PURCHASE AGREEMENT

EXHIBIT 10.2

PURCHASE AGREEMENT

 

This Purchase Agreement (this “Agreement” ) is dated as of July __, 2009, by and among INVO Bioscience, Inc., a Nevada corporation (the “Company” ), and the investors identified on the signature pages hereto (each an “Investor” and, collectively, the “Investors” ).

 

WHEREAS , subject to the terms and conditions set forth in this Agreement, the Company desires to borrow certain sums from each of the Investors and, in consideration thereof issue certain convertible notes and warrants to each of the Investors, and each Investor, severally and not jointly, desires to make a loan to the Company and accept such notes and warrants from the Company, all pursuant to the terms set forth herein.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors agree as follows:

 

ARTICLE I.

DEFINITIONS

 

Definitions .  In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

 

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144.

 

“Bankruptcy Event” means any of the following events:  (a) the Company  commences a proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company; (b) there is commenced against the Company any such case or proceeding described in the foregoing clause (a) that is not dismissed within sixty (60) days after commencement; (c) by an order of a court of competent jurisdiction, the Company is adjudicated insolvent or bankrupt; (d) a custodian or receiver has been appointed for all or any substantial part of its to the Company’s property, and such custodian or receiver is not discharged or stayed within sixty (60) days from the appointment date thereof; (e) under applicable law, the Company makes a general assignment for the benefit of creditors; (f) the Company calls in writing a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company, by any act or failure to act, expressly in writing indicates its consent to or approval of any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

 “Business Day” means any day except Saturday, Sunday and any day that is a federal legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

“Closing” means each closing of the purchase and sale of Notes and Warrants contemplated by Section 2.1 .

 

“Closing Date” means the Business Day immediately following the date on which all of the conditions set forth in Section 2.1(d) and Section 2.1(e) have been satisfied for a Closing, or such other date as the parties may agree.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Commission” means the Securities and Exchange Commission.

 

 

 “Common Stock Equivalents” means any securities of the Company which entitle the holder thereof to acquire Common Stock at any time, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock or other securities that entitle the holder to receive, directly or indirectly, Common Stock.

 

“Contemplated Transactions” means the transactions contemplated by this Agreement and the other Transaction Documents.

 

 

“Contingent Liability” means, as to any Person, any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing or agreeing to pay or become responsible for any Debt or obligation of any other Person in any manner, whether directly or indirectly, including without limitation any obligation of such Person, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Debt, (b) to purchase property or services for the purpose of assuring the owner of such Debt of its payment, or (c) to maintain the solvency, working capital, equity, cash flow, fixed charge or other coverage ratio, or any other financial condition of the primary obligor so as to enable the primary obligor to pay any Debt or to comply with any agreement relating to any Debt or obligation.

 

“Debt” of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments issued by such Person, (iii) all obligations of such Person as lessee which (y) are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback transactions, (iv) all reimbursement obligations of such Person in respect of letters of credit or other similar instruments, (v) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person and (vi) all Debt of others guaranteed by such Person.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

“GAAP” means U.S. generally accepted accounting principles.

 

“Investment Amount” means, with respect to each Investor, the investment amount indicated below such Investor’s signature page to this Agreement, which investment amount shall be at least $50,000 (unless reduced in the sole discretion of the Company) and shall be in increments of $50,000 (unless reduced in the sole discretion of the Company).

 

“Lien” means any lien, charge, encumbrance, security interest, right of first refusal or other restrictions of any kind.

 

 “Material Adverse Effect” means any of (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material and adverse effect on the results of operations, assets, prospects, business or condition (financial or otherwise) of the Company or (iii) a material and adverse impairment to the Company's ability to timely perform its obligations under any Transaction Document; provided, however , that any effect to the extent resulting from changes in general economic, regulatory, legal or political conditions or changes generally affecting the securities or financial markets, or those generally effecting the software, payment services or stored value card industries in which the Company operates, shall not constitute, in and of itself or themselves and shall not be taken into account in determining whether there has been or will be, a Material Adverse Effect.

 

“New York Courts” means the state and federal courts sitting in the City, County and State of New York.

 

“Notes” means the 12% senior secured convertible notes issuable by the Company to the Investors at Closing in the Form of Exhibit A .

 

“Offering” means the offering contemplated by the Transaction Documents.

 

“Permitted Liens” means:  (a) Liens for taxes, assessments or governmental charges not delinquent or being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP are maintained on the books of the Company; (b) Liens arising out of deposits in connection with workers’ compensation, unemployment insurance, old age pensions or other social security or retirement benefits legislation; (c) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, and other obligations of like nature arising in the ordinary course of business of the Company; (d) Liens imposed by law, such as mechanics’, workers’, material mens’, carriers’ or other like liens arising in the ordinary course of business of the Company which secure the payment of obligations which are not past due or which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are maintained on the books of the Company or the applicable Subsidiary; (e) Liens existing on the Closing Date, and specified on Schedule 3.1(z) ; (f) purchase money security interests or Liens for the purchase of fixed assets to be used in the business of the Company, securing solely the fixed assets so purchased and the proceeds thereof; (g) capitalized leases which do not violate any provision of this Agreement; (h) Liens of commercial depository institutions, arising in the ordinary course of business, constituting a statutory or common law right of setoff against amounts on deposit with such institution; and (i) rights of way, zoning restrictions, easements and similar encumbrances affecting the Company’s real property which do not materially interfere with the use of such property.

 

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

“ Placement Agent ” means Hallmark Securities, Inc.

 

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

 

“Required Investors” means one or more Investors representing, collectively, greater than seventy five (75%) of the aggregate principal amount of all Notes, including any issued hereunder then outstanding.

 

“Restricted Payment” means, with respect to any Person, (a) any direct or indirect distribution, dividend or other payment on account of any equity interest in, or shares of capital stock or other securities of, such Person and (b) any management, consulting or other similar fees, or any interest thereon, payable by such Person to any Affiliate of such Person (other than the Company), or to any other Person, other than an employee, third party consultant, finder or placement agent or other third party; provided , however, that Restricted Payments shall not include any arms length consulting agreements with consultants of the Company.

 

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

 

“Securities” means the Notes, the Warrants and the Shares.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Shares” means the shares of Common Stock issuable upon conversion of the Notes (the Underlying Shares) and exercise of the Warrants.

 

“Transaction Documents” means this Agreement, the Notes and the Warrants.

 

“Underlying Shares” means the Common Stock issuable upon conversion of the Notes.

 

“Warrants” means the Common Stock purchase warrants, in the form of Exhibit B , issuable to each Investor at the Closing.

 

ARTICLE II.

PURCHASE AND SALE

 

(a)   Subject to the terms and conditions set forth in this Agreement, at each Closing the Company shall issue and sell to each Investor, and each Investor shall, severally and not jointly, purchase from the Company, the Notes and the Warrants (collectively, the “Units” ) representing such Investor’s Investment Amount.  All Closings shall take place at the offices of, Hallmark Investments, Inc. 420 Lexington Avenue, 8 ^th Floor, New York, NY  10170 or at such location or time as the parties may agree.

 

(b)   At each Closing, the Company shall deliver or cause to be delivered to each Investor the following (the “Company Deliverables” ):

 

(i)   Notes in the aggregate principal amount of the Investment Amount indicated below such Investor’s name on its signature page of this Agreement, registered in the name of such Investor;

 

(ii)   Warrants, registered in the name of such Investor, pursuant to which such Investor shall have the right to acquire the number of Warrant Shares of Common Stock equal to 100% of the quotient of the principal amount of the Note issued to such Investor in accordance with Section 2.1(b) (i) (without regard to any exercise restrictions contained there under) divided by the Conversion Price, as set forth in such Note, which the Conversion (of the note) Price initially shall equal $.10 per share.  For the avoidance of doubt, assuming the current Exercise Price of $.10, the Warrant Price is $.20 per share, an Investment Amount of $50,000 would result in a Warrant being issued for the purchase of up 500,000 Warrant Shares ($50,000/$0.10 Conversion price) at a warrant purchase price of $.20 per share (such price subject to adjustment as provided in the Warrant). The exercise of the associated warrants and purchase of 500,000 shares of common stock would cost $100,000;

 

(iii)   resolutions of the Company authorizing the execution and delivery of the Transaction Documents by the Company and the consummation by the Company of the Contemplated Transactions, including, without limitation, the issuance of the Notes and the Warrants and the reservation for issuance and issuance of Shares, duly executed by the Board of Directors of the Company; and

 

(iv)   a certificate executed by a duly authorized officer of the Company certifying that (i) all representations and warranties made by the Company and information furnished by the Company in any schedules to this Agreement, are true and correct in all material respects as of the Closing Date, (ii) all covenants, agreements and obligations required by this Agreement to be performed or complied with by the Company, prior to or at the Closing, have been performed or complied with and (iii) the items referenced in Sections 2.1(d)(i) (iii) and (iv) are true and correct as of the Closing Date.

 

(c)   At each Closing, each Investor shall deliver or cause to be delivered to the Company the Investment Amount indicated below such Investor’s name on its signature page of this Agreement, in United States dollars and in immediately available funds, by wire transfer (or check) to an account designated in writing by the Company for such purpose (the “Investor Deliverables” ).

 

(d)   Conditions Precedent to the Obligations of an Investor to Purchase Notes and Warrants .  The obligation of each Investor to acquire Notes and Warrants and make loans at each Closing is subject to the satisfaction or waiver by such Investor, at or before each Closing, of each of the following conditions:

 

(i)   Representations and Warranties .  The representations and warranties of the Company contained in the Transaction Documents shall be true and correct as of the date when made and as of such Closing Date as though made on and as of such date;

 

(ii)   Performance .  The Company shall have performed, satisfied and complied with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing;

 

(iii)   Officer’s Certificate .  The officer’s certificate described in Section 2.1(b) (IV) hereof shall have been delivered;

 

(iv)   No Injunction .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the Contemplated Transactions; and

 

(v)   Company Deliverables .  The Company shall have delivered the Company Deliverables in accordance with Section 2.1(b) .

 

(e)   Conditions Precedent to the Obligations of the Company to sell Notes and Warrants .  The obligation of the Company to sell Notes and Warrants at each Closing is subject to the satisfaction or waiver by the Company, at or before each Closing, of each of the following conditions:

 

(i)   Representations and Warranties .  The representations and warranties of each Investor contained herein shall be true and correct as of the date when made and as of the Closing Date as though made on and as of such date;

 

 

(ii)   Performance .  Each Investor shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by such Investor at or prior to the Closing;

 

(iii)   No Injunction .  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits the consummation of any of the Contemplated Transactions; and

 

(iv)   Investors Deliverables .  Each Investor shall have delivered its Investor Deliverables in accordance with Section 2.1(c) .

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1   Representations and Warranties of the Company .  The Company hereby makes the following representations and warranties to each Investor: