Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
BY AND BETWEEN
BIOPHAN TECHNOLOGIES, INC.,
AND
MYOTECH, LLC
Dated as of November 30, 2005
SECURITIES PURCHASE AGREEMENT
This Agreement dated as of November 30, 2005 is entered into by and
between Myotech, LLC, a New York limited liability company (the "Company"), and
Biophan Technologies, Inc., a Nevada corporation (the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization; Sale of Units.
1.1 Authorization. The Company has, or before the Initial Closing
(as defined in Section 2.1) will have, duly authorized the sale and issuance,
pursuant to the terms of this Agreement, of up to 7,968,083 Class A Units (the
"Class A Units"), having the rights, privileges, preferences and restrictions
set forth in the Articles of Organization of the Company (the "Articles of
Organization") and the Company's Operating Agreement, as amended and restated to
date (the "Operating Agreement").
1.2 Sale of Units.
(a) Subject to the terms and conditions of this Agreement,
upon the completion of all of the conditions set forth in Section 2.1 below,
which is expected to occur on or before December 13, 2005 (the "Initial
Closing"), the Company hereby agrees to sell and issue to the Purchaser in
accordance with the funding schedule to be mutually agreed upon by the parties
hereto prior to the Initial Closing and to attached as an exhibit hereto prior
to the Initial Closing (the "Initial Funding Schedule"), and the Purchaser
hereby unconditionally agrees to purchase for cash in accordance with the
Initial Funding Schedule, an aggregate of 802,568 Class A Units for an aggregate
purchase price equal to $2,225,000 (including the $300,000 previously advanced
by Purchaser to the Company as of the date hereof (referred to herein as the
"Advance")) (the "Initial Commitment"). The Initial Commitment shall be paid in
accordance with Initial Funding Schedule by wire transfer of immediately
available funds to an account designated by the Company. Promptly following
receipt by the Company of funds in accordance with the Initial Funding Schedule,
but in no event later than three (3) business days after such receipt, the
Company shall deliver to Purchaser a certificate representing the applicable
number of Class A Units based upon a purchase price per unit equal to $2.8035.
(b) Subject to the terms and conditions of this Agreement, at
the Initial Closing, Purchaser hereby agrees to sell and issue to the Company
4,923,020 shares of the Purchaser's common stock, $0.005 par value per share
(the "Purchaser Common Stock") based on a price of $2.10 per share, in exchange
for 3,687,719 Class A Units of the Company (the "Exchange Units"); provided
however, 738,453 shares of Purchaser Common Stock will be held in escrow
pursuant to Section 7 hereof.
(c) Subject to the terms and conditions of this Agreement, at
the Additional Closings (as defined in Section 2.2), the Company will sell and
issue to the Purchaser, and the Purchaser will purchase, Class A Units for the
purchase price of $2.8035 per unit (based upon a pre-money valuation of
$19,200,000) (the "Purchase Price") in accordance with the funding schedules
referenced in Section 2.2 below. The Class A Units sold under this Agreement are
referred to as the "Units".
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Units for product development and other general corporate purposes
pursuant to the budget attached hereto as Exhibit F.
2. Closings.
2.1 The Initial Closing. Subject to the terms and conditions of this
Agreement, the Initial Closing of the sale and purchase of Units under this
Agreement shall take place at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, 502
Carnegie Center, Princeton, New Jersey (or remotely via the exchange of
documents and signatures) on December 13, 2005 or such other time and place as
mutually agreed between the Company and the Purchaser (the "Initial Closing
Date"). The conditions to the execution of this Agreement and/or the Initial
Closing are as follows:
(a) Upon the execution of this Agreement, the Company, ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, BioMed Solutions, LLC, as
members of the Company, and the Purchaser shall execute and deliver the Rights
Agreement in the form attached hereto as Exhibit A (the "Rights Agreement"), and
on or prior to the Initial Closing, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall execute and deliver
the Rights Agreement;
(b) Upon the execution of this Agreement, the Company and the
Purchaser shall execute and deliver the Lock-Up Agreement in the form attached
hereto as Exhibit B (the "Lock-Up Agreement");
(c) On or prior to the Initial Closing, each of the Company
and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇ shall execute and
deliver the Non-Competition and Non-Solicitation Agreement in the form to be
mutually agreed upon by the parties hereto and to be attached hereto as Exhibit
C-1 prior to the Initial Closing (the "Company Non-Competition and
Non-Solicitation Agreement"), and the Purchaser shall execute and deliver the
Non-Competition and Non-Solicitation Agreement in the form to be mutually agreed
upon by the parties hereto and to be attached hereto as Exhibit C-2 prior to the
Initial Closing (the "Purchaser Non-Competition and Non-Solicitation
Agreement");
(d) Upon the execution of this Agreement and on or prior to
the Initial Closing, the Company shall deliver to the Purchaser certificates, as
of the most recent practicable dates as to the corporate good standing of the
Company issued by the Secretary of State of the State of New York;
(e) On or prior to the Initial Closing, the Company shall
deliver to the Purchaser the Articles of Organization of the Company, as amended
and in effect as of the Initial Closing Date, certified by the Secretary of
State of the State of New York;
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(f) (i) At the Initial Closing, the Company shall deliver to
the Purchaser a Certificate of the Secretary of the Company attesting as to the
Operating Agreement of the Company; and (ii) upon the execution of this
Agreement, the Company shall deliver to the Purchaser a Certificate of the
Secretary of the Company attesting as to (A) the signatures and titles of the
officers of the Company executing this Agreement or any of the other agreements
to be executed and delivered by the Company at the Initial Closing, and (B)
resolutions of the Board of Managers and members of the Company, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby;
(g) At the Initial Closing, the Company shall deliver to the
Purchaser a Certificate, executed by an officer and/or managing member of the
Company and dated as of the Initial Closing representing that (i) each
representation and warranty of the Company contained in Section 3 shall be true
and complete on and as of the date of the Initial Closing with the same effect
as though such representation and warranty had been made on and as of that date
(for purposes of clarity, the Purchaser shall not be required to consummate the
purchase of the Units if there is a material adverse change to any
representation or warranty on the date of the Initial Closing), (ii) all
consents and approvals required to be obtained by the Company have been
obtained, and (iii) all closing conditions required to be performed by the
Company have been performed as of the Initial Closing;
(h) On or prior to the Initial Closing, ▇▇▇▇▇▇▇▇ Ingersoll,
P.C., intellectual property counsel for the Company, shall deliver to the
Purchaser an opinion, dated the Initial Closing Date, in the form to be agreed
upon by the parties hereto and to be attached hereto as Exhibit D-1 prior to the
Initial Closing, and a law firm to be mutually acceptable to the parties hereto
and acting as transaction counsel for the Company, shall deliver to the
Purchaser an opinion, dated the Initial Closing Date, in the form to be agreed
upon by the parties hereto and to be attached hereto as Exhibit D-2 prior to the
Initial Closing;
(i) Within one business day following the Initial Closing, the
Company shall deliver to the Purchaser a certificate representing the Exchange
Units;
(j) Within three business days following the Initial Closing,
the Purchaser or its transfer agent shall deliver to the Company a certificate
representing the Purchaser Common Stock (less the shares held in escrow pursuant
to Section 7 below), and the Purchaser or its transfer agent shall deliver to
the escrow agent (as referred to in Section 7 below) a certificate representing
the shares of Purchaser Common Stock held in escrow pursuant to Section 7 below;
(k) On or prior to the Initial Closing, the Company and the
Purchaser shall have agreed on four development milestones to occur during the
24 month period following the Initial Closing as set forth on Exhibit E;
(l) On or prior to the Initial Closing, the Company, the
Purchaser and the Purchaser's Board of Directors shall have agreed on (i) a
detailed product development plan, (ii) a clinical and regulatory plan, (iii) a
timetable and (iv) a detailed monthly budget for the $12,000,000 as set forth on
Exhibit F, that may be received by the Company pursuant to the Additional
Closings (as defined in Section 2.2) net of the Advance;
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(m) On or prior to the Initial Closing, the Company agrees to
establish and announce the formation of a cardiovascular business unit to be
headed by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and to enter into a two-year employment agreement
with ▇▇. ▇▇▇▇▇▇ (containing all usual and customary provisions for a position of
this nature) substantially in the form to be agreed upon by the parties hereto
and to be attached hereto as Exhibit G prior to the Initial Closing;
(n) On or prior to the Initial Closing, the Company shall
enter into a two-year consulting agreement with ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, D.V.M.
(containing provisions for payment at the rate of $4,000 per month)
substantially in the form to be agreed upon by the parties hereto and to be
attached hereto as Exhibit H prior to the Initial Closing and grant ▇▇. ▇▇▇▇▇▇▇,
at the Initial Closing, options to purchase 50,000 shares of the Purchaser's
common stock, pursuant to the terms of the Purchaser's 2001 Stock Option Plan
(the option price to be the price of the Purchaser's common stock on the date of
the Initial Closing with 50% of such options vesting on the date of the Initial
Closing and the balance vesting one year thereafter);
(o) On or prior to the Initial Closing, the Company shall
enter into a one-year renewable consulting agreement with ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
(containing provisions for payment at the rate of $1,250 per month)
substantially in the form to be agreed upon by the parties hereto and to be
attached hereto as Exhibit I prior to the Initial Closing;
(p) On or prior to the Initial Closing, the Company and
Advanced Resuscitation, LLC ("ARL") shall have previously agreed to enter into a
revised license agreement, which shall have been approved by the Purchaser, in
the form to be agreed upon by the parties hereto and to be attached hereto as
Exhibit J prior to the Initial Closing;
(q) The Company shall deliver to the Purchaser, no later than
71 days after the Initial Closing, any audited financial statements of the
Company required by the Purchaser pursuant to Regulation S-X of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), required to be disclosed
by the Purchaser pursuant to the rules and regulations of the Exchange Act;
(r) If the Company so elects, on or prior to the Initial
Closing, the Company shall have obtained a satisfactory fairness opinion; and
(s) On or prior to the Initial Closing, the Company shall
deliver to the Purchaser (i) usual and customary agreements set forth in Section
3.17(a) below in the form reasonably satisfactory to the Purchaser and with
those persons reasonably requested by the Purchaser, (ii) complete and accurate
membership interest ledger of the Company, and (iii) all intellectual property
materials reasonably requested by the Purchaser and its counsel and in the form
reasonably satisfactory to the Purchaser and its counsel.
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2.2 Additional Closings. At the Purchaser's sole discretion,
additional purchases of up to an aggregate of 3,477,796 Units may be made by the
Purchaser from the Company in accordance with the requirements set forth in this
Section 2.2 at one or more closings (each, an "Additional Closing"), up to the
completion date of the Fourth Milestone (as defined below). Each Additional
Closing and the Initial Closing are collectively referred to as the "Closings"
and the date of each Additional Closing and the Initial Closing are collectively
referred to as the "Closing Dates." Each Additional Closing shall take place at
the offices of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, 502 Carnegie Center, Princeton, New
Jersey (or remotely via the exchange of documents and signatures). The Purchase
Price at the Additional Closings shall be paid by wire transfer of immediately
available funds. The Company shall revise and update the deliverables set forth
in Sections 2.1(d), 2.1(e), 2.1(f) and 2.1(g) for each Additional Closing.
(a) Within ten (10) days following receipt of notice from the
Company (such notice referred to in subsection (d) below) of completion by the
Company of the good start milestone (the "First Milestone"), which has a start
date of October 1, 2005 and a projected completion date of March 31, 2006, as
set forth on Exhibit E, the Purchaser, at its sole discretion, shall provide
written notice to the Company whether it will fund the systems design milestone
(the "Second Milestone"), which currently has a projected start date of April 1,
2006 and a projected completion date of September 30, 2006, as set forth on
Exhibit E. In the event Purchaser elects to fund the Second Milestone, such
election shall be irrevocable and thereafter the Company shall sell and issue to
the Purchaser in accordance with the funding schedule to be agreed upon by the
parties hereto by the completion date of the First Milestone (the "Second
Milestone Funding Schedule") and the Purchaser shall purchase for cash in
accordance with the Second Milestone Funding Schedule, an aggregate of 1,239,522
Class A Units for an aggregate purchase price equal to $3,475,000 (the "Second
Milestone Commitment"). The Second Milestone Commitment shall be paid in
accordance with Second Milestone Funding Schedule by wire transfer of
immediately available funds to an account designated by the Company. Promptly
following receipt by the Company of funds in accordance with the Second
Milestone Funding Schedule, the Company shall deliver to Purchaser a certificate
representing the applicable number of Class A Units based upon a purchase price
per unit equal to $2.8035.
(b) Within ten (10) days following receipt of notice from the
Company of completion by the Company of the Second Milestone, the Purchaser, at
its sole discretion, shall provide written notice to the Company whether it will
fund the final product design milestone (the "Third Milestone"), which currently
has a projected start date of April 1, 2007 and a projected completion date of
September 30, 2007, as set forth on Exhibit E. In the event Purchaser elects to
fund the Third Milestone, such election shall be irrevocable and thereafter the
Company shall sell and issue to the Purchaser in accordance with the funding
schedule to be agreed upon by the parties hereto by the completion date of the
Second Milestone (the "Third Milestone Funding Schedule") and the Purchaser
shall purchase for cash in accordance with the Third Milestone Funding Schedule,
an aggregate of 1,355,449 Class A Units for an aggregate purchase price equal to
$3,800,000 (the "Third Milestone Commitment"). The Third Milestone Commitment
shall be paid in accordance with Third Milestone Funding Schedule by wire
transfer of immediately available funds to an account designated by the Company.
Promptly following receipt by the Company of funds in accordance with the Third
Milestone Funding Schedule, the Company shall deliver to Purchaser a certificate
representing the applicable number of Class A Units based upon a purchase price
per unit equal to $2.8035.
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(c) Within ten (10) days following receipt of notice from the
Company of completion by the Company of the Third Milestone, the Purchaser, at
its sole discretion, shall provide written notice to the Company whether it will
fund the pre-production and preparation for clinical trials milestone (the
"Fourth Milestone"), which currently has a projected start date of April 1, 2007
and a projected completion date of September 30, 2007, as set forth on Exhibit
E. In the event Purchaser elects to fund the Fourth Milestone, such election
shall be irrevocable and thereafter the Company shall sell and issue to the
Purchaser in accordance with the funding schedule to be agreed upon by the
parties hereto by the completion date of the Third Milestone (the "Fourth
Milestone Funding Schedule") and the Purchaser shall purchase for cash in
accordance with the Fourth Milestone Funding Schedule, an aggregate of 891,742
Class A Units for an aggregate purchase price equal to $2,500,000 (the "Fourth
Milestone Commitment" and collectively with the Initial Commitment, the Second
Milestone Commitment and the Third Milestone Commitment, the "Commitments" and
each individually, a "Commitment"). The Fourth Milestone Commitment shall be
paid in accordance with Fourth Milestone Funding Schedule by wire transfer of
immediately available funds to an account designated by the Company. Promptly
following receipt by the Company of funds in accordance with the Fourth
Milestone Funding Schedule, the Company shall deliver to Purchaser a certificate
representing the applicable number of Class A Units based upon a purchase price
per unit equal to $2.8035.
(d) Upon completion of each of the First Milestone, Second
Milestone, Third Milestone and Fourth Milestone, the Company shall provide
written representation to the Purchaser, signed by the Company's Chief Executive
Officer, that such milestone has been met.
2.3 Warrant Coverage.
(a) The Purchaser shall receive .25 warrants for each Class A
Unit purchased by Purchaser hereunder (the "Warrants"). Such warrants shall be
issued to the Purchaser by the Company simultaneously with the issuance of Class
A Units in accordance with Sections 2.1(a) and 2.2 above and shall be
exercisable upon issuance with a warrant price equal to $2.8035 per unit and a
warrant term of seven years from the date of issuance.
(b) The warrants issued at the Closings, together with the
Class A Units issuable upon exercise of such warrants and the Units, are
referred to as the "Securities."
(c) The warrants issued at the Closings shall be in the form
to be agreed upon by the parties hereto and to be attached hereto as Exhibit K
prior to the Initial Closing.
2.4 Purchaser's Election Not to Make a Commitment or Purchaser's
Failure to Fund.
(a) In the event the Purchaser either (i) elects at any time
not to make, or fails to timely elect to make, a Commitment (a "Non-Election"),
or (ii) fails to actually remit funds in accordance with the applicable funding
schedule with respect to a Commitment to which Purchaser has previously agreed
after a 15-day cure period (a "Funding Default"), then in any such case, the
Company shall have the right to terminate this Agreement. In connection with
such termination, the Company, at its option, shall have the right to require
Purchaser to pay a termination fee of $250,000 (the "Termination Fee Event") for
which the Purchaser shall receive Class A Units, at $2.8035 per unit.
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(b) Upon a Non-Election, the Purchaser hereby agrees to
consent to an exception to the Lock-Up Agreement whereby the Company shall be
permitted to sell up to such number of shares of Purchaser Common Stock equal to
$500,000 divided by the closing price per share of Purchaser Common Stock on
such Non-Election date, through a broker who is selected by the Purchaser, and
such sales shall be spread over a 45-day period and in accordance with
applicable securities laws.
(c) Upon a Funding Default, the Purchaser hereby agrees to
consent to an exception to the Lock-Up Agreement whereby the Company shall be
permitted to sell up to such number of shares of Purchaser Common Stock that is
equal to the unfunded portion of the Commitments divided by the closing price
per share of Purchaser Common Stock on such Funding Default date, through a
broker who is selected by the Purchaser, and such sales shall be spread over a
65-day period and in accordance with applicable securities laws.
(d) Upon a Funding Default or a Non-Election, the Company
shall have the right, at its option, to buy back up to that number of Units
determined by multiplying (i) 1,843,860 by (ii) the Repurchase Factor (as
defined below), for the consideration set forth in Section 2.4(e) below (the
"Repurchase Units"). The Repurchase Factor shall be based upon the following
formula:
X = A
--
B
Where: X = the Repurchase Factor;
A = $12,000,000 minus the aggregate dollar amount
that the Purchaser actually paid to the Company
hereunder; and
B = $12,000,000.
(e) The purchase price for the Repurchase Units shall be based
upon the following formula:
For each Class A Unit to be repurchased by the Company, the Company
shall transfer to the Purchaser 1.335 ($2.8035 divided by $2.10) shares of
the Purchaser Common Stock.
2.5 Acceleration. Provided that a Non-Election or a Funding Default
shall not have occurred, in the event that the Company actually receives an
aggregate amount of funds sufficient to complete clinical trials, the Purchaser
shall have the right to accelerate its funding of the milestones set forth in
Section 2.2 simultaneous with such investor(s) investment (the "Acceleration
Option"). If the Purchaser exercises the Acceleration Option, the Purchaser
shall pay to the Company an additional $412,000 in cash (the "Acceleration
Option Payment"). Notwithstanding anything to the contrary set forth in the
Rights Agreement (including the restrictions set forth in Section 3 thereof), in
the event Purchaser exercises its Acceleration Option, a majority of the
Founding Members (as defined in the Rights Agreement) shall have the right to
declare and pay a dividend or otherwise make a distribution equal to the
Acceleration Option Payment and in the manner determined by a majority of the
Founding Members.
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3. Representations of the Company. Except as disclosed by the Company in
Exhibit L hereto which will be provided by the Company to the Purchaser on or
prior to the Initial Closing and at each subsequent Closing, the Company hereby
represents and warrants to the Purchaser as set forth in this Section 3. Exhibit
L shall be arranged in sections corresponding to the numbered and lettered
sections and subsections contained in this Section 3, and the disclosures in any
section or subsection of Exhibit L shall qualify only the corresponding section
or subsection of this Section 3, unless otherwise specified.
3.1 Organization and Standing. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of New York and has full limited liability power and authority to
conduct its business as presently conducted and as proposed to be conducted by
it and to enter into and perform this Agreement and all other agreements
required to be executed by the Company at or prior to the Initial Closing
pursuant to Section 2 (the "Ancillary Agreements"). The Company has furnished to
the Purchaser complete and accurate copies of its Articles of Organization and
Operating Agreement, each as amended to date and presently in effect. The
Company has at all times complied in all material respects with all provisions
of its Articles of Organization and Operating Agreement and is not in default
under, or in violation of, any such provision.
3.2 Subsidiaries, Etc. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, limited liability company, joint
venture or other non-corporate business enterprise.
3.3 Capitalization.
(a) The authorized units of the Company (immediately prior to
the Initial Closing) consists of (i) 10,000,000 Class A Units, of which
5,819,321 units are issued and outstanding, and (ii) 10,000,000 Class B Units,
of which 1,029,300 are issued and outstanding.
(b) Exhibit L will include a complete and accurate list, as of
the date of the Initial Closing, of the holders of units of the Company, showing
the number of units, and the class or series of such units, held by each member
and (for units other than Class A Units) the number of Class A Units (if any)
into which such units are convertible, both immediately prior to and immediately
following the Initial Closing. Exhibit L will also indicate that all outstanding
Class A Units that constitute restricted units or that are otherwise subject to
a repurchase or redemption right, indicating the name of the applicable member,
the vesting schedule (including any acceleration provisions with respect
thereto), and the repurchase price payable by the Company. All of the issued and
outstanding units of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. All of the issued and outstanding units of
the Company have been offered, issued and sold by the Company in compliance with
all applicable federal and state securities laws.
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(c) Exhibit L will include a complete and accurate list, as of
the date of the Initial Closing of: (i) all unit option plans and other unit or
equity-related plans of the Company (the "Company Unit Plans"), indicating for
each Company Unit Plan the number of Class A Units issued to date under such
Plan, the number of units subject to outstanding options under such Plan and the
number of units reserved for future issuance under such Plan; (ii) all holders
of outstanding options to purchase Class A Units ("Company Unit Options"),
indicating with respect to each Company Unit Option the Company Unit Plan under
which it was granted, the number of Class A Units subject to such Company Unit
Option, the exercise price, the date of grant and the vesting schedule
(including any acceleration provisions with respect thereto); and (iii) all
holders of warrants or other rights (other than Company Unit Options and
convertible preferred units) to purchase or acquire units of the Company
("Company Warrants"), indicating with respect to each Company Warrant the
agreement or other document under which it was granted, the number of units, and
the class or series of such units, subject to such Company Warrant, the exercise
price, the date of issuance and the expiration date thereof. The Company has
furnished to the Purchaser complete and accurate copies of all Company Unit
Plans, if any, forms of all unit option agreements evidencing Company Unit
Options and all Company Warrants, if any. All of the units of the Company
subject to Company Unit Options and Company Warrants will be, upon issuance
pursuant to the exercise of such instruments, duly authorized, validly issued.
(d) Except as set forth in this Section 3.3 or Exhibit L, (i)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any units of the Company is
authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right, or to issue or distribute to holders of any of its units any
evidences of indebtedness or assets of the Company, (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its units or any interest therein or to pay any dividend or to make any
other distribution in respect thereof (other than distributions for the payment
of taxes, if any), and (iv) there are no outstanding or authorized unit
appreciation, phantom unit or similar rights with respect to the Company.
(e) Except for the Ancillary Agreements and the Operating
Agreement, there is no agreement, written or oral, between the Company and any
holders of its securities, or, among any holder of its securities, relating to
the sale or transfer (including without limitation agreements relating to rights
of first refusal, co-sale rights or "drag-along" rights), registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting, of the
units of the Company.
3.4 Issuance of Units. The issuance, sale and delivery of the
Securities in accordance with this Agreement have been, or will be on or prior
to the Initial Closing, duly authorized by all necessary limited liability
company action on the part of the Company, and all such units have been duly
reserved for issuance. The Securities when so issued, sold and delivered against
payment therefor in accordance with the provisions of this Agreement will be
duly and validly issued, and free of restrictions on transfer other than
restrictions imposed or created under this Agreement, the Ancillary Agreements
or the Operating Agreement, by applicable law, or by the Purchaser.
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3.5 Authority for Agreement; No Conflict. The execution, delivery
and performance by the Company of this Agreement and the Ancillary Agreements,
and the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly authorized by all necessary limited liability company
action. This Agreement has been, and the Ancillary Agreements when executed at
the Initial Closing will be, duly executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable in
accordance with their respective terms, except as may be limited by bankruptcy
or other equitable principles. The execution and delivery of this Agreement and
the Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby and the compliance with their respective provisions by the
Company will not (a) conflict with or violate any provision of the Articles of
Organization or Operating Agreement of the Company, (b) require on the part of
the Company any filing with, or any permit, order, authorization, consent or
approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (each of the
foregoing is hereafter referred to as a "Governmental Entity"), (c) conflict
with, result in a breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of obligations under,
create in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest (as defined below)
or other arrangement to which the Company is a party or by which the Company is
bound or to which its assets are subject, (d) result in the imposition of any
Security Interest upon any assets of the Company or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets. For purposes of this Agreement, "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law).
3.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Entity is required on the part of the Company in
connection with the offer, issuance, sale and delivery of the Units or the other
transactions to be consummated at the Initial Closing, as contemplated by this
Agreement and the Ancillary Agreements, except such filings as shall have been
made prior to and shall be effective on and as of the Initial Closing and such
filings required to be made after the Initial Closing under applicable federal
and state securities laws. Based on the representations made by the Purchaser in
Section 4 of this Agreement, the offer and sale of the Units to the Purchaser
will be in compliance with applicable federal and state securities laws.
-10-
3.7 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, threatened, against the Company or any of the members, which
questions the validity of this Agreement, the Ancillary Agreements or the right
of the Company or any of the members to enter into any such agreements, or which
might result, either individually or in the aggregate, in a material adverse
effect on the business, assets or financial condition of the Company taken as a
whole (a "Company Material Adverse Effect"). There is no litigation pending, or,
to the best of the Company's knowledge, threatened, against the Company, or, to
the Company's knowledge, any of the members, or any of its employees by reason
of the past employment relationships of any of the members or employees, the
proposed activities of the Company, or negotiations by the Company with possible
investors in the Company. The Company is not subject to any outstanding
judgment, order or decree. For purposes of this Agreement, the terms
"knowledge", "to the best of the Company's knowledge" and similar terms shall
mean the actual present awareness of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇, without independent investigation.
3.8 Financial Statements. The Company has furnished to the Purchaser
a complete and accurate copy of (a) the federal Form 1065 - U.S. Return of
Partnership Income of the Company for the year 2003, (b) the reviewed financial
statements of the Company as of and for the year ended December 31, 2004 as
prepared by ▇▇▇▇▇▇▇▇, Fox & Porretti, LLP, Certified Public Accountants, on the
income tax basis of accounting, and (c) interim financial statements as of and
for the ten months ended October 31, 2005 (the "Interim Statements") prepared on
the income tax basis of accounting by the Company (collectively, the "Financial
Statements"). The Financial Statements are in accordance with the books and
records of the Company, and present fairly the financial condition and results
of operations of the Company, on the income tax basis, at the dates and for the
periods indicated.
3.9 Absence of Undisclosed Liabilities. The Company does not have
any liability (whether known or unknown and whether absolute or contingent),
except for (a) liabilities shown on the balance sheet of the Company (the
"Balance Sheet") included in the Interim Statements (the "Balance Sheet Date"),
(b) liabilities which have arisen since the Balance Sheet Date in the ordinary
course of business and which are similar in nature and amount to the liabilities
which arose during the comparable period of time in the immediately preceding
fiscal period and (c) contractual and other liabilities incurred in the ordinary
course of business which are not required by GAAP to be reflected on a balance
sheet and which would not, either individually or in the aggregate, have or
result in a Company Material Adverse Effect.
3.10 Absence of Changes. Since the Balance Sheet Date, there has
been no material adverse change in the business, financial condition, or results
of operations of the Company, other than changes occurring in the ordinary
course of business (which ordinary course changes have not, individually or in
the aggregate, had a Company Material Adverse Effect).
3.11 Taxes.
(a) All Tax Returns required to have been filed by or with
respect to the Company have been duly filed. All Taxes (whether or not shown on
any Tax Return) due and payable by the Company have been paid, and the
provisions in the Financial Statements for current Taxes of the Company that are
not yet due and payable are sufficient for all unpaid Taxes of the Company.
-11-
(b) Since its organization, the Company has all times been
treated as a partnership for U.S. federal income tax purposes. The Company is
not and has never been a publicly traded partnership within the meaning of
Section 7704 of the Code. No election has been made for the Company to be taxed
as a corporation for U.S. federal income tax purposes.
(c) The Company is not a party to any current agreement
extending the time within which to file any Tax Return. No claim has ever been
made by any taxing authority in a jurisdiction in which the Company does not
file Tax Returns that the Company is or may be subject to taxation by that
jurisdiction.
(d) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor or other third party. The Company is
not a party to any agreement, plan, contract or arrangement that would result,
individually or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code. The Company has not
agreed to and is not required to make by reason of a change in accounting method
or otherwise, or could be required to make by reason of a proposed or threatened
change in accounting method or otherwise, any adjustment under Section 481(a) of
the Code.
(e) No issues have been raised in any examination by any
taxing authority with respect to the Company which, by application of similar
principles, reasonably could be expected to result in a proposed deficiency for
any other period not so examined. No Tax Returns of the Company currently are
the subject of audit or, pursuant to notification of a pending audit or
otherwise, are expected to be audited. Schedule 3.11(e) (i) lists all federal,
state, local, and foreign income Tax Returns filed with respect to the Company
for taxable periods ended on or after December 31, 1999, (ii) indicates those
Company Tax Returns that have been audited, and (iii) indicates those Company
Tax Returns that currently are the subject of audit.
(f) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any Tax
assessment or deficiency. The Company has not received any written ruling of a
Taxing Authority related to Taxes or entered into any written and legally
binding agreement with a Taxing Authority relating to Taxes. The Company is not
a party to any Tax allocation or sharing agreement.
(g) None of the assets of the Company constitute tax-exempt
bond financed property or tax-exempt use property, within the meaning of Section
168 of the Code. The Company is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code as
in effect prior to the Tax Reform Act of 1986, or to any "long-term contract"
within the meaning of Section 460 of the Code. The Company has not participated
in a "reportable transaction" within the meaning of Treasury Regulations Section
1.6011-4(b) or a "potentially abusive tax shelter" within the meaning of Section
6112(b) of the Code.
-12-
(h) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Code" means the Internal Revenue Code of 1986, as
amended.
(ii) "Taxes" means (A) all federal, state, local or
foreign taxes, charges, fees, imposts, levies or other assessments, including
all net income, gross receipts, capital, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, escheat, abandoned property, property,
capital stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation, property and estimated
taxes, customs duties, fees, assessments and charges of any kind whatsoever and
(B) all interest, penalties, fines, additions to tax or additional amounts
imposed by any taxing authority in connection with any item described in clause
(A).
(iii) "Tax Returns" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
3.12 Property and Assets. The Company has good title to, or a valid
leasehold interest in, all of its material properties and assets, including all
properties and assets reflected in the Balance Sheet, except those disposed of
since the date thereof in the ordinary course of business, and none of such
properties or assets is subject to any Security Interest other than those
identified in the Balance Sheet or in Exhibit L.
3.13 Intellectual Property.
(a) Exhibit L will list (i) each patent, patent application,
copyright registration or application therefor, mask work registration or
application therefor, and trademark, service ▇▇▇▇ and domain name registration
or application therefor owned by or licensed to the Company and (ii) each
Customer Deliverable (as defined below) of the Company.
(b) The Company owns or has the right to use all Intellectual
Property (as defined below) necessary (i) to develop, use, manufacture, market
and distribute the Customer Deliverables and (ii) to operate the Internal
Systems (as defined below). The Company has taken all reasonable measures to
protect the proprietary nature of each item of Company Intellectual Property (as
defined below), and to maintain in confidence all trade secrets and confidential
information, that it owns or uses. No other person or entity has any rights to
any of the Company Intellectual Property owned by the Company (except pursuant
to agreements or licenses specified in Exhibit L), and no other person or entity
is infringing, violating or misappropriating any of the Company Intellectual
Property.
(c) None of the Customer Deliverables, or the research and
development, marketing, distribution, provision or use thereof, infringes or
violates, or constitutes a misappropriation of, any Intellectual Property rights
of any person or entity, and neither the marketing, distribution, provision or
use of any Customer Deliverables currently under development by the Company
will, when such Customer Deliverables are commercially released by the Company,
infringe or violate, or constitute a misappropriation of, any Intellectual
Property rights that exist today of any person or entity. None of the Internal
Systems, or the use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
Exhibit L will list any complaint, claim or notice, or written threat thereof,
received by the Company alleging any such infringement, violation or
misappropriation; and the Company has provided to the Purchaser complete and
accurate copies of all written documentation in the possession of the Company
relating to any such complaint, claim, notice or threat. The Company has
provided to the Purchaser complete and accurate copies of all written
documentation in the Company's possession relating to claims or disputes known
to the Company concerning any Company Intellectual Property.
-13-
(d) Exhibit L will identify each license or other agreement
pursuant to which the Company has licensed, distributed or otherwise granted any
rights to any third party with respect to, any Company Intellectual Property.
Except as to be described in Exhibit L, the Company has not agreed to indemnify
any person or entity against any infringement, violation or misappropriation of
any Intellectual Property rights with respect to any Company Intellectual
Property.
(e) Exhibit L will identify each item of Company Intellectual
Property that is owned by a party other than the Company, and the license or
agreement pursuant to which the Company uses it (excluding off-the-shelf
software programs licensed by the Company pursuant to "shrink wrap" licenses).
(f) The Company has not disclosed the source code for any
software developed by it, or other confidential information constituting,
embodied in or pertaining to such software, to any person or entity, except
pursuant to the agreements to be listed in Exhibit L, and the Company has taken
reasonable measures to prevent disclosure of such source code.
(g) All of the copyrightable materials incorporated in or
bundled with the Customer Deliverables have been created by employees of the
Company within the scope of their employment by the Company or by independent
contractors of the Company who have executed agreements expressly assigning all
right, title and interest in such copyrightable materials to the Company. No
portion of such copyrightable materials was jointly developed with any third
party.
(h) The Customer Deliverables and the Internal Systems are
free from significant defects or programming errors and conform in all material
respects to the written documentation and specifications therefor.
(i) For purposes of this Agreement, the following terms shall
have the following meanings:
(i) "Customer Deliverables" shall mean (A) the products
that the Company (1) currently manufactures, markets, sells or licenses or (2)
currently plans to manufacture, market, sell or license in the future and (B)
the services that the Company (1) currently provides or (2) currently plans to
provide in the future.
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(ii) "Internal Systems" shall mean the internal systems
of the Company that are used in its business or operations, including, computer
hardware systems, software applications and embedded systems.
(iii) "Intellectual Property" shall mean all: (A)
patents, patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations; (B) trademarks, service marks, trade dress,
Internet domain names, logos, trade names and corporate names and registrations
and applications for registration thereof; (C) copyrights and registrations and
applications for registration thereof; (D) mask works and registrations and
applications for registration thereof; (E) computer software, data and
documentation; (F) inventions, trade secrets and confidential business
information, whether patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and techniques, research
and development information, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans and
customer and supplier lists and information; (G) other proprietary rights
relating to any of the foregoing (including remedies against infringements
thereof and rights of protection of interest therein under the laws of all
jurisdictions); and (H) copies and tangible embodiments thereof.
(iv) "Company Intellectual Property" shall mean the
Intellectual Property owned by or licensed to the Company and incorporated in,
underlying or used in connection with the Customer Deliverables or the Internal
Systems.
3.14 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by companies engaged in the same or similar business and similarly situated,
including, without limitation, insurance against loss, damage, fire, theft,
public liability and other risks.
3.15 Material Contracts and Obligations. Exhibit L will set forth a
list of all material agreements or commitments of any nature (whether written or
oral) to which the Company is a party or by which it is bound, including without
limitation (a) any agreement which requires future expenditures by the Company
in excess of $10,000 per annum or which might result in payments to the Company
in excess of $10,000 per annum, (b) any employment and consulting agreements,
employee benefit, bonus, pension, profit-sharing, unit option, unit purchase and
similar plans and arrangements, (c) any distributor, sales representative or
similar agreement, (d) any agreement with any current or former member, officer,
director or managing member of the Company, or any "affiliate" or "associate" of
such persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity, (e) any agreement under which the Company is restricted from carrying on
any business anywhere in the world, (f) any agreement relating to indebtedness
for borrowed money, (g) any agreement for the disposition of a material portion
of the Company's assets (other than for the sale of inventory in the ordinary
course of business), (h) any agreement for the acquisition of the business or
securities or other ownership interests of another party or (i) any other
agreement that is material to the operations, business or finances of the
Company other than this Agreement. The Company has delivered to the Purchaser
copies of the foregoing agreements (or an accurate summary of any oral
agreement). All of such agreements and contracts are valid and binding
obligations of the Company and are in full force and effect in accordance with
their terms. Neither the Company, nor, to the best of the Company's knowledge,
any other party thereto, is in default of any of its obligations under any of
the agreements or contracts to be listed on Exhibit L.
-15-
3.16 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present business and has
all material permits and licenses required thereby. There is no term or
provision of any mortgage, indenture, contract, agreement or instrument to which
the Company is a party or by which it is bound, or, to the best of the Company's
knowledge, of any provision of any state or federal judgment, decree, order,
statute, rule or regulation applicable to or binding upon the Company, which
materially adversely affects or, so far as the Company may now foresee, in the
future is reasonably likely to result in or have a Company Material Adverse
Effect. To the best of the Company's knowledge, none of the members nor any
other employee of the Company is in violation of any term of any contract or
covenant with the Company relating to employment, patents, assignment of
inventions, proprietary information disclosure, non-competition or
non-solicitation.
3.17 Employees.
(a) Exhibit L will list all current and former employees
(including full-time, part-time and shared employees (referred to as the
"Employees")) of the Company, and the title and relationship of each person with
the Company. All current and former Employees of the Company (including the
members) have executed and delivered non-disclosure and assignment of inventions
agreements, copies of which have been delivered to the Purchaser, and all of
such agreements are in full force and effect. All current Employees of the
Company (including its members and those consultants to be mutually agreed upon
by the Company and the Purchaser) will have executed and delivered
non-competition and non-solicitation agreements with the Company prior to the
Initial Closing in the form mutually acceptable to the Purchaser and the
Company, and all of such agreements will be in full force and effect at the
Initial Closing. All current and former consultants of the Company that have
performed development work or provided technical services to the Company or have
otherwise had access to confidential or proprietary information of the Company
have executed and delivered non-disclosure and assignment of inventions
agreements, copies of which have been delivered to the Purchaser, and all of
such agreements are in full force and effect.
(b) To the Company's knowledge, no employee of the Company has
plans to terminate his or her employment relationship with the Company. The
Company has complied in all material respects with all applicable laws relating
to wages, hours, equal opportunity, collective bargaining, workers' compensation
insurance and the payment of social security and other Taxes. None of the
employees of the Company is represented by any labor union, and there is no
labor strike or other labor trouble pending with respect to the Company
(including, without limitation, any organizational drive of which the Company
has knowledge) or, to the best of the Company's knowledge, threatened. Exhibit L
sets forth a list of all agreements between any member or officer of the Company
and a previous employer of such person that contains non-competition or
non-solicitation covenants. The Company has delivered copies of all such
agreements referenced in this Section 3.17(b) to the Purchaser. To the Company's
knowledge, no employee of the Company is obligated under any contract or subject
to any judgment, decree or administrative order that would conflict or interfere
with (i) the performance of the employee's duties as an employee, director or
officer of the Company, or (ii) the Company's business as conducted or proposed
to be conducted.
-16-
(c) Exhibit L sets forth the annual salary and any bonus
arrangements of each member, if any, and each other officer of the Company.
3.18 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended.
3.19 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
members and its Board of Managers and committees thereof. The unit ledger of the
Company is complete and accurate and reflects all issuances, transfers,
repurchases and cancellations of units of the Company.
3.20 Permits. Exhibit L will set forth a list of all material
permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity ("Permits") issued to or held by the Company. Such listed
Permits are the only Permits that are required for the Company to conduct its
business as presently conducted, except for those the absence of which would not
have a Company Material Adverse Effect. Each such Permit is in full force and
effect and, to the best of the Company's knowledge, no suspension or
cancellation of such Permit is threatened and to the Company's knowledge there
is no basis for believing that such Permit will not be renewable upon
expiration.
-17-
3.21 Environmental Matters.
(a) The Company has complied in all material respects with all
applicable Environmental Laws (as defined below). There is no pending or, to the
best of the Company's knowledge, threatened civil or criminal litigation,
written notice of violation, formal administrative proceeding, or investigation,
inquiry or information request by any Governmental Entity, relating to any
Environmental Law involving the Company. For purposes of this Agreement,
"Environmental Law" shall mean any federal, state or local law, statute, rule or
regulation or the common law relating to the environment or occupational health
and safety, including any statute, regulation, administrative decision or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
industrial, toxic or hazardous materials or substances, or solid or hazardous
waste, including emissions, discharges, injections, spills, escapes or dumping
of pollutants, contaminants or chemicals; (v) the protection of wild life,
marine life and wetlands, including all endangered and threatened species; (vi)
storage tanks, vessels, containers, abandoned or discarded barrels and other
closed receptacles; (vii) health and safety of employees and other persons; and
(viii) manufacturing, processing, using, distributing, treating, storing,
disposing, transporting or handling of materials regulated under any law as
pollutants, contaminants, toxic or hazardous materials or substances or oil or
petroleum products or solid or hazardous waste. As used above, the terms
"release" and "environment" shall have the meaning set forth in the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA").
(b) The Company has no liabilities or obligations arising from
the release of any Materials of Environmental Concern (as defined below) into
the environment. For purposes of this Agreement, "Materials of Environmental
Concern" shall mean any chemicals, pollutants or contaminants, hazardous
substances (as such term is defined under CERCLA), solid wastes and hazardous
wastes (as such terms are defined under the Resource Conservation and Recovery
Act), toxic materials, oil or petroleum and petroleum products or any other
material subject to regulation under any Environmental Law.
(c) The Company is not a party to or bound by any court order,
administrative order, consent order or other agreement between the Company and
any Governmental Entity entered into in connection with any legal obligation or
liability arising under any Environmental Law.
(d) Set forth in Exhibit L is a list of all documents (whether
in hard copy or electronic form) that contain any environmental reports,
investigations and audits relating to premises currently or previously owned or
operated by the Company (whether conducted by or on behalf of the Company or a
third party, and whether done at the initiative of the Company or directed by a
Governmental Entity or other third party) which the Company has possession of or
access to. A complete and accurate copy of each such document has been provided
to the Purchaser.
-18-
3.22 Board of Managers. The members of the Board of Managers are the
following persons: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
3.23 Disclosures. Neither this Agreement nor any Exhibit hereto, nor
any Ancillary Agreement nor any report, certificate or instrument furnished by
the Company to the Purchaser or their counsel in connection with the
transactions contemplated by this Agreement, including without limitation the
Business Plan of the Company dated April 12, 2005 (the "Plan"), when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. Each projection furnished in the Plan was
prepared in good faith based on reasonable assumptions and represents the
Company's best estimate of future results based on information available as of
the date of the Plan.
3.24 Investment. The Company is acquiring the Purchaser Common Stock
for its own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and, except as contemplated by this Agreement
and the Exhibits hereto, the Company has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4. Representations of the Purchaser. The Purchaser represents and warrants
to the Company as follows:
4.1 Organization and Standing. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and all other agreements required to be executed by the
Purchaser at or prior to the Initial Closing pursuant to Section 2 (the
"Ancillary Agreements"). The Purchaser has at all times complied in all material
respects with all provisions of its Certificate of Incorporation and its Bylaws
and is not in default under, or in violation of, any such provision.
4.2 Issuance of Purchaser Common Stock. The issuance, sale and
delivery of the Purchaser Common Stock in accordance with this Agreement have
been, or will be on or prior to the Initial Closing, duly authorized by all
necessary corporate action on the part of the Purchaser, and all such shares
have been duly reserved for issuance. The Purchaser Common Stock when so issued,
sold and delivered against payment therefor in accordance with the provisions of
this Agreement will be duly and validly issued, and free of restrictions on
transfer other than restrictions imposed or created under this Agreement, the
Ancillary Agreements or the Purchaser's Bylaws, or by applicable law.
-19-
4.3 Authority for Agreement; No Conflict. The execution, delivery
and performance by the Purchaser of this Agreement and the Ancillary Agreements,
and the consummation by the Purchaser of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action. This
Agreement has been, and the Ancillary Agreements when executed at the Initial
Closing will be, duly executed and delivered by the Purchaser and constitute
valid and binding obligations of the Purchaser enforceable in accordance with
their respective terms, except as may be limited by bankruptcy or equitable
principles. The execution and delivery of this Agreement and the Ancillary
Agreements, the consummation of the transactions contemplated hereby and thereby
and the compliance with their respective provisions by the Purchaser will not
(a) conflict with or violate any provision of the Certificate of Incorporation
or Bylaws of the Purchaser, (b) require on the part of the Purchaser any filing
with, or any permit, order, authorization, consent or approval of, any court,
arbitrational tribunal, administrative agency or commission or other
governmental or regulatory authority or agency (each of the foregoing is
hereafter referred to as a "Governmental Entity"), (c) conflict with, result in
a breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party the right to accelerate, terminate, modify or cancel, or require any
notice, consent or waiver under, any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined below) or other
arrangement to which the Purchaser is a party or by which the Purchaser is bound
or to which its assets are subject, (d) result in the imposition of any Security
Interest upon any assets of the Purchaser or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Purchaser or
any of its properties or assets. For purposes of this Agreement, "Security
Interest" means any mortgage, pledge, security interest, encumbrance, charge or
other lien (whether arising by contract or by operation of law).
4.4 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Entity is required on the part of the Purchaser in
connection with the offer, issuance, sale and delivery of the shares or the
other transactions to be consummated at the Initial Closing, as contemplated by
this Agreement and the Ancillary Agreements, except such filings as shall have
been made prior to and shall be effective on and as of the Initial Closing and
such filings required to be made after the Initial Closing under applicable
federal and state securities laws. Based on the representations made by the
Company in Section 3 of this Agreement, the offer and sale of the Purchaser
Common Stock to the Company will be in compliance with applicable federal and
state securities laws.
4.5 Investment. The Purchaser is acquiring the Units for its own
account for investment and not with a view to, or for sale in connection with,
any distribution thereof, nor with any present intention of distributing or
selling the same; and, except as contemplated by this Agreement and the Exhibits
hereto, the Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof.
4.6 Accredited Investor. The Purchaser is an "accredited investor"
as defined in Rule 501(a) under the Securities Act.
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4.7 Authority. The Purchaser has full power and authority to enter
into and to perform this Agreement and the Ancillary Agreements in accordance
with their terms. The Purchaser has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company.
4.8 Experience. The Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement, has read the
Plan and has made detailed inquiry concerning the Company, its business and its
personnel; the officers and managing members of the Company have made available
to the Purchaser any and all written information which it has requested and have
answered to the Purchaser's satisfaction all inquiries made by the Purchaser;
and the Purchaser has sufficient knowledge and experience in finance and
business that it is capable of evaluating the risks and merits of its investment
in the Company and the Purchaser is able financially to bear the risks thereof.
4.9 Publicity. The Purchaser agrees that no disclosure of this
Agreement, the Ancillary Agreements and the transactions contemplated thereunder
shall be made to any third party without the consent of the Company, except as
may be required by law, in which event the Company shall be given an opportunity
to review, in advance, the proposed disclosure. The Purchaser acknowledges that
the Company agrees that the Purchaser shall be permitted to announce that the
parties have entered into this Agreement so long as the Company shall be given
an opportunity to review and approve the announcement.
5. Covenants.
5.1 Publicity. The Company agrees that no disclosure of this
Agreement, the Ancillary Agreements and the transactions contemplated thereunder
shall be made to any third party without the consent of the Purchaser, except as
may be required by law, in which event the Purchaser shall be given an
opportunity to review, in advance, the proposed disclosure. The Company agrees
that the Purchaser shall be permitted to announce that the parties have entered
into this Agreement so long as the Company shall be given an opportunity to
review and approve the announcement.
5.2 Further Assurances. If the Purchaser shall consummate such
Additional Closings and at the time the Purchaser shall acquire a majority of
the voting control of the Company (a "Change of Control Event"), the Company
shall use its best efforts to: (a) obtain all consents and approvals necessary
in connection with a Change of Control Event; (b)at the Purchaser's reasonable
request, execute and deliver all instruments of conveyance and transfer deemed
necessary by the Purchaser and its counsel in connection with a Change of
Control Event; and (c) take or cause to be taken all actions, and do or cause to
be done, all things, necessary and proper to consummate a Change of Control
Event as deemed reasonably necessary and advisable by the Purchaser and its
counsel.
6. Indemnification.
6.1 By the Company. The Company hereby indemnifies and holds
harmless the Purchaser from and against all claims, damages, losses,
liabilities, costs and expenses (including without limitation, settlement costs
and any legal, accounting or other expenses for investigating or defending any
actions or threatened actions) (collectively, the "Losses") in connection with
each and all of the following (a "Breach of Warranty"):
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(a) any misrepresentations or breach of any representation or
warranty made by the Company in this Agreement;
(b) any breach of any covenant, agreement or obligation of the
Company contained in this Agreement or any other agreement, instrument or
document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement,
certificate or schedule furnished by the Company pursuant to this Agreement or
in connection with the transactions contemplated by this Agreement.
6.2 By the Purchaser. The Purchaser hereby indemnifies and holds
harmless the Company from and against all claims, damages, losses, liabilities,
costs and expenses (including without limitation, settlement costs and any
legal, accounting or other expenses for investigating or defending any actions
or threatened actions) (collectively, the "Losses") in connection with each and
all of the following (a "Breach of Warranty"):
(a) any misrepresentations or beach of any representation or
warranty made by the Purchaser contained in this Agreement;
(b) any breach of any covenant, agreement or obligation of the
Purchaser contained in this Agreement or any other agreement, instrument or
document contemplated by this Agreement; and
(c) any misrepresentation contained in any statement,
certificate or schedule
furnished by the Purchaser pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement.
6.3 Claims for Indemnification. Whenever any claim shall arise for
indemnification under this Section 6, the Purchaser in seeking indemnification
(the "Indemnified Party"), shall promptly notify the Company of the claim and,
when known, the facts constituting the basis for such claim. In the event of any
such claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, the notice shall specify, if
known, the amount or an estimate of the amount of the liability arising
therefrom. The Indemnified Party shall not settle or compromise any claim by a
third party for which it is entitled to indemnification hereunder without the
prior written consent, which shall not be unreasonably withheld or delayed, of
the Company, provided, however, that if suit shall have been instituted against
the Indemnified Party and the Company shall not have taken control of such suit
after notification thereof as provided in Subsection 6.3 of this Agreement, the
Indemnified Party shall have the right to settle or compromise such claim upon
giving notice to the Company as provided in Subsection 6.3.
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6.4 Defense by the Company. In connection with any claim which may
give rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person other than the Indemnified Party, the Company, at
its sole cost and expense, may, upon written notice to the Indemnified Party,
assume the defense of any such claim or legal proceeding if the Company
acknowledges to the Indemnified Party in writing the obligation of the Company
to indemnify the Indemnified Party with respect to all elements of such claim.
If the Company assumes the defense of any such claim or legal proceeding, the
Company shall select counsel reasonably acceptable to the Indemnified Party to
conduct the defense of such claims or legal proceedings and at the sole cost and
expense of the Company shall take all steps necessary in the defense or
settlement thereof. The Company shall not consent to a settlement of, or the
entry of any judgment arising from, any such claim or legal proceeding, without
the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld or delayed). The Indemnified Party shall be entitled to
participate in (but not control) the defense of any such action, with its own
counsel and at its own expense. If the Company does not assume the defense of
any such claim or litigation resulting therefrom within 30 days after the date
such claim is made: (a) the Indemnified Party may defend against such claim in
such manner as it may deem appropriate, including, but not limited to, settling
such claim or litigation, after giving notice of the same to the Company, on
such terms as the Indemnified Party may deem appropriate, and (b) the Company
shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If the Company thereafter seeks
to question the manner in which the Indemnified Party defended such third party
claim or the amount or nature of any such settlement, the Company shall have the
burden to prove by a preponderance of the evidence that the Indemnified Party
did not defend or settle such third party claim in a reasonably prudent manner.
6.5 Payment of Indemnification Obligation. The Company hereby agrees
that any claim for indemnification by the Purchaser under this Section 6 or
under any other provision of this Agreement may, at the option of the Purchaser,
be offset against any amount remaining in escrow pursuant to Section 7 hereof.
All indemnification by the Company hereunder (to the extent not satisfied in the
manner specified in the preceding sentence), shall be effected, by payment of
cash or delivery of a cashier's or certified check in the amount of the
indemnification liability; provided, however, the Purchaser shall permit the
Company to sell number of shares of Purchaser Common Stock determined by a
fraction, the numerator of which is the amount of the indemnification liability
and the denominator of which is the fair market value of a share of Purchaser
Common Stock as of the date of determination, in order to remit such cash
payment to the Purchaser.
6.6 Survival of Representations; Claims for Indemnification. All
representations and warranties made by the Company in this Agreement, or in any
instrument or document furnished in connection with this Agreement or the
transactions contemplated hereby, shall survive the Initial Closing and any
investigation at any time made by or on behalf of the Indemnified Party for a
period of 18 months. All such representations and warranties shall expire on the
18-month anniversary of the date of the Initial Closing, except for claims, if
any, (a) asserted in writing prior to such 18-month anniversary identified as a
claim for indemnification purposes pursuant to this Section 6, or (b) which are
based upon fraud by the Company, which shall survive until the earlier of (i)
expiration of the applicable statute of limitations and (ii) the date on which
the matter is finally resolved.
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6.7 Limitation. The Company shall not be liable under this Section 6
until any Losses arising therefrom exceed $10,000 (at which point the Company
shall become liable for all Losses under this Section 6 in excess of $10,000).
In no event shall the Company be obligated to make payment under this Section 6
in respect of any Losses incurred by Purchaser in excess of the amount of the
cash portion of the Purchase Price actually received by the Company hereunder.
In addition to the foregoing, the Escrow Agreement is intended to secure the
indemnification obligations of the Company under this Agreement. However, the
rights of the Purchaser under this Section 6 shall not be limited to the Escrow
Fund (as defined below) nor shall the Escrow Agreement be the exclusive means
for the Purchaser to enforce its rights. The indemnification provisions set
forth in this Section 6 and the Escrow Fund set forth in Section 7 below
represent the sole and exclusive remedy of the parties with respect to claims
for Losses arising hereunder.
7. Escrow. At the Initial Closing, 738,453 shares (the "Escrow Fund") of
Purchaser Common Stock, issuable pursuant to Section 2.1(k), shall be held in
escrow for the purpose of securing any indemnification obligations by the
Company which may arise from the date of the Initial Closing until 18 months
after the Initial Closing, as set forth in the Escrow Agreement in the form to
be mutually agreed upon by the parties hereto and to be attached hereto as
Exhibit M prior to the Initial Closing. The Escrow Agreement shall provide for,
among other things, that (a) if an indemnification claim is made by the
Purchaser within the first three months of the Initial Closing, the shares of
Purchaser Common Stock held in escrow shall be valued at $2.10 per share, and
(b) if an indemnification claim is made by the Purchaser after the first three
months following the Initial Closing, the shares of Purchaser Common Stock held
in escrow shall be valued at the price per share equal to the average closing
price of the Purchaser Common Stock over the ten trading days prior to the date
such indemnification claim is made by the Indemnified Party. Notwithstanding the
foregoing, the Purchaser reserves the right to include an additional number of
shares of Purchaser Common Stock to be held in the Escrow Fund, in an amount to
be mutually agreed upon by the parties hereto prior to the Initial Closing, to
address any outstanding intellectual property due diligence issues.
8. Miscellaneous.
8.1 Successors and Assigns. This Agreement and the Ancillary
Agreements, and the rights and obligations of the Purchaser hereunder and
thereunder, may be assigned by the Purchaser to (a) any person or entity to
which the Units are transferred by the Purchaser pursuant to the consummation of
a merger, consolidation, reorganization, recapitalization or statutory share
exchange involving the Purchaser or a sale or other disposition of all or
substantially all of the assets of the Purchaser in one or a series of
transactions or (b) to any Affiliate (as defined in the Securities Act) of the
Purchaser, and in each such case, the transferee shall be deemed a "Purchaser"
for purposes of this Agreement. Notwithstanding the foregoing, the Company may
not assign its rights under this Agreement or any Ancillary Agreement (whether
by merger, consolidation, sale of assets, sale or equity securities or
otherwise) without the prior written consent of the Purchaser.
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8.2 Expenses. Except as otherwise agreed, each of the Company and
the Purchaser shall be responsible for its own respective costs and expenses,
including legal fees, incurred in connection with this Agreement, the Ancillary
Agreements and the transactions contemplated thereunder.
8.3 Brokers. Each of the Company and the Purchaser (a) represents
and warrants to the other party hereto that it has not retained a finder,
broker, investment banker or intermediary in connection with the transactions
contemplated by this Agreement, other than, in the case of the Company,
Peregrine Capital Partners, LLC (who is a financial advisor to the Company and
whose fee shall be capped at $50,000), and (b) will indemnify and save the other
party harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions, or consulting fees in
connection with the transactions contemplated by this Agreement asserted by any
person on the basis of any statement or representation alleged to have been made
by such indemnifying party.
8.4 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.5 Specific Performance. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, the
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
8.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the Business Corporation Law of the State of New York, as to
matters within the scope thereof, and the internal laws of the State of New York
(without reference to the conflicts of law provisions thereof), as to all other
matters.
8.7 Notices. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be deemed
delivered (a) three business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (b) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: President, or at such other address as may
have been furnished in writing by the Company to the other party hereto, with a
copy to Boylan, Brown, Code, ▇▇▇▇▇▇ and ▇▇▇▇▇▇, LLP, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.; or
If to the Purchaser, at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: President, or at such other address as may
have been furnished in writing by the Purchaser to the other party hereto, with
a copy to ▇▇▇▇▇▇, ▇▇▇▇▇ & Bockius LLP, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
8.8 Complete Agreement. This Agreement (including its Exhibits)
constitutes the entire agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
8.9 Amendments and Waivers. 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 Purchaser. Any amendment, termination or waiver effected in
accordance with this Section 8.10 shall be binding on all parties hereto. 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.
8.10 Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
8.11 Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
8.12 Section Headings and References. The section headings are for
the convenience of the parties and in no way alter, modify, amend, limit or
restrict the contractual obligations of the parties. Any reference in this
agreement to a particular section or subsection shall refer to a section or
subsection of this Agreement, unless specified otherwise.
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Executed as of the date first written above.
COMPANY:
MYOTECH, LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President & CEO
PURCHASER:
BIOPHAN TECHNOLOGIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: VP and CFO
[Signature page to Securities Purchase Agreement]