EXHIBIT 10.1
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STOCK PURCHASE AGREEMENT
BETWEEN
INTERLEUKIN GENETICS, INC.
AND
PYXIS INNOVATIONS INC.
Dated as of March 5, 2003
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TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS.................................................................... 1
ARTICLE 2. PURCHASE AND SALE; CLOSING..................................................... 2
2.1 AUTHORIZATION.................................................................... 2
2.2 SALE............................................................................. 2
2.3 CLOSING.......................................................................... 3
2.4 MILESTONE........................................................................ 3
2.5 WORKING CAPITAL LOANS............................................................ 3
2.5.1 Strategic Relationships................................................... 3
2.5.2 Refinancing of Bridge Financing........................................... 3
2.5.3 Note Purchase Agreement................................................... 3
2.6 AMENDMENT TO OUTSTANDING NOTES................................................... 3
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................. 3
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION.................................... 4
3.2 AUTHORIZATION; ENFORCEABILITY.................................................... 4
3.3 CAPITALIZATION................................................................... 4
3.4 CONSENTS......................................................................... 5
3.5 DELIVERY OF SEC FILINGS; BUSINESS................................................ 5
3.6 NO MATERIAL ADVERSE CHANGE....................................................... 5
3.7 SEC FILINGS; PRIVATE PLACEMENTS.................................................. 5
3.7.1 1934 Act Filings.......................................................... 6
3.7.2 1933 Act Filings.......................................................... 6
3.7.3 Sarbanes-Oxley............................................................ 6
3.7.4 Private Placements........................................................ 6
3.8. NO CONFLICT, BREACH, VIOLATION OR DEFAULT........................................ 6
3.9. TAX MATTERS...................................................................... 6
3.10 TITLE TO PROPERTIES.............................................................. 7
3.11 CERTIFICATES, AUTHORITIES AND PERMITS............................................ 7
3.12 NO LABOR DISPUTES................................................................ 7
3.13 INTELLECTUAL PROPERTY............................................................ 7
3.13.1 Agreements............................................................... 7
3.13.3 Patents.................................................................. 7
3.13.4 Trade Secrets............................................................ 8
3.14 ENVIRONMENTAL MATTERS............................................................ 8
3.15 LITIGATION....................................................................... 8
3.16 FINANCIAL STATEMENTS............................................................. 8
3.17 INSURANCE COVERAGE............................................................... 8
3.18 BROKERS AND FINDERS.............................................................. 8
3.19 REGULATION D..................................................................... 9
3.20 RELATED PARTY TRANSACTIONS....................................................... 9
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR..................................... 9
4.1 ORGANIZATION AND EXISTENCE....................................................... 9
4.2 AUTHORIZATION.................................................................... 9
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4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT................................................ 9
4.4 INVESTMENT EXPERIENCE............................................................ 9
4.5 DISCLOSURE OF INFORMATION........................................................ 10
4.6 RESTRICTED SECURITIES............................................................ 10
4.7 LEGENDS.......................................................................... 10
4.8 REGULATION D..................................................................... 10
4.9 BROKERS AND FINDERS.............................................................. 11
ARTICLE 5. COVENANTS...................................................................... 11
5.1 INCREASE IN AUTHORIZED SHARES.................................................... 11
5.2 RESTRICTION ON TRANSFER.......................................................... 11
5.3 RIGHT OF INVESTOR TO PARTICIPATE IN FUTURE TRANSACTIONS.......................... 11
5.4 REPORTS.......................................................................... 11
5.4.1 Monthly Reports........................................................... 12
5.4.2 Quarterly Reports......................................................... 12
5.4.3 Annual Reports............................................................ 12
5.4.4 Securities Filings........................................................ 12
5.4.5 Other Information......................................................... 12
5.4.6 Confidentiality Agreement................................................. 12
5.5 PRESS RELEASES................................................................... 12
5.6 NO CONFLICTING AGREEMENTS........................................................ 13
5.7 INSURANCE........................................................................ 13
5.8 COMPLIANCE WITH LAWS............................................................. 13
5.9 CLOSING CONDITIONS............................................................... 13
5.10 USE OF PROCEEDS.................................................................. 13
ARTICLE 6. CORPORATE GOVERNANCE........................................................... 13
6.1 BOARD OF DIRECTORS............................................................... 13
6.2 COMMITTEES....................................................................... 14
6.3 STRATEGIC PLANNING PROCESS....................................................... 14
6.3.1 Presentation of Strategic Plan............................................ 14
6.3.2 Strategic Review.......................................................... 14
6.4 OPERATING PLANNING PROCESSES..................................................... 14
6.5 MEASUREMENT STANDARDS............................................................ 14
6.6 ENFORCEMENT OF THIS AGREEMENT.................................................... 15
6.7 ADVISORS......................................................................... 15
6.8 CORPORATE OPPORTUNITY POLICY..................................................... 15
6.8.1 DEFINITIONS...................................................................... 15
6.8.2 CONDUCT OF MAJORITY STOCKHKOLDER................................................. 16
6.8.3 CONDUCT OF AFFILIATES............................................................ 16
6.8.4 GENERAL.......................................................................... 17
ARTICLE 7. CLOSING CONDITIONS............................................................. 17
7.1 OBLIGATIONS OF INVESTOR TO THE COMPANY........................................... 17
7.1.1 Agreements................................................................ 17
7.1.2 Board of Directors........................................................ 17
7.1.3 Employment Relationships.................................................. 18
7.1.4 Invention Assignment Agreements........................................... 18
7.1.5 Opinion of Company Counsel................................................ 18
7.1.6 Secretary Certificate..................................................... 18
7.1.7 Corporate Proceedings..................................................... 18
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7.1.8 D&O Insurance............................................................. 18
7.1.9 Director Indemnity Agreements............................................. 18
7.1.10 Other Documents.......................................................... 18
7.2 OBLIGATIONS OF THE COMPANY TO INVESTOR........................................... 18
7.2.1 Agreements................................................................ 18
7.2.2 Payment................................................................... 19
7.2.3 Secretary Certificates.................................................... 19
7.2.4 Director Indemnity Agreements............................................. 19
7.2.5 Other Documents........................................................... 19
ARTICLE 8. GENERAL........................................................................ 19
8.1 SURVIVAL......................................................................... 19
8.2 SUCCESSORS AND ASSIGNS........................................................... 19
8.3 COUNTERPARTS..................................................................... 20
8.4 NOTICES.......................................................................... 20
8.5 EXPENSES......................................................................... 20
8.6 AMENDMENTS AND WAIVERS........................................................... 20
8.7 SEVERABILITY..................................................................... 20
8.8 ENTIRE AGREEMENT................................................................. 20
8.9 FURTHER ASSURANCES............................................................... 21
8.10 APPLICABLE LAW................................................................... 21
EXHIBITS
A - Certificate of Designations
B - License Agreement
C - R&D Agreement
D - Registration Rights Agreement
E1 - Amendment No. 3 to Note Purchase Agreement
E2 - Amendment No. 2 to the Security Agreement
F - Form of Amended and Restated Notes
G1 - Amendment to Reilly Employment Agreement
G2 - Amendment to Martha Employment Agreement
G3 - Amendment to Kornman Employment Agreement
G4 - Amendment to Eloi Employment Agreement
H - Form of Invention Assignment Agreement
I - Opinion of Counsel to the Company
J - Form of Director Indemnity Agreement
DISCLOSURE SCHEDULES
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("AGREEMENT") is made as of the 5th day of
March, 2003 by and between INTERLEUKIN GENETICS, INC., a Delaware corporation
(the "COMPANY"), and PYXIS INNOVATIONS INC., a Delaware corporation
("INVESTOR").
RECITALS
A. Investor desires to acquire a controlling equity interest in, and amend
its existing and extend additional working capital credit facilities to, the
Company to enhance the Company's capabilities for growth and strategic success
as an autonomous and entrepreneurial business;
B. The Company and Investor are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(2) of the 1933 Act (as defined below) and/or by the provisions of Regulation D
("REGULATION D"), as promulgated by the U.S. Securities and Exchange Commission
(the "SEC") under the 1933 Act;
C. Investor desires to purchase, and the Company wishes to sell and issue
to Investor, upon the terms and conditions stated in this Agreement, 5,000,000
shares of Series A preferred stock of the Company, $0.001 par value per share
(the "PREFERRED STOCK"), containing such rights, preferences, and other terms
set forth in the Certificate of Designations, Preferences, and Rights of Series
A Preferred Stock attached as EXHIBIT A (the "CERTIFICATE OF DESIGNATION");
D. Investor desires to acquire, and the Company wishes to provide, a
long-term, exclusive, world-wide license of the Company's intellectual property
for use in the field of nutrigenomics and dermagenomics pursuant to the License
Agreement in the form attached as EXHIBIT B (the "LICENSE AGREEMENT");
E. Investor desires to engage, and the Company wishes to provide, directed
research to develop and validate nutrigenomic and dermagenomic tests and
products that leverage the Company's current and future intellectual property
pursuant to the Research and Development Agreement in the form attached as
EXHIBIT C (the "R&D AGREEMENT"); and
F. Contemporaneous with the execution and delivery of this Agreement, the
parties are executing and delivering a Registration Rights Agreement, in the
form attached as EXHIBIT D (the "REGISTRATION RIGHTS AGREEMENT"), pursuant to
which the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder, and applicable state securities laws.
The parties agree as follows:
ARTICLE 1. DEFINITIONS
In addition to those terms defined above and elsewhere in this Agreement,
for the purposes of this Agreement, the following terms shall have the meanings
here set forth:
1.1 "AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person.
1.2 "AGREEMENTS" means this Agreement, the License Agreement, the R&D
Agreement, the Registration Rights Agreement, the amendments to the Note
Purchase Agreement and Security
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Agreement contemplated by Section 2.5 (Working Capital Loans), the amended and
restated Notes contemplated by Section 2.6 (Amendment to Outstanding Notes), and
the amendments to the employment agreements contemplated by Section 7.3
(Employment Relationships).
1.3 "COMMON SHARES" means the shares of common stock of the Company.
1.4 "CONTEMPLATED TRANSACTIONS" means those transactions and actions
contemplated by this Agreement and the Agreements, including the issuance of the
Preferred Stock and the Conversion Shares.
1.5 "CONTROL" means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
1.6 "INTELLECTUAL PROPERTY" means (i) the Company name, all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications; (ii) all patents, patent applications, inventions,
improvements, and discoveries that may be patentable (collectively, "PATENTS");
(iii) all copyrights in both published works and unpublished works; (iv) all
rights in mask works; and (v) all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "TRADE SECRETS");
owned, used, or licensed by the Company or any Subsidiary of the Company as
licensee or licensor.
1.7 "MATERIAL ADVERSE EFFECT" means a material adverse effect on the
condition (financial or otherwise), business, assets, prospects, or results of
operations of the Company as a whole.
1.8 "NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement, dated
October 23, 2002, between the Company and Investor, as amended.
1.9 "PERSON" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.10 "1933 ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.11 "1934 ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
ARTICLE 2. PURCHASE AND SALE; CLOSING
2.1 AUTHORIZATION. The Company has adopted and filed with the Secretary of
State of Delaware the Certificate of Designation. The Company has authorized (i)
the sale and issuance to the Investors of the Preferred Stock, and (ii) the
issuance of the shares of Common Stock to be issued upon conversion of the
Preferred Stock to the extent there were sufficient shares of Common Stock
authorized but not issued or reserved for issuance (the "CONVERSION SHARES").
The Preferred Stock and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Company's Certificate
of Incorporation and the Certificate of Designation, as applicable.
2.2 SALE. Subject to the terms and conditions of this Agreement, Investor
agrees to purchase at the Closing, and the Company agrees to sell and issue to
Investor at the Closing, 5,000,000 shares of the Preferred Stock for the
aggregate purchase price of $7,000,000 (or, $1.40 per share). Upon Investor's
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receipt of evidence reasonably satisfactory to Investor that the Company has
achieved the Milestone, Investor shall make an additional $2,000,000 capital
contribution to the Company as a retroactive increase of the purchase price per
share from $1.40 per share to $1.80 per share of Preferred Stock. Such capital
contribution shall be made by wire transfer of immediately available funds
within ten business days of the achievement of the Milestone.
2.3 CLOSING. The purchase and sale of the Preferred Stock (the "CLOSING")
shall take place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., at 10:00 A.M., on March 5, 2003, or at such other time and place as
the Company and Investor mutually agree (the "CLOSING DATE"). At the Closing,
the Company shall deliver to Investor a certificate representing 5,000,000
shares of Preferred Stock against payment of the purchase price therefor by wire
transfer.
2.4 MILESTONE. "Milestone" means the Company's entry into a genetics
testing agreement with one or more customers of such size that the projected
internal rate of return with respect to the project is at least twenty percent
(20%) with a payback period of three (3) years or less.
2.5 WORKING CAPITAL LOANS.
2.5.1 STRATEGIC RELATIONSHIPS. At any time prior to the second
anniversary of the date of this Agreement, upon the request of the
Company, Investor shall loan to the Company up to $1.5 million (in the
aggregate); provided that such request may only be made following the
board-approved payment of monies by the Company in connection with the
entry of a new or expanded strategic partnership or research collaboration
with one or more universities, health organizations, or other thought
leaders in genomics.
2.5.2 REFINANCING OF BRIDGE FINANCING. At any time on or before July
31, 2003, on a date at Investor's discretion, Investor shall loan to the
Company the amount of the principal balance ($525,000) plus interest then
due under the terms of the promissory notes issued by the Company in its
bridge financing in August 2002 and the Company shall use such amount to
repay the principal balance plus interest then due under such promissory
notes.
2.5.3 NOTE PURCHASE AGREEMENT. Any loan made pursuant to Section 2.5
shall be made as an additional loan under, and subject to the terms and
conditions, including interest rate and maturity, of, the Note Purchase
Agreement. Accordingly, at the Closing, each party will execute and
deliver the Amendment No. 3 to the Note Purchase Agreement in the form
attached as EXHIBIT E1 and the Amendment No. 2 of the Security Agreement
in the form attached as EXHIBIT E2.
2.6 AMENDMENT TO OUTSTANDING NOTES. At the Closing, each of four
outstanding Notes issued by the Company to Investor under the Note Purchase
Agreement shall be amended and restated to (i) extend the due date to December
31, 2007, (ii) provide for conversion of the principal and interest into the
Company's Common Stock at twice the Series A Conversion Price, as defined in and
adjusted from time to time pursuant to the Certificate of Designation, (iii)
lower the rate of interest to prime plus one percent (1%), and (iv) prohibit the
prepayment of such Notes. The amended and restated Notes shall be in the form
attached as EXHIBIT F.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Investor that, except
as set forth on the Disclosure Schedules hereto:
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3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the Company and
its subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to carry on its business as now
conducted and own its properties. Each of the Company and its subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or licensing necessary unless the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect on the Company. The Company's subsidiaries, all of which are
wholly owned, are reflected on SCHEDULE 3.1. Except as set forth on SCHEDULE
3.1, the Company does not own or control, directly or indirectly, any equity
interest in any other Person.
3.2 AUTHORIZATION; ENFORCEABILITY. Each of the representations and
warranties contained in this Section 3.2 is qualified by the disclosure set
forth on on SCHEDULE 3.2. The Company has full power and authority and has taken
all requisite action on the part of the Company, its officers, directors and
stockholders necessary for (a) the authorization, execution and delivery of the
Agreements, (b) authorization of the performance of all obligations of the
Company hereunder or thereunder, and (c) the authorization, issuance (or
reservation for issuance) and delivery of the Preferred Stock and, upon
conversion pursuant to the terms of the Certificate of Designation to the extent
there were sufficient shares of Common Stock authorized but not issued or
reserved for issuance, the Conversion Shares. On or before the date of this
Agreement, the Company's board of directors, at a meeting duly called and held,
has (a) determined that the Agreements and the Contemplated Transactions are
fair to, advisable and in the best interests of the Company and the stockholders
of the Company, (b) approved the Agreements and Contemplated Transactions, and
(c) acted with due care and satisfied its fiduciary duties to the Company.
Section 203 of the Delaware General Corporate Law does not apply to this
Agreement or the Contemplated Transactions. No other state takeover,
antitakeover, moratorium, fair price, interested stockholder, business
combination or similar statute or rule is applicable to the Contemplated
Transactions. The Agreements constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms.
The Company has duly and validly authorized and reserved 22,262,404 shares of
Common Stock for issuance upon conversion of the Preferred Stock, which number
is insufficient to permit the conversion of all of the Preferred Stock, and the
Conversion Shares so issuable in accordance with the Certificate of Designation
will, upon such conversion and issuance, be validly issued, fully paid and
non-assessable. The relative rights, preferences and other terms relating to the
Preferred Stock are as set forth in the Certificate of Designation and such
rights and preferences are valid and enforceable under Delaware law.
3.3 CAPITALIZATION. Set forth on SCHEDULE 3.3 is (a) the amount of the
authorized capital stock of the Company; (b) the number of shares of capital
stock issued and outstanding; (c) the number of shares of capital stock issuable
pursuant to the Company's stock plans; (d) the number of shares of capital stock
issuable and reserved for issuance pursuant to securities exercisable for, or
convertible into or exchangeable for any shares of Preferred Stock, Common
Stock, or other stock; and (e) the name of each holder of options and warrants
for capital stock, the term of such agreement or instrument, the number of
shares for which such options and warrants are exercisable with respect to each
holder, along with the applicable vesting schedule, if any, and the exercise
price. All of the issued and outstanding shares of the Company's capital stock
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights. Except as set forth on SCHEDULE 3.3, there are no
contractual or statutory preemptive rights, rights of first refusal, put or call
rights or obligations or anti-dilution rights with respect to the issuance, sale
or redemption of the Company's capital stock, other than rights set forth herein
or in the Certificate or the Registration Rights Agreement. The Company has no
obligation to purchase, redeem, or otherwise acquire any of its capital stock or
any interests therein. Except as set forth on SCHEDULE 3.3 or as contemplated by
this Agreement, there are no outstanding warrants, options, convertible
securities or other rights, agreements or arrangements of any character under
which the
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Company or any of its subsidiaries is or may be obligated to issue any equity
securities of any kind and except as contemplated by this Agreement, neither the
Company nor any of its subsidiaries is currently in negotiations for the
issuance of any equity securities of any kind. Except as set forth on SCHEDULE
3.3, the Company has no knowledge of any voting agreements, buy-sell agreements,
option or right of first purchase agreements or other agreements of any kind
among any of the security holders of the Company relating to the securities of
the Company held by them. Except as set forth on SCHEDULE 3.3 (which Schedule
shall set forth the holders and number of shares for which the Company remains
obligated to such registration rights), the Company has not granted any Person
the right to require the Company to register any securities of the Company under
the 1933 Act, whether on a demand basis or in connection with the registration
of securities of the Company for its own account or for the account of any other
Person.
3.4 CONSENTS. The execution, delivery and performance by the Company of
the Agreements and the offer, issuance and sale of the Preferred Stock and
Conversion Shares require no consent of, action by or in respect of, or filing
with, any Person, governmental body, agency, or official other than filings that
have been made pursuant to applicable state securities laws and post-sale
filings pursuant to applicable state and federal securities laws, which the
Company undertakes to file within the applicable time periods, and the filing of
a certificate of amendment to the Company's certificate of incorporation, if
approved by the Stockholders of the Company, increasing the authorized shares of
Common Stock to permit the Board of Directors to reserve the number of shares of
Common Stock then issuable upon conversion of the Preferred Stock.
3.5 DELIVERY OF SEC FILINGS; BUSINESS. The Company has provided Investor
with copies of the Company's most recent Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, and all other reports filed by the Company
pursuant to the 1934 Act since the filing of the Annual Report on Form 10-K and
prior to the date hereof (collectively, the "SEC FILINGS"); which are all of the
filings required of the Company pursuant to the 1934 Act for such period. The
Company is engaged only in the business described in the SEC Filings and the SEC
Filings contain a complete and accurate description of the business of the
Company.
3.6 NO MATERIAL ADVERSE CHANGE. Since the filing of the Company's most
recent Annual Report on Form 10-K or as otherwise identified and described in
subsequent reports filed by the Company pursuant to the 1934 Act or as set forth
on SCHEDULE 3.6, there has not been: (a) any change in the consolidated assets,
liabilities, financial condition or operating results of the Company from that
reflected in the financial statements included in the Company's most recent
Quarterly Report on Form 10-Q, except changes in the ordinary course of business
which have not had, in the aggregate, a Material Adverse Effect; (b) any
declaration or payment of any dividend, or any authorization or payment of any
distribution, on any of the capital stock of the Company, or any redemption or
repurchase of any securities of the Company; (c) any material damage,
destruction or loss, whether or not covered by insurance to any assets or
properties of the Company; (d) any waiver by the Company of a valuable right or
of a material debt owed to it not in the ordinary course of business; (e) any
satisfaction or discharge of any lien, claim or encumbrance or payment of any
obligation by the Company, except in the ordinary course of business and which
is not material to the assets, properties, financial condition, prospects,
operating results or business of the Company taken as a whole (as such business
is presently conducted and as it is proposed to be conducted); (f) any material
change or amendment to a material contract or arrangement by which the Company
or any of its assets or properties is bound or subject; (g) any material labor
difficulties or labor union organizing activities with respect to employees of
the Company; (h) any transaction entered into by the Company other than in the
ordinary course of business; or (i) any other event or condition of any
character that might have a Material Adverse Effect.
3.7 SEC FILINGS; PRIVATE PLACEMENTS.
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3.7.1 1934 ACT FILINGS. Except as set forth on SCHEDULE 3.7.1, as of
their respective dates, the SEC Filings complied as to form in all
material respects with the requirements of the 1934 Act and did not
contain at the time they were filed any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which
they were made, not misleading.
3.7.2 1933 ACT FILINGS. Except as set forth on SCHEDULE 3.7.2,
during the preceding one year, each registration statement and any
amendment thereto filed by the Company pursuant to the 1933 Act and the
rules and regulations thereunder, as of the date such statement or
amendment became effective, complied as to form in all material respects
with the 1933 Act and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading; and each
prospectus filed pursuant to Rule 424(b) under the 1933 Act, as of its
issue date and as of the closing of any sale of securities pursuant
thereto did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
3.7.3 SARBANES-OXLEY. The Chief Executive Officer and the Chief
Financial Officer of the Company have signed, and the Company has
furnished to the SEC, all certifications required by Section 906 of the
Sarbanes-Oxley Act of 2002; such certifications contain no qualifications
or exceptions to the matters certified therein, except as to knowledge,
and have not been modified or withdrawn; and neither the Company nor any
of it officers has received notice from any governmental entity
questioning or challenging the accuracy, completeness, content, form or
manner of filing or submission of such certifications.
3.7.4 PRIVATE PLACEMENTS. During the preceding one year, except as
set forth on SCHEDULE 3.7.4, the Company has not furnished any private
placement memorandum or similar offering document to offerees of the
Company's securities. To the Company's knowledge, after reasonable
inquiry, all offerees were accredited investors, as defined in the 1933
Act, and all offers and sales were exempt from registration under the 1933
Act and any applicable state "blue sky" law. Each offer did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they were made,
not misleading.
3.8 NO CONFLICT, BREACH, VIOLATION OR DEFAULT. Except as set forth on
SCHEDULE 3.8, the execution, delivery and performance of the Agreements by the
Company and the issuance and sale of the Preferred Stock and Conversion Shares
will not conflict with or result in a breach or violation of, or trigger the
vesting or acceleration of, any of the terms and provisions of, or constitute a
default under: (a) the Company's Certificate of Incorporation or the Company's
Bylaws, both as in effect on the date hereof, (b) any statute, rule, regulation
or order of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any of its properties, or (c) any
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the properties of the Company is subject.
3.9 TAX MATTERS. The Company has timely prepared and filed all tax returns
required to have been filed by the Company with all appropriate governmental
agencies and timely paid all taxes owed by it. The charges, accruals and
reserves on the books of the Company in respect of taxes for all fiscal periods
are adequate in all material respects, and there are no material unpaid
assessments against the Company nor, to the knowledge of the Company, any basis
for the assessment of any additional taxes, penalties or interest for any fiscal
period or audits by any federal, state or local taxing authority except
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such as which are not material. All material taxes and other assessments and
levies that the Company is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper governmental entity or
third party when due. There are no tax liens or claims pending or threatened
against the Company or any of its respective assets or property. There are no
outstanding tax sharing agreements or other such arrangements between the
Company and any other Person.
3.10 TITLE TO PROPERTIES. Except with respect to Investor, the Company has
good and marketable title to all real properties and all other properties and
assets owned by it, in each case free from liens, encumbrances and defects that
would materially affect the value thereof or materially interfere with the use
made or currently planned to be made thereof by them; and the Company holds any
leased real or personal property under valid and enforceable leases with no
exceptions that would materially interfere with the use made or currently
planned to be made thereof by them.
3.11 CERTIFICATES, AUTHORITIES AND PERMITS. The Company possesses adequate
certificates, authorities or permits issued by appropriate governmental agencies
or bodies necessary to conduct the business now operated by it and has not
received any notice of proceedings relating to the revocation or modification of
any such certificate, authority or permit that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse Effect.
3.12 NO LABOR DISPUTES. No material labor dispute with the employees of
the Company exists or, to the knowledge of the Company, is imminent.
3.13 INTELLECTUAL PROPERTY. The Intellectual Property assets used in the
Company's business (as described in the Company's SEC Filings) are owned or
licensed by the Company and not any subsidiary of the Company.
3.13.1 AGREEMENTS. SCHEDULE 3.13.1 contains a complete and accurate
list of all contracts relating to material Intellectual Property to which
the Company is a party or by which the Company is bound, except for any
license implied by the sale of a product and perpetual, paid-up licenses
for commonly available software programs. There are no outstanding and, to
the Company's knowledge, no threatened disputes or disagreements with
respect to any such agreement.
3.13.2 OWNERSHIP; INFRINGEMENT. Except as set forth on SCHEDULE
3.13.2, the Company is the owner of all right, title, and interest in and
to each of the Intellectual Property assets of the Company, free and clear
of all liens, security interests, charges, encumbrances, equities, and
other adverse claims, and has the right to use without payment to a third
party all of the Intellectual Property assets. To the Company's knowledge,
there is no Intellectual Property of any third party that would prevent
the Company from utilizing its Intellectual Property as presently used. To
the Company's knowledge, no Intellectual Property of the Company is
infringed or has been challenged or, to the Company's knowledge,
threatened in any way. None of the products manufactured and sold, nor any
process or know-how used, by the Company, to the Company's knowledge,
infringes or is alleged to infringe any Intellectual Property rights of
any other Person.
3.13.3 PATENTS. All of the issued Patents are currently in
compliance with formal legal requirements (including payment of filing,
examination, and maintenance fees and proofs of working or use) and are,
to the Company's knowledge, valid and enforceable. Except as set forth on
SCHEDULE 3.13.3, no Patent has been or is now involved in any
interference, reissue, reexamination, or opposition proceeding.
7
3.13.4 TRADE SECRETS. The Company has taken all reasonable
precautions to protect the secrecy, confidentiality, and value of its
Trade Secrets. The Company has good title and an absolute (but not
necessarily exclusive) right to use the Trade Secrets. The Trade Secrets
are not part of the public knowledge or literature, and, to the Company's
knowledge, have not been used, divulged, or appropriated either for the
benefit of any Person or to the detriment of the Company. No Trade Secret
is subject to any adverse claim or has been challenged or threatened in
any way.
3.14 ENVIRONMENTAL MATTERS. The Company is not in violation of any
statute, rule, regulation, decision or order of any governmental agency or body
or any court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration of
the environment or human exposure to hazardous or toxic substances
(collectively, "ENVIRONMENTAL LAWS"), does not own or operate any real property
contaminated with any substance that is subject to any Environmental Laws, is
not liable for any off-site disposal or contamination pursuant to any
Environmental Laws, and is not subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim. For
the purposes of this Section, the "Company" includes the Company and its
subsidiaries.
3.15 LITIGATION. SCHEDULE 3.15 sets forth a list of all litigation
involving or (to the Company's knowledge) threatened by or against the Company
in the past five years, along with the resolution of such matter. There are no
pending actions, suits or proceedings against or affecting the Company, its
subsidiaries or any of its or their properties and to the Company's knowledge,
no such actions, suits or proceedings are threatened or contemplated.
3.16 FINANCIAL STATEMENTS. The financial statements and related notes
included in each SEC Filing present fairly and accurately in all material
respects the consolidated financial position of the Company as of the dates
shown and its consolidated results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis, except
(i) that the unaudited interim financial statements were or are subject to
normal and recurring year-end audit adjustments, (ii) as may be otherwise
indicated in the notes to the financial statements or (iii) in the case of the
unaudited statements as may be permitted by the SEC on Form 10-Q under the
Exchange Act. Except (a) as set forth in the financial statements of the Company
included in the SEC Filings, and (b) for liabilities and obligations (absolute,
accrued, contingent or otherwise) incurred in the ordinary course of business
and consistent with past practice since the date of such SEC Filing, the Company
does not have any material liability or obligation of any nature, whether or not
accrued, contingent or otherwise that would be required by GAAP to be disclosed
on a balance sheet of the Company or in the notes thereto. The Company has not
created any entities or entered into any transactions or created any liabilities
or obligations of any nature, whether or not accrued, contingent or otherwise,
for the purpose of avoiding disclosure required by GAAP.
3.17 INSURANCE COVERAGE. The Company maintains in full force and effect
insurance coverage that is customary for comparably situated companies for the
business being conducted and properties owned or leased by the Company, and the
Company reasonably believes such insurance coverage to be adequate against all
liabilities, claims and risks against which it is customary for comparably
situated companies to insure. The Company has previously provided to Investor a
true and complete copy of such policy.
3.18 BROKERS AND FINDERS. Investor has no agreement for payment of any
commissions, finders' fees, or other similar fees to any Person in connection
with the Contemplated Transactions.
8
3.19 REGULATION D. The offer, issuance, sale and delivery of the Shares
and Conversion Shares are or will be exempt from the registration requirements
of the 1933 Act and the qualification or registration provisions of applicable
state securities laws. Neither the Company nor its authorized agents have taken
or will take any action that would cause the loss of such exemption. Neither the
Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Preferred Stock. Neither the
Company nor any of its Affiliates, nor any Person acting on its or their behalf
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would
adversely affect reliance by the Company on Section 4(2) for the exemption from
registration for the Contemplated Transactions or would require registration of
the Preferred Stock or the Conversion Shares under the 1933 Act.
3.20 RELATED PARTY TRANSACTIONS. Except for inventors who have assigned
their patent rights to the Company and which assignments have been filed with
the United States Patent and Trademark Office, to the Company's knowledge, no
officer or director of the Company has any interest in any property, real or
personal, tangible or intangible, including any invention, patent, trademark or
trade name, used in or pertaining to the business of the Company. SCHEDULE 3.20
sets forth a true, complete and correct list of any transaction, arrangement or
relationship involving an amount of $50,000 or more not previously disclosed in
the Company's SEC Filings that any director, officer or other affiliate of the
Company has or has had in the last three years, directly or indirectly relating
to, (i) an economic interest in, or the right to receive an economic benefit
from, any person that has furnished or sold, or furnishes or sells, services or
products that the Company furnishes or sells, or proposes to furnish or sell, or
(ii) an economic interest in, or the right to receive an economic benefit from,
any person that purchases from or sells or furnishes to, the Company, any goods
or services; provided, however, that ownership of no more than 1% of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
"economic interest in, or the right to receive an economic benefit from, any
person" for purposes of this Section.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor hereby represents and warrants to the Company that:
4.1 ORGANIZATION AND EXISTENCE. Investor is a validly existing corporation
and has all requisite corporate power and authority to invest in the Preferred
Stock pursuant to this Agreement and each Affiliate of Investor signing one or
more of the Agreements (each an "Affiliate Party") is a validly existing
corporation and has all requisite corporate power and authority to execute and
perform the agreement that it is signing.
4.2 AUTHORIZATION. The execution, delivery and performance by Investor and
each Affiliate Party of the Agreements have been duly authorized and the
Agreements each constitute the valid and legally binding obligation of Investor
and each Affiliate Party, enforceable against Investor and each Affiliate Party
in accordance with their terms.
4.3 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Preferred Stock to be received
by Investor hereunder will be acquired for Investor's own account, not as
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. The Investor is not a
registered broker dealer or an entity engaged in the business of being a broker
dealer.
4.4 INVESTMENT EXPERIENCE. Investor acknowledges that it can bear the
economic risk and complete loss of its investment in the Preferred Stock and has
such knowledge and experience in financial
9
or business matters that it is capable of evaluating the merits and risks of the
investment contemplated hereby.
4.5 DISCLOSURE OF INFORMATION. Investor has had an opportunity to receive
documents related to the Company and to ask questions of and receive answers
from the Company regarding the Company, its business and the terms and
conditions of the offering of the Preferred Stock. Investor acknowledges receipt
of the SEC Filings and any other filings which it requested be made by the
Company with the SEC. Neither such inquiries nor any other due diligence
investigation conducted by Investor shall modify, amend or affect Investor's
right to rely on the Company's representations and warranties contained in this
Agreement.
4.6 RESTRICTED SECURITIES. Investor understands that the Preferred Stock
and Conversion Shares are characterized as "restricted securities" under the
U.S. federal securities laws inasmuch as they are being acquired from the
Company in a transaction not involving a public offering and that under such
laws and applicable regulations such securities may be resold without
registration under the 1933 Act only in certain limited circumstances.
4.7 LEGENDS. It is understood that, until any sale of Preferred Stock or
Conversion Shares pursuant to an effective registration statement under the 1933
Act, or such time as such shares become eligible for resale under Rule 144(k),
certificates evidencing the Preferred Stock and Conversion Shares, as the case
may be, will bear one or more restrictive legends, substantially as follows:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Securities Act") and may not
be transferred (i) without the opinion of counsel satisfactory to the
corporation that such transfer may lawfully be made without registration
under the Securities Act or (ii) pursuant to an effective registration
statement under the Securities Act, in each case in accordance with
applicable securities laws of any state of the United States."
"The Corporation is authorized to issue more than one class or series of
stock. The Corporation will furnish without charge to each stockholder who
so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights."
"The shares represented by this Certificate are subject to restrictions on
transfer as set forth in the Stock Purchase Agreement dated as of March 5,
2003 by and between the Corporation and Pyxis Innovations Inc. A copy of
such Stock Purchase Agreement is available for inspection at the offices
of the Corporation and will be provided to the holder upon request."
If required by the authorities of any state in connection with the issuance or
sale of the Preferred Stock and Conversion Shares, then the certificate(s)
representing such shares shall bear the legend required by such state authority.
Upon resale pursuant to the Registration Rights Agreement or upon Rule 144(k)
becoming available, the Company shall promptly cause certificates evidencing the
Preferred Stock and Conversion Shares, as the case may be, to be replaced with
certificates that do not bear such restrictive legends.
4.8 REGULATION D. Investor is an accredited investor as defined in Rule
501(a) of Regulation D, as amended, under the 1933 Act. Investor did not learn
of the investment in the Preferred Stock as a result of any public advertising
or general solicitation.
10
4.9 BROKERS AND FINDERS. Investor has made no commitment for payment of
any commissions or finders' fees to any third party in connection with the
transactions contemplated by this Agreement.
ARTICLE 5. COVENANTS
5.1 INCREASE IN AUTHORIZED SHARES. In preparation for and at the Company's
next annual meeting of stockholders, or upon the request of Inventor, the
Company will take all such corporate actions as may be necessary to increase its
authorized but unissued shares of Common Stock to such number as shall be
sufficient to fully reserve that number of shares of Common Stock, solely for
the purpose of effecting the conversion of the Preferred Stock to the Conversion
Shares and the amended and restated Notes referred to in Section 2.6, including
engaging in best efforts to obtain the requisite stockholder approval of any
necessary amendment to the Company's Certificate of Incorporation.
5.2 RESTRICTION ON TRANSFER. In addition to restrictions imposed upon
Investor under the Registration Rights Agreement, for a period of two years
following the date of the Closing, Investor will not sell or otherwise transfer
its Preferred Stock or any Conversion Shares to any Person who is not an
Affiliate of Investor.
5.3 RIGHT OF INVESTOR TO PARTICIPATE IN FUTURE TRANSACTIONS. Until such
time as Investor and its Affiliates own less than 20% of the outstanding capital
stock of the Company (on an as-converted basis), Investor will have a right to
participate in future capital raising transactions, excluding an Exempt
Issuance, on the terms and conditions set forth in this Section. During such
period, the Company shall give ten (10) business days advance written notice to
Investor prior to any non-public offer or sale of any of the Company's equity
securities or any securities convertible into or exchangeable or exercisable for
such securities by providing to Investor a comprehensive term sheet containing
all significant business terms of such a proposed transaction. Investor shall
have the right to purchase up to the percentage of such offered securities as
Investor shall have owned of the Company's outstanding Common Stock immediately
prior to such offering (calculated on an as-converted basis, assuming exercise
or conversion of all outstanding convertible securities and assuming the
issuance of all common stock reserved for issuance upon option authorized for
grant), for the same consideration and on the same terms and conditions as
contemplated for such third-party sale. Investor's rights hereunder must be
exercised in writing within five business days following receipt of the notice
from the Company. If, subsequent to the Company giving notice to Investor but
prior to Investor exercising its right to participate (or the expiration of the
five-day period without response from Investor), the terms and conditions of the
proposed third-party sale are changed in any material respect from that
disclosed in the comprehensive term sheet provided to Investor, the Company
shall be required to provide a new notice to Investor and Investor shall have
the right, which right must be exercised within five business days of such new
notice, to exercise their rights to purchase the securities on such changed
terms and conditions as provided hereunder. If Investor does not exercise its
rights hereunder, or affirmatively decline to engage in the proposed transaction
with the Company, then the Company may proceed with such proposed transaction on
the same terms and conditions as noticed to Investor. For the purposes of this
Section, "EXEMPT ISSUANCES" means (i) sales of shares of Common Stock by the
Company upon conversion or exercise of any convertible securities, options or
warrants outstanding prior to the date hereof; (ii) securities issued to
employees, officers or directors of the Company pursuant to any stock option,
stock purchase or stock bonus plan, agreement or arrangement as existing on date
hereof; (iii) securities issued to the stockholders of an unrelated third-party
in connection with the acquisition of such entity; or (iv) a firm underwriting
public offering with gross proceeds to the Company of greater than $30.0
million.
5.4 REPORTS. For so long as Investor beneficially owns at least 5% of the
Preferred Stock purchased hereunder or Conversion Shares in an amount equal to
5% of the shares of Common Stock
11
issued and/or issuable upon conversion of the Preferred Stock purchased
hereunder, the Company will furnish promptly to Investor the following reports,
each of which shall be provided to Investor electronically (within one week of
filing with the SEC, in the case of SEC filings):
5.4.1 MONTHLY REPORTS. Consolidated monthly balance sheets of the
Company as at the end of such period and the related consolidated
statements of operations, stockholders' equity and cash flows for such
period and for the portion of the Company's fiscal year ended on the last
day of such month, all in reasonable detail and certified by a principal
financial officer of the Company to have been prepared in accordance with
the Company's past practices with respect to monthly financial statements.
5.4.2 QUARTERLY REPORTS. The Company's quarterly report on Form 10-Q
or, in the absence of such report, consolidated balance sheets of the
Company as at the end of such period and the related consolidated
statements of operations, stockholders' equity and cash flows for such
period and for the portion of the Company's fiscal year ended on the last
day of such quarter, all in reasonable detail and certified by a principal
financial officer of the Company to have been prepared in accordance with
generally accepted accounting principles, except such statements are (i)
subject to year-end and audit adjustments, (ii) as may be otherwise
indicated in the notes to the financial statements or (iii) as may be
permitted by the SEC on Form 10-Q under the Exchange Act.
5.4.3 ANNUAL REPORTS. The Company's Form 10-K or, in the absence of
a Form 10-K, consolidated balance sheets of the Company as of the end of
such year and the related consolidated statements of earnings,
stockholders' equity and cash flows for such year, all in reasonable
detail and accompanied by the report on such consolidated financial
statements of an independent certified public accountant selected by the
Company and reasonably satisfactory to Investor.
5.4.4 SECURITIES FILINGS. Copies of (i) all notices, proxy
statements, financial statements, reports and documents as the Company
shall send or make available generally to its stockholders or to financial
analysts, promptly after providing same to the stockholders and (ii) all
periodic and special reports, documents and registration statements which
the Company furnishes to or files, or any officer or director of the
Company (in such person's capacity as such) furnishes to or files with the
SEC.
5.4.5 OTHER INFORMATION. Such other information relating to the
Company as from time to time may reasonably be requested by Investor
provided the Company produces such information in its ordinary course of
business, and further provided that the Company, solely in its own
discretion, determines that such information is not confidential in nature
and disclosure to Investor would not be materially harmful to the Company.
5.4.6 CONFIDENTIALITY AGREEMENT. The Investor agrees to maintain in
confidence non-public information provided to Investor or its Affiliates
pursuant to Section 5.4.1 and 5.4.5 hereof or otherwise so that any
disclosures by the Company to Investor or its Affiliates comply with Rule
100(b)(2)(ii) of Regulation FD promulgated by the SEC.
5.5 PRESS RELEASES. Any press release concerning this Agreement shall be
submitted to Investor for comment at least two business days prior to issuance,
unless the release is required to be issued within a shorter period of time by
law or pursuant to the rules of a national securities exchange.
12
5.6 NO CONFLICTING AGREEMENTS. The Company will not take any action, enter
into any agreement or make any commitment that would conflict or interfere in
any material respect with the obligations to Investor under the Agreements.
5.7 INSURANCE. So long as Investor beneficially owns at least 5% of the
Preferred Stock purchased hereunder or Conversion Shares in an amount equal to
5% of the shares of Common Stock issued and/or issuable upon conversion of the
Preferred Stock purchased hereunder, (i) unless approved by a unanimous vote of
the Board of Directors, the Company shall not materially reduce the insurance
coverages from the coverages it currently maintains under its director and
officer liability insurance, and (ii) the Company shall maintain for a period of
six (6) years following the date hereof director and officer liability insurance
covering (subject to the terms of such policy) claims arising from facts or
events that occurred on or prior to the resignation of the directors of the
Company serving on March 1, 2003, with the terms and amount of such policy at
least as favorable to such directors as the policy in effect immediately prior
to the Closing.
5.8 COMPLIANCE WITH LAWS. So long as Investor beneficially owns at least
5% of the Preferred Stock purchased hereunder or Conversion Shares in an amount
equal to 5% of the shares of Common Stock issued and/or issuable upon conversion
of the Preferred Stock purchased hereunder, the Company will use reasonable
efforts to comply with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities.
5.9 CLOSING CONDITIONS. The Company will use its best efforts to cause the
conditions in Article 7 to be satisfied.
5.10 USE OF PROCEEDS. The proceeds of the sale of the Preferred Stock
shall be used by the Company for working capital and general corporate purposes,
and in particular, research and development.
5.11 RESTRICTED EVENTS. Until the earlier of such time as the Series A
Directors first take office (the "SERIES A ELECTION DATE") or thirty (30) days
following the Closing, the Company shall operate only in the ordinary course and
shall not take or bind the Company to take, nor permit any officer or employee
of the Company to take or authorize any employee or agent to take, any of the
following actions without the prior written consent of Investor: (i) purchase
any asset (tangible or intangible) at a price or for other consideration in
excess of $10,000, or sell or otherwise dispose any asset having a value in
excess of $10,000; (ii) enter into any agreement involving a total commitment of
more than $10,000; (iii) appoint or hire any person as an officer or employee of
the Company; (iv) pay employee bonuses, incentive compensation, or other
additional compensation or benefits except as approved by the Board of Directors
prior to the date of this Agreement and set forth in the Disclosure Schedule; or
(v) borrow money or prepay any indebtedness (other than trade debt in the
ordinary course) or deferred compensation.
ARTICLE 6. CORPORATE GOVERNANCE
During any period in which Investor has the right to elect the
Series A Directors:
6.1 BOARD OF DIRECTORS. Subject to this Article and as otherwise provided
by law, the fundamental strategic direction of the Company shall be determined
by its Board of Directors as provided in this Article. The Board of Directors
shall consist of five members. Notwithstanding anything herein to the contrary,
the Board of Directors of the Company (or committee thereof) shall not nominate
any individual who is an officer, director, partner or principal stockholder of
any competitor of the Company
13
or any of its subsidiaries or any competitor of Investor or any of its
subsidiaries (other than the Company).
6.2 COMMITTEES. Subject to the general oversight and authority of the full
Board of Directors, the Board of Directors shall establish, empower and maintain
committees of the Board of Directors consistent with this Section. Except as
provided by law or for those committees formed to address conflicts of interest,
which shall be constituted at the discretion of the Board of Directors, a
majority of the members of any committee of the Board of Directors shall consist
of the directors nominated and/or elected by Investor (the "SERIES A
DIRECTORS"). In addition to such other committees as the Board of Directors
deems necessary or desirable, including the standing Audit Committee and
Compensation Committee, a Strategic Planning Committee shall be established,
empowered and maintained by the Board of Directors at all times during the term
of this Article. A quorum of the Strategic Planning Committee required for any
action thereby shall require the attendance of the majority of members thereof
but no fewer than two of the Series A Directors, and the Strategic Planning
Committee shall act by majority vote of the Strategic Planning Committee.
6.3 STRATEGIC PLANNING PROCESS.
6.3.1 PRESENTATION OF STRATEGIC PLAN. Management of the Company
shall prepare and propose to the Board of Directors a three-year Strategic
Plan, beginning with the period April 2003. The Strategic Plan for the
Company will be proposed to the Board of Directors within two months of
the Closing, and a Strategic Plan for each subsequent period will be
proposed not later than two months before the beginning of the first
fiscal year covered by such Plan. The goals of each Strategic Plan shall
be aggressive but reasonable and achievable. In connection with the
preparation of each Strategic Plan, management of the Company shall confer
on a reasonable basis with the Series A Directors.
6.3.2 STRATEGIC REVIEW. From time to time at the request of
management of the Company or the Series A Directors, and at least once a
year during the second and third fiscal years of a Strategic Plan and
prior to the budgeting process for the following year, management of the
Company will hold a Strategic Review with the Strategic Planning Committee
and, in light of such review, management or any director, may propose to
such Committee revisions or updates to the Strategic Plan in light of
changed circumstances. The Strategic Planning Committee shall consider and
vote upon any proposed new Strategic Plan or any revisions or updates to
an existing Strategic Plan. The approval of at least 66% of the directors
on such Committee will be required to revise the Strategic Plan.
6.4 OPERATING PLANNING PROCESSES. The management of the Company will, on
an annual basis, prepare and recommend to the Strategic Planning Committee an
operating Plan for each fiscal year that is consistent with the then applicable
Strategic Plan. Management will submit an Operating Plan for each fiscal year
not later than one month before the beginning of such fiscal year. The financial
and operating performance goals in each Operating Plan shall be aggressive but
reasonable and achievable and the budgets shall be reasonably designed to
achieve such goals. The Operating Plan will be subject to the approval of the
Strategic Planning Committee.
6.5 MEASUREMENT STANDARDS. In connection with its review and approval of
the Operating Plan for each fiscal year, the Strategic Planning Committee also
shall set and approve Measurement Standards for that fiscal year. The
Measurement Standards will be set with a view such that failure to meet such
Measurement Standards taken as a whole (and taking into account, to the extent
the directors judge to be appropriate, any qualitative standards included in
such goals) would represent an unreasonably low rate of accretion in the overall
valuation of the Company compared to the expectations
14
underlying the then effective Strategic Plan. While the Measurement Standards
will be derived from the financial and operating performance goals in the
applicable Operating Plan and Strategic Plan, if, as anticipated, the goals of
those Plans are aggressive (but reasonable and achievable), the Measurement
Standards would be expected to be lower than those goals. If during a fiscal
year, events for which management should not reasonably be held accountable or
which management would not reasonably be expected to anticipate to occur that
significantly adversely impact the Company's ability to fulfill applicable
Measurement Standards, the Strategic Planning Committee shall in good faith
discuss whether revisions to the Measurement Standards are appropriate. If,
after taking into account the considerations contemplated by the previous
sentence, the Measurement Standards are not met for two or more measurement
periods, then the Strategic Planning Committee shall consider appropriate
remedial actions, including (but not limited to): (i) the suspension of granting
of stock options and other equity rights to some or all officers of the Company;
(ii) a review of the compensation or continued employment of any officer; (iii)
the suspension of initiating any new collaboration or entering into any new
material licenses of technology with any entity; (iv) the suspension of any new
material capital projects; or (v) the suspension of the incurrence or issuance
of any indebtedness by the Company other than in the ordinary course of
business.
6.6 ENFORCEMENT OF THIS AGREEMENT. A majority of the directors shall have
full and complete authority on behalf of the Company to enforce the terms of
this Agreement. The Company and Investor shall take or cause to be taken all
lawful action necessary to ensure at all times that the Company's Certificate of
Incorporation and By-laws are not at any time inconsistent with the provisions
of this Agreement. At Investor's request, the Board of Directors shall adopt
(and if necessary, submit and recommend for approval by stockholders) amendments
to the Company's Certificate of Incorporation or By-laws reasonably necessary to
implement the provisions of this Article.
6.7 ADVISORS. The Series A Directors shall be entitled to retain, at the
cost and expense of the Company, the services of an investment banking firm of
national reputation of their choice and one law firm of their choice to advise
them in their capacity as directors with respect to any matter on which the
directors, as a group, are required or permitted to act hereunder.
6.8. CORPORATE OPPORTUNITY POLICY. The Board of Directors of the Company
has adopted this Section 6.8 in accordance with Section 122(17) of the Delaware
General Corporate Law in order to regulate and define the conduct of certain
affairs of the Company as they may involve the Majority Stockholder and its
Affiliates (each as defined below), and the powers, rights, duties and
liabilities of the Company and its officers, directors and stockholders in
connection therewith. Nothing in this Section 6.8 will regulate or define the
conduct of the Majority Stockholder or an Affiliate with respect to affairs not
involving a corporate opportunity (as defined below). Moreover, nothing in this
Section 6.8 will prohibit the Company from entering into contractual
arrangements with the Majority Stockholder or an Affiliate that restrict the
Majority Stockholder or the Affiliate from engaging in activities otherwise
allowed by this Section 6.8, and the following provisions shall be subject to
any such contractual obligation of the Company.
6.8.1 DEFINITIONS. For purposes of this Section 6.8 only:
a. A director of the Company who is Chairman or Vice Chairman of the Board
of Directors of the Company or of a committee thereof shall not be deemed to be
an officer of the Company by reason of holding such position (without regard to
whether such position is deemed an officer of the Company under the bylaws of
the Company), unless such person is a full-time employee of the Company.
b. The term "MAJORITY STOCKHOLDER" shall mean (i) the Investor; (ii) any
subsidiary of Investor; (iii) any person or entity directly or indirectly owning
50% or more interest in the outstanding voting
15
stock of Investor; (iv) any successors, by way of merger, consolidation or sale
of all or substantially all of the assets or stock, of Investor or an entity
described in clause (ii) or (iii) above; and (v) any assignees or other
transferee of all of the equity interest of Investor or an entity described in
clause (ii), (iii), or (iv) above.
c. The term "AFFILIATE" shall mean a director, officer, or employee of the
Majority Stockholder. No person shall be deemed to be an Affiliate solely by
reason of his or her employment by or affiliation or relationship with the
Company.
d. The term "CORPORATE OPPORTUNITY" shall consist of a business
opportunity that (i) the Company is financially able to undertake, (ii) is, from
its nature, in the line or lines of the Company's existing or prospective
business and is of practical advantage to it, and (iii) is one in which the
Company could, but for the provisions of this Section 6.8, have an interest or
reasonable expectancy.
6.8.2 CONDUCT OF MAJORITY STOCKHOLDER
a. Except as the Majority Stockholder may otherwise agree in writing, the
Majority Stockholder shall have the right to engage, and shall have no duty to
refrain from engaging, in the same or similar activities or lines of business or
have an interest in the same classes or categories of corporate opportunities as
the Company.
b. To the fullest extent permitted by law, the Majority Stockholder shall
not be liable to the Company or its other stockholders for breach of any
fiduciary duty by reason of any activities identified in paragraph 6.8.2.a above
of the Majority Stockholder or its Affiliates, or the participation in such
activities by the Majority Stockholder or its Affiliates.
c. If the Majority Stockholder acquires knowledge of a potential
transaction or matter that may be a corporate opportunity for both the Majority
Stockholder and the Company, to the fullest extent permitted by law, the
Majority Stockholder shall not (a) have a duty to communicate or present such
corporate opportunity to the Company, or (b) be liable to the Company or its
other stockholders for breach of any fiduciary duty as a stockholder of the
Company by reason of the fact that the Majority Stockholder pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity to
another person or entity, or does not communicate information regarding such
corporate opportunity to the Company.
6.8.3 CONDUCT OF AFFILIATES. If a director or officer of the Company who
is also an Affiliate, acquires knowledge of a potential transaction or matter
that may be a corporate opportunity for both the Company and the Majority
Stockholder or any of its Affiliates then, to the fullest extent permitted by
law, such director or officer of the Company: (a) shall be deemed to have fully
satisfied and fulfilled the fiduciary duty of such director or officer to the
Company and its stockholders with respect to such corporate opportunity, (b)
shall not be liable to the Company or its other stockholders for breach of any
fiduciary duty by reason of the fact that the Majority Stockholder or any of its
Affiliates pursues or acquires such corporate opportunity for itself, himself,
or herself, or directs such corporate opportunity to the Majority Stockholder or
any Affiliate or does not communicate information regarding such corporate
opportunity to the Company, and (c) shall be deemed not to have breached his or
her duty of loyalty to the Company or its stockholders and not to have derived
an improper personal benefit therefrom; provided that such director or officer
acts in a manner consistent with the following:
a. A corporate opportunity offered to any person who is an officer of the
Company (whether or not a director), and who is also a director but not an
officer or employee of the Majority Stockholder, shall belong to the Company,
unless such opportunity is expressly offered to such person in writing solely
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in his or her capacity as a director of Majority Stockholder, in which case such
opportunity shall belong to the Majority Stockholder.
b. A corporate opportunity offered to any person who is a director but not
an officer of the Company, and who is also an officer (whether or not a
director) or employee of the Majority Stockholder, shall belong to the Company
only if such opportunity is expressly offered to such person in writing solely
in his or her capacity as a director of the Company, and otherwise shall belong
to the Majority Stockholder.
c. A corporate opportunity offered to any person who is an officer or
director of both the Company and the Majority Stockholder, shall belong to the
Company only if such opportunity is expressly offered to such person in writing
solely in his or her capacity as an officer or director of the Company, and
otherwise shall belong to the Majority Stockholder.
6.8.4 GENERAL. Any corporate opportunity that belongs to the Majority
Stockholder or an Affiliate, on the one hand, or to the Company, on the other
hand, pursuant to the foregoing provisions of Section 6.8 shall not be pursued
by the other, unless and until the party to whom the opportunity belongs
determines not to pursue the opportunity and so informs the other party in
writing. Notwithstanding the preceding sentence, if the party to whom the
corporate opportunity belongs does not, within one year of receipt of notice of
the corporate opportunity, begin to pursue, or thereafter continue to pursue,
such opportunity diligently and in good faith, the other party may then pursue
such opportunity or direct it to another person.
Any person or entity purchasing or otherwise acquiring any interest in
equity securities of the Company shall be deemed to have notice of and to have
consented to the provisions of this Section 6.8. Neither the alteration,
amendment or repeal of this Section 6.8 nor the adoption of any provision of the
Company's Bylaws or Certificate of Incorporation inconsistent with this Section
6.8 shall eliminate or reduce the effect of this Section 6.8 in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Section 6.8, would accrue or arise, prior to such alteration, amendment, repeal
or adoption.
Anything in this Section 6.8 to the contrary notwithstanding, the
foregoing provisions of this Section 6.8 shall terminate, expire and have no
further force and effect on the date that no person who is a director, officer
or employee of the Company is also a director, officer, or employee of the
Majority Stockholder.
ARTICLE 7. CLOSING CONDITIONS
7.1 COMPANY CONDITIONS. The obligations of Investor to the Company under
this Agreement are subject to the fulfillment, on or before the Closing, of each
of the following conditions, unless otherwise waived:
7.1.1 AGREEMENTS. The Company and Investor shall have entered into
the Agreements.
7.1.2 BOARD OF DIRECTORS. The number of members of the Board of
Directors of the Company shall have been duly fixed at five, and such
incumbent directors shall have submitted written resignations for the
Board of Directors and all committees thereof (effective as of the Closing
except in the case of Kenneth Kornman, whose irrevocable resignation shall
be effective as of Series A Election Date), so that immediately following
the Closing, the Board shall be
17
comprised of Dr. Reilly and Dr. Kornman and as of the Series A Election
Date, Dr. Reilly and the four Series A Directors. The Board of Directors
may grant observation rights from time to time to members of management of
the Company, and will grant such rights to Kenneth Kornman as of the
Series A Election Date.
7.1.3 EMPLOYMENT RELATIONSHIPS. The Company shall have amended its
employment agreements with the individuals and in the manner set forth on
EXHIBITS G1, G2, G3, and G4.
7.1.4 INVENTION ASSIGNMENT AGREEMENTS. The Company shall have
entered into Invention Assignment Agreements with each of its employees in
the form attached as EXHIBIT H or in another form reasonably acceptable to
the Company and Investor.
7.1.5 OPINION OF COMPANY COUNSEL. The Investors shall have received
from counsel for the Company, an opinion, dated as of the Closing, in
substantially the form of EXHIBIT I.
7.1.6 SECRETARY CERTIFICATE. The Company shall have delivered a
certificate of its Secretary certifying as to (i) the actions of the Board
of Directors to approve the Agreements and the transactions contemplated
thereby; (ii) the Bylaws of the Company, in effect as of the Closing Date;
(iii) the Certificate of Incorporation of the Company, issued by the State
of Delaware; and (iv) the incumbency of all officers authorized to execute
the Agreements and the promissory notes on behalf of the Company.
7.1.7 CORPORATE PROCEEDINGS. The Company shall have provided to
Investor copies of resolutions of the Board of Directors, or committees
thereof, of the Company authorizing the execution, delivery, and
performance of the Certificate of Designation, the Agreements, and any
other documents provided for in or contemplated by this Agreement.
7.1.8 D&O INSURANCE. The Company shall have caused each director
(including the Series A Directors to be elected) to be fully covered by
the Company's directors' and officers' liability insurance in an amount of
at least $5.0 million, subject only, in the case of the Series A
Directors, to their election pursuant to the terms of the Certificate of
Designation.
7.1.9 DIRECTOR INDEMNITY AGREEMENTS. The Company shall have entered
into a director indemnity agreement with each of its existing directors
and incoming Series A Directors in the substantially form attached as
EXHIBIT J (each, a "DIRECTOR INDEMNITY AGREEMENT"), and in the case of the
Series A Directors, subject only to their election pursuant to the
Certificate of Incorporation.
7.1.10 OTHER DOCUMENTS. The Company shall have delivered to Investor
such other documents as reasonably requested by Investor to carry out and
effectuate the intent and purposes of this Agreement.
7.2 INVESTOR CONDITIONS. The obligations of the Company to Investor under
this Agreement are subject to the fulfillment, on or before the Closing, of each
of the following conditions, unless otherwise waived:
7.2.1 AGREEMENTS. The Company and Investor shall have entered into
the Agreements.
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7.2.2 PAYMENT. Investor shall have made full payment to the Company
of the purchase price for the Preferred Stock by wire transfer of seven
million dollars ($7,000,000) in immediately available funds.
7.2.3 PYXIS SECRETARY CERTIFICATES. Investor shall have delivered a
certificate of its Secretary certifying as to (i) the actions of the Board
of Directors to approve the Agreements and the transactions contemplated
thereby; (ii) the Bylaws of the Investor in effect as of the Closing Date;
(iii) the Certificate of Incorporation of the Investor issued by its state
of domicile; and (iv) the incumbency of all officers authorized to execute
the Agreements on behalf of the Investor.
7.2.4 AFFILIATE CERTIFICATES. Investor shall have delivered an
officer's certificate of such other Affiliates of Investor as reasonably
requested by the Company, in a form reasonably acceptable to the Company
and Investor.
7.2.5 DIRECTOR INDEMNITY AGREEMENTS. The Company shall have entered
into Director Indemnity Agreements with every person serving on the Board
of Directors on March 1, 2003.
7.2.6 OTHER DOCUMENTS. Investor shall have delivered to Company such
other documents as reasonably requested by the Company to carry out and
effectuate the intent and purposes of this Agreement.
ARTICLE 8. GENERAL
8.1 SURVIVAL. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement and the Closing provided that all representations
and warranties shall terminate three years following the Closing. No
investigation by or knowledge of a party or its representatives, before or after
the date of this Agreement, will affect in any manner the representations,
warranties, covenants or agreements of another party set forth in this Agreement
(or in any document to be delivered in connection with the consummation of the
transactions contemplated by this Agreement) or the rights to rely thereon, and
such representations, warranties, covenants and agreements will survive any such
investigation.
8.2 SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by a party
hereto without the prior written consent of the other party hereto, except that
without the prior written consent of the Company, but after notice duly given,
Investor may assign its rights and delegate its duties hereunder to an Affiliate
or, after the second anniversary of the Closing of this Agreement, to a third
party acquiring some portion or all of its Preferred Stock or Conversion Shares
in a private transaction, provided that the Affiliate agrees in writing to be
bound by the terms of this Agreement, and without the prior written consent of
Investor, but after notice duly given and in compliance with this Agreement, the
Company may assign its rights and delegate its duties hereunder to any
successor-in-interest corporation in the event of a merger or consolidation of
the Company with or into another corporation, or any merger or consolidation of
another corporation with or into the Company that results directly or indirectly
in an aggregate change in the ownership or control of more than 50% of the
voting rights of the equity securities of the Company, or the sale of all or
substantially all of the Company's assets. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
provided in Sections 5.7, 7.1.9 and 7.1.10 hereof or as otherwise expressly
provided in this Agreement.
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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 NOTICES. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given only upon delivery to each party to be notified by (i) personal delivery,
(ii) telex or telecopier, upon receipt of confirmation of complete transmittal,
or (iii) an internationally recognized overnight air courier, addressed to the
party to be notified at the address as follows, or at such other address as such
party may designate by ten days' advance written notice to the other party:
If to the Company: Interleukin Genetics, Inc.
135 Beaver Street, 2nd Floor
Waltham, MA 02452
Attn: Chief Executive Officer
Fax: 781/398-0720
with a copy to: Mintz Levin Cohn Ferris Glovsky Popeo PC
One Financial Center
Boston, MA 02111
Attn: Stanford N. Goldman, Jr. and Jeffrey M. Wiesen
Fax: 617/542-2241
If to Investor: Pyxis Innovations Inc.
7575 Fulton Street East
Ada, Michigan 49355-0001
Attn: Beto Guajardo and Thomas R. Curran, Jr.
Fax: 616/787-7813
with a copy to: Warner Norcross & Judd LLP
900 Fifth Third Center
111 Lyon Street NW
Grand Rapids, Michigan 49503-2487
Attn: Michael P. Lunt
Fax: 616/752-2500
8.5 EXPENSES. The parties hereto shall pay their own costs and expenses in
connection with this Agreement.
8.6 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), only with
the written consent of the Company and Investor. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon Investor, each
future holder of all the Preferred Stock or Conversion Shares, and the Company.
8.7 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.8 ENTIRE AGREEMENT. This Agreement, including the Exhibits and Schedules
hereto, and the Agreements constitute the entire agreement among the parties
hereof with respect to the subject matter
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hereof and thereof and supersede all prior agreements and understandings, both
oral and written, between the parties with respect to the subject matter hereof
and thereof. The Note Purchase Agreement shall continue in full force and
effect, except as amended as part of the Contemplated Transactions.
8.9 FURTHER ASSURANCES. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
8.10 APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to principles
of conflicts of laws.
* * *
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IN WITNESS WHEREOF, the parties have executed this Stock Purchase
Agreement as of the date first above written.
The Company: INTERLEUKIN GENETICS, INC.
By: /s/ Philip R. Reilly
--------------------------------
Name: Philip R. Reilly
Title: President
Investor: PYXIS INNOVATIONS, INC.
By: /s/ Beto Guajardo
--------------------------------
Name: Beto Guajardo
Title:
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