SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT
EXHIBIT
10.43
This
SECURED CONVERTIBLE NOTE PURCHASE AGREEMENT is made as of this 23th day of July,
2007 by and between BioDrain Medical, Inc., a Minnesota corporation (the
“Company”) and the Purchasers identified in Schedule A (hereinafter collectively
referred to as the “Purchasers” or the “Buyers”) including Core Fund Management,
L.P. (“Core Fund”).
ARTICLE
I
PURCHASE,
SALE AND TERMS OF NOTES
1.01. The
Notes. The Company has authorized the issuance and sale to the
Purchasers of the Company’s Secured Convertible Notes, due April __, 2008, in
the original aggregate principal amount of $150,000.00. The Secured
Convertible Notes shall be substantially in the form set forth in Exhibit 1.01 hereto
and are herein referred to individually as a “Note” and collectively as the
“Notes”, which terms shall also include any notes delivered in exchange or
replacement therefor. The Notes shall be secured under the terms of
the Security Agreement. The Company intends to complete an equity financing of
approximately $1.5 million. The Notes shall be convertible into
shares of the common stock (“Common Stock”) of the Company and warrants to
purchase shares of Company common stock upon the terms set forth in the Notes.
Any references herein to “Notes” shall be a reference to a single Note, in the
event only one Note in the aggregate amount of $150,000 is issued and sold by
the Company hereunder.
1.02. Purchase and Sale of
Notes.
(a) The
Closing. The Company agrees to issue and sell to the
Purchasers, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchasers agree to
purchase, the Notes for an aggregate purchase price of $150,000. Such
purchase and sale shall take place at a closing (the “Closing”) to be held at
the offices of Xxxxxxxxxx & Xxxx LLP, 00000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000,
Xxx Xxxxxxx, XX 00000 at 1:00 P.M., or on such other date and at
such time as may be mutually agreed upon.
(b) Use of
Proceeds. The Company agrees to use the full proceeds from the
sale of the Notes solely for general working capital net of a retainer of legal
fees to Xxxxxxxxxx & Xxxxx LLP of $15,000 and fees to Longport of 10% of
gross proceeds.
1.03. Payments and
Endorsements. Payments of principal, interest and premium, if
any, on the Notes, shall be made directly by check duly mailed or delivered to
the Purchasers at the addresses provided by Purchasers from time to
time.
1.04. Payment on Non-Business
Days. Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State of Minnesota,
such payment may be made on the next succeeding business day, and such extension
of time shall in such case be included in the computation of payment of interest
due.
1.05. Representations by the
Purchasers. The Purchasers represent, severally and not
jointly, that it is each Purchaser’s present intention to acquire the Notes for
their own account and that the Notes are being and will be acquired for the
purpose of investment and not with a view to distribution or resale thereof;
subject, nevertheless, to the
condition that the disposition of the Notes or shares underlying the Notes shall
at all times be within each Purchaser’s control.
ARTICLE
II
CONDITIONS
TO PURCHASERS’ OBLIGATION
The obligation of the Purchasers to
purchase and pay for the Notes at the Closing is subject to the following
conditions:
2.01. Representations and
Warranties. Each of the representations and warranties of the
Company set forth in Article III hereof shall be true on the date of the
Closing.
2.02. Documentation at
Closing. The Purchasers shall have received prior to or at the
Closing all of the following, each in form and substance satisfactory to the
Purchasers and its special counsel:
(a) A
Security Agreement, in the form attached as Exhibit 2.02(a), (the
“Security Agreement”), and all related financing statements and other similar
instruments and documents, shall have been executed and delivered to the
Purchasers by a duly authorized officer of the Company.
(b) A
certificate of good standing from the Minnesota Secretary of State certifying
that the Company is in good standing under the laws of the State of
Minnesota.
(c) The
Notes in the form attached as Exhibit 2.02(o).
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES
The Company represents and warrants as
follows:
3.01. Organization and Standing of
the Company. The Company is a duly organized and validly
existing corporation in good standing under the laws of the jurisdiction in
which it was organized and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. The
Company has no Subsidiaries.
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3.02. Corporate
Action. The Company has all necessary corporate power and has
taken all corporate action required to make all the provisions of this
Agreement, the Security Agreement, the Notes and any other agreements and
instruments executed in connection herewith and therewith the valid and
enforceable obligations they purport to be. The issuance of the Notes
is not subject to preemptive or other similar statutory or contractual rights
and will not conflict with any provisions of any agreement or instrument to
which the Company is a party or by which it is bound.
3.03. Governmental
Approvals. No authorization, consent, approval, license,
exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company of, or for the performance
by it of its obligations under, this Agreement, the Security Agreement or the
Notes.
3.04. Litigation. There
is no litigation or governmental proceeding or investigation pending or, to the
best of the knowledge of the Company, threatened against the Company affecting
any of its properties or assets, or against any officer, key employee or
principal stockholder of the Company where such litigation, proceeding or
investigation, either individually or in the aggregate, would have a material
adverse effect on the Company. Neither the Company, nor, to the best
of the knowledge of the Company, any officer or key employee of the Company, or
principal stockholder of the Company, is in default with respect to any order,
writ, injunction, decree, ruling or decision of any court, commission, board or
other government agency affecting the Company.
3.05. Compliance with Other
Instruments. The Company is in compliance in all respects with
the terms and provisions of its charter and by-laws and in all material respects
with the terms and provisions of the mortgages, indentures, leases, agreements
and other instruments and of all judgments, decrees, governmental orders,
statutes, rules and regulations by which it is bound or to which its properties
or assets are subject.
3.06. Title to Assets, Trademarks,
Patents. The Company has good and clear record and marketable title in
fee to such of its fixed assets as are real property, and good and merchantable
title to all of its other assets, now carried on its books including those
reflected in the most recent balance sheet of the Company or acquired since the
date of such balance sheet (except personal property disposed of since said date
in the ordinary course of business) free of any mortgages, pledges, charges,
liens, security interests or other encumbrances. The Company enjoys
peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect. The Company owns or has a valid right to use the patents,
patent rights, licenses, permits, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions and
intellectual property rights being used to conduct its business as now operated
and as now proposed to be operated; and the conduct of its business as now
operated and as now proposed to be operated does not and will not conflict with
valid patents, patent rights, licenses, permits, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights of others.
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3.07. Taxes. The
Company has accurately prepared and timely filed all federal, state and other
tax returns required by law to be filed by it, and all taxes shown to be due and
all additional assessments have been paid or provision made
therefor. The Company knows of no assessments or adjustments pending
or threatened against the Company for any period, nor of any basis for any such
assessment or adjustment.
3.08. Insurance. The
Company carries insurance covering its properties and business adequate and
customary for the type and scope of the properties and business, but in any
event in amounts sufficient to prevent the Company from becoming a
co-insurer.
3.09. Books and
Records. The books of account, ledgers, order books, records
and documents of the Company accurately and completely reflect all material
information relating to the business of the Company, the nature, acquisition,
maintenance, location and collection of the assets of the Company, and the
nature of all transactions giving rise to the obligations or accounts receivable
of the Company.
3.10 Other
Debt. The Company has no other secured or unsecured debt,
other than obligations incurred in the ordinary course of its
business.
ARTICLE
IV
COVENANTS
OF THE COMPANY
4.01. Affirmative Covenants of the
Company . Without limiting any other covenants and provisions
hereof, the Company covenants and agrees that, as long as any of the Notes are
outstanding, it will perform and observe the following covenants and
provisions:
(a) Punctual
Payment. Pay the principal of, premium, if any, and interest
on each of the Notes at the times and place and in the manner provided in the
Notes and herein.
(b) Payment of Taxes and Trade
Debt. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
business, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
lien or charge upon any properties of the Company, provided that neither the
Company shall be required to pay any such tax, assessment, charge, levy or claim
which is being contested in good faith and by appropriate proceedings if the
Company shall have set aside on its books adequate reserves with
respect thereto. Pay when due, or in conformity with customary trade
terms, all lease obligations, all trade debt, and all other Indebtedness
incident to the operations of the Company, except such as are being contested in
good faith and by appropriate proceedings if the Company concerned shall have
set aside on its books adequate reserves with respect thereto.
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(c) Maintenance of
Insurance. Maintain insurance with responsible and reputable
insurance companies or associations in such amounts and covering such risks as
is usually carried by companies engaged in similar businesses and owning similar
properties in the same general areas in which the Company operates, but in any
event in amounts sufficient to prevent the Company from becoming a
co-insurer.
(d) Preservation of Corporate
Existence. Preserve and maintain its corporate existence,
rights, franchises and privileges in the jurisdiction of its
incorporation. Preserve and maintain all licenses and other rights to
use patents, processes, licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or possessed by it and
necessary to the conduct of its business.
(e)
Compliance with
Laws. Comply with all applicable laws, rules, regulations and
orders of any governmental authority, noncompliance with which could materially
adversely affect its business or condition, financial or other.
(f)
Keeping of Records and Books
of Account. Keep adequate records and books of account, in
which complete entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all financial
transactions of the Company a and in which, for each fiscal year, all proper
reserves for depreciation, depletion, obsolescence, amortization, taxes, bad
debts and other purposes in connection with its business shall be
made.
(g) Maintenance of Properties,
etc. Maintain and preserve all of its properties, necessary or
useful in the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted.
(h) Equity
Financing. On or before 100 days from the date of this
Agreement, the Company will conduct an equity financing (“Equity Financing”) or
similar transaction approved by Core Fund. If such a transaction is
not consummated within the fixed term of the Notes, then the Company shall owe a
one-time cash payment equal to 10% of the principal amount of the Notes in
addition to the principal and interest then owing. In connection with
the Equity Financing, ownership of company shareholders shall reflected in the
target capitalization table in Exhibit 3.03, on a fully diluted post equity
financing basis. Should the final fully-diluted, post-equity
financing capitalization of the Company result in additional outstanding shares,
warrants, options or other equity linked securities compared to the proposed
capitalization set forth in Exhibit 3.03, the amount of Company shares shall be
adjusted accordingly to reflect 10% of the surviving corporation’s common stock
on a fully-diluted, post-Equity Financing basis.
(i)
Registration of
Shares. The Company shall include the shares issuable upon
conversion of the Note including in a Registration Statement filed within 120
days after closing of the Equity Financing and use its best efforts to have the
Registration Statement declared effective as soon as possible. In the
event the Company does not file the required Registration Statement within 120
days after the closing of the Equity Financing, then the Company shall pay to
the Purchasers a one-time payment equal to $25,000. In the event the
Registration Statement is not declared effective within 180 days of the closing
of the Equity Financing, the Company shall pay an amount equal to an additional
$5,000 each month until the Registration Statement is declared effective, or
until such time as Rule 144 is available for sale of the shares, whichever is
first.
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(j) Conversion of
Note. The Notes are contemplated as a bridge loan to an equity
financing of approximately $1,500,000 in conjunction with a going public
transaction pursuant to a reverse merger or similar transaction. At
the closing of such financing and reverse merger, this Note shall automatically
convert into shares of Company common stock at $0.17 per share and 882,353
warrants to purchase Company common stock at $0.42 per share.
(k) No
Refinancing. The Company cannot call, refinance, or repay the
Notes prior to consummation of the Reverse Merger.
ARTICLE
V
EVENTS OF
DEFAULT
5.01. Events of
Default. If any of the following events (“Events of Default”)
shall occur and be continuing:
(a) The
Company shall fail to pay any installment of principal of any of the Notes when
due; or
(b) The
Company shall fail to pay any interest or premium on any of the Notes when due
and such failure shall continue for five (5) business days; or
(c) The
Company shall default in the performance of any covenant contained in this
Agreement or the Security Agreement; or
(d) Any
representation or warranty made by the Company this Agreement or the Security
Agreement or by the Company in any certificate, instrument or written statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement, shall prove to have been incorrect when made in any material
respect.
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ARTICLE
VI
DEFINITIONS
AND ACCOUNTING TERMS
6.01. Certain Defined
Terms. As used in this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
“Agreement” means this Secured
Convertible Note Purchase Agreement as from time to time amended and in effect
between the parties.
“Company” means and shall include
BioDrain Medical, Inc., and its successors and assigns.
“Notes” shall have the meaning assigned
to that term in Section 1.01.
“Person” means an individual,
corporation, partnership, joint venture, trust, or unincorporated organization,
or a government or any agency or political subdivision thereof.
“Purchaser” means and shall include the
Purchasers identified in Schedule A.
“Securities Act” means the Securities
Act of 1933 or any similar Federal statute, and the rules and regulations of the
Securities and Exchange Commission (or of any other Federal agency then
administering the Securities Act) thereunder, all as the same shall be in effect
at the time.
“Subsidiary” or “Subsidiaries” means
any corporation or trust of which the Company and/or any of its other
Subsidiaries (as herein defined) directly or indirectly owns at the time all of
the outstanding shares of every class of such corporation or trust other than
directors’ qualifying shares.
6.02. Accounting
Terms. All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting principles
consistent with those applied in preparation of financial statements in the
United States.
ARTICLE
VII
MISCELLANEOUS
7.01. No Waiver; Cumulative
Remedies. No failure or delay on the part of the Purchaser, or
any other holder of the Notes in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
7.02. Amendments, Waivers and
Consents. Any provision in this Agreement the Notes to the
contrary notwithstanding, changes in or additions to this Agreement may be made,
and compliance with any covenant or provision herein or therein set forth may be
omitted or waived, if the Company (i) shall obtain consent thereto in writing
from the holder or holders of at least seventy-five percent (75%) in principal
amount of all Notes then outstanding, and (ii) shall, in each case, deliver
copies of such consent in writing to any holders who did not execute the same;
provided that
no such consent shall be effective to reduce or to postpone the date fixed for
the payment of the principal (including any required redemption) or interest
payable on any Note, without the consent of the holder thereof, or to reduce the
percentage of the Notes the consent of the holders of which is required under
this Section. Any waiver or consent may be given subject to
satisfaction of conditions stated therein and any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. Written notice of any waiver or consent effected under this
subsection shall promptly be delivered by the Company to any holders who did not
execute the same.
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7.03. Addresses for Notices,
etc. All notices, requests, demands and other communications
provided for hereunder shall be in writing (including telegraphic communication)
and mailed via certified mail or by courier delivery
and delivered to the applicable party at the addresses indicated
below:
If to the Company:
Xxxxx
Xxxxxxxx, CEO
000
Xxxxxxxxxx Xxxxxxxxx Xxxx
Xxxxx,
Xxxxxxxxx, 00000-0000
With a copy to:
Xxxx X.
Hong, Esq.
Xxxxxxxxxx
& Xxxxx LLP
00000
Xxxxxxxx Xxxxxxxxxx, Xxxxx 000
Xxx
Xxxxxxx, Xxxxxxxxxx 00000-0000
If to the Purchaser:
Payments should be mailed
to:
The address indicated on such
Purchaser’s Lender Questionnaire
If to any other holder of the
Notes: at such holder’s address for notice as set forth in the
register maintained by the Company, or, as to each of the foregoing, at such
other address as shall be designated by such Person in a written notice to the
other party complying as to delivery with the terms of this
Section. All such notices, requests, demands and other communications
shall, when mailed or sent by courier, respectively, be effective when deposited
in the mails or delivered by courier, respectively, addressed as
aforesaid.
7.04. Costs, Expenses and
Taxes. The Company agrees to pay on demand all costs and
expenses of the Purchaser in connection with the preparation, execution and
delivery of this Agreement, the Security Agreement, the Notes and other
instruments and documents to be delivered hereunder, including attorneys fees,
up to a maximum of $10,000, payable out of funds received through the
Notes. In addition, the Company shall pay any and all stamp and other
taxes payable or determined to be payable in connection with the execution and
delivery of this Agreement, the Security Agreement, the Notes and the other
instruments and documents to be delivered hereunder or thereunder and agrees to
save the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and filing fees.
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7.05. Binding Effect;
Assignment. This Agreement shall be binding upon and inure to
the benefit of the Company and the Purchaser and their respective successors and
assigns, except that the Company shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Purchaser.
7.06. Survival of Representations
and Warranties. All representations and warranties made in
this Agreement, the Notes, or any other instrument or document delivered in
connection herewith or therewith, shall survive the execution and delivery
hereof or thereof and the making of the loans.
7.07. Prior
Agreements. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
7.08. Severability. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
7.09. Governing
Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Oregon.
7.10. Headings. Article,
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
7.11. Sealed
Instrument. This Agreement is executed as an instrument under
seal.
7.12. Counterparts. This
Agreement may be executed in any number of counterparts, all of which taken
together shall constitute one and the same instrument, and each of the parties
hereto may execute this Agreement by signing any such counterpart.
7.13. Further
Assurances. From and after the date of this Agreement, upon
the request of the Purchaser, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Security Agreement and the Notes.
REMAINDER
OF PAGE INTENTIONALLY BLANK
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by
their respective officers thereunto duly authorized, as of the date first above
written.
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By: /s/ Xxxxx
Xxxxxxxx
Xxxxx
Xxxxxxxx, CEO
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PURCHASER(S):
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EXHIBIT
1.01
FORM
OF SECURED CONVERTIBLE NOTE
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EXHIBIT
2.02(a)
FORM
OF SECURITY AGREEMENT
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