Contract
This
Investment Agreement (“Agreement”) dated as of December 18, 2007,
is
between ADVANCED BIOTHERAPY, INC., a Delaware corporation (“Investor”),
and ORGANIC FARM MARKETING, LLC, a
Wisconsin
limited liability company (the “Company”).
RECITALS
A. The
Company has issued to Xxxxxxx X. Xxxxxxx (“Xxxxxxx”) a convertible note dated as
of April 17, 2007, in the original principal amount of $1,000,000 (“April
Convertible Note”), and an additional convertible note dated as of June 14,
2007, in the original principal amount of $625,000 (“June Convertible Note”).
The Company’s obligations under the April Convertible Note and the June
Convertible Note are secured by a security interest in all of the Company’s
personal property and all proceeds and products thereof, pursuant to a security
agreement entered into by the Company in favor of Xxxxxxx (the “Xxxxxxx Security
Agreement”).
B. Concurrently
herewith at the request of the Company, the Investor will arrange for The
Northern Trust Company (“Bank”) of Chicago, Illinois, to issue an irrevocable
letter of credit for the benefit of the Wisconsin Department of Agriculture,
Trade and Consumer Protection, the designee of the Company (the “Letter of
Credit”) as required by the State of Wisconsin in order for the Company to
distribute certain dairy products. The Letter of Credit will be obtained on
behalf of the Company by the Investor pursuant to the terms of this Agreement
and the Reimbursement Agreement dated herewith, as set forth in Exhibit A
hereto
(the “Reimbursement Agreement”). As collateral for repayment of funds advanced
under the Letter of Credit, the Bank requires that the Investor enter into
a
pledge agreement (“Pledge Agreement”) pursuant to which the Bank will be granted
a security interest in a certificate of deposit account maintained by the
Investor at the Bank.
C. The
terms
of payment of certain obligations by the Company to the Investor under the
Reimbursement Agreement will be evidenced by a promissory note, as set forth
in
Exhibit B
hereto
(the “Promissory Note”).
D. The
Company’s obligations under the Promissory Note and the Reimbursement Agreement
shall be secured by the Company’s personal property and all proceeds and
products thereof pursuant to a security agreement as set forth in Exhibit
C
hereto
(the “Security Agreement”).
E. The
Company also desires for the Investor to provide the Company with a working
capital loan in the aggregate principal amount of $800,000 (“Working Capital
Loan”), of which $293,750 shall be used by the Company to redeem 23,850 Company
Units from CWBA-OFM, LLC.
F. In
order
to evidence the Working Capital Loan, the Company desires to issue to Investor,
subject to the terms and conditions set forth herein, a convertible note of
the
Company in the original principal amount of Eight Hundred Thousand Dollars
($800,000.00) in the form of Exhibit D
hereto
(the “December Convertible Note”). The Company’s obligations under the December
Convertible Note also shall be secured by the assets of the Company pursuant
to
the Security Agreement.
Page 1 of
15
G. As
a
condition to the Investor entering into the Pledge Agreement and making the
Working Capital Loan, the Investor requires that the Company and Xxxxxxx enter
into an agreement in the form of Exhibit
E
hereto
(the “Intercreditor Agreement”) which provides, in part, that the Promissory
Note and the Investor’s security interest shall be senior in priority to the
April Convertible Note, the June Convertible Note and the December Convertible
Note, and the December Convertible Note shall rank in the same priority,
pari
passu,
with the
April Convertible Note and the June Convertible Note, and the security interest
held by Investor, except as otherwise provided with respect to the Promissory
Note, shall rank in the same priority, pari
passu,
with the
security interest granted by Company to Xxxxxxx pursuant to the Xxxxxxx Security
Agreement.
In
consideration of the foregoing recitals, and the mutual representations,
warranties and covenants contained herein,
the parties hereto agree as follows:
ARTICLE
I
RECITALS
The
foregoing Recitals are incorporated by reference herein.
ARTICLE
II
THE
CLOSING
2.1 Issuance
of Promissory Note and December Convertible Note.
Subject
to the terms and conditions set forth herein,
on
the Closing Date, the Company shall issue to Investor, and Investor shall
acquire from the Company,
the Promissory Note and the December Convertible Note.
2.2 Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place at the offices of the Investor on December 18, 2007, or at such
other
time and place as the parties hereto may agree and the conditions set forth
in
Article III have
been
satisfied (the “Closing Date”). The Closing may be accomplished by the delivery
of signature pages by facsimile or electronic mail, followed by delivery of
original counterparts by overnight courier.
2.3 Use
of
Proceeds at Closing.
On the
Closing Date, the Company directs the Investor to wire the sum of $293,750.00
(the “CWBA-OFM Payment”) of the $800,000.00 Working Capital Loan directly to the
escrow arranged by counsel for CWBA-OFM LLC and the Company for the repurchase
of 23,850 Units of the Company from CWBA-OFM, LLC, representing all of its
Units
and interest in the Company. The amount of the CWBA-OFM Payment shall be treated
as part of the Working Capital Loan for the benefit of the Company.
ARTICLE
III
CONDITIONS
TO CLOSING
The
obligation of Investor to consummate the transactions described herein shall
be
subject
to the accuracy of all representations and warranties by the Company contained
herein and
in
the documents delivered pursuant hereto and to the performance by the Company
of
all the
terms
and conditions on its part to be performed hereunder and to the satisfaction
of
the following
conditions precedent on or prior to the Closing Date, any of which may be waived
by Investor
in Investor’s sole discretion.
3.1 Proceedings
and Documents.
All
proceedings to be taken prior to or on the Closing
Date in connection with the transactions contemplated
by this
Agreement shall have been
consummated, and all documents related
thereto
shall be reasonably satisfactory in form and
substance to Investor, and Investor shall have received copies of all such
documents which Investor
reasonably has requested in connection with said transaction.
Page 2 of
15
3.2 Organizational
Documents.
A copy
of the Company’s Articles of Organization (including
all amendments), certified by the Department of Financial Institutions of the
State of Wisconsin, and a good standing certificate for the Company
issued by the Department of Financial
Institutions of the State of Wisconsin dated not less than ten (10) days prior
to the Closing Date,
shall have been delivered to Investor.
3.3 Securities
Law Matters; Investment Representations.
Based
in part on the representations
and warranties of Investor set forth in Section 7.1, the Company shall not
be in
violation of any provision of federal or state securities laws applicable
to any
of the transactions contemplated by this Agreement.
3.4 Board
Resolutions: Operating Agreement.
The
Investor shall have received a certificate
from the Company, dated the Closing Date and signed by the president of the
Company, certifying that (i) the resolutions of the Board of Directors attached
thereto approving the execution of this Agreement, Promissory Note, the December
Convertible Note and all documents to be delivered pursuant hereto (the
“Related Documents”) and the consummation of the transactions contemplated
hereby and thereby,
and (ii) the copy of the Company’s Operating Agreement dated as of February
23, 2007, as amended on April 17, 2007, attached thereto (including all
amendments, the “Operating Agreement”), are each true, complete and correct and
remain unamended and in full force and effect as of
the
Closing Date.
3.5 Reimbursement
Agreement and Promissory Note.
The
Investor shall have received the Reimbursement Agreement and the Promissory
Note, as set forth in Exhibit A
and
Exhibit B,
respectively, duly executed
by the Company.
3.6 December
Convertible Note.
The
Investor shall have received the December Convertible Note, as set forth in
Exhibit C
hereto,
duly executed by the Company.
3.7 Security
Agreement.
The
Company shall have delivered to Investor a General Business
Security Agreement, as set forth in Exhibit
D
hereto,
duly executed by the Company,
pursuant to which the Company shall grant to Investor a security interest in
all
of the Company’s
personal property and all proceeds and products thereof as security for the
Company’s
obligations under the Promissory Note, the Reimbursement Agreement, and the
December Convertible Note.
3.8 Intercreditor
Agreements.
The
Company and Xxxxxxx shall have entered into and delivered to the Investor the
Intercreditor Agreement in the form of Exhibit E.
3.9 Third-Party
Consents.
The
Company shall have received any and all consents from third parties necessary
or
appropriate to enter into this Agreement and consummate the transactions
contemplated herein.
3.10 Amendment
to Operating Agreement.
The
Company and its members shall have delivered to the Investor a duly executed
amendment to the Operating Agreement (“Amendment to Operating Agreement”), as
set forth in Exhibit F
hereto,
pursuant
to which the Investor shall not be bound by any Transfer Value
(as
defined in the Operating Agreement) to which it has not agreed expressly in
writing, and such Amendment also shall set forth the matters described in
Section 5.8 hereof.
Page 3 of
15
3.11 Company
Units Certificate.
The
Company shall have delivered to Investor a certificate representing 5,000
Company Units.
3.12 Bank
Letter of Credit.
The
Bank shall have committed, satisfactorily to Investor, to issue the irrevocable
Letter of Credit referred to in Recital B above.
3.13 Joinder
Agreement.
As a
condition to the Investor receiving 5,000 Company Units pursuant to the
Reimbursement Agreement, the Company and the Investor shall execute and deliver
a Joinder Agreement, in form and substance mutually acceptable to the Company
and the Investor, pursuant to which the Investor agrees to be bound by the
terms
and conditions of the Operating Agreement as in effect on the date hereof,
and
any amendments thereto to which Investor has consented to in writing.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES
In
order
to induce Investor to execute this Agreement, the Company represents and
warrants, as of the date hereof and as of the Closing Date to, and covenants
with, the Investor as follows:
4.1 Existence
and Rights.
The
Company is a limited liability company, duly organized
and
existing under the laws of the State of Wisconsin. The Company has all power,
authority
and
rights to own its properties and to carry on its business. The Company has
the
authority to
enter
into and perform this Agreement and the Related Documents and to issue the
December Convertible Note
and the
Units to be issued thereunder.
4.2 Agreement
Authorized.
Neither
the execution and delivery by the Company of this
Agreement, the Promissory Note, the December Convertible Note and the Related
Documents nor the performance by the Company of any of its obligations hereunder
and thereunder is in contravention of, or in conflict with, any
law
or regulation or any term or provision of the Company’s Articles of Organization
or Operating Agreement. All actions and all necessary approvals and consents
for
the due execution
and delivery of this Agreement, the
Promissory Note, the
December Convertible Note and the Related Documents by the Company, including
the authorization and issuance of the Promissory
Note, the December Convertible Note
and any
Units to be issued
thereunder have been duly and validly obtained or taken. No right of the Company
is impaired
or infringed upon by its execution and/or performance of this Agreement, the
Promissory Note, the December Convertible Note
and the
Related Documents. This Agreement, the
Promissory Note, the
December Convertible Note and the Related
Documents constitute the legal, valid and binding obligation of the Company
enforceable
against the Company in accordance with their respective terms, subject only
to
bankruptcy, insolvency
and other laws which limit or qualify the rights of creditors generally, and
to
the availability of specific performance, injunctive relief or other equitable
remedies.
4.3 Capitalization.
Prior
to the issuance of the December Convertible Note, the following
constitute all of the members and holders of Company Units, of which there
are
an aggregate 68,850 Units issued and outstanding:
Xxxx
Xxxxxx, Xx. 45,000
Units
CWBA-OFM,
LLC 23,850
Units
Except
for the April Convertible Note and the June Convertible Note and except as
set
forth in Schedule 4.3
attached
hereto, there are no presently existing options, calls, conversion rights,
appreciation rights, phantom units, warrants or other rights to acquire Units
in
the Company or rights that appreciate in accordance with the value of the equity
or earnings of the Company. Except as set forth in the
Operating Agreement, the Company has
no
obligation to redeem or retire any of the Company’s Units. All of the Units
issued under the December Convertible Note will, when issued, be duly
authorized, validly issued and fully paid and nonassessable
and free and clear of all liens and restrictions other than as provided in
the
Operating
Agreement. There are no agreements, whether written or oral, with respect to
the
voting, transfer or sale of the Company’s Units except the Operating Agreement
and this Agreement.
Page 4 of
15
4.4 Subsidiaries,
Other Investments.
The
Company has
no
subsidiaries or other investments
in any other business or corporation other than Grass Point Farms, LLC, of
which
the
Company owns ninety-five percent (95%) of the outstanding membership
interests.
4.5 Litigation.
Except
as disclosed in Schedule 4.5
attached
hereto, there is no litigation or other legal, governmental
or regulatory proceeding pending or, to the Company’s knowledge, threatened
against or affecting the Company, and it is not subject to any order, writ,
jurisdiction, decree or demand of any court or other governmental or regulatory
authority.
4.6 Intellectual
Property.
Schedule
4.6
attached
hereto contains a correct and complete list
all of
the following:
(a) patents
and patent applications;
(b) registered
trademarks, registered
trade
names and applications therefor;
(c) unregistered
trademarks and trade names;
(d) copyrights;
and
(e) licenses
and franchises
currently
used or employed or proposed to be used or employed by the Company (hereinafter
referred
to as the “Intellectual Property”). The Company is the sole owner of all of the
Intellectual Property listed on Schedule 4.6,
and has
not licensed any other parties to use any of such Intellectual Property. To
the
Company’s knowledge, there are no interference, opposition or cancellation
proceedings pending or threatened against the Company or the Intellectual
Property. To
the
knowledge of the Company, the use of the Intellectual Property or of any trade
secrets, secret processes, inventions, processes or formulas used or employed
by
the Company does not infringe
upon the rights of any third party. No claim, suit or action against the Company
is pending or, to the Company’s knowledge, threatened alleging that the Company
is infringing upon
the
intellectual property rights of others.
4.7 No
Undisclosed Liabilities; Financial Statements.
The
Company has delivered to Investor
an unaudited balance sheet dated December 31, 2006 and October 31,
2007,
respectively (collectively, “Balance Sheets”), and an unaudited
profit and loss statement for the calendar year 2006 and the ten month period
ended October 31,
2007. Except as reflected on the Balance
Sheets
or
as
described in Schedule 4.7
attached
hereto,
the Company has no obligations or liabilities, fixed or contingent, of any
nature whatsoever, except for those not required to be set forth on the balance
sheets in accordance with generally accepted accounting principles. Except
as
described in Schedule 4.7,
the
foregoing
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied and present fairly, in all material
respects, the financial
condition of the Company in accordance with generally accepted accounting
principles. Except
as
set forth on Schedule 4.7,
the
Company has operated in the normal course and there have
been
no material adverse changes in the Company’s financial condition, properties or
prospects
since December 31, 2006.
Page 5 of
15
4.8 Business
Plan.
Except
as described in Schedule 4.8
attached
hereto, the information presented to Investor in the [October, 2006] Business
Plan of the Company does not contain any material misstatements of fact, and
the
discussions therein of the plans and prospects for the Company were,
and
remain, generally accurate in all material respects.
4.9 Compliance
with Other Instruments; Laws, Etc.
Except
as disclosed in this Agreement or in a schedule to this Agreement, the Company
is not in
violation of its Articles of Organization or Operating Agreement. The Company
is
not in violation of any applicable law, statute or regulation of any federal,
state, municipal or other governmental or quasi-governmental agency, board,
bureau or body relating to the conduct of its business and maintenance,
ownership or operation of its properties, or in violation or default with
respect to any order, license,
regulation or demand of any governmental agency, or in default under any
indenture, mortgage, lease, agreement or other instrument under which the
Company is obligated, except to the extent such violation or default would
not
have a material adverse effect on the Company. The
Company holds all licenses, permits, waivers, approvals and other authorizations
of, by or from all governmental authorities as necessary for the conduct of
its
business and is conducting its
business substantially in accordance with the terms and provisions of such
permits and authorizations
and is not in default thereunder. Neither the execution nor the delivery of
this
Agreement,
the
Promissory Note, the December Convertible Note or the Related Documents, nor
the
consummation of the transactions contemplated
hereby or thereby, nor the fulfillment of the terms thereof, will conflict
with,
or result in a breach of the terms, conditions or provisions of, or constitute
a
default under any agreement,
instrument, lien, charge, encumbrance, law, judgment, order, rule or regulation
under which the Company is bound or obligated, except to the extent such
conflict or default would not have
a
material adverse effect on the Company. For purposes hereof, “material adverse
effect” means any event, condition, circumstance, act, omission or effect which,
individually or in the aggregate with other similar events, conditions,
circumstances, acts, omissions or effects, after taking
into consideration the relative amount, the absolute amount and the nature
of
the item, would
cause a reasonably prudent investor to conclude that such effect adversely
affects the financial condition, assets, liabilities or obligations of the
Company in a manner or amount that would
be
material or which has a direct financial consequence of Twenty Thousand Dollars
($20,000.00)
or more.
4.10 Securities
Laws. Assuming the accuracy of the representations and warranties of
Investor
set
forth in Section 7.1, the sale and delivery of the December Convertible Note
and
the issuance of Units
thereunder are exempt from the requirement of registration under the Securities
Act of 1933,
as
amended (the “Securities Act”), and applicable state securities
laws.
4.11 Title
to Properties.
The
Company owns and has good title to all of its material assets and property.
Such
property and assets are not subject to any mortgage, pledge, lien, conditional
sales agreement, easement, encumbrance or charge except for
the
following liens (the liens
described in clauses (a)-(e) below referred to as the “Permitted
Liens”):
(a) Liens
imposed by law and incurred in the ordinary course of the Company’s
business for indebtedness not yet due to carriers, warehousemen, laborers or
materialmen
and the like;
Page 6 of
15
(b) Liens
in
respect
of
pledges or deposits under worker’s compensation laws or
similar legislation;
(c) Liens
for
property taxes, assessments, or governmental charges not yet subject
to penalties for nonpayment;
(d) Liens
described in Schedule
4.11
attached
hereto; and
(e) Liens
granted to Xxxxxxx to secure the Company’s obligations under the April
Convertible Note and the June Convertible Note and liens granted to Investor
to
secure the Company’s obligations under the December Convertible Note.
4.12 Contracts.
Except
as disclosed in Schedule 4.12
attached
hereto, the Company has no existing contracts,
purchase orders, service agreements, commission arrangements, loan agreements,
leases
or
other contractual obligations whatsoever which (a) extend beyond December 31,
2007, (b)
involve total payments or expenditures to any single person or related parties
in any 12-month
period (consecutive months) of more than $50,000 on any single contract, (c)
are
outside the
ordinary course of business, or (d) involve any contracts or arrangements or
proposed transactions between the Company, any member of the Company or any
affiliate of the Company. The Company does not currently provide any employee
retirement benefit plans.
4.13 Taxes.
The
Company has filed or caused to be filed all tax returns which are required
to be filed by the Company and has paid and discharged all lawful taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any of its properties, real, personal or mixed;
and
no tax liens have been filed and no claims are being asserted
against the Company nor is any action or proceeding
threatened with respect to any such taxes,
fees or other charges. The Company, prior to its conversion to a limited
liability company, was taxed as an “S” Corporation, pursuant to an election
properly made with the Internal Revenue Service. The Company, since its
conversion, has accepted the default classification of being taxed
as
a partnership.
4.14 Insurance.
The
assets of the Company are reasonably insured against all such liabilities,
hazards and risks, and in at least such amounts as are usually carried by
persons engaged in the same or similar line of business (in the case of property
casualty insurance, at least replacement cost). All premiums on policies due
to
date have been paid and no notice has been
received, nor does the Company have knowledge, that any such insurance will
be
cancelled or
not
renewed.
4.15 Directors
and Officers.
Schedule
4.15
attached
hereto contains a correct and complete list of all directors and officers of
the
Company.
4.16 Survival
of Representations and Warranties; Disclosure.
All
representations and warranties
contained herein or made by or on behalf of the Company in writing in connection
with
the
transactions contemplated herein, for purposes of this Agreement and the
Investor’s rights
and remedies hereunder, shall survive the consummation of the transactions
contemplated hereby
and continue in effect until three years after the earlier of
(i) the
payment in full of the Promissory Note and the December Convertible Note, or
(ii) the issuance of Units under the December Convertible Note. The
representations and
warranties in this Article IV do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements herein
not misleading.
Page 7 of
15
ARTICLE
V
AFFIRMATIVE
COVENANTS
To
induce
Investor to execute and deliver this Agreement and consummate the transactions
contemplated hereby, the Company covenants and agrees that it will comply,
unless Investor
shall otherwise consent in writing, with the following provisions as long as
Investor holds
the
December Convertible Note or any Units issued thereunder (and these covenants
shall survive the Closing
indefinitely).
5.1 Financial
Reports.
The
Company will maintain a system of accounting established
and administrated in accordance with the generally
accepted
accounting principles and shall
provide the following financial reports to Investor:
(a) Within
30
days after the end of each calendar month, unaudited financial statements
(including balance sheet, cash flow statement and income statement) of the
Company for such month, all in reasonable detail and prepared in accordance
with
generally accepted accounting principles (with the exception of footnotes and
normal audit adjustments) consistently applied, certified as true, correct
and
complete by an officer
of the Company.
(b) Within
45
days after the end of each calendar quarter, unaudited financial statements
(including balance sheet, cash flow statement and income statement) of the
Company for such quarter and for the then current fiscal year to date, all
in
reasonable detail
and prepared in accordance with generally accepted accounting principles (with
the exception
of footnotes and normal audit adjustments) consistently applied, certified
as
true,
correct and complete by an officer of the Company.
(c) Within
90
days after the last day of each fiscal year of the Company, financial statements
(including a balance sheet, income statement, statement of cash flows
and
a statement of members’ equity) of the Company for such year, prepared in
accordance
with generally accepted accounting principles applied on a consistent basis
and
setting forth in each case in comparative form the figures for the previous
fiscal year, all
in
reasonable detail and reviewed by the independent public accountants regularly
employed
by the Company.
(d) Prior
to
the beginning of each calendar year, a monthly operating and capital
budget for such calendar year, in reasonable detail.
(e) Prior
to
the beginning
of
each calendar year, compensation proposals for key management.
(f) Promptly
upon any officer of the Company obtaining any knowledge of any
of
the following events or conditions, the Company shall deliver a copy of all
notices given or received by the Company with respect to any such
event or
condition and a certificate
of the Company’s Chief Executive Officer, specifying any term of existence of
such
event or condition and what action the Company has taken, is taking or proposes
to take
with
respect thereto:
(i) Any
condition or event that constitutes an Event of Default under the Promissory
Note, the December Convertible Note or any of the Related
Documents;
(ii) Any
notice that any person has given to the Company or other action
taken with respect to a claimed default under
any
other agreement to which the
Company is a party;
Page 8 of
15
(iii) Any
event
or condition that could reasonably be expected to result in any material adverse
effect on the operation or condition of the Company; or
(iv) The
institution
of any
action, suit, proceeding, governmental investigation
or arbitration against or affecting the Company or any property of the Company
not previously disclosed by the Company to the Investor.
With
reasonable
promptness, the Company shall deliver such other information and data with
respect to the
Company as from time to time may be reasonably requested
by Investor.
5.2 Tax
Returns.
The
Company shall accurately prepare and file all income tax returns and reports
required by law to be filed, and shall furnish copies thereof to Investor at
the
time
of
filing. The Company shall promptly pay and discharge all lawful taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any of its properties,
real, personal or mixed; provided, however, that the Company shall not be
required to pay
or
cause to be paid any such tax, assessment, charge or levy if the same shall
not
at the time be due and payable or if the validity thereof shall concurrently
be
contested in good faith by appropriate proceedings and if the Company shall
have
established adequate reserves on its books with respect to such tax, assessment,
charge or levy; provided further, however, that the Company
will pay all such taxes, assessments, charges or levies forthwith whenever,
as
the result of
proceedings to foreclose any lien which attached as security therefor,
foreclosure on such lien appears
imminent.
5.3 Maintain
Existence and Rights.
The
Company shall maintain and preserve its existence
and such rights, franchises and qualifications to do business and other
authorities as are necessary
to the conduct of its business and ownership of its properties.
The
Company shall conduct
its business in a commercially reasonable manner without voluntary interruption
and engage
in
business of the same general type as now conducted by it.
5.4 Piggyback
Registration Rights.
If at
any time
the
Company shall determine to register
any Units, the Company shall:
(a) Promptly
give Investor written notice thereof (which shall include a list of jurisdictions
in which the Company intends to attempt to qualify such Units under applicable
state securities laws); and
(b) Include
in such registration (and any related qualification under Blue Sky laws or
other
state securities laws) and in any underwriting involved therewith all of the
Investor
Units specified in a written request
by
Investor received by the Company within twenty
(20) days after the giving of such written notice by the Company.
All
registration expenses incurred in connection with any registration pursuant
to
this Section 5.4 shall
be
borne by the Company.
5.5 Inspection
Rights.
Investor, or its designated representatives, shall have the right, at
reasonable times and upon reasonable notice,
during
usual business hours to visit and inspect any of the Company’s properties and to
audit, inspect, examine and copy the Company’s books and records and to discuss
its affairs, finances and accounts with the Company’s personnel and officers.
Page 9 of
15
5.6 Insurance.
The
Company agrees to maintain or caused to be maintained, with financially
sound and reputable insurers, insurance with respect to its assets and business
against loss
or
damage of the kinds customarily insured
against,
in an amount and with such deductibles and
retention amounts as is customarily carried by similarly situated businesses
engaged in the same
or
similar businesses.
5.7 Compliance
with Laws.
The
Company agrees to comply with all laws, rules, regulations,
judgments, orders and decrees
of any
governmental or regulatory authority applicable
to
it including, without limitation, all environmental and safety
requirements.
5.8 Director
Rights.
The
Company and its members shall assure that at all times the number of directors
of the Company shall be that number necessary to honor the rights granted to
each of Xxxx Xxxxxx, Investor and Xxxxxxx X. Xxxxxxx, to nominate a director
as
hereinafter described. The Company and each member shall take all actions
necessary including, without limitation, the voting of Units, the filling of
vacancies, the waiving of notice and the attending of meetings so as to ensure
that the directors shall at all times consist solely of (i) one (1) nominee
of
Xxxx Xxxxxx so long as he is a Member, (ii) one (1) nominee of the Investor
so
long as the Investor holds any Note or any Units, and (iii) one (1) nominee
of
Xxxxxxx X. Xxxxxxx (“Xxxxxxx”) so long as Xxxxxxx holds any Convertible Note
described in Recital A or any Units. An individual shall cease to be a director
only upon (i) such individual’s voluntary resignation, which shall be effective
upon delivery of a written notice from the individual to the Company unless
the
notice specifies a later effective date; (ii) such individual’s removal by the
party who chose such individual; (iii) such individual’s removal by majority
consent of the Board of Directors of the Company (excluding the affected
director) for Just Cause; or (iv) death, incapacity, or inability to perform
his
duties as a director for any reason. If the individual nominated by the Investor
ceases to be a director for any reason, the Investor shall choose a substitute
director. For
purposes hereof, “Just Cause” for removal of a director shall exist if
(i)
there is
a willful failure by such director to deal fairly with the Company or its
members in connection with a matter in which the director has a material
conflict of interest; (ii)
there is
a violation of criminal law by such director, unless the director has reasonable
cause to believe that his conduct was lawful or no reasonable cause to believe
that his conduct was unlawful; (iii)
the
director derives an improper personal profit from a transaction; or (iv)
the
director engages in willful misconduct in connection with the performance of
his
duties as a director which has a material adverse effect on the Company. For
purposes hereof, no profit shall be deemed improper nor shall any action be
deemed a willful failure to deal fairly if the director’s interest in the
transaction is fully disclosed to the Board of Directors and a majority of
the
disinterested directors approve the same.
5.9 Third
Party Beneficiary of Amendment to Operating Agreement.
The
Investor is an intended third party beneficiary of the Amendment to Operating
Agreement and may enforce such Amendment as if it were a direct party thereto
and to the Operating Agreement. The Company shall not permit any amendment
or
modification of the Operating Agreement, without the prior written consent
of
the Investor, which consent may be withheld in its sole discretion.
Page 10 of
15
ARTICLE
VI
NEGATIVE
COVENANTS
To
induce
Investor to execute and deliver this Agreement and consummate the
transactions
contemplated hereby, so long as the Promissory Note or the December Convertible
Note or any Units issued thereunder are outstanding,
the Company shall not, without the prior written consent of the
Investor:
6.1 Liens.
Incur,
create, assume or permit to be created or allow to exist any lien, security
interest or encumbrance upon or in any of its assets or properties, except
Permitted Liens.
6.2 Issuance
of Units.
Issue
additional Units beyond those required for any conversion
under the April Convertible Note, the June Convertible Note and the December
Convertible Note; grant any securities containing options or rights to purchase
or receive any Units or securities of the Company whether through conversion,
exchange or otherwise; declare or pay any dividend or make any other
distribution with respect to the Units of the Company other than tax
distributions contemplated under Sections 4.1(a) and 4.1(b) of the Operating
Agreement; or purchase or redeem any Units or other equity interests of the
Company, except for the Units held by CWBA-OFM, LLC.
6.3 Compensation.
Establish or modify the compensation of any officer of the Company
beyond current employment agreements or beyond any funds currently owed to
any
officer, including
accrued salaries, credit card debt, personal guaranteed loans and personal
loans
with the
Company or enter into or modify any employment agreement
between
the Company and any of
its
officers.
6.4 Budgets.
Deviate
from approved budget items where the deviation exceeds twenty-five
percent (25%).
6.5 Indebtedness.
Incur,
create, assume or otherwise become primarily or secondarily liable, or
absolutely or contingently liable, or permit to exist, any Indebtedness except
for (i) the April Convertible Note and the June Convertible Note, (ii) the
December Convertible Note, (iii) the Promissory Note and the Reimbursement
Agreement, (iv) existing Indebtedness to Xxx Xxxxxx not to exceed the
principal
amount of $115,000.00, together with accrued and unpaid interest thereon, and
(v) unpaid
credit card obligations reflected on the Company’s October 31, 2007 balance
sheet.
For
purposes hereof, “Indebtedness” shall include all obligations for borrowed
money; all obligations evidence by notes,
bonds, indentures or similar instruments; all obligations to pay the deferred
purchase price of
property or services except trade accounts payable and accrued liabilities
arising in the ordinary course of business; all indebtedness created or arising
under any conditional sale or other title retention agreement with respect
to
property acquired by the Company; and all obligations under leases which have
been or should be in accordance with generally accepted accounting
principles recorded as capitalized leases.
6.6 Amendment
of Articles and Operating Agreement.
Amend
or modify the Articles of
Organization or the Operating Agreement of the Company.
6.7 Transaction
with Affiliates.
Enter
into any transaction with any of its officers, directors,
employees, members or affiliates except for normal employment arrangements
and
benefit
programs under reasonable terms as contemplated by this Agreement.
6.8 Use
of
Proceeds.
Use the
proceeds from the Promissory Note for any purpose other
than establishing the performance bond in favor of the State of Wisconsin,
or
such
other uses as the Investor may, in its sole discretion, approve in writing
which
shall specifically reference this Section 6.8, or use the proceeds from the
Working Capital Loan for any purposes other than the repurchase of 23,850 Units
of the Company from CWBA-OFM, LLC or for working capital.
Page 11 of
15
6.9 Loans.
Make
any loans or advances
to, or
guaranties for the benefit of, any other person
or
entity.
6.10 Certain
Transactions.
The
sale, transfer or other disposal of all or substantially all of the assets
of
the Company, whether in one or a series of related transactions; entering into
a
merger
transaction involving the Company in which the members do not hold a majority
of
the economic
and voting interests of the surviving entity; or dissolution of the
Company.
ARTICLE
VII
INVESTOR’S
REPRESENTATIONS AND WARRANTIES
7.1 Investor’s
Representations and Warranties.
Investor represents and warrants to the Company as follows:
(a) Investor
has been informed by the Company in writing that the December Convertible
Note
and
Units to be issued thereunder have not been registered under the Securities
Act
or
any applicable state securities laws because the offer and sale of the
December
Convertible Note and Units to be issued thereunder are exempt from such
registration pursuant to Sections 3(b) or 4(2) of the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereunder,
and
certain limited offering exemptions under state
securities laws, based in part upon Investor’s representations and warranties
made herein.
(b) Investor
is acquiring the December
Convertible Note
and
Units to be issued thereunder
for
investment for his own account, and not with a view to resell or otherwise
distribute the December Convertible Note and Units to be issued
thereunder.
(c) Investor
will not attempt to sell or otherwise distribute the December Convertible
Note
and
Units to be issued thereunder except
in
compliance with applicable federal and state securities laws and this Agreement
and the Company’s Articles of Organization and Operating
Agreement.
(d) Investor
is an accredited
investor
as defined in Regulation D under the Securities
Act.
(e) Investor
is not liable for any finders’ fees, brokerage fees or similar fees or expenses
in connection with entering into the transactions contemplated
hereby.
(f) Investor
has all requisite authority to execute, deliver and perform this Agreement.
This
Agreement is binding upon and enforceable against Investor in
accord-ance
with
its terms, subject only to bankruptcy, insolvency
and
other laws which limit or qualify
the rights of creditors generally, and to the availability of specific
performance, injunctive
relief or other equitable remedies.
(g) Investor
has had access to all information regarding the Company and this investment
that he has deemed necessary to make an informed decision regarding the
acquisition
of the December Convertible Note.
7.2 Restrictive
Legends.
Any
certificate for the Units shall contain or otherwise be imprinted
with an appropriate legend.
Page 12 of
15
7.3 Restrictions
on Transfer.
Until
the December Convertible Note and Units to be issued thereunder
have been registered under the Securities Act for public sale, no holder thereof
shall sell, assign, pledge or otherwise dispose of (collectively “Transfer”) any
or all of such December
Convertible Note
or any
Units issued thereunder except in accordance with
the
Operating Agreement (if applicable)
and pursuant to an opinion of counsel reasonably acceptable to the Company
that
such
Transfer complies with applicable securities laws.
ARTICLE
VIII
INDEMNIFICATION
The
Company shall indemnify Investor and hold Investor harmless against any loss,
damage,
liability or expense (including reasonable attorneys’ fees and expenses) which
Investor may suffer,
sustain or become subject to, as a result of:
(a) the
Company’s breach, in any material respect, of any representation or warranty
of the Company under this Agreement; or
(b) the
Company’s nonfulfillment or breach of any of the Company’s covenants under this
Agreement, which nonfulfillment or breach is not cured or remedied within 30
days after written notice thereof to the Company by Investor.
ARTICLE
IX
ADDITIONAL
PROVISIONS
9.1 Successors
and Assigns.
This
Agreement shall be binding upon, and inure to the benefit
of, Investor and the Company and their respective heirs, successors and assigns,
and, except
as
otherwise expressly provided in any particular provision hereof, any subsequent
holder of
the
December
Convertible Note
or the
Units insured thereunder.
9.2 Notices.
All
communication or notices required or permitted by this Agreement shall be in
writing and shall be deemed to have been given or made when delivered in hand,
when delivered via reputable overnight courier service,
or
sent by facsimile (with evidence of transmission). Communications or notices
shall be delivered personally, by reputable overnight courier service (with
evidence of delivery, or by facsimile (with evidence of transmission), and
addressed as follows, unless and until either of such parties notifies the
other
in accordance with this section of a change of address:
(a) if
to the
Company:
Xxxx
X.
Xxxxxx, Xx.
Organic
Farm Marketing, LLC
X.X.
Xxx
000
000
Xxxx
Xxxxxxx Xxxxxx
Xxxxx,
Xxxxxxxxx 00000
Telephone:
(000)
000-0000
Facsimile:
(000) 000-0000
with
a
copy to:
Xxxx
Xxxxx
Xxxxx
Xxxxxxxxxxx Xxxxx SC
00
Xxxx
Xxxx Xxxxxx, #000
Xxxxxxx,
Xxxxxxxxx 00000-0000
Telephone:
(000)
000-0000
Facsimile:
(000)
000-0000
Page 13
of
15
(b) if
to
Investor:
Advanced
Biotherapy, Inc.
000
Xxxx
Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attention:
Xxxxxxxxxxx X. Xxxxx, Chief Executive Officer
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
with
a
copy to:
Xxxx
Xxxxxxxxx
Xxxxxx
Xxxxx & Davidoff Incorporated
0000
Xxxxxx xx xxx Xxxxx, Xxxxx 0000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Telephone: (000)
000-0000
Facsimile: (000)
000-0000
9.3 Amendments
and Waivers.
Any
change or amendment to this Agreement or any waiver
hereunder shall be effective only if in writing and signed by the party or
parties against whom
such
change or amendment or waiver is sought to be enforced.
9.4 Integration.
This
instrument, the exhibits and schedules annexed hereto and documents
referred to herein contain the entire agreement between the Company and Investor
with respect to the transactions contemplated herein. Neither party shall be
bound by or shall be deemed to have made any representations and/or warranties
except those contained herein and therein.
9.5 Headings.
The
headings in this Agreement are intended solely for convenience of reference
and shall be given no effect in the construction
or
interpretation of this Agreement.
9.6 Governing
Law.
This
Agreement is made in the State of Delaware and shall be governed
by and construed in accordance with the laws of said State without reference
to
conflict of
laws
provisions.
9.7 Counterparts.
This
Agreement may be executed by facsimile and/or 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.
9.8 Computation
of Time.
Unless
otherwise specifically provided herein, references to
“days”
in this Agreement shall mean calendar days.
Page 14 of
15
IN
WITNESS WHEREOF, the Company has executed this Investment Agreement as of
the
date
first above written.
|
INVESTOR
ADVANCED
BIOTHERAPY, INC.
By:
_____
Xxxxxxxxxxx
X.
Xxxxx,
Chief
Executive Officer
|
COMPANY
ORGANIC
FARM MARKETING, LLC
By:
Xxxx
X. Xxxxxx, Xx., President
|
The
undersigned member of Organic Farm Marketing, LLC, representing all of the
members of the Company, hereby consents to all
the
provisions
set forth in Section 5.8 of this Investment Agreement and agrees to take all
actions necessary as members of the Company to assure that the individual
nominated by Investor is elected
as a director of the Company. The undersigned member also agrees to execute
and
deliver the Amendment to Operating Agreement referenced in Section 3.10 of
this
Investment Agreement, and agrees not to amend or otherwise modify the Amendment
to Operating Agreement, or any terms therein, without the prior written consent
of the Investor, which consent may be withheld in the Investor’s sole
discretion.
READ,
APPROVED AND AGREED TO
this
18th
day of December, 2007:
Xxxx
X.
Xxxxxx, Xx.
Page 15 of
15
