution and delivery of this Agreement and the Related
Agreements has been or will be effectively taken prior to the Closing. Upon
their execution and delivery, this Agreement and the Related Agreements will
be
valid and binding obligations of such Purchaser, enforceable in accordance
with
their terms, except:
(a)
as
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights;
and
14
(b)
as
limited by general principles of equity that restrict the availability of
equitable and legal remedies.
5.4
Investment
Representations.
Such
Purchaser understands that the Securities are being offered and sold pursuant
to
an exemption from registration contained in the Securities Act based in part
upon such Purchaser's representations contained in this Agreement, including,
without limitation, that such Purchaser is an "accredited Purchaser" within
the
meaning of Regulation D under the Securities Act. Such Purchaser confirms that
it has received or has had full access to all the information it considers
necessary or appropriate to make an informed investment decision with respect
to
the Note and the Warrant to be purchased by it under this Agreement and the
Note
Shares and the Warrant Shares acquired by it upon the conversion of such Note
and the exercise of such Warrant, respectively. Such Purchaser further confirms
that it has had an opportunity to ask questions and receive answers from the
Company regarding the Company's and its Subsidiaries' business, management
and
financial affairs and the terms and conditions of the Offering, the Notes,
the
Warrants and the Securities.
5.5
The
Purchasers Bear Economic Risk.
Such
Purchaser has substantial experience in evaluating and investing in private
placement transactions of securities in companies similar to the Company so
that
it is capable of evaluating the merits and risks of its investment in the
Company and has the capacity to protect its own interests. Such Purchaser
acknowledges and agrees that it must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an applicable exemption from
registration with respect to such sale.
5.6
Acquisition
for Own Account.
Such
Purchaser is acquiring its Notes and Warrant and the Note Shares and the Warrant
Shares for such Purchaser's own account for investment only, and not as a
nominee or agent and not with a view towards or for resale in connection with
their distribution.
5.7
The
Purchasers Can Protect Their Interest.
Such
Purchaser represents that by reason of its, or of its management's, business
and
financial experience, such Purchaser has the capacity to evaluate the merits
and
risks of its investment in its Notes, Warrant and the Securities and to protect
its own interests in connection with the transactions contemplated in this
Agreement and the Related Agreements. Further, such Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in this Agreement or the Related Agreements.
5.8
Accredited
Purchaser.
Such
Purchaser represents that it is an accredited Purchaser within the meaning
of
Regulation D under the Securities Act.
5.9
Legends.
(a)
The
Notes shall bear substantially the following legend:
"THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF
THIS
NOTE MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS TERM NOTE OR SUCH SHARES
UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO FRIENDLYWAY CORPORATION THAT SUCH REGISTRATION IS
NOT
REQUIRED."
15
(b)
The
Note Shares and the Warrant Shares, shall bear a legend which shall be in
substantially the following form until such shares are covered by an effective
registration statement filed with the Securities and Exchange Commission (the
"SEC"):
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
FRIENDLYWAY CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED."
(c)
The
Warrant shall bear substantially the following legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT OR THE
UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO FRIENDLYWAY CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
6.
Covenants
of the Company.
The
Company covenants and agrees with the Purchasers as follows:
6.1
Stop-Orders.
The
Company will advise the Purchasers, promptly after it receives notice of
issuance by the SEC, any state securities commission or any other regulatory
authority of any stop order or of any order preventing or suspending any
offering of any securities of the Company, or of the suspension of the
qualification of the Common Stock of the Company for offering or sale in any
jurisdiction, or the initiation of any proceeding for any such
purpose.
6.2
Listing.
The
Company's shares of Common Stock issuable upon conversion of the Notes and
upon
the exercise of the Warrants are listed on the OTCBB (the "Principal Market")
as
of the date hereof and the Company shall maintain such on the Principal Market
so long as any other shares of Common Stock shall be so listed. The Company
will
maintain the listing of its Common Stock on the Principal Market, and will
comply in all material respects with its reporting, filing and other
obligations.
16
6.3
Market
Regulations.
The
Company shall notify the SEC, NASD and applicable state authorities, in
accordance with their requirements, of the transactions contemplated by this
Agreement, and shall take all other necessary action and proceedings as may
be
required and permitted by applicable law, rule and regulation, for the legal
and
valid issuance of the Securities to the Purchasers and promptly provide copies
thereof to the Purchasers.
6.4
Reporting
Requirements.
The
Company will timely file with the SEC all reports required to be filed pursuant
to the Exchange Act and refrain from terminating its status as an issuer
required by the Exchange Act to file reports thereunder even if the Exchange
Act
or the rules or regulations thereunder would permit such
termination.
6.5
Use
of
Funds.
The
Company agrees that it will use the proceeds of the sale of the Notes and the
Warrants for the purposes specified on Schedule
6.5
only.
6.6
Access
to Facilities.
The
Company and each of its Subsidiaries will permit any representatives designated
by any Purchaser (or any successor of such Purchaser), upon reasonable notice
and during normal business hours, at such person's expense and accompanied
by a
representative of the Company, to:
(a)
visit
and inspect any of the properties of the Company or any of its
Subsidiaries;
(b)
examine the corporate and financial records of the Company or any of its
Subsidiaries (unless such examination is not permitted by federal, state or
local law or by contract) and make copies thereof or extracts therefrom;
and
(c)
discuss the affairs, finances and accounts of the Company or any of its
Subsidiaries with the directors, officers and independent accountants of the
Company or any of its Subsidiaries.
Notwithstanding
the foregoing, neither the Company nor any of its Subsidiaries will provide
any
material, non-public information to any Purchaser unless such Purchaser signs
a
confidentiality agreement and otherwise complies with Regulation FD under the
federal securities laws.
6.7
Taxes.
Each of
the Company and each of its Subsidiaries will promptly pay and discharge, or
cause to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income, profits,
property or business of the Company and its Subsidiaries; provided, however,
that any such tax, assessment, charge or levy need not be paid if the validity
thereof shall be contested in good faith by appropriate proceedings and if
the
Company and/or such Subsidiary shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company and
its
Subsidiaries will pay all such taxes, assessments, charges or levies forthwith
upon the commencement of proceedings to foreclose any lien which may have
attached as security therefor.
17
6.8
Insurance.
Each of
the Company and its Subsidiaries will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss
or
damage by fire, explosion and other risks customarily insured against by
companies in similar businesses similarly situated as the Company and its
Subsidiaries; and the Company and its Subsidiaries will maintain, with
financially sound and reputable insurers, insurance against other hazards and
risks and liability to persons and property to the extent and in the manner
which the Company reasonably believes is customary for companies in similar
businesses similarly situated as the Company and its Subsidiaries and to the
extent available on commercially reasonable terms. The Company and each of
its
Subsidiaries will jointly and severally bear the full risk of loss from any
loss
of any nature whatsoever with respect to the assets pledged to the Purchaser
as
security for their obligations hereunder and under the Related Agreements.
At
the Company's and each of its Subsidiaries' joint and several cost and expense
in amounts and with carriers reasonably acceptable to the Purchasers, the
Company and each of its Subsidiaries shall (i) keep all their insurable
properties and properties in which they have an interest insured against the
hazards of fire, flood, sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to the Company's or
the
respective Subsidiary's including business interruption insurance; (ii) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to the Company's or the respective Subsidiary's insuring
against larceny, embezzlement or other criminal misappropriation of insured's
officers and employees who may either singly or jointly with others at any
time
have access to the assets or funds of the Company or any of its Subsidiaries
either directly or through governmental authority to draw upon such funds or
to
direct generally the disposition of such assets; (iii) maintain public and
product liability insurance against claims for personal injury, death or
property damage suffered by others; (iv) maintain all such worker's compensation
or similar insurance as may be required under the laws of any state or
jurisdiction in which the Company or the respective Subsidiary is engaged in
business; and (v) furnish the Agent with (x) copies of all policies and evidence
of the maintenance of such policies at least thirty (30) days before any
expiration date, (y) excepting the Company's workers' compensation policy,
endorsements to such policies naming the Agent (as defined below) as
"co-insured" or "additional insured" and appropriate loss payable endorsements,
naming the Agent as a loss payee, and (z) evidence that as to the Agent or
the
Purchasers the insurance coverage shall not be impaired or invalidated by any
act or neglect of the Company or any Subsidiary and the insurer will provide
the
Agent with at least thirty (30) days notice prior to cancellation. In the event
that as of the date of receipt of each loss recovery upon any such insurance,
the Agent or the Purchasers have not declared an event of default with respect
to this Agreement or any of the Related Agreements, then the Company and/or
such
Subsidiary shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Collateral" secured by the Agent’s security interest pursuant to its security
agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to the Purchasers. In the event that the Agent or
the
Purchasers have properly declared an event of default with respect to this
Agreement or any of the Related Agreements, then all loss recoveries received
by
the Agent upon any such insurance thereafter may be applied to the obligations
of the Company hereunder and under the Related Agreements, in such order as
the
Agent may determine. Any surplus (following satisfaction of all Company
obligations to the Purchasers) shall be paid by the Agent to the Company or
applied as may be otherwise required by law. Any deficiency thereon shall be
paid by the Company or the Subsidiary, as applicable, to the Agent, on
demand.
18
6.9
Intellectual
Property.
Each of
the Company and each of its Subsidiaries shall maintain in full force and effect
its existence, rights and franchises and all licenses and other rights to use
Intellectual Property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
6.10
Properties.
Each of
the Company and each of its Subsidiaries will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted, and
from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and each of its
Subsidiaries will at all times comply with each provision of all leases to
which
it is a party or under which it occupies property if the breach of such
provision would, either individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.
6.11
Confidentiality.
The
Company agrees that it will not disclose, and will not include in any public
announcement, the names of the Purchasers, unless expressly agreed to by the
Purchasers or unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement. Notwithstanding
the
foregoing, the Company may disclose the Purchasers' identity and the terms
of
this Agreement to its current and prospective debt and equity financing sources.
Notwithstanding the provisions of this section, the Purchasers consent to the
Company's filing of this Agreement and the Related Agreements as exhibits to
its
Form 8-K.
6.12
Required
Approvals.
For so
long as twenty-five percent (25%) of the aggregate principal amount of the
Original Notes are outstanding, the Company, without the prior written consent
of the Note Requisite Holders (as hereinafter defined) shall not, and shall
not
permit any of its Subsidiaries to:
(a)
(i)
directly or indirectly declare or pay any dividends, other than dividends paid
to the Company or any of its wholly-owned Subsidiaries, (ii) issue any preferred
stock that is mandatorily redeemable prior to the one year anniversary of
Maturity Date (as defined in the Notes) or (iii) redeem any of its preferred
stock or other equity interests;
19
(b)
liquidate, dissolve or effect a material reorganization (it being understood
that in no event shall the Company dissolve, liquidate or merge with any other
person or entity (unless the Company is the surviving entity);
(c)
become subject to (including, without limitation, by way of amendment to or
modification of) any agreement or instrument which by its terms would (under
any
circumstances) restrict the Company's or any of its Subsidiaries' right to
perform the provisions of this Agreement, any Related Agreement or any of the
agreements contemplated hereby or thereby;
(d)
materially alter or change the scope of the business of the Company and its
Subsidiaries taken as a whole;
(e)
(i)
create, incur, assume or suffer to exist any indebtedness (other than Permitted
Senior Debt, as defined in the Security Agreement, and exclusive of debt
incurred to finance the purchase of equipment not in excess of five percent
(5%)
of the fair market value of the Company's and its Subsidiaries' assets) whether
secured or unsecured other than (x) the Company's indebtedness to the
Purchasers, (y) indebtedness set forth on Schedule 6.12(e) attached hereto
and
made a part hereof and any refinancings or replacements thereof on terms no
less
favorable to the Company than the indebtedness being refinanced or replaced,
and
(z) any debt incurred in connection with the purchase of assets in the ordinary
course of business, or any refinancings or replacements thereof on terms no
less
favorable to the Company than the indebtedness being refinanced or replaced;
(ii) cancel any debt owing to it in excess of $50,000 in the aggregate during
any 12 month period; (iii) assume, guarantee, endorse or otherwise become
directly or contingently liable in connection with any obligations of any other
Person, except the endorsement of negotiable instruments by the Company for
deposit or collection or similar transactions in the ordinary course of business
or guarantees of indebtedness otherwise permitted to be outstanding pursuant
to
this clause (e); and
(f)
create or acquire any Subsidiary after the date hereof unless (i) such
Subsidiary is a wholly-owned Subsidiary of the Company and (ii) such Subsidiary
becomes party to the Security Agreement and the Subsidiary Guaranty (either
by
executing a counterpart thereof or an assumption or joinder agreement in respect
thereof) and, to the extent required by the Purchasers, satisfies each condition
of this Agreement and the Related Agreements as if such Subsidiary were a
Subsidiary on the Closing Date.
6.13
Reissuance
of Securities.
The
Company agrees to reissue certificates representing the Securities without
the
legends set forth in Section 5.8 above at such time as:
(a)
the
holder thereof is permitted to dispose of such Securities pursuant to Rule
144(k) under the Securities Act; or
(b)
upon
resale subject to an effective registration statement after such Securities
are
registered under the Securities Act.
20
The
Company agrees to cooperate with the Purchasers in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary
to
allow such resales provided the Company and its counsel receive reasonably
requested representations from the selling Purchaser and the broker, if
any.
6.14
Margin
Stock.
The
Company will not permit any of the proceeds of the Term Note or the Warrant
to
be used directly or indirectly to "purchase" or "carry" "margin stock" or to
repay indebtedness incurred to "purchase" or "carry" "margin stock" within
the
respective meanings of each of the quoted terms under Regulation U of the Board
of Governors of the Federal Reserve System as now and from time to time
hereafter in effect.
6.15
Penalty
Shares.
If the
Company generates less than $2,000,000 of the earnings before interest, taxes,
depreciation and amortization (“EBITDA”) for the 12-month period ending 12
months after closing, then the Company shall issue penalty shares (“Penalty
Shares”) to the Purchasers on a pro-rata basis based on their respective
principal amount of Notes, coupled with attendant registration rights, as
follows:
[$2MM
– Actual
EBITDA] x [# shares underlying Notes]
$2MM
7. Covenants
of the Purchasers.
Each
Purchaser, severally and not jointly, covenants and agrees with the Company
as
follows:
7.1
Confidentiality.
Such
Purchaser agrees that it will not disclose, and will not include in any public
announcement, the name of the Company, unless expressly agreed to by the Company
or unless and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
7.2
Non-Public
Information.
Such
Purchaser agrees not to effect any sales of the shares of the Company's Common
Stock while in possession of material, non-public information regarding the
Company if such sales would violate applicable securities law.
7A Agent
Appointment.
7A.1
Note
Agent.
Each
Purchaser hereby confirms the appointment of Atlantic Professional Association,
Inc. to act as its agent (“Agent”)
pursuant to the Notes. In such capacity, Agent shall only be obligated to take
action and shall act as directed by the Note Requisite Holders (as hereinafter
defined); neither Agent nor any of its officers, directors, managers, members,
employees or affiliates shall be responsible to Purchasers for any losses that
any of such Purchasers may incur hereunder. The Agent shall be entitled to
conclusively rely on any such direction or consent from the Note Requisite
Holders. In addition, the Agent may act in reliance upon any signature believed
by it to be genuine, and may assume that any person who has been designated
by
the Purchasers to give any written instructions, notice or receipt, or make
any
statements in connection with the provisions hereof has been duly authorized
to
do so. Agent shall have no duty to make inquiry as to the genuineness, accuracy
or validity of any statements or instructions or any signatures on statements
or
instructions. For its services hereunder, the Company shall pay the Agent a
fee
of $500.00 on the Initial Closing Date.
21
7A.2
Security
Agent.
Each
Purchaser hereby confirms the appointment of Agent to act as its security agent
(the “Security
Agent”)
under
the Security Agreement with respect to the Collateral (as defined in the
Security Agreement), under the Pledge Agreement with respect to the Pledged
Stock (as defined in the Pledge Agreement), and under the Subsidiary Guaranty,
to take all actions as contemplated in such capacity in the Security Agreement
and Pledge Agreement and to be entitled to the benefits of the provisions of
the
Security Agreement, the Pledge Agreement and the Subsidiary Guaranty. Each
Purchaser acknowledges that actions by the Security Agent under the Security
Agreement, the Pledge Agreement and the Subsidiary Guaranty shall be authorized
by the Note Requisite Holders.
7A.3
Agent
Resignation.
Agent
may resign as Agent or Security Agent at any time by giving written notice
(“Notice”)
to the
Company and the Purchasers, which resignation shall be effective 30 days from
the date of the Notice (“Effective
Resignation Date”).
Upon
the earlier of (i) the Effective Resignation Date or (ii) the appointment of
a
successor Agent or Security Agent by the Note Requisite Holders, Agent shall
have no further obligations hereunder or pursuant to the applicable agreements.
In the event a successor Agent is not appointed by the Note Requisite Holders
on
or before the Effective Resignation Date, then Agent shall have the right to
deliver any Collateral or Pledged Stock held by it with a clerk of a court
of
competent jurisdiction or a third party escrow provider pending the appointment
of a successor Agent by the Note Requisite Holders.
7A.4
Note
Requisite Holders.
For
purposes this Agreement, “Note Requisite Holders” shall mean holders of Notes
representing at least 51% of the aggregate amount of principal and accrued
interest then outstanding under such Notes.
7A.5
Indemnification.
In
Agent’s capacity as Agent and Security Agent, the
Company and the Purchasers each agree to indemnify and hold the Agent harmless
from and against any and all expenses (including counsel fees), liabilities,
claims, damages, actions, suits or other charges incurred by or assessed against
the Agent for anything done or omitted by them in the performance of their
duties, except upon final judicial determination of gross negligence or willful
misconduct on the part of the Agent.
8. Conditions
of the Purchasers’ Obligations at Closing.
On or
before the date of each Closing, the obligations of the Purchasers under
subsection 1 of this Agreement is subject to the fulfillment on or before
the Closing of each of the following conditions:
8.1 Representations
and Warranties.
The
representations and warranties of the Company contained in Section 4 hereof
shall be true and correct in
all
material respects on
and as
of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
22
8.2 Performance.
The
Company shall have performed and complied with in
all
material respects all
agreements, obligations, and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
8.3 Compliance
Certificate.
The
President or Chief Executive Officer of the Company shall deliver to the
Purchasers, at each Closing, a certificate certifying that the conditions
specified in Sections 8.1 and
8.2 have
been
fulfilled.
8.4 Proceedings
and Documents.
All
corporate and other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchasers and counsel to the
Purchasers, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
8.5 Secretary’s
Certificate.
The
Company shall have delivered to the Purchasers a certificate executed by the
Secretary of the Company dated as of the Closing certifying the following
matters: (a) the resolutions adopted by the Company’s Board of Directors
relating to the transactions contemplated by this Agreement; and (b) the
Certificate of Incorporation and Bylaws of the Company.
8.6 Delivery
of Notes
and
Warrants.
The
Company shall have delivered the Notes
and the
Warrants
to the
Purchasers, as specified in Section 1.
8.7 Ancillary
Agreements.
The
Company shall have executed and delivered to the Purchasers this Agreement
and
the Related Agreements.
8.8 Opinion
of Counsel.
The
Purchasers shall have received an opinion of counsel to the Company
substantially in the form attached hereto as Exhibit
H.
8.9 Other
Payments.
Concurrent with the Closing, the Company shall pay the Xxxxx Compensation (as
such terms are defined in Section 2(b) hereof) and the Legal Expense
Reimbursement.
9. Conditions
of the Company’s Obligations at Closing.
The
obligations of the Company to the Purchaser under this Agreement are subject
to
the fulfillment on or before any Closing of each of the following conditions
by
the Purchasers:
9.1 Representations
and Warranties.
The
representations and warranties of the Purchasers contained in Section 5 shall
be
true and correct on and as of such Closing with the same effect as though such
representations and warranties had been made on and as of such Closing.
9.2 Payment
of Purchase Price.
The
Purchasers shall have delivered the purchase price specified in
Section 1.1.
23
9.3 Ancillary
Agreements.
The
Company and the Purchasers shall have entered into the Related Agreements,
as
applicable.
10.
Covenants
of the Company and the Purchasers Regarding
Indemnification.
10.1
Company
Indemnification.
The
Company agrees to indemnify, hold harmless, reimburse and defend the Purchasers
and each of the Purchasers' officers, directors, agents, affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Purchasers which results, arises out
of
or is based upon: (i) any misrepresentation by the Company or any of its
Subsidiaries or breach of any warranty by the Company or any of its Subsidiaries
in this Agreement, any other Related Agreement or in any exhibits or schedules
attached hereto or thereto; or (ii) any breach or default in performance by
the
Company or any of its Subsidiaries of any covenant or undertaking to be
performed by the Company or any of its Subsidiaries hereunder, under any other
Related Agreement or any other agreement entered into by the Company and/or
any
of its Subsidiaries and the Purchasers relating hereto or thereto.
24
10.2
The
Purchasers' Indemnification.
Each
Purchaser, severally and not jointly, agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon the Company
which results, arises out of or is based upon: (i) any misrepresentation by
such
Purchaser or breach of any warranty by such Purchaser in this Agreement or
in
any exhibits or schedules attached hereto or any Related Agreement; or (ii)
any
breach or default in performance by such Purchaser of any covenant or
undertaking to be performed by such Purchaser hereunder, or under any other
Related Agreement. Any
indemnity obligation of any Purchaser to the Company pursuant to this Section
10
shall be limited to the gross proceeds received from the Company from such
Purchaser at Closing.
11.
Miscellaneous.
11.1
Governing
Law.
THIS
AGREEMENT AND EACH RELATED AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAWS. ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER
CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH RELATED
AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN THE
FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. BOTH PARTIES AND THE
INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED AGREEMENTS ON BEHALF OF
THE
COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH COURTS AND WAIVE TRIAL
BY
JURY. IN THE EVENT THAT ANY PROVISION OF THIS AGREEMENT OR ANY RELATED AGREEMENT
DELIVERED IN CONNECTION HEREWITH IS INVALID OR UNENFORCEABLE UNDER ANY
APPLICABLE STATUTE OR RULE OF LAW, THEN SUCH PROVISION SHALL BE DEEMED
INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT THEREWITH AND SHALL BE DEEMED
MODIFIED TO CONFORM WITH SUCH STATUTE OR RULE OF LAW. ANY SUCH PROVISION WHICH
MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT AFFECT THE VALIDITY
OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT OR ANY RELATED
AGREEMENT.
11.2
Survival.
The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchasers and the closing of the transactions
contemplated hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant hereto in connection with the transactions contemplated hereby shall
be
deemed to be representations and warranties by the Company hereunder solely
as
of the date of such certificate or instrument.
25
11.3
Successors.
Except
as otherwise expressly provided herein, the provisions hereof shall inure to
the
benefit of, and be binding upon, the successors, heirs, executors and
administrators of the parties hereto and shall inure to the benefit of and
be
enforceable by each person who shall be a holder of the Securities from time
to
time, other than the holders of Common Stock which has been sold by such
Purchaser pursuant to Rule 144 or an effective registration statement. The
Purchasers may not assign their rights hereunder to a competitor of the
Company.
11.4
Entire
Agreement.
This
Agreement, the Related Agreements, the exhibits and schedules hereto and thereto
and the other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any
representations, warranties, covenants and agreements except as specifically
set
forth herein and therein.
11.5
Amendment
and Waiver.
This
Agreement may be amended or terminated and the observance of any term of this
Agreement may be waived with respect to all parties to this Agreement (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Note Requisite
Holders. Notwithstanding the foregoing, (a) this Agreement may not be amended
or
terminated and the observance of any term hereunder may not be waived with
respect to any Purchaser without the written consent of such Purchaser unless
such amendment, termination or waiver applies to all Purchasers in the same
fashion, (b) the Schedule of Purchasers hereto may be amended by the Company
from time to time in accordance with Section 3.1 to add information regarding
additional Purchasers participating in Subsequent Closings without the consent
of the other parties hereto and (c) Section
4, Section 5, Section 6, Section 7, Section 10, Section 11.2, or Section 11.5
may not be amended without the written consent of the Company and holders of
at
least 85% of the
aggregate amount of principal and accrued interest then outstanding under the
Notes.
The
Company shall give prompt written notice of any amendment or termination hereof
or waiver hereunder to any party hereto that did not consent in writing to
such
amendment, termination or waiver. Any amendment, termination or waiver effected
in accordance with this Section 11.5 shall be binding on all parties hereto,
even if they do not execute such consent. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
11.6
Delays
or Omissions.
It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement or the Related Agreements, shall impair any such right, power
or
remedy, nor shall it be construed to be a waiver of any such breach, default
or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. All remedies, either under this
Agreement or the Related Agreements, by law or otherwise afforded to any party,
shall be cumulative and not alternative.
26
11.7
Notices.
All
notices required or permitted hereunder shall be in writing and shall be deemed
effectively given:
(a)
upon
personal delivery to the party to be notified;
(b)
when
sent by confirmed facsimile if sent during normal business hours of the
recipient, if not, then on the next business day;
(c)
three
(3) business days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or
(d)
one
(1) day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt.
All
communications shall be sent as follows:
If
to the
Company, to:
Friendlyway Corporation
0000
Xxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx
Xxxxxxx, XX 00000
Attention:
Xxx Xxxxxxx, Chief
Executive Officer and President
Fax:
(000) 000-0000
|
If
to
Purchasers:
To the Purchasers’ address as set forth in the Financing Signature Page |
If
to
Xxxxx:
Xxxxx
Securities Corp.
000
Xxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, XX 00000
Attention:
Xxxxx X. Xxxxxxxx, President and CEO
Fax:
(000) 000-0000.
|
With
a
copy to:
Xxxxxxx
Xxxxxx LLP
000
Xxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx, XX 00000
Attention:
Xxxxxx Xxxxxxx, Esq.
Fax:
(000) 000-0000
|
or
at
such other address as the Company or such Purchaser may designate by written
notice to the other parties hereto given in accordance herewith.
27
11.8
Attorneys'
Fees.
In the
event that any suit or action is instituted to enforce any provision in this
Agreement, the prevailing party in such dispute shall be entitled to recover
from the losing party all fees, costs and expenses of enforcing any right of
such prevailing party under or with respect to this Agreement, including,
without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and
expenses of appeals.
11.9
Titles
and Subtitles.
The
titles of the sections and subsections of this Agreement are for convenience
of
reference only and are not to be considered in construing this
Agreement.
11.10
Counterparts;
Facsimile Signatures.
This
Agreement may be executed in one or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to
the
other party, it being understood that both parties need not sign the same
counterpart. This Agreement may be executed by delivery of the Omnibus
Signature Page, which is included in the Subscription Documentation Package
provided with this Agreement, pursuant to which the Purchaser agrees to become
a
Purchaser, as defined in this Agreement, and further agrees to become bound
by
the terms and conditions of each of the Related Agreements. The Omnibus
Signature Page may also be executed in any number of counterparts, each of
which
shall be an original, but all of which together shall constitute one and the
same instrument and be deemed a part of this Agreement ab initio.
In the
event that any signature is delivered by facsimile transmission or by e-mail
delivery of a “.pdf” format data file, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature
is
executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.
11.11
Broker's
Fees.
Other
than Xxxxx Securities Corp., each party hereto represents and warrants that
no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 11.11 being
untrue.
11.12 Expenses.
The
Company and each Purchaser shall pay their respective costs and expenses
incurred with respect to the negotiation, execution, delivery
and performance of this Agreement; provided that the Company will be
responsible for the Legal Expense Obligation.
[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
28
IN
WITNESS WHEREOF, the parties hereto have executed this SECURITIES PURCHASE
AGREEMENT as of the date set forth in the first paragraph hereof.
FRIENDLYWAY CORPORATION | ||
|
|
|
By: | /S/ XXX XXXXXXX | |
Xxxxxxx Xxxxxxx, CEO and President |
As
to Section 7A only:
|
||
Agent: | ||
ATLANTIC
PROFESSIONAL ASSOCIATION, INC.
|
||
|
|
|
By: |
/S/
XXXXXXXX X. XXXXXXXX
|
|
Name:
Xxxxxxxx
X. Xxxxxxxx
Title:
President
|
||
PURCHASERS | ||
[TO
SIGN OMNIBUS SIGNATURE PAGE
ANNEXED HERETO]
|
||
|
29
(MUST
BE COMPLETED BY PURCHASER)
By
execution and delivery of this signature page, the undersigned hereby: agrees
to
become a Purchaser, as defined in that certain Securities Purchase Agreement
(the “Purchase
Agreement”)
by and
among friendlyway Corporation (the “Company”)
and
the other Purchasers party thereto; acknowledges having read the representations
in the Purchase Agreement; and represents that the statements contained therein
are complete and accurate with respect to the undersigned as a Purchaser. The
undersigned further hereby agrees to be bound by the terms and conditions of
(i)
the Purchase Agreement as a "Purchaser" thereunder, and (ii) the Registration
Rights Agreement as a "Holder" thereunder, and authorizes the Company to attach
this signature page to the Purchase Agreement and the Registration Rights
Agreement, or counterparts thereof. Terms that are capitalized but not defined
in this Omnibus Signature Page have the meanings given to them in the Purchase
Agreement.
Purchaser hereby subscribes to purchase a total of: |
$
_____________
Principal amount of
Notes *
|
*
Purchasers are entitled to warrant coverage based on the principal amount of
Notes purchased as described in the Purchase Agreement.
PURCHASER
|
||
(Name
of Investor as it should appear on Term Note and Warrants)
|
(Today’s
Date)
|
|
(Signature
of Investor or authorized signatory)
|
(Print
name of Investor or authorized signatory)
|
|
Address: | |||
(If
signing as an authorized signatory, print your title)
|
Telephone: | |||
(Jurisdiction
of organization, if applicable)
|
Facsimile: | ||
E-mail: |
Federal Tax ID or |
Social Security No.: |
ACCEPTED
AND AGREED:
FRIENDLYWAY
CORPORATION
By: _____________________________________ | Date: ____________________________________ |
Authorized Officer
|
30
SCHEDULES
AND EXHIBITS
Schedule
of Purchasers
Schedule
4.2 - Subsidiaries
Schedule
4.3 - Capitalization
Schedule
4.6 - Agreements; Actions
Schedule
4.7 - Related Parties
Schedule
4.9 - Title to Properties and Assets; Liens, Etc.
Schedule
4.10 - Intellectual Property
Schedule
4.12 - Litigation
Schedule
4.13 - Tax Returns and Payments
Schedule
4.14 - Employees
Schedule
4.15 - Registration Rights and Voting Rights
Schedule
4.21 - SEC Reports
Schedule
6.5 - Use of Funds
Exhibit
A
- Form of Term Note
Exhibit
B
- Form of Warrant
Exhibit
C
- Registration Rights Agreement
Exhibit
D
- Subsidiary Guaranty
Exhibit
E
- Security Agreement
Exhibit
F
- Pledge Agreement
Exhibit
G
- Escrow Agreement
Exhibit
H
- Form of Opinion of Xxxxxxxxxxx X. Xxxxxxx, P.C.
31
Exhibit
A
Form
of Term Note
32
Exhibit
B
Form
of Warrant
33
Exhibit
C
Registration
Rights Agreement
34
Exhibit
D
Subsidiary
Guaranty
35
Exhibit
E
Security
Agreement
36
Exhibit
F
Pledge
Agreement
37
Exhibit
G
Escrow
Agreement
38
Exhibit
H
Form
of Legal Opinion
2.1 The
Company has been duly organized as a corporation and is validly existing and
in
good standing under the laws of the jurisdiction of its incorporation, has
full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Memorandum and is duly qualified as
a
foreign corporation for the transaction of business and is in good standing
in
each jurisdiction where the conduct of its business makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect upon the business (as currently conducted), financial condition,
prospects or results of operation of the Company (a "Material Adverse
Effect").
2.2 The
authorized capital stock of the Company on the date hereof consists of (i)
100,000,000 shares of Common Stock, $0.001 par value per share, and (ii)
5,000,000 shares of Preferred Stock, $0.001 par value per share. All outstanding
shares of capital stock of the Company have been duly authorized and are validly
issued, fully paid and non-assessable.
2.3 The
Notes
and Warrants and shares of Common Stock issuable upon conversion of the Notes
and exercise of the Warrants (collectively, the “Conversion Shares”) have been
duly authorized for issuance by all necessary corporate action on the part
of
the Company. The Conversion Shares when issued, sold and delivered against
payment therefore in accordance with the provisions of the Notes and Warrants,
as applicable, will be duly and validly issued, fully paid and non-assessable.
The issuance of the Conversion Shares are not subject to any statutory or,
to
our knowledge, contractual or other preemptive rights. A sufficient number
of
authorized but unissued shares of Common Stock have been reserved for issuance
upon conversion of the Notes and exercise of the Warrants, as well as other
shares of Common Stock that may be issuable pursuant to the terms and provisions
of the Notes and Warrants.
2.4 The
execution and delivery by the Company of the Transaction Documents to which
they
are a party and the consummation by the Company of the transactions contemplated
thereby have been have been duly authorized by all necessary corporate action
on
the part of the Company, and duly executed and delivered by the Company. Each
of
the Transaction Documents to which it is a party constitutes the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
2.5 The
execution and delivery by the Company of the Transaction Documents to which
they
are a party and the consummation by the Company of the transactions contemplated
thereby will not (i) violate the provisions of any United States federal or
state law, rule or regulation currently applicable to the Company or the Nevada
Revised Statures; (ii) violate the provisions of the Company's Articles of
Incorporation or By-Laws; (iii) violate any judgment, decree, order or award
known to us of any court, governmental body or arbitrator having jurisdiction
over the Company; or (iv) result in the breach or termination of any material
term or provision of an agreement known to us to which the Company is a party,
except in any such case where the breach or violation would not have a Material
Adverse Effect on the Company or its ability to perform its obligations under
the Transaction Documents.
39
2.6 Assuming
that the Shares were sold only to "accredited investors" (as defined in Rule
501
of Regulation D promulgated under the Securities Act of 1933, as amended ("1933
Act")) and the Placement Agent complied in all material respects with Regulation
D and the terms and conditions of the Offering set forth in the Placement Agency
Agreement, such sales were made in conformity in all material respects with
the
requirements of Section 4(2) of the 1933 Act and Regulation D, and with the
requirements of all other United States federal regulations applicable to the
Company currently in effect relating to private offerings of securities of
the
type made in the Offering.
2.7 To
our
knowledge, there is no action, proceeding or litigation pending or threatened
against the Company before any court, governmental or administrative agency
or
body.
2.8 Either
(i) no consent, approval or authorization of, or other action by, and no notice
to or filing with, any United States federal or state governmental authority
on
the part of the Company is required in connection with the valid execution
and
delivery of the Transaction Documents to which it is a party and the
consummation by the Company of the transactions contemplated thereunder, except
for (A) the filing of a Form D that may be filed with the United States
Securities and Exchange Commission; (B) any filings under the securities laws
of
the various jurisdictions in which the Shares are being offered and sold in
the
Offering; and (C) any filings relating to public disclosure of the transactions
contemplated by the Transaction Documents, or (ii) any required consent,
approval, authorization, action or filing has been obtained, performed or made
by the Company.
40