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Exhibit 4.2
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of the 15th
day of June, 1998 by and among Demeter Biotechnologies, Ltd., a Colorado
corporation (the "Company"); the persons listed as Principal Shareholders on the
signature pages hereto (the "Principal Shareholders"); and CEO Venture Fund III
(the "Investor").
In consideration of the mutual representations, warranties,
covenants and conditions set forth in this Agreement, and for other good and
valuable consideration, the parties to this Agreement, intending to be legally
bound hereby, mutually agree as follows:
1. Purchase and Sale of Securities.
1.1 Sale and Issuance.
(a) The Board of Directors of the Company shall, prior to the
Closing (as defined below), adopt resolutions creating a series of Convertible
Preferred Stock having the terms set forth in Exhibit A hereto (the "Preferred
Stock").
(b) Subject to the terms and conditions of this Agreement, the
Investor agrees to purchase at the Closing, and the Company agrees to sell and
issue to the Investor at the Closing, 4,444,444 shares of Preferred Stock and a
Warrant for the purchase of 4,965,556 shares of the Company's common stock, par
value $.001 per share (the "Common Stock") at an exercise price of $0.45 per
share (the "Warrant") in exchange for payment by the Investor of the Purchase
Price, as herein defined. At Closing, the Company shall deliver to the Investor
stock certificates representing the shares of Preferred Stock and the Warrant
(hereafter sometimes referred to collectively as the "Securities") that the
Investor is purchasing against delivery to the Company by the Investor of a
check in the amount of Two Million Dollars ($2,000,000) (the "Purchase Price").
The Warrant shall have the terms and be subject to the conditions set forth in
the form attached hereto as Exhibit B and the Preferred Stock shall have the
rights, preferences, privileges and restrictions set forth in Exhibit A hereto.
1.2 Closing.
The closing on the purchase and sale of the Securities shall
take place at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Professional Corporation, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m. on June
15, 1998, or at such other time, date or place as the Company and the Investor
shall mutually agree (which time, date and place is referred to in this
Agreement as the "Closing"). At the Closing each of the parties to the
Shareholders' Agreement (as defined in Section 5.5) also shall execute and
deliver said agreement.
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2. Representations and Warranties of the Company and Principal Shareholders.
Subject to and except as disclosed by the Schedule of Exceptions set
forth on Exhibit C to this Agreement, the Company and, with respect to the
representation in Section 2.31, the Principal Shareholders, represent and
warrant to the Investor that:
2.1 Organization and Standing.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Colorado, has all requisite
corporate power and authority to own its properties and assets, to carry on its
business as now conducted and as proposed to be conducted and to execute,
deliver and perform this Agreement and the Shareholders' Agreement. The Company
is duly qualified as a foreign corporation and is in good standing in all other
jurisdictions in which such qualification is required.
True, complete and accurate copies of the Company's Articles
of Incorporation and By-laws, as presently in effect, have been delivered to
counsel for the Investor. The copies of the minute book of the Company furnished
to the Investor contain minutes of all meetings of directors and shareholders
and all action by written consent without a meeting by the directors and
shareholders since the date of incorporation and accurately reflect all actions
taken by the directors (and any committee thereof) and shareholders with respect
to all transactions referred to in such minutes. Exhibit C lists the
jurisdictions in which the Company is qualified as a foreign corporation.
2.2 Capitalization.
After giving effect to the transactions contemplated by this
Agreement and immediately thereafter, the authorized capital of the Company
shall consist of:
(a) Preferred Stock: An aggregate of 40,000,000 shares of
Preferred Stock, par value $.001 per share of which 4,444,444 shares shall be
validly issued and outstanding. The rights, privileges and preferences of the
Preferred Stock will be as stated in Exhibit A hereto.
(b) Common Stock: An aggregate of 100,000,000 shares of Common
Stock, of which 25,291,899 shares (provided that such number may be increased to
the extent options described below are exercised after the date hereof) shall be
validly issued and outstanding, fully paid and nonassessable, and shall have
been issued in compliance with all applicable federal and state securities laws.
(c) Warrant: A Warrant to purchase up to 4,965,556 shares of
Common Stock.
The Company has reserved 8,520,000 shares of Common Stock for
issuance pursuant to its Employee Stock Plans, as herein defined. The Company
has reserved 4,444,444 shares of Common Stock for issuance upon conversion of
the Preferred Stock and 4,965,556 shares of Common Stock for issuance upon
exercise of the Warrant. There are no other options,
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warrants, conversion privileges, preemptive rights or other rights presently
outstanding to purchase or receive any of the capital stock of the Company. As
used herein, "Employee Stock Plans" shall mean those plans designated as such on
Exhibit C hereto and such additional employee stock option or bonus plans
adopted from time to time by the Board of Directors.
The Schedule of Security Holders set forth on Exhibit C is a
complete and correct list of the record owners and beneficial owners of all the
Company's outstanding securities (including the amount and type of security held
by each such owner) as of the date hereof. Neither the Company nor any Principal
Shareholder is a party or subject to any agreement or understanding, nor, to the
best knowledge of the Company is there any agreement or understanding between
any persons that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of the Company.
2.3 Subsidiaries.
The Company does not own, control or have an interest in,
directly or indirectly, any other corporation, association, limited liability
company, joint venture, partnership or other business entity.
2.4 Authorization.
All corporate action on the part of the Company and its
officers, directors and shareholders necessary for the authorization, execution,
delivery and performance of all obligations of the Company under this Agreement
and the Shareholders' Agreement and for the authorization, issuance and delivery
of the Securities being sold under this Agreement (and the authorization,
reservation for issuance and delivery of the Common Stock issuable upon
conversion of all Preferred Stock and the exercise of the Warrant) has been
taken or will be taken prior to the Closing. This Agreement and the
Shareholders' Agreement, when executed and delivered, each shall constitute a
valid and legally binding obligation of the Company and Principal Shareholders,
enforceable in accordance with its terms.
2.5 Validity.
The Preferred Stock and the Warrant that are being purchased
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement, will have been duly and validly issued, fully paid and nonassessable,
will have been issued in compliance with all applicable state and federal
securities laws, and will be free of any restrictions against transfer other
than those set forth in the Shareholders' Agreement. The Common Stock issuable
upon conversion of the Preferred Stock and upon exercise of the Warrant has been
duly and validly reserved for issuance and, upon issuance in accordance with the
conversion provisions of the Preferred Stock and the exercise provisions of the
Warrant, will have been duly and validly issued, fully paid and nonassessable,
in compliance with all applicable federal and state securities laws and free of
any restrictions against transfer other than those set forth in the
Shareholders' Agreement. Neither the offer or sale of the Securities nor the
issuance of the Preferred Stock, the Warrant or the Common Stock pursuant
thereto is subject to any preemptive right of shareholders of the Company which
has not been waived.
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2.6 Financial Statements.
(a) The Company has furnished the Investor with (i) an audited
balance sheet and related statement of operations, shareholders' equity and cash
flows for the fiscal years ended September 30, 1997, 1996 and 1995 and (ii) an
unaudited balance sheet (the "Balance Sheet") and related statement of
operations, shareholders' equity and cash flows for the six months ended March
31, 1998 (collectively, the "Financial Statements"). The Financial Statements
are true and correct in all material respects, were prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP") and
present fairly the financial condition of the Company as of their respective
dates and the results of its operations for the periods then ended. The Company
maintains a standard system of accounting established and administered in
accordance with GAAP.
(b) Except as fully provided for and reflected in the
Financial Statements, the Company has no liabilities, secured or unsecured,
absolute or contingent, except those arising after the date of the Financial
Statements in the normal course of business, none of which are unusual in type,
scope or amount.
(c) The accounts and notes receivable reflected on the Balance
Sheet are free and clear of any claim, suit, security interest, pledge,
mortgage, charge or lien or encumbrance of any kind or nature whatsoever (a
"Lien"), and have been collected or are fully collectable without setoff, third
party collection efforts or suit, and the subsequently created accounts and
notes receivable of the Company from March 31, 1998 to the date of the Closing
will be free and clear of any Lien, and will be good and fully collectible in
the normal course of business without setoff, third party collection efforts or
suit.
2.7 Changes.
(a) Since the date of the Balance Sheet, there has not been
any event or condition of any type that has materially and adversely affected
the Company's business, prospects, condition, affairs, operations, properties or
assets.
(b) Except as expressly contemplated by this Agreement or as
set forth on Exhibit C, since the date of the Balance Sheet, the Company has
not:
(i) issued any notes, bonds or other debt securities
or any capital stock or other equity securities or any securities
convertible, exchangeable or exercisable into any capital stock or
other equity securities;
(ii) borrowed any amount or incurred or become
subject to any liabilities, except current liabilities incurred in the
ordinary course of business and liabilities under contracts entered
into in the ordinary course of business;
(iii) discharged or satisfied any Lien or paid any
obligation or liability, other than current liabilities paid in the
ordinary course of business;
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(iv) declared or made any payment or distribution of
cash or other property to its shareholders with respect to its capital
stock or other equity securities or purchased or redeemed any shares of
its capital stock or other equity securities (including, without
limitation, any warrants, options or other rights to acquire its
capital stock or other equity securities);
(v) mortgaged or pledged any of its properties or
assets or subjected them to any Lien, except Liens for current property
taxes not yet due and payable;
(vi) sold, assigned or transferred any of its
tangible assets, except in the ordinary course of business, or canceled
any debts or claims, except in the ordinary course of business;
(vii) sold, assigned or transferred any patents or
patent applications, trademarks, service marks, trade names, corporate
names, copyrights or copyright registrations, trade secrets or other
intangible assets, or disclosed any proprietary confidential
information to any person;
(viii) suffered any extraordinary losses or waived
any rights material to the Company, whether or not in the ordinary
course of business or consistent with past practice;
(ix) made capital expenditures or commitments
therefor that aggregate in excess of $10,000;
(x) made any loans or advances to, guarantees for the
benefit of, or any investments in, any persons in excess of $10,000 in
the aggregate;
(xi) made any charitable contributions or pledges in
excess of $5,000 in the aggregate;
(xii) suffered any damage, destruction or casualty
loss exceeding in the aggregate $10,000, whether or not covered by
insurance; or
(xiii) entered into any other transaction other than
in the ordinary course of business or entered into any other
transaction, whether or not in the ordinary course of business,
material to the Company.
2.8 Title to Property and Assets; Liabilities.
Except (a) as reflected in the Financial Statements or in the
notes thereto, (b) for Liens for current taxes not yet delinquent, (c) for Liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, (d)
for Liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, or (e) for minor defects in title, none of which,
individually or in the aggregate, materially interferes with the use of such
property, the Company
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has good and marketable title to its property and assets free and clear of all
Liens. With respect to the property and assets it leases, the Company is in
compliance with such leases and holds a valid leasehold interest therein, free
of any Liens, subject to clauses (b)-(e) above. The inventory of the Company is
in good and marketable condition, does not include any obsolete items, and is
salable in the ordinary course of business at currently applicable prices.
2.9 Governmental Consents.
All consents, approvals, orders or authorizations of, or
registrations, qualifications, designations, declarations or filings with, any
federal or state governmental authority on the part of the Company required in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement are set
forth on Exhibit C hereto, shall have been obtained prior to, and be effective
as of, the Closing, except that any notices of sale required to be filed with
the Securities and Exchange Commission pursuant to Regulation D promulgated
under the Securities Act of 1933 or any state securities law authority pursuant
to applicable blue sky laws may be filed within the applicable periods therefor.
2.10 Compliance with Other Instruments.
The Company is not in violation of or in default under any
provisions of its Articles of Incorporation, Restated Articles or By-laws as
amended and in effect on and as of the Closing, or, in any material respect, of
any provision of any mortgage, indenture, agreement, instrument or contract to
which it is a party or by which it is bound, or of any provision of any federal
or state judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company. The execution, delivery and performance of this
Agreement and the Shareholders' Agreement by the Company and the Principal
Shareholders, and the consummation of the transactions contemplated hereby and
thereby will not result in any such violation, nor be in conflict with or
constitute, with or without the passage of time and giving of notice, a default
under any such provision, nor result in the creation or imposition of any Lien
pursuant to any such provision.
2.11 Litigation.
There is no action, suit, proceeding, claim, order or
investigation pending or threatened against the Company or any of its employees
before any court or administrative agency (or any basis therefor known to the
Company) that might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, condition, affairs,
operation, properties or assets of the Company, or in any material liability on
the part of the Company. The Company is not subject to any arbitration
proceedings under collective bargaining agreements or otherwise, or to the best
of the Company's knowledge, any governmental investigations or inquiries
(including inquiries as to the qualification to hold or receive any license or
permit) which are reasonably expected to have a material adverse effect on the
Company and, to the best of the Company's knowledge, there is no basis for any
of the foregoing. The Company is not subject to any judgment, order or decree of
any court or other governmental agency which is reasonably expected to have a
material adverse effect on the
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Company. The foregoing includes, without limiting its generality, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees or their use in connection
with the Company's business of any information or techniques allegedly
proprietary to any of their former employers. There is no action, suit,
proceeding, claim or investigation by the Company currently pending or which the
Company intends to initiate.
2.12 Intellectual Property.
Attached hereto on Exhibit C is a true and correct schedule
which describes all of the patents (including all reissues, divisions,
continuations and extensions thereof), applications for patents, patent
disclosures docketed, inventions, improvements, trade secrets, trademarks,
trademark applications, trade names, brand names, copyrights, know-how,
processes and proprietary computer software or similar property (collectively,
the "Intellectual Property") owned by the Company, and all licenses, franchises,
permits, authorizations, agreements and arrangements that concern the same or
that concern like items owned by others and used by the Company. The Company has
sufficient title and ownership of or possesses the sufficient legal right to use
without payment to any other person, all Intellectual Property necessary or
desirable for the lawful conduct of its business as now conducted and as
proposed to be conducted, without any infringement of or conflict with the
rights of others. The Company has no knowledge of, nor has it received any
notice of infringement of or any conflict with, the asserted rights of others
with respect to any of said intellectual property rights, or any other
intellectual property rights used by the Company in its business. All technical
information developed by and belonging to the Company that has not been patented
has been kept confidential. The Company has not granted any options, licenses or
agreements of any kind relating to the foregoing and has not granted or assigned
to any other person or entity any right to manufacture, have manufactured,
process or have processed or sell the products or proposed products of the
Company. All subcontractors have assigned to the Company, in writing, all right,
title and interest in and to the work that they produced for the Company.
The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of his or
her best efforts to promote the interests of the Company or that would conflict
with the Company's business as proposed to be conducted. Neither the execution
nor the delivery of this Agreement or the Shareholders' Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees (or people
it currently intends to hire) made prior to their employment by the Company.
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2.13 Taxes.
The Company has accurately prepared and timely and properly
filed all tax returns that are required to be filed by it by any jurisdiction to
which it is or has been subject, and has timely paid or made provision for the
payment in full of all taxes, and any penalties and interest, that have become
due pursuant to such returns and periods. All such returns are true, correct and
complete in all material respects. The Company has made or caused to be made all
withholdings of taxes required to be made by it and such withholdings have
either been paid to the appropriate governmental agency or set aside in
appropriate accounts for such purpose. The Company has otherwise satisfied, in
all material respects, all applicable laws and agreements with respect to the
payment of taxes and the filing of tax returns. The United States income tax
returns of the Company have not been audited by the Internal Revenue Service.
The Company has not elected to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 341(f) or Section 1362(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). No deficiency assessment
or proposed adjustment of the Company's United States income tax or state or
municipal taxes is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Financial Statements.
2.14 Employee Agreements and Plans.
The Company is not now, nor has it been, a party to or
obligated to contribute to any employee benefit plan as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974 ("ERISA") (an "Employee
Benefit Plan"), guaranteed annual income plan, fund or arrangement, or any
incentive, bonus, profit-sharing, deferred compensation, stock option or
purchase plan or agreement or arrangement, or any employment or consulting
agreement, or any collective bargaining agreement, or any other agreement, plan
or arrangement similar to or in the nature of the foregoing, oral or written.
Neither the Company nor any of its agents, representatives or employees has
committed any unfair labor practice as defined in the National Labor Relations
Act of 1947, as amended, or in any applicable state labor relations act, and
there is not pending or threatened any charge or complaint against the Company
by the National Labor Relations Board or any state labor relations board or
commissioner or any representative thereof. The Company does not have any
agreements or arrangements with persons titled as independent contractors or
consultants, as a result of which, by virtue of the control exercised by the
Company, the type of work performed by the persons or any other circumstances,
said persons could reasonably be deemed to be employees of the Company. The
Company does not have any employment contracts with any of its employees not
terminable at will and does not have any collective bargaining agreements
covering any of its employees. There is no strike, labor dispute or union
organization activities pending or threatened between the Company and its
employees.
2.15 Insurance.
The Company has outstanding valid and enforceable insurance
policies (including, without limitation, fire and casualty, workers'
compensation, business interruption, errors and omissions and liability
insurance), with extended coverage, sufficient in amount
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(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and to cover all other risks of loss or
liability customarily insured against by companies similarly situated and
against risks required to comply with laws and customarily maintained by
organizations similarly situated.
2.16 Registration Rights.
Except as provided for in the Shareholders' Agreement or on
Exhibit C, the Company is not under any obligation and has not granted any
rights to register under the Securities Act of 1933, as amended (the "1933
Act"), any of its presently outstanding securities or any securities into which
such securities may be converted or which may be subsequently issued.
2.17 Physical Condition of Operating Assets.
All the owned and leased real estate of the Company and the
structures erected thereon and all the owned and leased tangible personal
property of the Company are in good repair and condition and are suitable and
sufficient for the conduct of the present business of the Company.
2.18 Product and Service Warranties.
Included as part of Exhibit C hereto are (i) all the product
warranty claims made against the Company, (ii) the cost of satisfying such
claims, and (iii) the cost of servicing products and making adjustments or
providing replacements with respect to returned products. The Company is not
aware of any additional pending or threatened product warranty claims or any
basis upon which product warranty claims could be based. There are no design or
other defects that could give rise to future product warranty claims. Adequate
reserves have been provided for by the Company to cover its product warranty
liability.
2.19 Customers.
The Company has a good and ongoing relationship with each of
its customers, and has no reason to believe that there will be any adverse
change in any such relationship. Exhibit C contains a complete and accurate list
of all customers whose purchases from the Company exceeded 5% of the revenues of
the Company for the fiscal year ended September 30, 1997 and the six month
period ended March 31, 1998.
2.20 Customer and Vendor Contracts.
The Company is not in default under any of its contracts with
customers (including entities for which the Company acts as subcontractor) or
its vendors, and no claim of default under any said contracts has been asserted
against the Company. The Company has received no material customer complaints
concerning alleged defects in its products (or design thereof). No condition or
state of facts exists which, with notice or the passage of time or both, would
constitute a default under any of said contracts, as to time or manner of
performance, or as
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to warranties thereunder, or otherwise. Exhibit C contains a complete and
accurate list of all contracts and accurate copies have been provided to the
Investor.
2.21 Marketing Rights; Export of Products and Technologies.
The Company has not granted rights to manufacture, produce,
assemble, license, market or sell its products to any other person and is not
bound by any agreement that affects the Company's exclusive right to develop,
manufacture, assemble, distribute, market or sell its products. There are no
United States government restrictions prohibiting or, except for export
licensing requirements that the Company has fulfilled or satisfied to date,
otherwise affecting the Company in exporting its existing products and know-how
to the foreign countries to which such products and know-how are currently being
exported. A list of the products exported and each country to which they are
exported is contained in Exhibit C.
2.22 Personnel Contracts.
Exhibit C contains a list of all confidentiality agreements
and employment agreements between the Company and any of its employees, copies
of the forms of which have been delivered to the Investor.
2.23 Insider Transactions.
None of the Company's officers, shareholders, directors or
affiliates owns an interest in any (or acts as a sole proprietorship or as a
partner in a partnership that is a) customer, competitor, supplier or landlord
to the Company, except for an ownership of less than 2% of the outstanding
equity securities of any publicly held corporation. The Company has no
outstanding debt due any employee, director, shareholder, officer or affiliate
of any officer of the Company, and no employee, director, shareholder, officer
or affiliate thereof has any outstanding debt due the Company.
2.24 Other Agreements, Permits.
(a) There are no agreements, understandings, instruments,
leases, commitments, contracts or proposed transactions (collectively,
"Contracts") between the Company and any of its officers, directors,
shareholders, affiliates, or any affiliate thereof. For purposes of the
foregoing, an "affiliate" shall mean a person that directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, the person specified.
(b) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or
incurred any other liabilities individually in excess of $2,000 or in excess of
$10,000 in the aggregate other than in the ordinary course of the Company's
business consistent with past practice, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than in
the ordinary course of business.
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(c) The Company is not a party to, nor is it bound by or
subject to, any Contracts (i) with any labor union; (ii) which restrict the
Company from freely engaging in any business or competing anywhere; or (iii)
otherwise which are material to the Company.
(d) Except for the Shareholders' Agreement and except as set
forth on Exhibit C, the Company is not a party to or aware of any voting trust
or agreement, stockholders agreement, pledge agreement, buy-sell agreement or
first refusal or preemptive rights agreement relating to securities of the
Company.
(e) The Company has all franchises, permits, licenses, and
similar authority necessary for the conduct of its business as now conducted and
as proposed to be conducted and is not in default as to any of the foregoing.
2.25 Environmental Matters.
The Company (i) is in compliance with all applicable
Environmental Laws, and has obtained all permits and other authorizations needed
to operate its facilities, (ii) has not violated any applicable Environmental
Law, and (iii) is unaware of any present requirements of any applicable
Environmental Law which is due to be imposed upon it which will increase its
cost of complying with the Environmental Laws. All past on-site generation,
treatment, storage and disposal of Waste, including Hazardous Waste, by the
Company and its predecessors have been done in compliance with the currently
applicable Environmental Laws, and all past off-site treatment, storage and
disposal of Waste, including Hazardous Waste, generated by the Company and its
predecessors have been done in compliance with the currently applicable
Environmental Laws. As used in this Agreement, the terms (i) "Environmental
Laws" include but are not limited to any federal, state or local law, statute,
charter or ordinance, and any rule, regulation, binding interpretation, binding
policy, permit, order, court order or consent decree issued pursuant to any of
the foregoing, which pertains to, governs or otherwise regulates any of the
following activities, including without limitation (a) the emission, discharge,
release or spilling of any substance into the air, surface water, groundwater,
soil or substrata; (b) the manufacturing, processing, sale, generation,
treatment, storage, disposal labeling or other management of any Waste,
Hazardous Substance or Hazardous Waste, and (ii) "Waste," "Hazardous Substance,"
and "Hazardous Waste" include any substance defined as such by any applicable
Environmental Law.
2.26 Compliance with Other Laws.
The Company has complied in all material respects with all
laws, statutes, rules, regulations, orders and engineering standards of, and has
secured all necessary permits and authorizations and licenses issued by,
federal, state, local and foreign agencies and authorities, applicable to its
business, properties and operations (including but not limited to those
concerned with control of foreign exchange, energy, environmental protection and
pollution control, franchising and other distribution arrangements, anti-trust
and trade regulation, civil rights, labor and discrimination, safety and health,
zoning and land use), a complete list of all such permits, authorizations and
licenses being included on Exhibit C (true and correct and complete copies of
which have heretofore been delivered to the Investor, and true and correct and
complete copies of
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all such permits, authorizations and licenses which are issued from the date
hereof through the Closing Date to be delivered on that date to the Investor).
2.27 Small Business Matters.
The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, Section 121.103), is a "Small
Business" within the meaning of the Small Business Investment Act and the
regulations thereunder, including Title 13, Code of Federal Regulations,
Sections 107.50, 107.700 and 121.301(c) (the "SBIC Act"). The information
regarding the Company and its affiliates set forth in the Small Business
Administration Form 355, Form 652 and Parts A and B of Form 1031 to be delivered
at the Closing is or will be accurate and complete. Copies of such forms shall
have been completed and executed by the Company and delivered to the Investor at
the Closing together with a written statement of the Company regarding its
planned use of the proceeds from the sale of the Preferred Stock and the
Warrant. The Company: (i) does not presently engage in, and shall not hereafter
engage in, any activities, or (ii) shall not use directly or indirectly the
proceeds from the sale of the Preferred Stock or the Warrant for any purpose,
which in either case, a SBIC is prohibited from engaging in or providing funds
for by the SBIC Act and the regulations thereunder (including Title 13, Code of
Federal Regulations, Section 107.720).
2.28 Qualified Small Business.
The Company qualifies as a "Qualified Small Business" (as that
term is defined in Section 1202(d) of the Code) and covenants that so long as
its shares of capital stock are held by the Purchasers (or a transferee in whose
hands the shares are eligible to qualify as Qualified Small Business Stock (as
that term is defined in Section 1202(c) or the Code)), it will use its
reasonable best efforts to cause the shares to qualify as Qualified Small
Business Stock, as so defined.
2.29 Employee Confidentiality Agreements.
Each founder, officer and key employee of the Company has, or
prior to Closing shall have, executed an Employee Non-Disclosure Agreement in
substantially the form attached hereto as Exhibit E or such other form as is
reasonably acceptable to the Investor.
2.30 Misleading Statements; Business Plan.
The Company represents to the Investor that, and the Principal
Shareholders represent to the Company that to their knowledge, no representation
or warranty by the Company in this Agreement or in any Schedule or Exhibit
hereto, or in any written statement or certificate furnished or to be furnished
to the Investor pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact,
necessary to make the statements made not misleading. There is no fact that the
Company or the Principal Shareholders, has not disclosed to the Investor in
writing and of which the Company or any Principal Shareholder is aware which
materially and adversely affects or presents a reasonable likelihood that it
could
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materially and adversely affect the business prospects, financial condition,
operations, property or affairs of the Company. The materials presented in the
Company's Business Plan, dated August, 1997, which has been presented to the
Investor, have been prepared in good faith by the Company to describe the
Company's present and proposed products, operations and projected growth, and
there are no misleading statements therein or material omissions therefrom
necessary to make the description of the Company and its business not
misleading. As of the date hereof, no facts have come to the attention of the
Company or the Principal Shareholders that would require the Company to revise
or amplify the assumptions underlying the projections and other estimates or
conclusions derived therefrom in such Business Plan.
3. Representations and Warranties of the Investor.
The Investor hereby represents and warrants to the Company as follows:
3.1 Authority.
The Investor has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement, when executed and delivered by the Investor, will constitute a valid
and legally binding obligation of the Investor, enforceable against it in
accordance with its terms.
3.2 Investment Representations.
(a) The Investor understands that the Securities are not, and
any Common Stock acquired on the exercise or conversion thereof at the time of
issuance may not be, registered under the 1933 Act in reliance on an exemption
from registration under the 1933 Act pursuant to Section 4(2) thereof for the
sale contemplated by this Agreement and the issuance of Securities hereunder.
(b) The Investor represents that it is experienced in
evaluating and investing in high technology companies such as the Company, is
able to fend for itself in the transactions contemplated by this Agreement, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment, and can bear the economic
risks of its investment.
(c) The Investor understands that the Securities (and any
Common or Preferred Stock issued on exercise or conversion thereof) may not be
sold, transferred or otherwise disposed of without registration under the 1933
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Securities (or the Common or Preferred Stock
issued on exercise or conversion thereof) or an available exemption from
registration under the 1933 Act, the Securities (and any Common or Preferred
Stock issued on exercise or conversion thereof) must be held indefinitely.
(d) The Investor is an Institutional Investor, as defined in
the Pennsylvania Securities Act of 1972, as amended (the "1972 Act").
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4. Additional Legends; Right to Withdraw.
The Investor acknowledges as follows:
(a) The Securities (and any Common or Preferred Stock acquired
upon the exercise or conversion thereof) must bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED.
(b) Said Securities (and any Common or Preferred Stock issued
upon exercise or conversion thereof) shall also bear any legend required by any
applicable state securities laws.
(c) The Investor has been informed of its right to withdraw
from this Agreement pursuant to Section 207(m) of the Pennsylvania Securities
Act of 1972, as amended as follows:
YOU MAY ELECT, WITHIN TWO BUSINESS DAYS AFTER THE RECEIPT OF
THIS AGREEMENT FROM DEMETER BIOTECHNOLOGIES, LTD., TO WITHDRAW
FROM THIS AGREEMENT AND RECEIVE A FULL REFUND OF ALL MONIES
PAID BY YOU. YOUR WITHDRAWAL WILL BE WITHOUT ANY FURTHER
LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, YOU
NEED ONLY SEND A LETTER OR TELEGRAM TO DEMETER
BIOTECHNOLOGIES, LTD., C/O ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, PRESIDENT, ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, INDICATING
YOUR INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE
SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
SECOND DAY. IF YOU ARE SENDING A LETTER, IT IS PRUDENT TO SEND
IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT
IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME IT WAS MAILED.
SHOULD YOU MAKE THE REQUEST ORALLY, YOU SHOULD ASK FOR WRITTEN
CONFIRMATION THAT YOUR REQUEST HAS BEEN RECEIVED.
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5. Conditions to Investor's Obligations at Closing.
The obligations of the Investor under Section 1 of this Agreement are
subject to the fulfillment on or before Closing of each of the conditions
contained in Sections 5.1 through 5.13, any of which may be waived by the
Investor.
5.1 Representations and Warranties.
The representations and warranties of the Company and the
Principal Shareholders contained in this Agreement shall be true on and as of
Closing with the same force and effect as if they had been made on and as of the
date of Closing.
5.2 Performance.
The Company shall have performed and complied with all
agreements, conditions and covenants contained in this Agreement required to be
performed or complied with by it on or before Closing.
5.3 Qualifications.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of Closing.
5.4 Compliance Certificate.
There shall have been delivered to the Investor a certificate,
dated as of the Closing, signed by the Company's President or a Vice President,
certifying that the conditions specified in this Section 5 as to Closing have
been fulfilled.
5.5 Shareholders' Agreement.
A Shareholders' Agreement in substantially the form attached
as Exhibit D (the "Shareholders' Agreement") shall have been duly executed and
delivered by all of the parties thereto.
5.6 No Litigation.
No action, suit, proceeding or investigation shall have been
instituted or threatened to set aside the transactions provided for herein or to
enjoin or prevent the consummation of the transactions contemplated hereby.
5.7 Terms of Preferred.
The terms of the Preferred Stock attached hereto as Exhibit A
shall have been duly authorized by all necessary director action, shall have
been filed with the Secretary of State
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of Colorado as an amendment to the Articles of Incorporation of the Company in
accordance with Section 7-106-102(4) of the Colorado Business Corporation Act
and shall be in full force and effect and shall not have been amended or
modified.
5.8 Stock Certificates and Warrant.
The Company shall have delivered to the Investor the Stock
Certificates and Warrant referred to in Section 1, all in form and substance
satisfactory to the Investor and sufficient to transfer to and vest in the
Investor good and marketable title to the Securities, free and clear of any
Lien.
5.9 Opinion of Counsel.
The Investor shall have received from Cabraja, ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇▇▇▇▇, counsel for the Company, an opinion dated as of Closing, in form and
substance satisfactory to the Investor and its counsel. The opinion rendered in
connection with the Closing shall be to the effect that:
(a) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado. The
Company has the requisite corporate power and authority to own, lease, license,
use and operate its property and assets and to carry on its business as now
conducted and as proposed to be conducted, and it is qualified as a foreign
corporation and is in good standing in all other jurisdictions in which such
qualification is required.
(b) The authorized capital of the Company consists of:
(i) Preferred Stock: 40,000,000 shares of Preferred
Stock, of which 4,444,444 have been duly authorized, issued and
delivered, are validly issued and outstanding, fully paid and
nonassessable and were issued in compliance with, or pursuant to
transactions exempt from, the registration or qualification
requirements of all applicable federal and state securities laws. The
rights, privileges and preferences of the Preferred Stock are as stated
in Exhibit A to the Agreement.
(ii) Common Stock: 100,000,000 shares of Common
Stock, of which 25,291,899 shares have been duly authorized, issued and
delivered, are validly issued and outstanding, fully paid and
nonassessable, and were issued in compliance with, or pursuant to
transactions exempt from, the registration or qualification
requirements of all applicable federal and state securities laws.
(iii) Warrant: A Warrant to purchase up to 4,965,556
shares of Common Stock.
All of such issued and outstanding shares of Common Stock and such
Warrant have been duly authorized and validly issued and are fully paid and
nonassessable and free of any
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preemptive or similar rights, and are owned and held beneficially and of record,
by the persons and in the amounts set forth on Exhibit C.
The Company has reserved 4,444,444 shares of Common Stock for issuance
upon conversion of the Preferred Stock and 4,965,556 shares of Common Stock for
issuance upon exercise of the Warrant and 8,520,000 shares of Common Stock for
issuance pursuant to its Employee Stock Plans. To the best of such counsel's
knowledge, there are no other options, warrants, conversion privileges,
preemptive rights or other rights presently outstanding to purchase or receive
any of the capital stock of the Company, except for the rights created by this
Agreement.
(c) The Company has the requisite power and authority to enter
into, deliver and perform its obligations under the Agreement and the
Shareholders' Agreement and to issue and sell the Preferred Stock, the Warrant
and the Common Stock issuable upon conversion and exercise thereof. The
Agreement and the Shareholders' Agreement and all documents to be delivered by
the Company thereunder have been duly authorized by the Company and duly
executed and delivered by an authorized officer of the Company and each
constitutes a legal, valid and binding obligation of the Company enforceable in
accordance with its terms, except as may be limited by bankruptcy,
reorganization, insolvency and similar laws now or hereinafter in effect
relating to or affecting the enforcement of creditor's rights in general.
(d) The Agreement and the Shareholders' Agreement have been
duly executed and delivered by the Principal Shareholders and each constitutes a
legal, valid and binding obligation of the Principal Shareholders, enforceable
in accordance with its terms, except as may be limited by bankruptcy,
reorganization, insolvency and similar laws now or hereafter in effect relating
to or affecting the enforcement of creditor's rights in general.
(e) The execution, delivery and performance by the Company and
the Principal Shareholders of this Agreement and the Shareholders' Agreement do
not and will not violate, conflict with or constitute a breach of or default
under any provision of (i) the Company's Articles or By-laws, as amended, (ii)
any judgment, order, decree, statute, law, ordinance or regulation applicable to
the Company or a Principal Shareholder or (iii) any loan or credit agreement,
note, bond, mortgage, lease or material contract, instrument or agreement of
which such counsel is aware to which the Company or a Principal Shareholder is a
party or by which it, he or she, as the case may be, is bound.
(f) The sale and issuance of the Securities pursuant to this
Agreement (and the issuance of the Common Stock upon exercise or conversion
thereof) have been duly authorized by all necessary corporate action of the
Company, and upon issuance, sale and delivery for the consideration stated in
this Agreement, the Securities shall be duly and validly issued, fully paid and
nonassessable and free of any preemptive or similar rights. The Common Stock
issuable upon conversion of the Preferred Stock upon issuance in accordance with
the terms of the Articles and Exhibit A to the Agreement, and the Common Stock
issuable upon exercise of the Warrant upon issuance in accordance with the terms
of the Warrant, shall be duly and validly issued, fully paid and nonassessable
and free of any preemptive or similar rights.
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(g) All consents, approvals, orders or authorizations, if any,
of any governmental authority or regulatory body of the United States or of any
state required to be obtained by the Company or the Principal Shareholders prior
to the Closing in connection with the execution, delivery and performance of the
Agreement and the Shareholders' Agreement and the lawful issue and sale of the
Securities pursuant to the Agreement (and the Common Stock issuable upon
conversion or exercise thereof) have been duly obtained, and the Company and the
Principal Shareholders have complied with any and all applicable provisions of
law requiring any designation, declaration, filing, registration or
qualification with any federal or state governmental authority prior to the
Closing in connection with such execution, delivery, performance, issue and
sale.
(h) The offer and sale of the Securities under the
circumstances contemplated by the Agreement do not require registration under
Section 5 of the 1933 Act or under any state's securities laws.
(i) To the best of such counsel's knowledge, there is no
action, proceeding or investigation pending or threatened against the Company or
Principal Shareholders before any court or administrative agency that might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company or any such
Principal Shareholder or that questions the validity of the Agreement or the
Shareholders' Agreement.
(j) To such counsel's knowledge, other than the rights granted
to the Investor under the Shareholders' Agreement and except as listed on
Exhibit C to the Agreement, there are no outstanding rights which permit the
holder thereof to cause the Company to file a registration statement under the
1933 Act or to permit the holder thereof to include securities of the Company in
a registration statement filed by the Company under the 1933 Act and there are
no outstanding agreements or other commitments which otherwise relate to the
registration of any securities of the Company under the ▇▇▇▇ ▇▇▇.
5.10 Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be in form and substance satisfactory to the Investor
and its counsel and the Investor shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request. The By-laws of the Company shall be amended as necessary, in form and
substance satisfactory to the Investor and its counsel, to conform to the terms
of this transaction as set forth in this Agreement and the Shareholders'
Agreement (including a provision that any two directors may call a meeting of
the Board of Directors).
5.11 Key-Man Insurance.
The Company shall have obtained and have in force term life
and total disability insurance in the amount of $1,000,000 each on the lives of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, with proceeds payable to the Company.
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5.12 Closing Documents.
The Company shall have delivered the following documents to
the Investor:
(a) copies certified by the Secretary of the Company of the
resolutions duly adopted by the Company's board of directors authorizing and
approving: (i) the execution, delivery and performance of this Agreement, the
Shareholders' Agreement and each of the other agreements contemplated hereby,
(ii) the terms of the Preferred Stock as set forth on Exhibit A hereto, (iii)
the reservation for issuance upon conversion of the Preferred Stock and upon
exercise of the Warrant of an aggregate number of shares of Common Stock equal
to the total number of shares to be issued upon conversion and exercise, (iv)
the issuance and sale of the Preferred Stock and the Warrant, and (v) the
consummation of all other transactions contemplated by this Agreement and the
Shareholders' Agreement;
(b) copies of the Company's Articles of Incorporation (as
filed with the Colorado Secretary of State) and the Company's bylaws, each as in
effect at the Closing;
(c) copies certified by an executive officer of the Company of
any governmental consents, approvals and filings (if any) required in connection
with the consummation of the transactions hereunder (including, without
limitation, all blue sky law filings);
(d) duly completed and executed SBA Forms 480, 652 and 1031
(Parts A and B) together with a five-year business plan showing the Company's
financial projections (including balance sheets and income and cash flows
statements) for such five-year period, a written statement from the Company
regarding its intended use of proceeds from the issuance of the Preferred Stock
and Warrant at Closing and a list, after giving effect to the transactions
contemplated by this Agreement, of: (i) the name of each of the Company's
directors, (ii) the name and title of each of the Company's officers and (iii)
the name of each of the Company's shareholders and the number and class of
shares held by each shareholder; and
(e) such other documents relating to the transactions
contemplated by this Agreement as the Investor or its counsel may reasonably
request.
5.13 Proxy.
The Investor shall have been granted one or more irrevocable
proxies, in a form acceptable to the Investor, to vote 4,444,444 shares of the
currently issued and outstanding Common Stock (subject to adjustment for stock
splits, combinations and dividends) on all matters brought before a vote of the
shareholders of the Company (whether by meeting or written consent). The
certificate(s) for such Common Stock shall bear a legend reflecting the fact
that they are subject to the proxies granted hereby. The Investor shall vote
such shares in any manner that it deems appropriate in its sole discretion. Such
proxy will remain in effect until immediately following the annual or special
meeting to approve a new class of voting preferred stock in accordance with
Section 7.16 hereof.
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5.14 Additional Conditions.
The obligations of the Investor under Section 1 of this
Agreement are subject to the fulfillment on or before Closing of each of the
following conditions (in addition to the Conditions set forth in Sections 5.1
through 5.13 inclusive):
(a) The Company shall have in effect no employment agreements
providing for guaranteed employment, salaries or benefits, except as approved in
writing by the Investor or as set forth on Exhibit C.
(b) That any existing agreements of the existing shareholders
of the Company shall have been amended in form satisfactory to counsel to the
Investor to provide that (i) the rights of first refusal and co-sale provisions
contained therein are subordinated to the rights of the Investor herein, (ii)
all rights to elect directors are consistent with those provided herein, (iii)
any option to require the Company to purchase existing Common Stock shall be
terminated (except to the extent permitted by Paragraph 5D of Article VI of the
Restated Articles), and (iv) such other changes as are necessary so as to make
such agreements consistent with this Agreement.
(c) Each of the following persons shall have entered into a
non-competition and non-disclosure agreement in substantially the form attached
hereto as Exhibit E:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
D. ▇▇▇▇▇▇ ▇▇▇▇▇
(d) Effective as of the Closing, the directors of the Company
shall be ▇▇▇▇▇▇▇ ▇▇▇▇-▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Original
Directors"), ▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇. The first two vacancies created by
the resignations of any of the Original Directors from the Board of Directors
shall not be filled and the size of the Board of Directors shall be reduced
accordingly. The Company and the Principal Shareholders agree to take such steps
as may be required to replace one of the other Original Directors with an
industry representative acceptable to the Investor.
(e) All existing promissory notes payable by the Company to
any shareholder of the Company shall be converted at or prior to Closing to
options to purchase, in the aggregate, 5,820,000 shares of Common Stock at an
exercise price of $.05 per share.
(f) All outstanding disputes with employees or former
employees of the Company shall have been resolved to the satisfaction of the
Investor.
6. Conditions to the Company's Obligations at Closing.
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment on or before Closing of each of the following
conditions:
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6.1 Representations and Warranties True on Closing.
The representations and warranties of the Investor contained
in Sections 3 and 4 shall be true on and as of Closing with the same force and
effect as if they had been made at Closing.
6.2 Qualifications.
All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Securities pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of Closing.
7. Covenants of the Company.
7.1 Annual and Quarterly Financial Statements.
The Company shall maintain a standard system of accounting in
accordance with GAAP and shall make and keep books, records and accounts that,
in reasonable detail, accurately and fairly reflect its transactions. Until such
time as the Company is required to file reports under Sections 13 and 14 of the
1934 Act and for so long as the Investor holds at least 2% of the total issued
and outstanding capital stock of the Company, or for so long as the Company is
required to deliver any of the following documents to any other shareholder of
the Company, the Company shall deliver to the Investor:
(a) As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company commencing
with the year ended September 30, 1998, a consolidated balance sheet, and
related statements of operations and cash flows of the Company as of the end of
such year, audited, without qualification as to scope of the examination, by
independent public accountants of recognized national standing selected by the
Company; and
(b) Within thirty (30) days after the end of each of the first
three (3) quarters of the fiscal year, an unaudited consolidated statement of
operations and cash flows for such fiscal quarter and an unaudited balance sheet
as of the end of such fiscal quarter, setting forth in comparative form the
figures for the corresponding periods of the previous fiscal year.
Such financial statements shall be accompanied by a
certificate of the chief financial officer of the Company certifying that the
financial statements are true and complete in all material respects and in
accordance with GAAP and stating whether the Company is in violation of this
Agreement, the Shareholders' Agreement or any other material agreements to which
the Company is a party.
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7.2 Monthly Financial Statements and Budgets.
The Company shall deliver to the Investor, as long as the
Investor holds at least 5% of the total issued and outstanding capital stock of
the Company:
(a) Within twenty (20) days after the end of each month, an
unaudited consolidated statement of operations and cash flows for such month and
the current fiscal year to date and an unaudited consolidated balance sheet as
of the end of each such month, setting forth in comparative form the figures for
the corresponding periods of the previous fiscal year and the Company's
projected financial statements for the current fiscal year and showing
deviations from budget; and
(b) As soon as available, but in any event within forty-five
(45) days after commencement of each new fiscal year, a business plan and
projected financial statements for such fiscal year.
(c) Promptly upon receipt, copies of all management letters
from accountants and all certificates prepared by or for the Company as to
compliance, defaults, material adverse changes, material litigation or similar
matters.
(d) Upon written request the Company shall also furnish, with
reasonable promptness, such other information relating to the financial
condition, business prospects or corporate affairs of the Company as the
Investor may from time to time reasonably request.
7.3 Inspection.
The Company shall permit the Investor or its agents, at the
Investor's expense, to visit and inspect the Company's properties, to examine
the Company's books of account and records, and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable times
as may be requested by the Investor; provided, however, that the Company shall
not be obligated pursuant to this Section 7.3 to provide any information that it
reasonably considers to be a trade secret or to contain confidential data.
Notwithstanding the foregoing, the Chief Financial Officer of the Investor will
visit the Company on a quarterly basis to review financial matters, and the
Company shall pay all out of pocket travel and other expenses of said Chief
Financial Officer in connection with such visits.
7.4 Employee Stock Purchase Agreements.
Each person who purchases any of the 3,000,000 shares of the
Company's Common Stock reserved for issuance to officers and employees of the
Company under the Company's employee stock option plans shall execute and
deliver to the Company an employee stock purchase agreement in such form as the
Investor reasonably approves in writing from time to time (provided that such
agreement shall not require an automatic buy-back provision upon termination of
employment except as provided in the Stockholders' Agreement).
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7.5 Key-Man Insurance.
The Company shall obtain and keep in effect term life and
total disability insurance each in the amount of $1,000,000 on the lives of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, with proceeds payable to the Company.
7.6 Use of Proceeds.
The proceeds from the sale of the Securities shall be used for
further product development, FDA testing, general working capital purposes,
payment of those trade payables listed on Schedule 7.6 hereto, capital
expenditures of up to $100,000 in the aggregate and such other purposes as the
Investor shall approve in advance in writing.
7.7 Restrictive Agreements Prohibited.
Neither the Company nor any of its subsidiaries shall become a
party to any agreement which by its terms restricts the Company's performance of
this Agreement.
7.8 Proprietary Information Agreements.
The Company shall use its best efforts to obtain, and shall
cause its subsidiaries, if any, to use their best efforts to obtain, a
Proprietary Information Agreement in substantially the form of Exhibit F from
all future officers, key employees and other employees who will have access to
confidential information of the Company or any of its Subsidiaries, upon their
employment by the Company or any of its Subsidiaries.
7.9 Transactions with Affiliates.
Except for the transactions contemplated by this Agreement or
as otherwise approved by a majority of directors, neither the Company nor any of
its subsidiaries shall enter into any transaction with any director, officer,
employee or holder of more than 5% of the outstanding capital stock of any class
of the Company or any of its subsidiaries, member of the family of such person,
or any corporation, partnership, trust or other entity in which any such person,
or member of the family or any such person, either alone or together with other
persons affiliated with the Company, is a director, officer, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof (collectively,
"Affiliates"), except for transactions on customary terms negotiated on an
arms-length basis or related to such person's employment.
7.10 Additional Affirmative Covenants.
So long as any portion of the Securities (or an equivalent
amount of Common or Preferred Stock issued upon conversion or exercise thereof)
are still outstanding, the Company agrees as follows:
(a) The Company will promptly pay and discharge or cause to be
paid and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided,
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however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided further, that the Company will pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien that may have attached as security
therefor. The Company will promptly pay or cause to be paid when due, or in
conformance with customary trade terms, all other indebtedness incident to the
operations of the Company.
(b) The Company will keep its properties in good repair,
working order and condition, reasonable wear and tear excepted, and from time to
time make all needful and proper repairs, renewals, replacements, additions and
improvements thereto; and the Company will at all times comply with the
provisions of all material leases to which it is a party or under which it
occupies property so as to prevent any loss or forfeiture thereof or thereunder.
(c) The Company will keep its assets that are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, extended coverage and explosion insurance in amounts customary
for companies in similar businesses similarly situated; and the Company will
maintain, with financially sound and reputable insurers, insurance against other
hazards, risks and liabilities to persons and property to the extent and in the
manner customary for companies in similar businesses similarly situated.
(d) The Company will duly observe and conform to all valid
requirements of governmental authorities relating to the conduct of its
businesses or to its property or assets.
(e) The Company shall maintain in full force and effect its
corporate existence, rights and franchises and all licenses and other rights to
use patents, processes, licenses, trademarks, trade names or copyrights owned or
possessed by it and deemed by the Company to be necessary to the conduct of its
business.
7.11 SBIC Regulatory Provisions.
(a) For a period of one year following the Closing, the
Company shall not change its business activities if such change would render the
Company ineligible as a "Small Business" under the SBIC Act or a "qualified
small business" under Section 1202 of the IRC.
(b) Within 75 days after Closing, the Company shall deliver to
the Investor a written statement certified by the Company's president or chief
financial officer describing in reasonable detail the use of the proceeds of the
Financing (as defined below) hereunder by the Company and its subsidiaries. In
addition to any other rights granted hereunder, the Company shall grant (and
cause each subsidiary to grant) the Investor and the United States Small
Business Administration (the "SBA") access to the Company's and the
subsidiaries' records for the purpose of verifying the use of such proceeds.
(c) Upon the occurrence of a Regulatory Violation (as defined
below) or in the event that the Investor determines in its reasonable good faith
judgment that a Regulatory Violation has occurred, in addition to any other
rights and remedies to which it may be entitled
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as a holder of Preferred Stock, Warrant or Common Stock (whether under this
Agreement, the Restated Articles, the Shareholders' Agreement or otherwise), the
Investor shall have the right to demand the immediate repurchase of the Warrant
and all of the outstanding shares of Preferred Stock and Common Stock owned by
the Investor at a price per share equal to the purchase price paid for such
Securities hereunder, plus all accrued dividends thereon, by delivering written
notice of such demand to the Company. The Company shall pay the purchase price
for such stock by a cashier's or certified check or by wire transfer of
immediately available funds to the Investor demanding repurchase within 30 days
after the Company's receipt of the demand notice, and upon such payment, the
Investor shall deliver the certificates evidencing the Securities and Common
Stock to be repurchased, duly endorsed for transfer or accompanied by duly
executed forms of assignment.
(d) Promptly after the end of each fiscal year (but in any
event prior to February 28 of the following year), the Company shall deliver to
the Investor a written assessment of the economic impact of the Investor's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes and other
economic benefits resulting from the investment (including, but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports). Promptly after
the Investor so requests, the Company will provide to the Investor such
information concerning the Company or its Subsidiaries which the Investor may be
required to provide to the SBA from time to time.
(e) For purposes of this Agreement, (A) "Regulatory Violation"
means (1) a diversion of the proceeds of such Financing from the reported use
thereof on the use of proceeds statement delivered by the Company at Closing, if
such diversion was effected without obtaining the prior written consent of the
Investor (which may be withheld in its sole discretion), or (2) a change in the
principal business activity of the Company and its subsidiaries to an ineligible
business activity (within the meaning of the SBIC Regulations) if such change
occurs within one (1) year after the date of the Financing hereunder (B) "SBIC
Regulations" means the SBIC Act and the regulations issued thereunder as set
forth in 13 CFR Section 107 and Section 121, as amended; and (C) "Financing"
shall have the meaning set forth in the SBIC Regulations.
7.12 Regulatory Compliance Cooperation.
(a) In the event that the Investor determines that it has a
Regulatory Problem (as defined below), the Investor shall have the right to
transfer its Preferred Stock and Warrant (or any Common Stock into which such
Preferred Stock or Warrant may be converted) (together, the "SBIC-Held Stock")
without regard to any restrictions on transfer set forth in this Agreement or
the Shareholders Agreement other than the securities law restrictions set forth
in Section 4 hereof (provided that the transferee agrees to become a party to
this Agreement and the Shareholders Agreement), and the Company shall take all
such actions as are reasonably requested by the Investor in order to (A)
effectuate and facilitate any transfer by the Investor of any Securities of the
Company then held by the Investor to any person designated by the Investor, (B)
permit the Investor (or any of its Affiliates) to exchange all or any portion of
the
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SBIC-Held Stock then held by it on a share-for-share basis for shares of a class
of nonvoting preferred stock or common stock, respectively of the Company, which
nonvoting preferred stock or common stock shall be identical in all respects to
such Preferred Stock or Common Stock, respectively, except that any such
preferred stock shall be nonvoting and shall be convertible into such nonvoting
common stock or Common Stock on such terms as are requested by the Investor in
light of regulatory considerations then prevailing, and any such common stock
shall be nonvoting and shall be convertible into Common Stock on such terms as
are requested by the Investor in light of regulatory considerations then
prevailing, (C) continue and preserve the respective allocation of the voting
interests with respect to the Company arising out of the Investor's ownership of
voting securities and/or provided for in the Shareholders Agreement before the
transfers and amendments referred to above (including entering into such
additional agreements as are requested by the Investor) to permit any person(s)
designated by the Investor to exercise any voting power which is relinquished by
the Investor, and (D) amend this Agreement, the Certificate of Incorporation and
other related agreements to effectuate and reflect the foregoing. The parties to
this Agreement agree to vote their securities in favor of such amendments and
actions.
(b) For purposes of this Agreement, a "Regulatory Problem"
means any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or the Investor believes that there is a
substantial risk of such assertion) that the Investor and its Affiliates are not
entitled to hold, or exercise any significant right with respect to, the
Securities or the Common Stock.
7.13 Rule 144A.
The Company shall, upon written request of the Investor,
provide to the Investor and to any prospective qualified institutional buyer (as
defined in Rule 144A) designated by the Investor, such financial and other
information as the Investor may determine to be necessary to permit compliance
with the requirements of Rule 144A promulgated under the Securities Act of 1934,
as amended in connection with any resale of the Securities.
7.14 Termination of Covenants.
The covenants set forth in Sections 7.1 through 7.13 of this
Section 7 shall terminate and be of no further force or effect after the date of
the closing of the first underwritten public offering of the Company's Common
Stock amounting to not less than $8,000,000.
7.15 Relocation to Pittsburgh Area.
The Company agrees to move its headquarters, operations and
employees, including ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, but excluding A. ▇▇▇
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ to the Pittsburgh, Pennsylvania area within three
(3) months after Closing. Nothing herein shall prohibit the Company from having
facilities in other locations provided that its headquarters and principal place
of business remains in the Pittsburgh area.
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7.16 Amended Articles.
The Board of Directors of the Company has approved and the
Company will, prior to the end of calendar year 1998, submit to the shareholders
of the Company for their approval, at a duly called annual or special meeting of
the shareholders, Articles of Amendment to the Articles of Incorporation in the
form attached as Exhibit G (the "Amended Articles"). The Company and the
Principal Shareholders will take all steps reasonably required to cause the
Amended Articles to be approved by the shareholders, including recommending a
vote in favor thereof and, in the case of the Principal Shareholders, voting
their shares in favor thereof. Upon approval, the Company shall cause the
Amended Articles to be filed with the Secretary of the State of Colorado.
8. Miscellaneous.
8.1 Entire Agreement.
This Agreement and the documents referred to herein constitute
the entire agreement among the parties and no party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth herein or therein. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
heirs, personal representatives, successors and assigns of the parties, except
to the extent assignability is limited herein.
8.2 Governing Law.
This Agreement shall be governed by and construed under the
laws of the Commonwealth of Pennsylvania, without regard to any jurisdiction's
conflicts of law provisions.
8.3 Counterparts.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.4 Titles and Subtitles.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
8.5 Notices.
Any notice required or permitted under this Agreement shall be
given in writing and shall be deemed effectively given (i) upon personal
delivery, or (ii) upon the expiration of five days following deposit with the
United States Postal Service, by registered or certified mail, return receipt
requested, postage prepaid, or (iii) upon delivery by an overnight courier which
provides evidence of delivery addressed to the party as shown on the signature
page hereof, or at
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such other address as any party may designate by ten (10) days' advance written
notice to the other parties hereto.
8.6 Finders' Fees.
Each party represents that it neither is, nor will be,
obligated for any finders' fee or commission in connection with this
transaction.
The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investor or any of its partners, employees or
representatives is responsible.
The Company and the Principal Shareholders, jointly and
severally, agree to indemnify and hold harmless the Investor from any liability
for any commission or compensation in the nature of a finders' fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
8.7 Expenses.
The Company shall pay at the Closing all reasonable fees,
expenses and disbursements of legal counsel for the Investor and other
out-of-pocket expenses incurred by the Investor in connection with the
negotiation, execution, delivery and performance of this Agreement, the
Shareholders' Agreement and the transactions contemplated hereby and thereby, up
to a maximum of $50,000.
8.8 Survival.
The warranties, representations and covenants of the Company,
Principal Shareholders and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing.
8.9 Indemnification.
The Company and, solely with respect to the representations in
Section 2.31 hereof, the Principal Shareholders, shall defend, indemnify and
hold the Investor harmless from and against any and all claims, liabilities,
damages, losses and expenses, including reasonable attorney's fees and expenses
and costs of suit, arising out of any and all inaccurate representations and
warranties and out of any and all breaches of covenants, warranties,
stipulations, agreements and certifications made by or on behalf of the Company
or the Principal Shareholders in this Agreement, the Shareholders' Agreement or
in any document delivered hereunder. The obligations of the Principal
Shareholders for breaches of the representations in Section 2.31 hereunder shall
be several and not joint and shall relate only to matters under Section 2.31 of
which such Principal Shareholder personally had knowledge. The foregoing
obligations of the Principal Shareholders shall not apply (i) until the
aggregate of all claims
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against the Company and the Principal Shareholders which have not been paid in
full by the Company exceed $25,000, at which point the Principal Shareholders
shall only be liable for the amount in excess of $25,000, and (ii) with respect
to a Principal Shareholder if such Principal Shareholder's employment with the
Company has been terminated by the Company without cause. In no event shall the
aggregate liability of the Principal Shareholders hereunder exceed $250,000. The
foregoing limitations shall not apply with respect to claims for fraud or
willful misconduct by the Principal Shareholders.
8.10 Amendments and Waivers.
Any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding Securities (including any shares of Common or
Preferred Stock issued upon conversion or exercise thereof which have not been
sold to the public). Any amendment or waiver effected in accordance with this
Section shall be binding upon each holder of any Securities purchased under this
Agreement at the time outstanding (including securities into which such
Securities have been converted or for which they have been exercised), each
future holder of all such securities and the Company.
8.11 Rights of Investor.
Except as provided in another written document executed by
such holder, each holder of Securities (or Common Stock issued upon exercise or
conversion thereof) shall have the absolute right to exercise or refrain from
exercising any right or rights that such holder may have by reason of this
Agreement or ownership of any Securities, including without limitation the right
to consent to the waiver of any obligation of the Company under this Agreement
and to enter into an agreement with the Company for the purpose of modifying
this Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of Securities with
respect to exercising or refraining from exercising any such right or rights.
8.12 Assignment.
This Agreement may not be assigned by the Company or any
Principal Shareholder without the consent of the Investor.
8.13 No Presumption.
There shall be no presumption against any party on the ground
that such party or its counsel was responsible for preparing this Agreement or
any part hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
DEMETER BIOTECHNOLOGIES, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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INVESTOR:
CEO VENTURE FUND III
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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PRINCIPAL SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇▇ ▇▇▇▇▇▇
Address: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
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