SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of Earliest Event Reported):
|
October 26, 2010
|
INVIVO
THERAPEUTICS HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Nevada
|
|
000-52089
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36-4528166
|
(State or other jurisdiction of
incorporation)
|
|
(Commission File
Number)
|
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(I.R.S. Employer Identification No.)
|
One Broadway, 14
th
Floor
,
Cambridge, MA 02142
(Address of principal executive offices)
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(617) 475-1520
|
|
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(Registrant’s telephone number, including
area code)
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|
Design
Source, Inc., 100 Europa Drive, Suite 455, Chapel Hill, NC 27517
(Former name, former address and former fiscal year, if changed since last
report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
¨
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
¨
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
current report contains forward-looking statements as that term is defined in
the Private Securities Litigation Reform Act of 1995. These statements relate to
anticipated future events, future results of operations or future financial
performance. These forward-looking statements include, but are not limited to,
statements relating to our ability to raise sufficient capital to finance our
planned operations, market acceptance of our technology and product offerings,
our ability to attract and retain key personnel, our ability to protect our
intellectual property, and estimates of our cash expenditures for the next 12 to
36 months. In some cases, you can identify forward-looking statements by
terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,”
“plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” or “continue” or the negative of these terms or other
comparable terminology.
These
forward-looking statements are only predictions, are uncertain and involve
substantial known and unknown risks, uncertainties and other factors which may
cause our (or our industry’s) actual results, levels of activity or performance
to be materially different from any future results, levels of activity or
performance expressed or implied by these forward-looking statements. The “Risk
Factors” section of this current report sets forth detailed risks, uncertainties
and cautionary statements regarding our business and these forward-looking
statements.
We cannot
guarantee future results, levels of activity or performance. You should not
place undue reliance on these forward-looking statements, which speak only as of
the date that they were made. These cautionary statements should be considered
with any written or oral forward-looking statements that we may issue in the
future. Except as required by applicable law, including the securities laws of
the United States, we do not intend to update any of the forward-looking
statements to conform these statements to reflect actual results, later events
or circumstances or to reflect the occurrence of unanticipated
events.
EXPLANATORY
NOTE
On
October 4, 2010 Design Source, Inc., a Nevada corporation (“DS"), entered into
an agreement and Plan of Merger (the "Merger Agreement") pursuant to which DS
merged with its newly formed, wholly owned subsidiary, InVivo Therapeutics
Holdings Corp. (“Merger Sub”), a Nevada corporation (the "ITHC Merger"). Upon
the consummation of the ITHC Merger, the separate existence of Merger Sub ceased
and DS, the surviving corporation in the ITHC Merger, became known as InVivo
Therapeutics Holdings Corp. (“ITHC”).
As
permitted by Chapter 92A.180 of Nevada Revised Statutes, the sole purpose of the
ITHC Merger was to effect a change of DS's name. Upon the filing of Articles of
Merger (the "Articles of Merger") with the Secretary of State of Nevada on
October 4, 2010 to effect the ITHC Merger, DS's articles of incorporation were
deemed amended to reflect the change in DS's corporate name.
On
October 26, 2010, InVivo Therapeutics Acquisition Corp. (“Acquisition Corp.”), a
wholly-owned subsidiary of ITHC, merged (the “
Merger
”) with and into InVivo
Therapeutics Corporation, a Delaware corporation (“
InVivo
”). InVivo was the
surviving corporation of that Merger. As a result of the Merger, ITHC acquired
the business of InVivo, and will continue the existing business operations of
InVivo, as a wholly-owned subsidiary.
As used
in this Current Report, the terms the “
Company
”,
“we
,” “
us
,” and “
our
” refer to InVivo
Therapeutics Holdings Corp., the Nevada corporation, and its wholly-owned
subsidiary InVivo, after giving effect to the Merger, unless otherwise stated or
the context clearly indicates otherwise. The term “
ITHC
” refers to InVivo
Therapeutics Holdings Corp. (f/k/a Design Source, Inc.), the Nevada corporation,
before giving effect to the Merger, and the term “InVivo” refers to InVivo
Therapeutics Corporation, the Delaware corporation, before giving effect to the
Merger.
This
Current Report contains summaries of the material terms of various agreements
executed in connection with the transactions described herein. The summaries of
these agreements are subject to, and are qualified in their entirety by,
reference to these agreements, all of which are incorporated herein by
reference.
This
current report is being filed in connection with a series of transactions
consummated by the Company and certain related events and actions taken by the
Company.
This
current report responds to the following items on Form 8-K:
Item
1.01
|
Entry
into a Material Definitive
Agreement
|
Item
2.01
|
Completion
of Acquisition or Disposition of
Assets
|
Item
3.02
|
Unregistered
Sales of Equity Securities
|
Item
4.01
|
Changes
in Registrant’s Certifying
Accountant
|
Item
5.01
|
Changes
in Control of Registrant
|
Item
5.02
|
Departure
of Directors or Principal Officers; Election of Directors; Appointment of
Principal Officers
|
Item
5.06
|
Change
in Shell Company Status
|
Item
9.01
|
Financial
Statements and Exhibits
|
TABLE OF
CONTENTS
Item
1.01.
|
Entry
into a Material Definitive Agreement
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|
5
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|
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|
|
Item
2.01.
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Completion
of Acquisition or Disposition of Assets
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5
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The
Merger And Related Transactions
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5
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|
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|
Description
Of Business
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11
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Risk
Factors
|
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25
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Management’s
Discussion And Analysis Of Financial Condition And Results Of
Operations
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43
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Description
Of Property
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48
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Security
Ownership Of Certain Stockholders And Management
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48
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Directors
And Executive Officers
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49
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Executive
Compensation
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55
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Certain
Relationships And Related Transactions
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60
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Description
Of Capital Stock
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62
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Market
For Common Equity And Related Stockholder Matters
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66
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Legal
Proceedings
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67
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Recent
Sales Of Unregistered Securities
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67
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Indemnification
Of Officers And Directors
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68
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Part
F/S
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68
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Index
To Exhibits
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69
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Description
of Exhibits
|
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69
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Item
3.02
|
Unregistered
Sales of Equity Securities
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69
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Item
4.01
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Changes
in Registrant’s Certifying Accountant
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69
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Item
5.01
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Changes
in Control of the Registran
t
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70
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Item
5.02
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Departure
of Directors or Certain Officers;
Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers
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70
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Item
5.03
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Amendments
to Articles of Incorporation or Bylaws; Change in Fiscal
Year
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70
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Item
5.06
|
Change
in Shell Company Status
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70
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Item
9.01
|
Financial
Statements and Exhibits
|
|
70
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Item
1.01.
|
Entry
into a Material Definitive
Agreement
|
On
October 26, 2010, the Company entered into an Agreement and Plan of Merger and
Reorganization, which we refer to in this Current Report as the “
Merger Agreement
”, and
completed the Merger. For a description of the Merger and the material
agreements entered into in connection with the Merger, please see the
disclosures set forth in Item 2.01 to this Current Report, which disclosures are
incorporated into this item by reference.
Item
2.01.
|
Completion
of Acquisition or Disposition of
Assets
|
THE
MERGER AND RELATED TRANSACTIONS
The
Merger
On
October 26, 2010 (which we refer to as the “
Closing Date
”), ITHC, InVivo
and Acquisition Corp. entered into the Merger Agreement and completed the
Merger. Before their entry into the Merger Agreement, no material relationship
existed between ITHC (or its Acquisition Corp. subsidiary) and InVivo. A copy of
the Merger Agreement is attached as Exhibit 2.1 to this Current Report and is
incorporated herein by reference.
Pursuant
to the Merger Agreement, on the Closing Date, Acquisition Corp., a wholly-owned
subsidiary of ITHC, merged with and into InVivo, with InVivo remaining as the
surviving entity. ITHC acquired the business of InVivo pursuant to
the Merger and will continue the existing business operations of InVivo as a
wholly-owned subsidiary.
Simultaneously
with the Merger, on the Closing Date all of the issued and outstanding shares of
InVivo common stock converted, on a 13.7706 for 1 basis, into shares of the
Company’s common stock (“
Common
Stock
”). Also on the Closing Date, all of the issued and outstanding
options to purchase shares of InVivo common stock, and the issued and
outstanding Bridge Warrants (as defined below) to purchase shares of InVivo
Common Stock, converted, respectively, into options (the “
New Options
”) and new bridge
warrants (the “
New Bridge
Warrants
”) to purchase shares of our Common Stock. The number of shares
of Common Stock issuable under, and the price per share upon exercise of, the
New Options and the New Bridge Warrants were calculated based on the terms of
the original options and warrants of InVivo, as adjusted by the conversion ratio
in the Merger, which is described in the Merger Agreement. The New Options will
be administered under InVivo’s 2007 Stock Incentive Plan, which the Company
assumed and adopted on the Closing Date in connection with the
Merger.
On the
Closing Date, an aggregate of 31,647,190 shares of Common Stock were issued to
former InVivo stockholders and 5,915,561 Options and 600,000 New Bridge Warrants
were issued to holders of outstanding InVivo options and warrants. The
stockholders of ITHC before the Merger, without giving effect to the Offering
(as defined below), retained 6,999,981 shares of Common Stock.
The
Merger Agreement contains customary representations, warranties and covenants of
ITHC, and, as applicable, Acquisition Corp., for like transactions. Breaches of
representations and warranties are secured by customary indemnification
provisions.
The
Merger will be treated as a recapitalization of the Company for financial
accounting purposes. The historical financial statements of ITHC before the
Merger will be replaced with the historical financial statements of InVivo
before the Merger in all future filings with the Securities and Exchange
Commission (the “
SEC
”).
Following
closing of the Merger, our board of directors consists of five members. In
keeping with the foregoing, on the Closing Date, Peter A. Reichard and Peter L.
Coker, the directors of ITHC before the Merger, appointed Frank M.
Reynolds,
Richard
J. Roberts, George Nolen, Christi M. Pedra and Adam K. Stern to fill vacancies
on the board of directors, and Messrs. Reichard and Coker resigned their
positions as directors. Also on the Closing Date, Messrs. Reichard and Coker,
the officers of ITHC, resigned and new executive officers designated by InVivo
were appointed. The officers and directors of the Company as of the Closing Date
are identified in this Current Report under the heading “Directors and Executive
Officers.”
Before
the Merger, ITHC’s board of directors adopted the 2010 Equity Incentive Plan,
which is expected to be submitted to the shareholders of the Company for
approval during the twelve month period immediately following the closing of the
Merger. The 2010 Equity Incentive Plan provides for the issuance of up to
3,500,000 shares of Common Stock as incentive awards granted to executive
officers, key employees, consultants and directors. In addition, the Company
assumed and adopted InVivo’s 2007 Stock Incentive Plan, and as described above
option holders under that plan will be granted New Options to purchase Common
Stock. No further options will be granted under the 2007 Stock Incentive Plan.
The parties have taken all actions necessary to ensure that the Merger is
treated as a tax free exchange under Section 368(a) of the Internal Revenue Code
of 1986, as amended.
The
issuance of shares of Common Stock to holders of InVivo’s capital stock in
connection with the Merger was not registered under the Securities Act of 1933,
as amended (the “
Securities
Act
”), in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act and Regulation D promulgated by the SEC under
that section, which exempts transactions by an issuer not involving any public
offering. These securities may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirement.
The
Offering
Concurrently
with the closing of the Merger and in contemplation of the Merger, the Company
completed a private offering (the “
Offering
”) of 10,514,097 units
of its securities (“
Units
”), at a price of $1.00
per Unit. Each Unit consists of one share of Common Stock and a warrant to
purchase one share of Common Stock. The warrants (the “
Investor Warrants
”) are
exercisable for a period of five years at a purchase price of $1.40 per share of
Common Stock. The Offering was made only to accredited investors, as defined
under Regulation D, Rule 501(a). On the Closing Date, the investors in the
Offering collectively purchased 10,514,097 Units for total cash consideration of
$10,514,097, which includes the conversion of $504,597 of principal of, and
accrued interest on, Bridge Notes (as defined below).
The sale
of Units (including the Common Stock, the Investor Warrants and the Common Stock
underlying the Investor Warrants) in the Offering was exempt from registration
under Section 4(2) of the Securities Act and Rule 506 of Regulation D and
Regulation S as promulgated by the SEC. In the Offering, no general solicitation
was made by us or any person acting on our behalf. The Units were sold pursuant
to transfer restrictions, and the certificates for shares of Common Stock and
Investor Warrants underlying the Units sold in the Offering contain appropriate
legends stating that such securities are not registered under the Securities Act
and may not be offered or sold absent registration or an exemption from
registration.
The
Company paid the Placement Agent (the name of which will be disclosed on a
subsequent Current Report on Form 8-K) a commission of 10% of the funds raised
from such investors in the Offering. In addition, the Placement Agent received a
non-accountable expense allowance equal to 3% of the proceeds raised in the
Offering as well as warrants to purchase a number of shares of Common Stock
equal to 20% of the Units sold to investors in the Offering. As a result of the
foregoing arrangement, at the initial closing of the Offering, the Placement
Agent was paid commissions and expenses of $1,366,833 and was issued warrants to
purchase (i) 2,102,819 shares of Common Stock at an exercise price of $1.00 per
share and (ii) 2,102,819 shares of Common Stock at an exercise price of $1.40
per share.
The form
of the Investor Warrant issued in the Offering is attached as Exhibit 4.3 to
this Current Report and is incorporated herein by reference.
The
Private Sale
Prior to
the commencement of the Offering, InVivo completed a Bridge Financing, wherein
it sold $500,000 in principal amount of its bridge notes (the “Bridge Notes”)
and 36,310 bridge warrants (the “Bridge Warrants”) to accredited investors (the
“Bridge Financing”). The Bridge Notes converted into 504,597 Units in the
Offering. The 36,310 Bridge Warrants converted into 500,000 New Bridge Warrants,
each exercisable at a price of $1.00 per share of Common Stock, upon the closing
of the Merger. Holders of the New Bridge Warrants received the same registration
rights with respect to the shares of common stock issuable upon exercise of such
Warrants as the investors in the Offering. As consideration for locating
investors to participate in the Bridge Financing, the Placement Agent received
Warrants from InVivo that were exchanged on the closing of the Merger
for Warrants to purchase 100,000 shares of Common Stock at a price of $1.00
per share. The Placement Agent also received, upon conversion of the Bridge
Notes, compensation in the same amount as it received for other Units sold in
the Offering. The Merger, the Offering, the Private Sale and the related
transactions are collectively referred to in this Current Report as the “
Transactions
.”
Registration
Rights
All of
the securities issued in connection with the Transactions are “restricted
securities,” and as such are subject to all applicable restrictions specified by
federal and state securities laws.
On the
Closing Date, the Company entered into a registration rights agreement with the
investors in the Offering. Under the terms of the registration rights agreement,
the Company has committed to file a registration statement covering the resale
of the Common Stock underlying the Units and the Common Stock that is issuable
on exercise of the Investor Warrants and the New Bridge Warrants (but not the
Common Stock that is issuable upon exercise of the warrants issued as
compensation to the Placement Agent in the Offering or in the Bridge Financing)
within 90 days from the Closing Date (the “Filing Deadline”), and shall use
commercially reasonable efforts to cause the registration statement to become
effective no later than 180 days after it is filed (the “Effective
Deadline”).
The
Company has agreed to use reasonable efforts to maintain the effectiveness of
the registration statement through the one year anniversary of the date the
registration statement is declared effective by the SEC, or until Rule 144 of
the Securities Act is available to investors in the Offering with respect to all
of their shares, whichever is earlier. The Company will be liable for monetary
penalties equal to equal to one-half of one percent (0.5%) of such holder’s
investment in the Offering on every thirty (30) day anniversary of such Filing
Deadline or Effectiveness Deadline failure until such failure is cured. The
payment amount shall be prorated for partial thirty (30) day periods. The
maximum aggregate amount of payments to be made by the Company as the result of
such failures, whether by reason of a Filing Deadline failure, Effectiveness
Deadline failure or any combination thereof, shall be an amount equal to 9% of
each holder’s investment amount. Notwithstanding the foregoing, no payments
shall be owed with respect to any period during which all of the holder’s
registrable securities may be sold by such holder under Rule 144 or pursuant to
another exemption from registration.
Moreover,
no such payments shall be due and payable with respect to any registrable
securities the Company is unable to register due to limits imposed by the SEC’s
interpretation of Rule 415 under the Securities Act. The holders of any
registrable securities removed from the Registration Statement a result of a
Rule 415 or other comment from the SEC shall have “piggyback” registration
rights for the shares of Common Stock or Common Stock underlying such warrants
with respect to any registration statement filed by the Company following the
effectiveness of the Registration Statement which would permit the inclusion of
these shares. The form of the registration rights agreement is attached as
Exhibit 10.4 to this Current Report and is incorporated herein by
reference.
Split-Off
Agreement
Immediately
after the closing of the Merger, ITHC split off its wholly-owned subsidiary, D
Source Split Corp., a company organized under the laws of Nevada (“DSSC”). The
split-off was accomplished through the sale of all outstanding shares of DSSC.
In connection with the Split-Off, 14,747,554 (post-split) shares of Common Stock
held by Peter Reichard, Lawrence Reichard and Peter Coker (the “
Split-Off Shareholders
”) were
surrendered and cancelled without further consideration, other than the shares
of DSSC. An additional 1,014,490 (post-split) shares of Common stock
were cancelled by a shareholder of ITHC for no consideration (the “
Share Cancellation
”). The
assets and liabilities of ITHC were transferred to the Split-Off Shareholders in
the Split-Off. The Company executed a split off agreement with the Split-Off
Shareholders, a copy of which is attached as Exhibit 10.5 to this Current Report
and is incorporated herein by reference.
Lock-up
Agreements
In
connection with the Merger, each of the officers, directors and holders of 5% or
more of the Company’s Common Stock and certain employees and affiliates of the
Placement Agent have agreed to “lock-up” and not sell or otherwise transfer or
hypothecate any of their shares for a term equal to the earlier of (i) twelve
(12) months from the Closing Date of the Merger; or (ii) six (6) months
following the effective date of the Registration Statement registering the
shares of Common Stock included in the Units as well as the shares of Common
Stock issuable upon exercise of the Investor Warrants and the New Bridge
Warrants.
Current
Ownership
Immediately
after giving effect to the Transactions, the Units sold in this Offering, the
options granted under the 2007 Plan (that were assumed by the Company), and the
warrants issued to the Placement Agent in connection with the Offering and the
issuance of the New Bridge Warrants, there were issued and outstanding
securities of the Company on the closing of the Transactions:
|
§
|
49,161,268
shares of Common Stock;
|
|
§
|
No
shares of preferred stock;
|
|
§
|
Options
to purchase 5,915,615 shares of Common Stock granted under the
2007 Plan;
|
|
§
|
Investor
Warrants to purchase 10,514,097 shares of Common Stock at $1.40 per share
issued to the investors in the Offering and warrants to purchase 2,102,819
shares of Common Stock at a price of $1.00 per share and 2,102,819
warrants exercisable at a price of $1.40 per share issued to
the Placement Agent in connection with the Offering;
and
|
|
§
|
New
Bridge Warrants issued to Bridge Investors to purchase 500,000 shares of
Common Stock at $1.00 per share and warrants to purchase 100,000 shares of
Common Stock exercisable at a price of $1.00 per share issued to the
Placement Agent in connection with the Bridge
Financing.
|
Accounting
Treatment; Change of Control
The
Merger is being accounted for as a “reverse merger,” and InVivo is deemed to be
the acquirer in the reverse merger. Consequently, the assets and liabilities and
the historical operations that will be reflected in the financial statements
prior to the Merger will be those of InVivo, and the consolidated financial
statements after completion of the Merger will include the assets and
liabilities of InVivo, historical operations of InVivo and operations of InVivo
from the Closing Date of the Merger. Except as described in the previous
paragraphs, no arrangements or understandings exist among present or former
controlling stockholders with respect to the election of members of our board of
directors and, to our knowledge, no other arrangements exist that might result
in a change of control of the Company. Further, as a result of the issuance of
the shares of Common Stock pursuant to the Merger, a change in control of the
Company occurred as of the date of consummation of the Merger.
DESCRIPTION
OF BUSINESS
Immediately
following the Merger, the business of InVivo became the business of the
Company.
InVivo
Therapeutics Corporation was founded to develop and commercialize groundbreaking
technologies for the treatment of spinal cord injuries (“
SCI
”). InVivo’s
proprietary technology was co-invented by Robert S. Langer, ScD, Professor at
Massachusetts Institute of Technology and Joseph P. Vacanti, MD, affiliated with
Massachusetts General Hospital. The intellectual property rights that are the
basis for InVivo’s products are licensed under an exclusive, world-wide license
from Children’s Medical Center Corporation (“
CMCC
”) and Massachusetts
Institute of Technology.
InVivo
intends to create a new paradigm of care for SCI. Current treatments
consist of a collection of approaches that only focus on symptoms of SCI. To
date, we are not aware of any product on the market that addresses the
underlying pathology of a SCI.
Currently,
there are no successful spinal cord injury treatment options for SCI patients.
InVivo takes a novel approach to SCI and focuses on protection of the spinal
cord and prevention of secondary injury rather than regeneration. InVivo’s
platform technologies focus on minimizing tissue damage sustained following
acute injury and promoting neural plasticity of the spared healthy tissue, which
may result in full or partial functional recovery. The technologies
encompass multiple strategies involving biomaterials, U.S. Food & Drug
Administration (“
FDA
”)
approved drugs, growth factors, and human neural stem cells (“
hNSCs
”). According
to Eric J. Woodard, MD, our Chief Medical Officer, former Chief of Spine Surgery
Brigham and Women’s Hospital, Department of Neurosurgery and Harvard Medical
School, and current Chief of Neurosurgery at New England Baptist Hospital,
InVivo’s approach could very likely become a standard treatment for both acute
and chronic SCI.
The
Technology
InVivo
intends to leverage its primary platform technology to deliver three products to
the market as follows:
|
1.
|
A
biocompatible polymer scaffolding device to treat acute wound
SCI.
|
|
2.
|
A
biocompatible hydrogel for local controlled release of methylprednisolone
to treat acute SCI.
|
|
3.
|
A
biocompatible polymer scaffolding device seeded with autologous hNSCs to
treat acute and chronic SCI.
|
InVivo
products are biopolymer-based devices that are surgically implanted or injected
into the lesion created during traumatic injury, or the “primary injury”. These
scaffolding products protect the damaged spinal cord by mitigating the
progression of “secondary injury” resulting from the body’s inflammatory and
immune response to injury, and promote neuroplasticity, a process where
functional recovery may occur through the rerouting of signaling
pathways to the spared healthy issue. Achieving these results is
essential to the recovery process, as secondary injury can significantly worsen
the immediate damage sustained during trauma. The additional damage dramatically
reduces patient quality of life post-SCI.
Additional
applications of InVivo’s platform technologies include the potential treatment
for, spinal cord injury following tumor removal, peripheral nerve damage, and
postsurgical treatment of any transected nerve. Furthermore, because InVivo’s
first product is an acellular and drug-free medical device, we expect the
regulatory approval timeline may require just one year patient
follow-up.
Market
Opportunity
As we are
aware of no current products on the market to achieve the therapeutic benefit
expected with InVivo’s device, we believe that InVivo’s market opportunity is
significant. By 2011, based on the Company’s estimates, the total addressable
market for acute SCI will be approximately $10.4 billion annually based on
multiplying the global incidence rate by an anticipated global price per unit of
$44,000. Since 1973, the National Spinal Cord Injury Statistical Center (“
NSCISC
”) at the University of
Alabama has been commissioned by the US government to maintain a national
database of SCI statistics. The NSCISC has projected an annual SCI
incidence growth rate of 1% due to a growing US population and escalated
societal risks that include faster highway speed limits, expanding participation
in extreme sports, and increased gun ownership.
In the
United States:
|
·
|
Approximately
1,275,000 people are currently living with paralysis due to
SCI.
|
|
·
|
An
additional 12,000 individuals will become fully or partially paralyzed
this year alone.
|
Globally:
|
·
|
Over
5,200,000 people are living with spinal cord
injuries,
|
|
·
|
More
than 167,000 individuals will become fully or partially paralyzed this
year alone.
|
The
financial impact of SCI, as reported by the NSCISC, is enormous:
|
|
During
the first year, “cost of care” ranges from $244,562 to $829,843, depending
on the severity.
|
|
|
The
net present value (“
NPV
”) to maintain a
quadriplegic injured at age 25 for life is
$3,273,270.
|
|
|
The
NPV to maintain a paraplegic injured at age 25 for life is
$1,093,669.
|
Sources:
Christopher & Dana Reeve
Foundation, and National Spinal Cord Injury Statistical Center. “One Degree of
Separation: Paralysis and Spinal Cord Injury in the United States”
2010.
These
costs place a tremendous financial burden on families, insurance providers, and
government agencies. Moreover, despite all financial investment, the
patient remains disabled for life since current medical interventions address
only the symptoms of SCI rather than the underlying neurological
cause.
TABLE
1. COST OF CARE FOR AN SCI PATIENT
|
|
AVERAGE YEARLY
EXPENSES
(in 2009 dollars)
|
|
|
ESTIMATED LIFETIME
COSTS
BY AGE AT INJURY
(NPV, Discounted at 2%)
|
|
SEVERITYOF INJURY
|
|
First Year
|
|
|
Each
Subsequent
Year
|
|
|
25 Years Old
|
|
|
50 Years Old
|
|
High
Tetraplegia (C1-C4)
|
|
$
|
829,843
|
|
|
$
|
148,645
|
|
|
$
|
3,273,270
|
|
|
$
|
1,926,992
|
|
Low
Tetraplegia (C5-C8)
|
|
$
|
535,877
|
|
|
$
|
60,887
|
|
|
$
|
1,850,805
|
|
|
$
|
1,172,070
|
|
Paraplegia
|
|
$
|
303,220
|
|
|
$
|
30,855
|
|
|
$
|
1,093,669
|
|
|
$
|
745,951
|
|
Incomplete
Motor Functional at Any Level
|
|
$
|
244,562
|
|
|
$
|
17,139
|
|
|
$
|
729,560
|
|
|
$
|
528,726
|
|
Source: National Spinal Cord Injury
Statistical Center; February 2010 edition of “Spinal Cord Injury Facts and
Figures at a Glance.” All figures in US Dollars
.
Note:
tetraplegia is paralysis in the arms, legs and trunk of the body below the level
of the spinal cord injury; paraplegia is paralysis of the lower part of the body
including the legs.
Creating
a New Paradigm for SCI Treatment
InVivo
intends to create a new paradigm for treating SCI. Current methods
consist of a collection of approaches that only focus on symptoms of SCI. To
date, we are not aware of any product on the market that addresses the
underlying pathology of SCI.
InVivo’s
goal is to create a new paradigm for care by changing the way physicians treat
SCI. InVivo’s technology aims to protect the spinal cord and minimize secondary
injury that causes cell death while promoting neural plasticity of the spared
healthy tissue, something no other product on the market is designed to do.
InVivo’s products, if approved for commercialization, will be a new therapeutic
class of products and will not compete with current treatment options (i.e.
spinal fixation devices). Rather, it is expected that they will be complementary
to these products, and the combination may create the best clinical
outcome.
InVivo’s
Planned First Product: A Scaffolding Device to Treat SCI
SCI
involves not only initial cell death at the lesion due to mechanical impact but
also a devastating secondary injury pathology that persists for several weeks
(Figure 1). We are focused on preventing this secondary cascade of
cell death and promoting the subsequent repair and recovery
processes.
FIGURE
1. PROGRESSION OF SECONDARY INJURY (DAYS 2-30 POST-INJURY) (Fleming
et al.
2006)
InVivo’s
first product is a novel surgical device, designed for implantation into the
lesion to treat acute open-wound SCI (Figure 2). InVivo’s recent results in
primate studies are extremely promising. The scaffold was developed from
polylactic-co-glycolic acid (PLGA), a biodegradable and biocompatible polymer,
which is approved by the FDA for applications such as surgical sutures (Dolphin
sutures and Ethicon sutures), drug delivery (Lupron Depot and Sandostatin LAR
Depot), and tissue engineering (Dermagraft). This device degrades naturally
inside the body over a desired time period to maximize efficacy without
requiring subsequent removal.
FIGURE
2. SCAFFOLD IMPLANTED INTO SCI LESION
In
preventing the cascading inflammatory response or secondary injury, InVivo’s
device is designed to perform four functions:
|
1.
|
Fill
the necrotic lesion to minimize secondary injury, which may occur by
inhibiting cell-cell signaling via inflammatory
cytokines.
|
|
2.
|
Bridge
the gap formed by the lesion, providing a matrix designed to promote
regrowth and reorganization of neural elements (neurons and
neurites).
|
|
3.
|
Act
as a synthetic extracellular matrix, with the goal of promoting survival
of surrounding neurons.
|
|
4.
|
Reduce
scar formation (astrogliosis).
|
InVivo’s
Polymer Technology Differentiator
InVivo
intends to introduce the first biodegradable polymer scaffold without any other
FDA regulated components for SCI treatment. The current cell and
drug-free nature of InVivo’s implantable device is expected to expedite InVivo’s
regulatory approval timelines. The device will be customized to fit
inside a patient-specific lesion.
InVivo’s
Planned Second Product: Local Controlled Release Drug Delivery
InVivo’s
second intended product is an injectable hydrogel designed to counteract the
inflammatory environment that results during a secondary injury from a
closed-wound SCI where further cell death occurs. The hydrogel is designed to
release drugs over at least 10 days in order to synchronize the rate of delivery
to match the period in which the inflammatory response peaks during secondary
injury. While the hydrogel could incorporate other hydrophilic drugs
or therapeutic agents that counteract secondary injury, promote neuroplasticity
or support endogenous repair mechanisms, InVivo’s second product is designed to
deliver the anti-inflammatory steroid methylprednisolone sodium
succinate. Methylprednisolone sodium succinate is FDA approved, and
is currently a treatment option for SCI. However, high-dose
intravenous administration of the drug can result in harmful systemic side
effects, including increased risks of pneumonia, sepsis and
mortality. By precisely controlling the release of methylprednisolone
at the site of injury, we hypothesize that therapeutically effective doses can
be delivered to the point of inflammation while mitigating the risk of harmful
systemic side effects.
InVivo’s
Planned Third Product: Polymer Scaffold Seeded with Autologous Human Neural Stem
Cells
InVivo’s
third intended product extends the biopolymer platform technology to treat both
acute closed-wound and chronic SCI patients by seeding the patient’s own stem
cells onto the scaffold and then inserting the scaffold into the injured spinal
cord. The scaffold acts as a synthetic extracellular matrix on which
cells can be transplanted.
InVivo’s
third product is intended to counteract the pathophysiology of SCI
by:
|
1.
|
Replacing
lost cells of the spinal cord.
|
|
2.
|
Activating
endogenous regenerative processes such as the formation of new synapses
and axonal sprouting based on molecules the stem cells
produce.
|
PRE-CLINICAL
RESULTS IN ANIMALS
InVivo
has demonstrated the proof of concept for its SCI therapy in primate and rodent
animal models.
Seminal
Rodent Study – 2002
The first
animal study for InVivo’s promising technology was performed in 2002 and
published in the Proceedings of the National Academy of Sciences (PNAS, 2002,
vol.99, no.5, 3024-9). The implemented scaffold was designed to mimic
the cellular architecture of the inner ‘grey’ matter and outer ‘white’ matter of
the spinal cord (Figure 3).
FIGURE
3 (
a
) SCHEMATIC OF THE
SCAFFOLD SHOWING INNER AND OUTER ARCHITECTURE. (
b
and
c
) INNER SCAFFOLDS SEEDED
WITH HNSC (SCALE: 200 µM AND 50 µM, RESPECTIVELY). THE OUTER SECTION OF THE
SCAFFOLD CONTAINS LONG, AXIALLY ORIENTED PORES FOR AXONAL GUIDANCE AS WELL AS
RADIAL PORES TO ALLOW FLUID TRANSPORT WHILE INHIBITING THE IN-GROWTH OF SCAR
TISSUE (SCALE: 100 µM). (
e
) SCHEMATIC OF SURGICAL
INSERTION OF THE IMPLANT INTO THE SPINAL CORD.
The study
demonstrated the impact of InVivo polymer-alone device (first product) and
InVivo’s polymer with hNSC device (third product) in treating SCI (Figure
5). The hNSCs augment the polymer scaffolding
treatment. The study also demonstrated that stem cells injected into
the lesion without InVivo’s proprietary scaffold do not exert a therapeutic
effect. Comparable to the adhesion of cells to the body’s
extracellular matrix, it is thought that the scaffolding device is necessary for
the hNSCs to survive and function following transplantation.
Basso-Beattie-Bresnahan (BBB) scoring
was used to evaluate open-field locomotion at one day post-surgery and weekly
time points over the course of six weeks post-injury. Results from
the PLGA scaffold configured to treat SCI showed functional locomotive
improvement as early as two weeks post injury. While the study was
stopped at the end of either week 8 or week 10, rodents were kept for over one
year. Over this period, the subjects demonstrated sustainable functional
recovery, and they exhibited no adverse pathological reactions to the
product. Since the rat has an average lifespan of two years, InVivo
believes that the follow-up timeframe of over one year demonstrates the
viability of its device.
Pilot
Primate Study – 2008
We
believe the non-human primate model is the best surrogate for how SCI products
will work in humans. To date, the PLGA scaffolding device has been
evaluated in two primate studies. The first study was completed in 2008, is
published in the Journal of Neuroscience Methods, and focused mainly on the
assessment criteria following the model SCI. The second primate study which
involved a larger number of primates also included collecting quantitative
electromyographic and kinematic analyses.
In April
2008, InVivo conducted a non-human primate study for model SCI. The
experiment was designed as a pilot study to test the model injury’s suitability
in assessing the therapeutic efficacy of InVivo’s technologies. The
study was conducted at the St. Kitts Biomedical Research Foundation in St. Kitts
and Nevis. The surgeries were performed by Eric Woodard, MD, InVivo’s Chief
Medical Officer, and Jonathan Slotkin, MD. Dr. Woodard served as
Chief of Spine Surgery at Harvard’s Brigham & Women’s Hospital for ten years
and is currently Chief of Neurosurgery at Boston’s New England Baptist
Hospital. Dr. Slotkin has practiced at Harvard’s Brigham &
Women’s Hospital and is currently a spine neurosurgeon at the Washington Brain
and Spine Institute and a member of InVivo’s Scientific Advisory
Board.
We utilized a lateral hemisection
injury model in four African Green monkeys, in which the left-half segment of
the spinal cord between T9 and T10 was surgically removed. Following
tissue removal, the InVivo patented device was inserted into the resulting
lesion by InVivo’s Chief Medical Officer Dr. Eric Woodard (Figure
4). The model resulted in Brown-Séquard syndrome: paralysis of the
animals’ left hind limb and loss of sensory function in the animals’ right hind
limb. The model was successful in preserving bowel and bladder
function in all animals.
FIGURE
4. DEVICE INSERTED INTO HEMI-SECTION
Animals
were monitored for six weeks post-injury, and behavioral scoring was performed
to measure functional recovery by a neuroscientist blinded to the injury model
or treatments performed on each subject. Preliminary data uses a
20-point observational scale to assess the degree of functional recovery in the
hind-limbs, where a score greater than 8 indicates the subject’s ability to bear
weight and perform deliberate stepping (Figure 6).
Non-Human
Primate Studies: Comparison of Results to Prior Rodent Study
|
|
|
|
FIGURE 5. IPSILATERAL-LESIONED
SIDE BBB OPEN-FIELD WALKING SCORE FROM RODENT STUDY
(Teng, Lavik,
et al.
2002)
|
|
FIGURE
6. LEFT HINDLIMB NEUROMOTOR PERFORMANCE FROM ST. KITTS PRIMATE
GREEN PILOT STUDY (2008)
(SCAFFOLD
+ HNSC: N=2 EXPECT FOR DAY 1 & DAY 44, WHERE
N=1;
SCAFFOLD-ALONE:
N=1, NO
TREATMENT: N=1)
|
The two
African Green monkeys that received scaffolds seeded with human neural stem
cells (n=2, Figure 6) demonstrated an improved level of functional recovery
compared to the control animal (n=1, Figure 6). These results mirrored the
behavioral observations obtained in InVivo’s rodent study (n=12, Figure 5).
Furthermore, implantation of the scaffold alone demonstrated improved efficacy
in promoting functional recovery compared to the control in both one monkey
(n=1, Figure 6) and in prior rodent studies (n=12, Figure 5).
2
nd
Primate
Study 2010- Preclinical evaluation of biomaterial scaffolds and hydrogels in a
model spinal cord injury in the African green monkey.
A
segmental thoracic hemisection was used in African green monkeys for the
evaluation of biomaterial implants in a pre-clinical model of spinal cord injury
in the non-human primate. The model’s physiological tolerance permitted
behavioral analyses for a 12-week period post-injury, extending to termination
points for immunohistochemical analyses.
Implementation
of surgically-induced spinal cord injury (SCI) through T9-T10 thoracic lateral
hemisection on 16 African green monkeys with administration of a PLGA-polylysine
scaffold (n=4), a PLGA-polylysine scaffold soaked in g
rowth factors (EGF, bFGF,
15 μg each) (n=5), a t
hiol-acrylate poly(ethylene glycol) based
hydrogel containing 150
μg methylprednisolone sodium succinate (n=4), or no treatment for control
(n=4). Implants were administered at the time of
lesioning. The ob
jective was to determine the feasibility and
reliability of this pre-clinical model of SCI, the safety and efficacy of the
implants in a non-human primate model, as well as the establishment of
assessment measures. Analysis of functional improvements was performed by
statistical evaluation of 3D kinematic and electromyographic (EMG) recordings, a
0-20 neuromotor scoring system and histological and immunohistochemical stains
on post-mortem spinal cord thoracic and lumbar cross-sections.
The
neuromotor assessment by a blinded trained neuroscientist for each group over
the twelve-week period for the left hind limb was charted (Figure
7). All groups show an initial paralysis 2 days post-injury,
confirming successful surgical induction of model Brown-Séquard
syndrome. The treatment groups exhibited an improved recovery
compared to untreated injured controls on average. Kinematic and EMG
analyses exhibited the same trend. While a limited number of subjects
were studied and statistical power tests have not been completed, the results
align with data from prior monkey and rodent studies.
FIGURE
7. IPSILATERAL HINDLIMB TREADMILL HANDCAM NEUROMOTOR
SCORE
Commercialization
Strategy
Clinical
Regulatory Plan
InVivo’s
PLGA biopolymer scaffolding product is expected to be regulated as a Class III
medical device by the FDA. The Company will be required to demonstrate safety
and efficacy in a human clinical trial before it can submit a PMA for FDA
approval. Before human clinical trials can commence, the Company is required to
obtain FDA clearance to conduct the clinical trial under an Investigational
Device Exemption (“
IDE
”). The Company has
conducted a Pre-IDE meeting with the FDA to discuss the clinical trial and plans
to submit an IDE to the FDA by the end of 2010.
The
Company first plans to conduct a pilot clinical study to evaluate the device in
ten acute open-wound SCI patients. The Company is also planning a larger follow
on pivotal human study in acute SCI patients after the pilot study is
completed. The Company expects to have completed both the pilot
study and the larger pivotal clinical trial by mid 2012. The clinical
development timeline is subject to a number of risks that could delay the filing
of a PMA or cause a PMA never to be filed. These risks are described in the
section entitled “Risk Factors and Special Considerations”. The estimated
clinical development timeline to submission of a PMA for FDA approval is as
follows:
FDA
Clinical Development Plan for Polymer Scaffolding Device
The
InVivo Therapeutics regulatory team is led by David Feigal, MD, a consultant to
the Company and a member of the InVivo’s Business Advisory Board. Dr.
Feigal recently served as Vice-President, Regulatory at Amgen, Inc. and earlier
was the number-two executive at the FDA from 1992 to 2006. During his
tenure, he was head of the FDA’s Center for Devices for five years and head of
the Center for Biologics for five years. For InVivo day-to-day
handling of FDA processes, InVivo will hire a Director of Regulatory &
Clinical Affairs who will be responsible for managing InVivo’s regulatory
affairs.
Janice
Hogan, a managing partner at Hogan & Lovells US LLP, serves as InVivo’s FDA
consultant. Ms. Hogan has over twenty-five years of experience in representing
spine industry companies to the FDA such as Johnson & Johnson’s DePuy Spine,
Synthes Spine, Abbott Spine, Stryker Spine, and Medtronic Spine.
Manufacturing
and Product Delivery Plan
We
believe that the raw material polymers for our first device product can be
readily obtained from suppliers that already have obtained FDA clearance to
manufacture these components. The Company has developed a proprietary
manufacturing process to create a uniform porous three-dimensional scaffolding
structure for each device. The Company plans to purchase the raw material
polymers from suppliers and then utilize its proprietary manufacturing process
to create the final polymer scaffolding. Proprietary manufacturing
processes will include 3D printing and batch processes to create the
scaffolds. The Company’s intends to either establish a manufacturing
facility or utilize a third-party to produce the polymer scaffolding and then
package the final product.
InVivo’s
product delivery process from the point of injury through patient rehabilitation
is outlined below:
Sales
and Marketing
The
Company plans to sell its SCI product through a to-be-established direct sales
force for major markets in the U.S and through distributors in foreign
markets. Primary international markets will include Europe and
Japan. Since the product is novel and would most likely be the first therapeutic
treatment for SCI, the Company will seek to gain acceptance with the physicians
who are thought leaders in the SCI field and plans on utilizing a consultative
selling approach. The direct sales force will focus its efforts on maximizing
revenue through product training, placement and support. The Company will seek
to establish strong relationships with orthopedic spine surgeons and
neurosurgeons and expects to provide a high level of service for the products
including providing on-site assistance and service during procedures at any time
of day. The primary market channel for the product will be to emergency
department physicians handling trauma cases. In addition, the Company will
establish medical education programs to reach practioners in physical medicine
and rehabilitation centers, and through patient advocacy groups. The Company
will also establish Internet and other marketing approaches to reach SCI
patients.
Intellectual
Property
In July
2007, InVivo obtained a world-wide exclusive license (the “
CMCC License
”) to a broad
suite of patents co-owned by M.I.T. and CMCC covering the use of a wide range of
biopolymers to treat SCI, and to promote the survival and proliferation of human
stem cells in the spinal cord. In addition, they cover the use of
biomaterials in combination with growth factors and drugs. The CMCC
License covers 10 issued US patents and 3 pending US patents as well as 67
international patents and 34 international patents pending.
The CMCC
License provides InVivo intellectual property protection for the use of any
biomaterial scaffolding used as an extracellular matrix substitute for treating
SCI by itself or in combination with drugs, growth factors and human stem cells.
The Company’s rodent studies have shown that human stem cells cannot proliferate
and survive without the addition of the biopolymer scaffolding which serves as
an extracellular matrix replacement and mimics the natural cellular architecture
of the inner ‘grey’ and outer ‘white’ matter of the spinal cord. We
believe that any extracellular matrix developed to treat spinal cord injuries
will infringe on the patents licensed to InVivo. InVivo intends to
defend all patents very aggressively.
The
patents are the results of over a decade of research by Dr. Robert S. Langer,
Professor of Chemical and Biomedical Engineering at M.I.T. and his research
teams at M.I.T.’s Langer Lab. Dr. Langer is a prolific, world renowned inventor
who is generally regarded to be the cofounder of the field of tissue
engineering.
Under the
CMCC License, InVivo has the right to sublicense the patents. InVivo has
full control and authority over the development and commercialization of the
licensed products, including clinical trials, manufacturing, marketing, and
regulatory filings and we own the rights to the data it generates. In addition
InVivo has the first right of negotiation for a thirty-day period to any
improvements to the intellectual property.
The CMCC
License has a 15-year term, or as long as the life of the last expiring patent
right, whichever is longer, unless terminated earlier by CMCC. In
connection with the CMCC License, InVivo submitted a 5-year plan with targets
and projections to CMCC and MIT. InVivo is required to meet the objectives
in the plan, or else it is required to notify CMCC and revise the plan.
CMCC has the right to terminate the License for failures by InVivo to either
notify CMCC when objectives will not be reached or revise the
plan.
InVivo is
required to pay certain fees and royalties under the CMCC License.
Specifically, InVivo was required to pay a license issue fee, which was paid at
the execution of the CMCC License. InVivo is also required to make
milestone payment upon completing various phases of product development,
including (i) upon FDA filing of first Investigational New Drug application and
Investigational Device Exemption application; (ii) upon enrolling first patient
in Phase II testing; (iii) upon enrolling first patient in Phase III testing;
(iv) upon filing with the FDA of first New Drug Application or related
applications, and; (v) upon first market approval in any country outside the
US. Each year prior to the release of a licensed product, InVivo is also
required to pay a maintenance fee. Further, InVivo is required to make
payments based on sublicenses to manufacturers and distributors. InVivo
believes that it will have sufficient capital resources upon completion of the
Merger to make all of such payments. In addition, following commercialization,
InVivo is required to make ongoing royalty payments equal to a low single digit
percentage of net sales of the licensed products.
Employees
We
currently have 8 full-time employees. None of our employees are represented by a
labor union, and we consider our employee relations to be good. We also utilize
part-time employees and a number of consultants to assist with research and
development and regulatory activities. We believe that our future success will
depend in part on our continued ability to attract, hire and retain qualified
personnel.
Description
of Property
Our executive officers are located in
leased premises at One
Broadway,
14
th
Floor, Cambridge, MA 02142
and our phone number is
617-47
5-1520
.
Legal
Proceedings
From time
to time we may be named in claims arising in the ordinary course of business.
Currently, no legal proceedings, government actions, administrative actions,
investigations or claims are pending against us or involve us that, in the
opinion of our management, could reasonably be expected to have a material
adverse effect on our business and financial condition.
We
anticipate that we will expend significant financial and managerial resources in
the defense of our intellectual property rights in the future if we believe that
our rights have been violated. We also anticipate that we will expend
significant financial and managerial resources to defend against claims that our
products and services infringe upon the intellectual property rights of third
parties.
Available
Information
We are
subject to the reporting requirements of the Securities Exchange Act of 1934
(“
Exchange
Act
”). Reports filed with the SEC pursuant to the Exchange
Act, including annual and quarterly reports, and other reports we file, can be
inspected and copied at the public reference facilities maintained by the SEC at
100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on
the operation of the public reference room by calling the SEC at 1-800-SEC-0330.
Investors can request copies of these documents upon payment of a duplicating
fee by writing to the SEC. The reports we file with the SEC are also available
on the SEC’s website (http://www.sec.gov).
RISK
FACTORS AND SPECIAL CONSIDERATIONS
This
Report contains forward-looking statements.
Information
provided in this Report and in the annexed Exhibits may contain forward-looking
statements, which reflect management’s current view with respect to future
events and the Company’s performance. Such forward-looking statements
may include the estimated timeline for the Company to file for FDA approval,
projections with respect to market size and acceptance, revenues and earnings,
marketing and sales strategies, efficacy of its drugs and business
operations.
InVivo
operates in a highly competitive and highly regulated business environment. The
Company’s business can be expected to be affected by government regulation,
economic, political and social conditions, business’ response to new and
existing products and services and services, technological developments and the
ability to obtain and maintain patent and/or other intellectual property
protection for its products and intellectual property. The Company’s
actual results could differ materially from management’s expectations because of
changes both within and outside of the Company’s control.
Risks
Related To Our Business and Our Industry
We have a limited
operating history and it is difficult to predict our future growth and operating
results
.
InVivo
was incorporated in Delaware in November 2005 and has a limited operating
history and limited operations and assets. Accordingly, you should
consider our prospects in light of the costs, uncertainties, delays and
difficulties encountered by companies in the early stage of
development. As a development stage company, our development
timelines have been and may continue to be subject to adjustments that could
negatively affect our cash flow and ability to develop or bring products to
market, if at all. Predicting our future operating and other results
is extremely difficult, if not impossible.
The
Company’s prospects must be considered in light of inherent risks, expenses and
difficulties encountered by all early stage companies, particularly companies in
new and evolving markets. These risks include, by way of example and
not limitation, unforeseen capital requirements, unforeseen technical problems,
delays in obtaining regulatory approvals, failure of market acceptance and
competition from foreseen and unforeseen sources.
We
have not generated any revenues to date and have a history of losses since
inception.
InVivo
has not generated any revenue to date and, through June 30, 2010, has incurred
net losses of approximately $7,800,000 since its formation in 2005. It can be
expected that the Company will continue to incur significant operating expenses
and continue to experience losses in the foreseeable future. As a result, the
Company cannot predict when, if ever, it might achieve profitability and cannot
be certain that it will be able to sustain profitability, if
achieved.
We
will need substantial additional funding to develop our products and for our
future operations. If we are unable to obtain the funds necessary to do so, we
may be required to delay, scale back or eliminate our product development or may
be unable to continue our business.
The
development and approval to market and sell our product candidates will require
a commitment of substantial funds, in excess of our current capital resources.
Before we can market or sell any of our products, we will need to conduct costly
and time-consuming research, which will include preclinical and clinical testing
and regulatory approvals. We anticipate the amount of operating funds that
we use will continue to increase along with our operating expenses over at least
the next several years as we plan to bring our products to market. While we
believe our current capital resources will satisfy our planned capital needs for
approximately 12 months, our future capital requirements will depend on many
factors, including:
|
·
|
the
progress and costs of our research and development programs, including our
ability to develop our current portfolio of therapeutic products, or
discover and develop new ones;
|
|
·
|
our
ability, or our partners ability and willingness, to advance partnered
products or programs;
|
|
·
|
the
cost of prosecuting, defending and enforcing patent claims and other
intellectual property rights;
|
|
·
|
the
progress, scope, costs, and results of our preclinical and clinical
testing of any current or future
products;
|
|
·
|
the
time and cost involved in obtaining regulatory
approvals;
|
|
·
|
the
cost of manufacturing our product
candidates;
|
|
·
|
expenses
related to complying with GMP manufacturing of product
candidates;
|
|
·
|
costs
of financing the purchases of additional capital equipment and development
technologies;
|
|
·
|
competing
technological and market
developments;
|
|
·
|
our
ability to establish and maintain collaborative and other arrangements
with third parties to assist in bringing our products to market and the
cost of such arrangements.
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the
amount and timing of payments or equity investments that we receive from
collaborators and the timing and amount of expenses we
incur;
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costs
associated with the integration of any new operation, including costs
relating to future mergers and acquisitions with companies that have
complementary capabilities;
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expenses
related to the establishment of sales and marketing capabilities for
products awaiting approval or products that have been
approved;
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the
level of our sales and marketing expenses;
and
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our
ability to introduce and sell new
products.
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We cannot
assure you that we will not need additional capital sooner than currently
anticipated. We will need to raise substantial additional capital to fund
our future operations. We cannot be certain that additional financing will
be available on acceptable terms, or at all. In recent years, it has been
difficult for companies to raise capital due to a variety of factors, which may
or may not continue. To the extent we raise additional capital through the
sale of equity securities, the ownership position of our existing stockholders
could be substantially diluted. If additional funds are raised through the
issuance of preferred stock or debt securities, these securities are likely to
have rights, preferences and privileges senior to our Common Stock.
Fluctuating interest rates could also increase the costs of any debt financing
we may obtain.
The
Company’s products will represent new and rapidly evolving
technologies.
The
Company’s proprietary spinal cord injury treatment technology depends on new,
rapidly evolving technologies and on the marketability and profitability of
InVivo products. Approval by applicable regulatory agencies and
commercialization of the Company’s spinal cord injury treatment technology could
fail for a variety of reasons, both within and outside of its control.
Furthermore, because there are no approved treatments for SCI, the regulatory
requirements governing this type of product may be more rigorous or less clearly
established than for other analogous products.
We
license our core technology from CMCC and MIT, and we could lose our rights to
this license if a dispute with CMCC or MIT arises or if we fail to comply with
the financial and other terms of the license.
InVivo
licenses the Patent Rights and core intellectual property from CMCC and MIT
under the CMCC License. The CMCC License Agreement imposes certain payment,
milestone achievement, reporting, confidentiality and other
obligations on InVivo. In the event that InVivo was to breach any of the
obligations and fail to cure, CMCC would have the right to terminate the CMCC
License Agreement upon notice. In addition, CMCC has the right to terminate the
License Agreement upon the bankruptcy or receivership of InVivo. The termination
of the CMCC License would have a material adverse affect on our business, as all
of InVivo’s current product candidates are based on the Patent Rights and
licensed intellectual property. If any dispute arises with respect to our
arrangement with CMCC or MIT, such dispute may disrupt our operations and would
likely have a material and adverse impact on us if resolved in a manner that is
unfavorable to our Company.
The
Company will face substantial competition.
The
biotechnology industry in general is subject to intense competition and rapid
and significant technological change. The Company has many potential
competitors, including major drug companies, specialized biotechnology firms,
academic institutions, government agencies and private and public research
institutions. Many of these competitors have significantly greater financial and
technical resources than us, superior experience and expertise in research and
development, preclinical testing, designing and implementing clinical trials;
regulatory processes and approvals; production and manufacturing; and sales and
marketing of approved products.
Principal
competitive factors in the Company’s industry include the quality and breadth of
an organization’s technology; management of the organization and the execution
of the organization’s strategy; the skill and experience of an organization’s
employees and its ability to recruit and retain skilled and experienced
employees; an organization’s intellectual property portfolio; the range of
capabilities, from target identification and validation to drug and device
discovery and development to manufacturing and marketing; and the availability
of substantial capital resources to fund discovery, development and
commercialization activities.
Large and
established companies compete in the biotech market. In particular, these
companies have greater experience and expertise in securing government contracts
and grants to support their research and development efforts, conducting testing
and clinical trials, obtaining regulatory approvals to market products,
manufacturing such products on a broad scale and marketing approved
products.
Smaller
or early-stage companies and research institutions may also prove to be
significant competitors, particularly through collaborative arrangements with
large and established biotech or other companies. The Company will also face
competition from these parties in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and registering
subjects for clinical trials.
In order
to effectively compete, the Company will have to make substantial investments in
development, testing, manufacturing and sales and marketing or partner with one
or more established companies. There is no assurance that the Company will be
successful in having its products approved or gaining significant market share
for any of its products. The Company’s technologies and products also may be
rendered obsolete or noncompetitive as a result of products introduced by its
competitors.
We
will require FDA approval before we can sell any of our products.
The
development, manufacture and marketing of the Company’s products are subject to
government regulation in the United States and other countries. In the United
States and most foreign countries, the Company must complete rigorous
preclinical testing and extensive human clinical trials that demonstrate the
safety and efficacy of a product in order to apply for regulatory approval to
market the product.
The
Company’s biopolymer scaffolding device is expected to be regulated as a Class
III medical device by the FDA. The steps required by the FDA before InVivo’s
proposed medical device products may be marketed in the United States include
performance of preclinical (animal and laboratory) tests; submissions to the FDA
of an IDE (Investigational Device Exemption) which must become effective before
human clinical trials may commence; performance of adequate and well-controlled
human clinical trials to establish the safety and efficacy of the product in the
intended target population; performance of a consistent and reproducible
manufacturing process intended for commercial use; Pre-Market Approval
Application (“PMA”); and FDA approval of the PMA before any commercial sale or
shipment of the product.
The
processes are expensive and can take many years to complete, and the Company may
not be able to demonstrate the safety and efficacy of its products to the
satisfaction of such regulatory authorities. The start of clinical trials can be
delayed or take longer than anticipated for many and varied reasons, many of
which would be outside of the Company’s control. Safety concerns may emerge that
could lengthen the ongoing trials or require additional trials to be conducted.
Regulatory authorities may also require additional testing, and the Company may
be required to demonstrate that its proposed products represent an improved form
of treatment over existing therapies, which the Company may be unable to do
without conducting further clinical studies. Moreover, if the FDA grants
regulatory approval of a product, the approval may be limited to specific
indications or limited with respect to its distribution. Expanded or additional
indications for approved devices or drugs may not be approved, which could limit
the Company’s potential revenues. Foreign regulatory authorities may apply
similar limitations or may refuse to grant any approval. Consequently, even if
the Company believes that preclinical and clinical data are sufficient to
support regulatory approval for its product candidates, the FDA and foreign
regulatory authorities may not ultimately grant approval for commercial sale in
any jurisdiction. If the Company’s products are not approved, its ability to
generate revenues will be limited and its business will be adversely
affected.
We
may experience delays in obtaining regulatory approval to commence our clinical
trials and/or to sell our products.
Delays in
or not obtaining regulatory approval can be extremely costly in terms of lost
sales opportunities, losing any potential marketing advantage of being early to
market and increased trial costs.
The
Company faces the risks that its planned filing of an Investigational Device
Exemption (IDE) to commence human trials may not be approved in a timely matter
or at all, the results of its human clinical trials, if approved for
commencement, may be inconsistent with the results obtained in preclinical
studies, its animal trials or clinical trials of similar products, or that the
results obtained in later phases of clinical trials may be inconsistent with
those obtained in earlier phases. A number of companies in the biomedical and
product development industry have suffered significant setbacks in advanced
clinical trials, even after experiencing promising results in early animal and
human testing.
Regulatory
agencies may require the Company or its collaborators to delay, restrict or
discontinue clinical trials on various grounds, including a finding that the
subjects or patients are being exposed to an unacceptable health
risk.
All
statutes and regulations governing the conduct of clinical trials are subject to
change in the future, which could affect the cost of such clinical trials. Any
unanticipated costs or delays in the Company’s clinical studies could delay its
ability to generate revenues and harm its financial condition and results of
operations.
The
results seen in animal testing of our product candidates may not be replicated
in humans.
Although
the Company has obtained some results from preclinical testing of our intended
products in animals, but we may not see positive results when any of our product
candidates undergo clinical testing in humans in the future. Success in
preclinical studies or completed clinical trials does not ensure that later
studies or trials, including continuing preclinical studies and large-scale
clinical trials, will be successful nor does it necessarily predict future
results. The rate of failure is quite high, and many companies in the
biotechnology industry have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. Product candidates
may fail to show desired safety and efficacy in larger and more diverse patient
populations in later stage clinical trials, despite having progressed through
early stage trials. Negative or inconclusive results from any of our
ongoing preclinical studies or clinical trials could result in delays,
modifications, or abandonment of ongoing or future clinical trials and the
termination of our development of a product candidate. Additionally, even
if we are able to successfully complete clinical trials, the FDA still may not
approve our product candidates.
Our
products are in an early stage of development and we currently have no
therapeutic products approved for sale. Our product candidates require
additional research, development, testing, expert reviews and/or regulatory
approvals before marketing. We may be unable to develop, obtain regulatory
approval or market any of our product candidates. If our product
candidates are delayed or fail, our financial condition will be negatively
affected, and we may have to curtail or cease our operations.
We
currently do not sell any approved therapeutic products and do not expect to
have any products commercially available for at least two years, if at
all. We are subject to all of the uncertainties and complexities affecting
an early stage biotechnology company. Our product candidates require additional
research and development, preclinical testing, clinical testing and regulatory
review and/or approvals clearances before marketing. Our strategy of using
our technologies for the development of therapeutic products involves new
approaches, some of which are unproven. To date, no one to our knowledge
has developed or commercialized any therapeutic products using our technologies
and we might never commercialize any product using our technologies and
strategy. There are many reasons that our product candidates may fail or
not advance to commercialization, including the possibility that our product
candidates may be ineffective, unsafe or associated with unacceptable side
effects; our product candidates may fail to receive the necessary regulatory
approvals or otherwise fail to meet applicable regulatory standards; our product
candidates may be too expensive to develop, manufacture or market; other parties
may hold or acquire proprietary rights that could prevent us or our potential
collaborators from developing or marketing our product candidates; physicians,
patients, third-party payers or the medical community in general may not accept
or use our contemplated products; our potential collaborators may withdraw
support for or otherwise impair the development and commercialization of our
product candidates; or others may develop equivalent or superior
products.
If our
current product candidates are delayed or fail, or we fail to successfully
develop and commercialize new product candidates, our financial condition will
be negatively affected, and we may have to curtail or cease our
operations.
Approval
to promote, manufacture and/or sell our products, if granted, will be limited
and subject to continuing review.
Even if a
product gains regulatory approval, such approval is likely to limit the
indicated uses for which it may be marketed, and the product and the
manufacturer of the product will be subject to continuing regulatory review,
including adverse event reporting requirements and the FDA’s general prohibition
against promoting products for unapproved uses. Failure to comply with any
post-approval requirements can, among other things, result in warning letters,
product seizures, recalls, substantial fines, injunctions, suspensions or
revocations of marketing licenses, operating restrictions and criminal
prosecutions. Any of these enforcement actions, any unanticipated changes in
existing regulatory requirements or the adoption of new requirements, or any
safety issues that arise with any approved products, could adversely affect the
Company’s ability to market products and generate revenues and thus adversely
affect its ability to continue InVivo’s business.
The
Company also may be restricted or prohibited from marketing or manufacturing a
product, even after obtaining product approval, if previously unknown problems
with the product or its manufacture are subsequently discovered and the Company
cannot provide assurance that newly discovered or developed safety issues will
not arise following any regulatory approval. With the use of any treatment by a
wide patient population, serious adverse events may occur from time to time that
initially do not appear to relate to the treatment itself, and only if the
specific event occurs with some regularity over a period of time does the
treatment become suspect as having a causal relationship to the adverse event.
Any safety issues could cause the Company to suspend or cease marketing of its
approved products, possibly subject it to substantial liabilities, and adversely
affect its ability to generate revenues.
We
will be required to obtain international regulatory approval to market and sell
our products outside of the United States.
The
Company intends to also have its product candidates marketed outside the United
States. In order to market products in the European Union and many other
non-U.S. jurisdictions, the Company must obtain separate regulatory approvals
and comply with numerous and varying regulatory requirements. The Company may
not obtain foreign regulatory approvals on a timely basis, if at all. Approval
by the FDA does not ensure approval by regulatory agencies in other foreign
countries or by the FDA. However, a failure or delay in obtaining regulatory
approval in one jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by the FDA. The
failure to obtain regulatory approval in foreign jurisdictions could harm the
Company’s business.
The
Company will depend upon strategic relationships to develop, exploit and
manufacture its products.
The near
and long-term viability of the Company’s products will depend in part on its
ability to successfully establish new strategic collaborations with
biotechnology companies, hospitals, insurance companies and government agencies.
Establishing strategic collaborations is difficult and time-consuming. Potential
collaborators may reject collaborations based upon their assessment of the
Company’s financial, regulatory or intellectual property position. If the
Company fails to establish a sufficient number of collaborations on acceptable
terms, it may not be able to commercialize its products or generate sufficient
revenue to fund further research and development efforts.
Even if
the Company establishes new collaborations, these relationships may never result
in the successful development or commercialization of any product candidates for
several reasons both within and outside of the Company’s
control.
InVivo
will require quantities of manufactured product and may require third party
manufacturers to fulfill some its inventory requirements.
Completion
of InVivo’s clinical trials and commercialization of InVivo’s products will
require access to, or development of, facilities to manufacture a sufficient
supply of InVivo’s product or other product candidates. If InVivo is unable to
manufacture its products in commercial quantities, then it will need to rely on
third parties. These third-party manufacturers must also receive FDA approval
before they can produce clinical material or commercial products. InVivo’s
products may be in competition with other products for access to these
facilities and may be subject to delays in manufacture if third parties give
other products greater priority. In addition, InVivo may not be able to enter
into any necessary third-party manufacturing arrangements on acceptable terms,
or on a timely basis. Failure by InVivo to manufacture products on a timely
basis for clinical trials or for commercial needs will have a material adverse
affect on the Company.
The
Company will rely upon third parties for laboratory testing, animal and human
studies.
The
Company has been and will continue to be dependent on third-party contract
research organizations to conduct some of its laboratory testing, animal and
human studies. If the Company is unable to obtain any necessary testing services
on acceptable terms, it may not complete its product development efforts in a
timely manner. If the Company relies on third parties for laboratory testing
and/or animal and human studies, it may lose some control over these activities
and become too dependent upon these parties. These third parties may not
complete testing activities on schedule or when the Company requests. The
Company may not be able to secure and maintain suitable contract research
organizations to conduct its laboratory testing and/or animal and human studies.
The Company is responsible for confirming that each of its clinical trials is
conducted in accordance with its general plan and protocol. Moreover, the FDA
and foreign regulatory agencies require the Company to comply with regulations
and standards, commonly referred to as good clinical practices, for conducting,
recording and reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the trial participants are
adequately protected. The Company’s reliance on third parties does not relieve
it of these responsibilities and requirements. If these third parties do not
successfully carry out their contractual duties or regulatory obligations or
meet expected deadlines, if the third parties need to be replaced or if the
quality or accuracy of the data they obtain is compromised due to the failure to
adhere to the Company’s clinical protocols or regulatory requirements or for
other reasons, the Company pre-clinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and the Company may
not be able to obtain regulatory approval for its product
candidates.
The
Company may have product liability exposure.
The
Company will have exposure to claims for product liability. Product liability
coverage is expensive and sometimes difficult to obtain. The Company may not be
able to obtain or maintain insurance at a reasonable cost. There can be no
assurance that existing insurance coverage will extend to other products in the
future. Any product liability insurance coverage may not be sufficient to
satisfy all liabilities resulting from product liability claims. A successful
claim may prevent the Company from obtaining adequate product liability
insurance in the future on commercially desirable items, if at all. Even if a
claim is not successful, defending such a claim would be time-consuming and
expensive, may damage the Company’s reputation in the marketplace, and would
likely divert management’s attention.
There
are a limited number of suppliers that can provide materials to the
Company.
The
Company may rely on third-party suppliers and vendors for some of the materials
used in the manufacture of InVivo’s product or other of its product candidates.
Any significant problem experienced by one of InVivo’s suppliers could result in
a delay or interruption in the supply of materials to InVivo until such supplier
resolves the problem or an alternative source of supply is located. Any delay or
interruption could negatively affect InVivo’s operations.
The
Company’s products are new and will require market acceptance.
Even if
the Company receives regulatory approvals for the commercial sale of its product
candidates, the commercial success of these product candidates will depend on,
among other things, their acceptance by physicians, patients, third party payers
such as health insurance companies and other members of the medical community as
a therapeutic and cost-effective alternative to competing products and
treatments. If the Company’s product candidates fail to gain market acceptance,
it may be unable to earn sufficient revenue to continue its business. Market
acceptance of, and demand for, any product that the Company may develop and
commercialize will depend on many factors, both within and outside of the
Company’s control.
If the
Company’s product candidates do not become widely accepted by physicians,
patients, third party payers and other members of the medical community, its
business, financial condition and results of operations would be materially and
adversely affected.
Physicians
and hospitals will require training in order to utilize the Company’s
products.
The
Company’s products have not been utilized in the past for SCI treatment. As is
typical in the case of a new and rapidly evolving technology or medical
treatment, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. In
addition, physicians and hospitals will need to establish training and
procedures to utilize and implement the Company’s products. There can be no
assurance that these parties will adopt the Company’s products or that they
develop sufficient training and procedures to properly utilize the Company’s
products.
The
Company’s success will depend upon the level of third party reimbursement for
the cost of its products to users.
The
Company’s successes may depend, in part, on the extent to which reimbursement
for the costs of therapeutic products and related treatments will be available
from third-party payers such as government health administration authorities,
private health insurers, managed care programs, and other organizations. Over
the past decade, the cost of health care has risen significantly, and there have
been numerous proposals by legislators, regulators, and third-party health care
payers to curb these costs. Some of these proposals have involved limitations on
the amount of reimbursement for certain products. Similar federal or state
health care legislation may be adopted in the future and any products that the
Company or its collaborators seek to commercialize may not be considered
cost-effective. Adequate third-party insurance coverage may not be available for
the Company to establish and maintain price levels that are sufficient for the
Company to continue its business or for realization of an appropriate return on
investment in product development.
We
will be subject to environmental, health and safety laws.
The
Company is subject to various laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and humans, emissions and wastewater discharges, and the use and
disposal of hazardous or potentially hazardous substances used in connection
with its research, including infectious disease agents. The Company also cannot
accurately predict the extent of regulations that might result from any future
legislative or administrative action. Any of these laws or regulations could
cause the Company to incur additional expense or restrict its
operations.
Compliance
with environmental laws and regulations may be expensive, and current or future
environmental regulations may impair the Company’s research, development or
production efforts.
Our
products could be subject to claims for patent infringement.
The
Company’s success in large part depends on its ability to maintain the
proprietary nature of its licensed technology and trade secrets. To do so, the
Company and its licensors must prosecute and maintain existing patents, obtain
new patents and pursue trade secret and other intellectual property protection.
The Company also must operate without infringing the proprietary rights of third
parties or allowing third parties infringe its rights. The Company’s
research, development and commercialization activities, including any product
candidates or products resulting from these activities, may infringe or be
claimed to infringe patents owned by third parties and to which the Company does
not hold licenses or other rights.
There may
be rights that the Company is not aware of, including applications that have
been filed but not published that, when issued, could be asserted against the
Company. These third parties could bring claims against the Company that would
cause it to incur substantial expenses and, if successful, could cause the
Company to pay substantial damages. Further, if a patent infringement suit were
brought against the Company, it could be forced to stop or delay research,
development, manufacturing or sales of the product or biologic treatment
candidate that is the subject of the suit.
In
addition, competitors may infringe the Company’s patents or the patents of its
collaborators or licensors. As a result, the Company may be required to file
infringement claims to counter infringement for unauthorized use. This can be
expensive and time-consuming. In addition, in an infringement proceeding, a
court may decide that a patent licensed or owned by the Company is not valid or
is unenforceable, or may refuse to stop the other party from using the
technology at issue on the grounds that the Company’s licensed or owned patents
do not cover its technology. An adverse determination of any litigation or
defense proceedings could put one or more of the Company’s licensed or owned
patents at risk of being invalidated or interpreted narrowly and could put the
Company’s licensed or owned patent applications at the risk of not
issuing.
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of the Company‘s
trade secrets or other confidential information could be compromised by
disclosure during this type of litigation.
The
Company will rely on a combination of patent, trademark, copyright and trade
secret laws, as well as confidentiality agreements, license agreements and
technical measures to protect its proprietary rights.
The
Company will rely on a combination of patent, trademark, copyright and trade
secret laws, as well as confidentiality agreements, license agreements and
technical measures to protect its proprietary rights. There can be no
assure that any of its patents, means and methods won’t infringe on the
intellectual property rights of others. In addition, some of the Company’s
proprietary information may not be patentable, and there can be no assurance
that others will not utilize similar or superior solutions to compete with the
Company. The Company cannot guarantee that it will develop proprietary products
and services or processes that are patentable, and that if issued, any patent
will give a competitive advantage or that such patent will not be challenged by
third parties, or that the patents of others will not have a material adverse
effect on the Company’s ability to do business. The Company intends
to register certain trademarks in, or claim certain trademark rights in, the
United States and/or foreign jurisdictions. The Company cannot assure
that its means of protecting its proprietary rights will suffice or that the
Company’s competitors will not independently develop competitive technology or
duplicate processes or design around patents or other intellectual property
rights issued to the Company.
Our
ability to raise capital as required may be difficult given the current
condition of the capital and credit markets.
The
Company is likely in the future to seek to access the capital markets for
capital for its capital needs. Traditionally, biotech companies have funded
their research and development expenditures through raising capital in the
equity markets. Declines and uncertainties in these markets over the past few
years have severely restricted raising new capital and have affected companies’
ability to continue to expand or fund existing research and development efforts.
The Company will require significant capital beyond its current resources for
research and development for its product candidates and clinical trials. The
general economic and capital market conditions, both in the United States and
worldwide have deteriorated significantly and will adversely affect the
Company’s access to capital and may increase the cost of capital. If these
economic conditions continue or become worse, the Company’s future cost of
equity or debt capital and access to the capital markets could be adversely
affected. As a result of the current volatile and unpredictable global economic
situation, there may be a disruption or delay in the performance of the
Company’s third-party contractors and suppliers. If such third-parties are
unable to adequately satisfy their contractual commitments to the Company in a
timely manner, its business could be adversely affected.
We
have never declared any dividends and do not expect to declare any in the near
future.
The Company has never paid cash
dividends on its common stock. It is currently anticipated that the Company will
retain earnings, if any, for use in the development of InVivo’s business and
does not anticipate paying any cash dividends in the foreseeable
future.
We
are dependent on our management and other key personnel.
The
Company depends on its senior executive officers as well as key scientific and
other personnel. The loss of any of these individuals could harm the Company’s
business and significantly delay or prevent the achievement of research,
development or business objectives. Competition for qualified employees is
intense among biotechnology companies, and the loss of qualified employees, or
an inability to attract, retain and motivate additional highly skilled employees
could hinder the Company’s ability to successfully develop marketable
products.
The
Company’s future success also depends on its ability to identify, attract, hire,
train, retain and motivate other highly skilled scientific, technical,
marketing, managerial and financial personnel. Although the Company will seek to
hire and retain qualified personnel with experience and abilities commensurate
with the needs of the Company, there is no assurance that the Company will
succeed despite their collective efforts. The loss of the services of any of the
principal members of the Company's management or other key personnel could
hinder the Company's ability to fulfill its business plan and further develop
and commercialize its products and services. Competition for personnel is
intense, and any failure to attract and retain the necessary technical,
marketing, managerial and financial personnel would have a material adverse
effect on the Company’s business, prospects, financial condition and results of
operations. Although we presently do not maintain “key person” life insurance
policies on any of our personnel, we intend to obtain key man insurance on Frank
Reynolds, our Chairman, CEO and CFO, of at least $2 million, shortly following
the date of this Report.
InVivo’s
audited financial statements express substantial doubt about its ability to
continue as a going concern, which may hinder its ability to obtain future
financing.
InVivo’s financial statements for the
year ended December 31, 2009 have been prepared assuming that it will continue
as a going concern. InVivo’s ability to continue as a going concern is raised as
a result of no revenues and recurring losses from operations since its inception
and working capital deficiency. InVivo will continue to experience net operating
losses. Its ability to continue as a going concern is subject to its ability to
generate a profit and/or obtain necessary funding from outside sources,
increasing sales or obtaining loans and grants from various financial
institutions where possible. InVivo’s continued net operating losses increase
the difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.
Risks
Related to Our Common Stock; Liquidity Risks
Our
securities are “Penny Stock" and subject to specific rules governing their sale
to investors.
The SEC
has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for
the purposes relevant to the Company, as any equity security that has a market
price of less than $5.00 per share or with an exercise price of less than $5.00
per share, subject to certain exceptions. For any transaction involving a penny
stock, unless exempt, the rules require that a broker or dealer approve a
person’s account for transactions in penny stocks; and the broker or dealer
receive from the investor a written agreement to the transaction, setting forth
the identity and quantity of the penny stock to be purchased.
In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must obtain financial information and investment experience objectives of
the person; and make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form sets forth the basis on which the broker or dealer made
the suitability determination; and that the broker or dealer received a signed,
written agreement from the investor prior to the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for Company’s shareholders
to sell shares of our common stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
There
is no recent trading activity in our Common Stock and there is no assurance that
an active market will develop in the future.
There is no recent trading activity in
our Common Stock. Further, although the Common Stock is currently quoted on the
OTC Bulletin Board, trading of our Common Stock may be extremely sporadic. For
example, several days may pass before any shares may be traded. As a result, an
investor may find it difficult to dispose of, or to obtain accurate quotations
of the price of, the Common Stock. There can be no assurance that following the
Transactions, a more active market for the Common Stock will develop, or if one
should develop, there is no assurance that it will be sustained. This severely
limits the liquidity of the Common Stock, and would likely have a material
adverse effect on the market price of the Common Stock and on our ability to
raise additional capital.
Because
we became public by means of a reverse merger, we may not be able to attract the
attention of major brokerage firms.
Additional
risks may exist since we became public through a “reverse
merger.” Securities analysts of major brokerage firms may not provide
coverage of us since there is little incentive to brokerage firms to recommend
the purchase of our Common Stock. No assurance can be given that
brokerage firms will want to conduct any secondary offerings on behalf in the
future.
Compliance
with the reporting requirements of federal securities laws can be
expensive.
The
Company is a public reporting company in the United States, and accordingly,
subject to the information and reporting requirements of the Exchange Act and
other federal securities laws, and the compliance obligations of the
Sarbanes-Oxley Act. The costs of preparing and filing annual and
quarterly reports and other information with the SEC and furnishing audited
reports to stockholders are substantial. In addition, the Company
will incur substantial expenses in connection with the preparation of the
Registration Statement and related documents with respect to the registration of
resales of the Common Stock sold in the Offering.
We
do not currently have a separate Chief Financial Officer.
We do not currently have a separate
Chief Financial Officer. Our Chief Executive Officer is also
functioning as our Chief Financial Officer. Although we are currently
seeking to retain a Chief Financial Officer, there can be no assurance we will
be able to retain a suitable candidate on acceptable terms.
Applicable
regulatory requirements, including those contained in and issued under the
Sarbanes-Oxley Act of 2002, may make it difficult for the Company to retain or
attract qualified officers and directors, which could adversely affect the
management of its business and its ability to obtain or retain listing of its
Common Stock.
The
Company may be unable to attract and retain those qualified officers, directors
and members of board committees required to provide for effective management
because of the rules and regulations that govern publicly held companies,
including, but not limited to, certifications by principal executive officers.
The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series
of related rules and regulations and the strengthening of existing rules and
regulations by the SEC, as well as the adoption of new and more stringent rules
by the stock exchanges. The perceived increased personal risk associated with
these changes may deter qualified individuals from accepting roles as directors
and executive officers.
Further,
some of these changes heighten the requirements for board or committee
membership, particularly with respect to an individual’s independence from the
corporation and level of experience in finance and accounting matters. The
Company may have difficulty attracting and retaining directors with the
requisite qualifications. If the Company is unable to attract and retain
qualified officers and directors, the management of its business and its ability
to obtain or retain listing of our shares of Common Stock on any stock exchange
(assuming the Company elects to seek and are successful in obtaining such
listing) could be adversely affected.
The
Company may have undisclosed liabilities and any such liabilities could harm the
Company’s revenues, business, prospects, financial condition and results of
operations.
Even
though the assets and liabilities of ITHC were transferred to the Split-Off
Shareholders in the Split-Off, there can be no assurance that the Company will
not be liable for any or all of such liabilities. Any such liabilities of ITHC
that survive the Split-Off could harm the Company’s revenues, business,
prospects, financial condition and results of operations upon the Company’s
acceptance of responsibility for such liabilities.
The
transfer of the operating assets and liabilities to DSSC, coupled with the
Split-Off of DSSC, will result in taxable income to the Company in an amount
equal to the difference between the fair market value of the assets transferred
and ITHC's tax basis in the assets. Any gain recognized, to the
extent not offset by the Company's net operating loss carryforward, if any, will
be subject to federal income tax at regular corporate income tax
rates.
Our
Convertible Notes converted into common stock based on valuations pursuant to
the terms of the Convertible Notes. InVivo cannot guarantee that all holders of
the Convertible Notes will agree with the valuation used for
conversion.
Prior to the Offering, InVivo sold an
aggregate of $4,181,000 of Convertible Notes to investors. These Convertible
Notes, by their terms, all converted into InVivo common stock prior to the
consummation of the Transactions. The Convertible Notes provide for
conversion based on a company-determined valuation as stipulated per the
provisions of the Convertible Notes. While InVivo is of the belief that it
properly valued the conversion valuation for the Convertible Notes pursuant to
their terms, there can be no assurance that InVivo was correct in such
assessment. To date, certain investors have disputed the Company’s conversion
valuation methodology and one investor has threatened to sue the Company based
upon the conversion valuation. There can be no assurance that other investors
who purchased Convertible Notes will not also dispute the valuation or commence
litigation against InVivo.
If
the Company fails to maintain an effective system of internal controls, it may
not be able to accurately report its financial results or detect fraud.
Consequently, investors could lose confidence in the Company’s financial
reporting and this may decrease the trading price of its stock.
The
Company must maintain effective internal controls to provide reliable financial
reports and detect fraud. The Company has been assessing its internal controls
to identify areas that need improvement. It is in the process of implementing
changes to internal controls, but has not yet completed implementing these
changes. Failure to implement these changes to the Company’s internal controls
or any others that it identifies as necessary to maintain an effective system of
internal controls could harm its operating results and cause investors to lose
confidence in the Company’s reported financial information. Any such
loss of confidence would have a negative effect on the trading price of the
Company’s stock.
The
price of the Common Stock may become volatile, which could lead to losses by
investors and costly securities litigation.
The
trading price of the Common Stock is likely to be highly volatile and could
fluctuate in response to factors such as:
|
·
|
actual
or anticipated variations in the Company’s operating
results;
|
|
·
|
announcements
of developments by the Company or its
competitors;
|
|
·
|
the
timing of IDE approval, the completion and/or results of the Company’s
clinical trials
|
|
·
|
regulatory
actions regarding the Company’s
products
|
|
·
|
announcements
by the Company or its competitors of significant acquisitions, strategic
partnerships, joint ventures or capital
commitments;
|
|
·
|
adoption
of new accounting standards affecting the Company’s
industry;
|
|
·
|
additions
or departures of key personnel;
|
|
·
|
introduction
of new products by the Company or its
competitors;
|
|
·
|
sales
of the Company’s Common Stock or other securities in the open market;
and
|
|
·
|
other
events or factors, many of which are beyond the Company’s
control.
|
The stock
market is subject to significant price and volume fluctuations. In the past,
following periods of volatility in the market price of a company’s securities,
securities class action litigation has often been initiated against such a
company. Litigation initiated against the Company, whether or not successful,
could result in substantial costs and diversion of its management’s attention
and resources, which could harm the Company’s business and financial
condition.
Investors
may experience dilution of their ownership interests because of the future
issuance of additional shares of the Common Stock.
In the
future, the Company may issue additional authorized but previously unissued
equity securities, resulting in the dilution of the ownership interests of its
present stockholders. The Company may also issue additional shares of its Common
Stock or other securities that are convertible into or exercisable for Common
Stock in connection with hiring or retaining employees, future acquisitions,
future sales of its securities for capital raising purposes, or for other
business purposes. The future issuance of any such additional shares
of Common Stock may create downward pressure on the trading price of the Common
Stock. There can be no assurance that the Company will not be
required to issue additional shares, warrants or other convertible securities in
the future in conjunction with any capital raising efforts, including at a price
(or exercise prices) below the price at which shares of the Common Stock is
currently traded on the OTC Markets.
The
Common Stock is controlled by insiders.
The Company’s officers and directors
beneficially own approximately 36.7% of our outstanding shares of Common
Stock. Such concentrated control of the Company may adversely affect
the price of its Common Stock. Investors who acquire Common Stock may
have no effective voice in the management of the Company. Sales by
insiders or affiliates of the Company, along with any other market transactions,
could affect the market price of the Common Stock.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The
following management’s discussion and analysis should be read in conjunction
with InVivo’s historical financial statements and the related notes. The
management’s discussion and analysis contains forward-looking statements that
involve risks and uncertainties, such as statements of our plans, objectives,
expectations and intentions. Any statements that are not statements of
historical fact are forward-looking statements. When used, the words “believe,”
“plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like,
and/or future tense or conditional constructions (“will,” “may,” “could,”
“should,” etc.), or similar expressions, identify certain of these
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties that could cause actual results or events to differ
materially from those expressed or implied by the forward-looking statements in
this Current Report. The Company’s actual results and the timing of events could
differ materially from those anticipated in these forward-looking statements as
a result of several factors. The Company does not undertake any obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of this Current Report.
As the
result of the Transactions and the change in business and operations of the
Company from a shell company to a biotechnology company, a discussion of the
past financial results of ITHC is not pertinent, and the financial results of
InVivo, the accounting acquirer, are considered the financial results of the
Company on a historical and going-forward basis.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The
discussion and analysis of InVivo’s financial condition and results of
operations are based on InVivo’s financial statements, which InVivo has prepared
in accordance with U.S. generally accepted accounting principles. The
preparation of these financial statements requires InVivo to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported revenues and expenses during the reporting
periods. On an ongoing basis, InVivo evaluates such estimates and judgments,
including those described in greater detail below. InVivo bases its estimates on
historical experience and on various other factors that InVivo believes are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Critical
Accounting Policies
Our financial statements, which appear
at Item 9.01(a), have been prepared in accordance with accounting principles
generally accepted in the United States, which require that the Company make
certain assumptions and estimates and, in connection therewith, adopt certain
accounting policies. Our significant accounting policies are set forth in
Note 2 to our financial statements. Of those policies, we believe that the
policies discussed below may involve a higher degree of judgment and may be more
critical to an accurate reflection of our financial condition and results of
operations.
Stock-Based
Compensation
Stock options are generally granted
with an exercise price at market value at the date of the grant. The stock
options generally expire ten years from the date of grant. Stock option
awards vest upon terms determined by the Board of Directors
The Company recognizes compensation
costs resulting from the issuance of stock-based awards to employees,
non-employees and directors as an expense in the statement of operations over
the service period based on a measurement of fair value for each stock-based
award.
The fair value of InVivo common stock
has been determined based on a number of factors including the stage of
development of the Company, the value of Company’s common stock sold to outside
investors and the market value of other medical device companies in a similar
stage of development.
The fair value of each option grant was
estimated as of the date of grant using the Black-Scholes option-pricing
model. The fair value is amortized as compensation cost on a
straight-line basis over the requisite service period of the awards, which is
generally the vesting period. Due to its limited operating history and limited
number of sales of its common stock, the Company estimated its volatility in
consideration of a number of factors including the volatility of comparable
public companies. The Company uses historical data, as well as subsequent events
occurring prior to the issuance of the financial statements, to estimate option
exercise and employee termination within the valuation model. The expected term
of options granted under the Company’s stock plans, all of which qualify as
“plain vanilla,” is based on the average of the contractual term (generally
10 years) and the vesting period (generally 48 months) as permitted
under SEC Staff Accounting Bulletin Nos. 107 and 110. The risk-free rate is
based on the yield of a U.S. Treasury security with a term consistent with the
option.
The following assumptions were used to
estimate the fair value of stock options granted using the Black-Scholes option
pricing model:
|
|
Six Months Ended
|
|
|
Years Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
3.24
|
%
|
|
|
2.68
|
%
|
|
|
3.24
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
term (employee grants)
|
|
|
7.45
|
|
|
|
6.25
|
|
|
|
7.75
|
|
Expected
volatility
|
|
|
49.15
|
%
|
|
|
50.10
|
%
|
|
|
49.15
|
%
|
We review our financial reporting and
disclosure practices and accounting policies on an ongoing basis to ensure that
our financial reporting and disclosure system provides accurate and transparent
information relative to the current economic and business environment. As part
of the process, the Company reviews the selection, application and communication
of critical accounting policies and financial disclosures. The preparation of
our financial statements in conformity with accounting principles generally
accepted in the United States requires that our management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We review our estimates and the methods by which they are
determined on an ongoing basis. However, actual results could differ from our
estimates.
Comparison
of the six months ended June 30, 2010 and 2009
Research
and Development Expenses
Research and development expenses
decreased by $165,000, from $790,000 in 2009 to $625,000 in 2010. The decrease
is primarily attributable to a reduction in costs of pre-clinical
studies.
General
and Administrative Expenses
General and administrative expenses
increased by $239,000, from $312,000 in 2009 to $551,000 in 2010. The increase
is primarily attributable to an increase in stock compensation
expense.
Interest
expense
Interest expense increased by $124,000
from $124,000 in 2009 to $248,000 in 2010. The increase is primarily
attributable to interest expense from the beneficial conversion feature of
$104,000 recorded in 2010.
Comparison
of years ended December 31, 2009 and 2008
Research
and Development Expenses
Research and development expenses
increased by $871,000, from $937,000 in 2008 to $1,808,000 in 2009. The increase
is primarily attributable to an increase in costs of preclinical
studies.
General
and Administrative Expenses
General and administrative expenses
increased by $362,000, from $474,000 in 2008 to $836,000 in 2009. The increase
is primarily attributable to increases in stock compensation expense, salary and
benefits and rent expense.
Other income of $383,000 in 2009
resulted from the settlement of a legal matter.
Interest
expense
Interest expense increased by
$101,000 from $155,000 in 2008 to $256,000 in 2009. The increase
is an increase in the amount of debt outstanding in 2009 as compared to
2008.
Financial
Condition, Liquidity and Capital Resources
Since its inception, the Company has
devoted substantially all of its efforts to business planning, research and
development, recruiting management and technical staff, acquiring operating
assets and raising capital. Accordingly, the Company is considered to
be in the development stage.
As of
December 31, 2009, the Company had cash of approximately $227,000, an
accumulated deficit of approximately $5,179,000 and a stockholders’ deficit of
approximately $3,619,000. The Company is in the development stage,
has no revenue and has relied on raising capital to finance its
operations. At December 31, 2009, the Company did not have sufficient
capital to fund its operations. This, in turn, raises substantial
doubt about the Company’s ability to continue as a going concern
Since inception, the Company incurred
negative cash flows from operations. The Company has financed its operations
primarily through the sale of equity-related securities. At June 30, 2010 the
accumulated deficit was $6,603,000 and stockholders’ deficit was
$328,000.
At June 30, 2010, we had total current
assets of $216,000 and current liabilities of $272,000, resulting in a working
capital deficit of $56,000. At
December 31, 2009, we
had total current assets of $238,000 and current liabilities of $658,000,
resulting in a working capital deficit of $420,000.
Net cash used by operating activities
for the six months ended June 30, 2010 was $1,119,000. The Company
raised $1,000,000 of cash from the sale of equity and $200,000 from the issuance
of convertible notes in the six months ended June 30, 2010.
Net cash provided used by operating
activities for the year ended December 31, 2009 was $1,900,000. In the year
ended December 31, 2009, the Company raised $1,580,000 of cash from the sale of
convertible notes and $513,000 was provided from the issuance of
loans.
At June 30, 2010, the Company had cash
of $198,000. The Company will need substantial additional capital to
complete its clinical trials, obtain marketing approvals and commercialize the
products.
Between July 2010 and September 2010,
the Company raised $500,000 from the sale of 6% convertible promissory notes
(the “Bridge Notes”). The Bridge Notes automatically converted into
the equity securities sold in the Offering.
Our
executive officers are located in leased premises at One Broadway, 14
th
Floor,
Cambridge, MA 02142 and our phone number is 617-475-1520.
SECURITY
OWNERSHIP OF CERTAIN STOCKHOLDERS AND MANAGEMENT
The
following tables set forth certain information regarding the beneficial
ownership of our Common Stock as of October 26, 2010 by (i) each person who, to
our knowledge, owns more than 5% of the Common Stock; (ii) each of the directors
and executive officers of the Company; and (iii) all of our executive officers
and directors as a group. Unless otherwise indicated in the footnotes to the
following tables, each person named in the table has sole voting and investment
power and that person’s address is c/o InVivo Therapeutics Holdings Corp., One
Broadway, Cambridge, Massachusetts 02142. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within 60
days of October 26, 2010 are deemed outstanding for computing the share
ownership and percentage of the person holding such options and warrants, but
are not deemed outstanding for computing the percentage of any other
person.
Name of Beneficial Owner
|
|
No. Shares of Common
Stock Beneficially Owned
|
|
|
% of Common Stock
Outstanding
|
|
Frank
Reynolds
(1)
|
|
|
15,147,660
|
|
|
|
30.8
|
%
|
Robert
S. Langer
|
|
|
8,262,360
|
|
|
|
16.8
|
%
|
Kevin
Kimberlin
(2)
|
|
|
6,192,959
|
|
|
|
11.60
|
%
|
Adam
K. Stern
(1)(3)
|
|
|
2,441,122
|
|
|
|
4.9
|
%
|
Richard
J. Roberts
(1)(4)
|
|
|
805,580
|
|
|
|
1.6
|
%
|
George
Nolen
(1)(5)
|
|
|
50,984
|
|
|
|
.1
|
|
Christi
Pedra
(1)(6)
|
|
|
81,968
|
|
|
|
.1
|
|
All directors and executive
officers as a group (5 persons)
(1)
|
|
|
18,527,313
|
|
|
|
36.7
|
%
|
|
(1)
|
Officer
and/or director.
|
|
(2)
|
Represents
(i) 1,947,321 shares owned by Optical Partners, LLC and (ii) 4,425,638
shares underlying warrants held by the Placement Agent that it received in
connection with the Bridge Financing and the
Offering.
|
|
(3)
|
Represents
(i) 500,083 shares owned by Adam Stern; (ii) 40,000 shares underlying
warrants owned by Adam Stern; (iii) 801,507 shares owned by ST
Neuroscience Partners, LLC; (iv) 301,400 shares underlying warrants owned
by ST Neuroscience Partners, LLC; (v) 475,079 shares owned by Pavilion
Capital Partners, LLC; and (vi) 323,053 shares owned by Piper Venture
Partners, LLC.
|
|
(4)
|
Represents
shares issuable upon the exercise of stock
options.
|
|
(5)
|
Represents
(i) 10,000 shares underlying Investor Warrants, (ii) 10,000 shares of
Common Stock and (iii) 30,984 shares issuable upon the exercise of stock
options.
|
|
(6)
|
Represents
(i) 61,968 shares issuable upon the exercise of stock options, (ii) 10,000
shares underlying Investor Warrants and (iii) 10,000 shares of Common
Stock.
|
DIRECTORS
AND EXECUTIVE OFFICERS
The following persons are the executive
officers, non-executive officers and directors of the Company and hold the
positions set forth opposite their name.
Name
|
|
Age
|
|
Position
|
Frank
M. Reynolds
|
|
48
|
|
Chairman
of the Board of Directors, Chief Executive Officer, Chief Financial
Officer
*
|
Christopher
Pritchard
**
|
|
25
|
|
Chief
Science Officer
|
Eric
J. Woodard **
|
|
50
|
|
Chief
Medical Officer, Scientific Advisory Board Member
|
Richard
J. Roberts
|
|
67
|
|
Director,
Scientific Advisory Board Member
|
George
Nolen
|
|
54
|
|
Director
|
Christi
M. Pedra
|
|
52
|
|
Director
|
Adam
K. Stern
|
|
46
|
|
Director
|
*
|
Mr.
Reynolds will serve as Chief Financial Officer pending the Company’s
hiring of an individual to serve in such capacity. The Company
has initiated a search to locate such a qualified
individual.
|
Frank M. Reynolds, Chairman of the
Board of Directors, Chief Executive Officer and Chief Financial Officer,
has been CEO of InVivo Therapeutics since 2005 and Chairman and CFO since
October 2010. He is the former Director of Global Business Development at
Siemens Corporation where he was responsible for new business in 132
countries. He has over 25 years of executive management experience and was
the founder & CEO of Expand The Knowledge, Inc., an IT consulting company
with a focus on life sciences. He is an Executive Board Member of the Irish
American Business Chamber and has served on the board of the Special Olympics of
Massachusetts, Philadelphia Cares, and Wharton Consulting Partners. He was
awarded the 2010 Irish Life Science 50 Award by the President of Ireland, Mary
McAleese, The 2008 Top 40 Irish-American Executives Award, Siemens 2005 Global
Presidential Award, and the Siemens 2004 Top+ USA Strategy Award. He was
featured in the March 2010 and October 2009 issues of Inc.
magazine.
Mr.
Reynolds suffered an injury to his spine in 1992. While recovering from
this injury, he took the opportunity to earn two Master’s degrees and he
currently holds a Master of Business Administration from Sloan Fellows Program
in Global Innovation and Leadership- 2006, Massachusetts Institute of
Technology; a Master’s of Science in Technology Management- 2005, The Wharton
School of Business, University of Pennsylvania; a Master’s of Science in
Engineering – 2003, University of Pennsylvania; a Master’s of Science in
Management Information Systems – 2001, Temple University; a Master’s of Science
in Health Administration- 1996; Saint Joseph’s University; and a Master’s of
Science in Psychology – 1994, Chestnut Hill College. He also has a
Bachelor of Science in Marketing- 1984, Rider University.
Christopher Pritchard, Chief Science
Officer,
has been the Director of R&D for InVivo since August 2009
and joined the Company in 2007. He is the author of numerous
peer-reviewed publications on biomaterials, stem cells and neuroscience and has
disclosed multiple patents. Mr. Prichard is a reviewing editor for the MIT
Entrepreneurship Review. He is an alumnus of Oxford and Princeton, and
completed his doctoral thesis under Dr. Robert Langer at MIT Langer
Lab.
Eric J. Woodard, M.D., Chief Medical
Officer,
is the Chief, Neurosurgery at New England Baptist Hospital in
Boston. Dr. Woodard was appointed to InVivo’s Scientific Advisory Board in June
2007 and became Chief Medical Officer of InVivo in September 2008. Dr. Woodard
received his medical degree from the Pennsylvania State University and completed
his residency in Neurological surgery at Emory University. Following residency,
Dr. Woodard completed a fellowship in complex spinal surgery at the Medical
College of Wisconsin under Dr. Sanford Larsen. He is a diplomat of the American
Board of Neurological Surgeons.
Dr.
Woodard was formerly Chief of the Division of Spinal Surgery in the Department
of Neurological Surgery at Brigham and Women’s Hospital, where he held the rank
of Assistant Professor in Surgery at Harvard Medical School. He has been an
editorial board member for The Journal of Spinal Disorders, Spine Universe.com
and is an ad hoc reviewer for Neurosurgery, Journal of Neurosurgery and the New
England Journal of Medicine. He is the immediate past chairman of the
AO Spine North America Board and serves on the Board of AO Spine
International.
Dr. Richard J. Roberts, PhD,
Director
, has been the Chief Scientific Officer at New England Biolabs
since July 1, 2005. Dr. Roberts joined InVivo’s Scientific Advisory Board in
June 2007 and became a Director of InVivo in November 2008. He was awarded the
1993
Nobel Prize in Physiology or Medicine
along with
Phillip
Allen Sharp
for the discovery of
introns
in
eukaryotic
DNA
and the mechanism of gene-splicing. He holds
a B.Sc. in Chemistry and a Ph.D. Organic Chemistry from the
University of Sheffield, U.K. Dr. Roberts has discovered and cloned restriction
enzymes and been involved in studies of Adenovirus-2, beginning with studies of
transcription that led to the discovery of split genes and mRNA splicing. His
laboratory has pioneered the application and development of computer methods for
protein and nucleic acid sequence analysis that continues to be a major research
focus for Dr. Roberts.
George Nolen, Director
, was
the former President and Chief Executive Officer of Siemens Corporation, the
U.S. subsidiary of Siemens, AG, from 2004 until his retirement in August of
2009. He rose through the ranks during his 26-year career with Siemens USA to
become, in January 2004, the first American chosen to run Siemens’ U.S.
operations. In 2009, Siemens in the U.S. had 69,000 employees located throughout
all 50 states and $22 billion in revenue. Mr. Nolen had overall responsibility
for the strategy in the U.S. in such diverse fields as industrial automation,
lighting, water and wastewater, building automation, medical imaging, medical
diagnostics as well as traditional and new power generation technologies. He
also oversaw strategic acquisitions in the energy, healthcare and industrial
sectors, positioning Siemens USA as a leading and global player in these key
industries. Prior to his role as Siemens USA’s CEO, Mr. Nolen held numerous
roles in Siemens including President of Siemens’ Information and Communications
division, overseeing this business from 1998 to 2004. He is a 1978 graduate of
Virginia Tech, where he currently serves as the Rector of the University’s Board
of Visitors.
Christi M. Pedra, Director,
became the Senior Vice President, Strategic New Business Development &
Marketing Siemens Healthcare of Siemens Medical USA in January 2010. Previously
she served as Chief Executive Officer of Siemens Hearing Instruments, Inc. from
January 2007 through December 2009. She was charged with leading the
company’s sales, manufacturing, product development, customer relations and
research and development in the United States. From October 2003
through December 2006, she served as Vice President and Chief Operating Officer
of Siemens One. Prior to her role with Siemens One, Ms. Pedra served
as Vice President of Executive Relations for Siemens Corporation in the Office
of the President. Currently, Ms. Pedra is a member of the National
Collegiate Athletic Association Leadership Advisory Board. She also serves on
the National Council for Liberal Education America’s Promise and takes part in
several formal and informal mentoring programs. And in 2002, Ms. Pedra was
nominated and selected to be a David Rockefeller Fellow, a one-year leadership
program sponsored by the NYC Partnership and the David Rockefeller
Foundation. Ms. Pedra received her MBA from Rutgers
University.
Adam K. Stern, Director
,
Senior Managing Director of the Placement Agent of the Offering, has over 20
years of venture capital and investment banking experience focusing primarily on
the technology and life science sectors of the capital markets. He
currently manages the structured finance group of the Placement
Agent. Mr. Stern joined the Placement Agent in September 1997 from
Josephthal & Co., members of the New York Stock Exchange, where he served as
Senior Vice President and Managing Director of Private Equity Marketing and held
increasingly responsible positions from 1989 to 1997. He has been a
licensed securities broker since 1987 and a General Securities Principal since
1991.Mr. Stern currently sits on the boards of various private companies and one
public company, PROLOR Biotech (NYSE/AMEX:PBTH). Mr. Stern holds a Bachelor of
Arts degree with honors from The University of South Florida in
Tampa.
The
Company does not pay Members of its Board of Directors any cash compensation and
currently compensates the Board through the issuance of Stock
Options.
SCIENTIFIC
AND BUSINESS ADVISORY BOARDS
Eric
J. Woodard
|
|
Chief
Medical Officer, Scientific Advisory Board Member
|
Dr.
Richard J. Roberts
|
|
Director,
Scientific Advisory Board Member
|
Dr.
Robert S. Langer
|
|
Scientific
Advisory Board Member
|
V.
Reggie Edgerton
|
|
Scientific
Advisory Board Member
|
Jonathan
R. Slotkin
|
|
Scientific
Advisory Board Member
|
Todd
Albert
|
|
Scientific
Advisory Board Member
|
Paul
Mraz
|
|
Business
Advisory Board Member
|
David
Feigal
|
|
Business
Advisory Board Member
|
He served
as a member of the United States Food and Drug Administration’s SCIENCE Board,
the FDA’s highest advisory board, from 1995 — 2002 and as its Chairman from
1999-2002. Dr. Langer has received over 180 major awards including the
2006 United States National Medal of Science; the Charles Stark Draper Prize,
considered the equivalent of the Nobel Prize for engineers and the 2008
Millennium Prize, the world’s most prestigious technology prize. He is the
also the only engineer to receive the Gairdner Foundation International Award;
72 recipients of this award have subsequently received a Nobel Prize.
Among numerous other awards Langer has received are the Dickson Prize for
Science (2002), Heinz Award for Technology, Economy and Employment (2003), the
Harvey Prize (2003), the John Fritz Award (2003) (given previously to inventors
such as Thomas Edison and Orville Wright), the General Motors Kettering Prize
for Cancer Research (2004), the Dan David Prize in Materials Science (2005), the
Albany Medical Center Prize in Medicine and Biomedical Research (2005), the
largest prize in the U.S. for medical research, induction into the National
Inventors Hall of Fame (2006), the Max Planck Research Award (2008) and the
Prince of Asturias Award for Technical and Scientific Research (2008). In
1998, he received the Lemelson-MIT prize, the world’s largest prize for
invention for being “one of history’s most prolific inventors in
medicine.” In 1989 Dr. Langer was elected to the Institute of Medicine of
the National Academy of Sciences, and in 1992 he was elected to both the
National Academy of Engineering and to the National Academy of Sciences.
He is one of very few people ever elected to all three United States National
Academies and the youngest in history (at age 43) to ever receive this
distinction.
Forbes Magazine
(1999) and
Bio World
(1990) have
named Dr. Langer as one of the 25 most important individuals in biotechnology in
the world.
Discover
Magazine
(2002) named him as one of the 20 most important people in this
area.
Forbes
Magazine
(2002) selected Dr. Langer as one of the 15 innovators worldwide
who will reinvent our future.
Time Magazine
and CNN (2001)
named Dr. Langer as one of the 100 most important people in America and one of
the 18 top people in science or medicine in America (America’s Best).
Parade Magazine
(2004) selected Dr. Langer as one of 6 “Heroes whose research may save your
life.” Dr. Langer has received honorary doctorates from Harvard
University, the Mt. Sinai School of Medicine, Yale University, the ETH
(Switzerland), the Technion (Israel), the Hebrew University of Jerusalem
(Israel), the Universite Catholique de Louvain (Belgium), Rensselaer Polytechnic
Institute, Willamette University, the University of Liverpool (England), the
University of Nottingham (England), Albany Medical College, Pennsylvania State
University, Northwestern University, Uppsala University (Sweden) and the
University of California – San Francisco Medal. He received his Bachelor’s
Degree from Cornell University in 1970 and his Sc.D. from the Massachusetts
Institute of Technology in 1974, both in Chemical Engineering.
Dr. Reggie Edgerton, PhD,
Scientific Advisory Board Member, has been the Director of U.C.L.A’s Edgerton
Lab since 1968 and is a professor in the Department of Physiological Sciences at
U.C.L.A. His research is focused on neural control of movement and how this
neural control adapts to altered use and after spinal cord injury. He completed
his Ph.D. under the direction of Drs. Wayne Van Huss, Rex Carrow, and William
Heusner at Michigan State University.
Dr.
Edgerton is on the Scientific Advisory Board of The Christopher Reeves
Foundation (CRF) and his laboratory is one of eight in the world receiving
funding from the CRF. In addition to serving on the board of the CRF,
he is currently on the Scientific Advising board of the American Paralysis
Association. Dr. Edgerton has co-authored two books and is the author of
approximately 300 research papers.
Dr.
Slotkin has authored or co-authored several peer-reviewed scientific
publications in the areas of repair after spinal cord injury in animal models,
and in vivo quantum dot labeling of neural stem cells.
Dr.
Albert serves on the boards of several scientific journals, including Spine, The
Spine Journal, and The Journal of Spinal Disorders and Techniques, as well as
medical associations. He is Chair of Network Development for the National Spine
Network. Dr. Albert has published over 200 scientific articles, authored over 40
book chapters, and seven textbooks on spinal surgery.
Paul Mraz,
Business Advisory
Board
,
currently serves
as Chief Executive Officer of CeraPedics, Inc., a medical device
company. Mraz most recently served as Chairman and CEO of Angstrom
Medica, Inc. (acquired by Pioneer Surgical Technology). Prior to Angstrom
Medica, Mraz was a Principal of Link Spine Group Inc. as Vice President -
Worldwide Marketing and International Sales until its acquisition by Johnson
& Johnson in June 2003.
Mr. Mraz
currently serves as a Director of superDimension, Ltd. (Herzliya, ISRAEL and
Plymouth, MN). Mraz received a B.S. degree in Mechanical Engineering from
Lafayette College and an M.S. degree in Mechanical Engineering and Biomechanics
from Case Western Reserve University. He holds six US Patents for various
medical devices and is an active advisor to numerous venture capital
groups.
Before
joining the FDA, Dr. Feigal worked for 10 years within the academic and hospital
settings of the University of California in San Diego, San Francisco and Davis.
He holds a BA from University of Minnesota, an MD from Stanford University and a
Master of Public Health from the University of California,
Berkeley.
The
Company does not pay Members of its Advisory Boards any cash compensation and
currently compensates the Scientific Advisory and Business Advisory Boards
through the issuance of Stock Options.
The
following summary compensation table sets forth the salaries of InVivo’s CEO and
the other most highly compensated executive officers of InVivo (other than the
CEO) whose annual salaries exceeded $100,000 for the current year (the “
Named Executive
Officers
”). In addition to their salaries, the executive
officers were eligible for bonuses awarded by InVivo from time to
time.
Summary
Compensation Table
Name
and
Principal
Position(s)
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
Other Annual
Compensation
|
|
Securities
Underlying
Options
1
|
|
Frank
Reynolds (CEO)
|
|
2010
|
|
$
|
375,000
|
|
|
TBD
|
|
|
|
|
|
Frank
Reynolds (CEO)
|
|
2009
|
|
$
|
275,000
|
|
|
$
|
40,000
|
|
|
|
|
784,924
|
|
Frank
Reynolds (CEO)
|
|
2008
|
|
$
|
250,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
1
The Stock Options listed in the above
table were issued under InVivo’s 2007 Plan. All options issued under the 2007
Plan vest over a period of four (4) years.
Agreements with Officers, Directors and
Advisory Board Members
In
November 2006, InVivo entered into an Agreement with each of: (i) Frank
Reynolds, InVivo’s current Chief Executive Officer; (ii) Robert Langer, InVivo’s
current Scientific Advisory Member; and (iii) Yang D. Teng. The
Agreement provided for the repurchase of a party’s unvested shares of common
stock by the other parties upon the occurrence of certain events. As
of the date of this Report, all shares granted to each of the parties have
vested.
InVivo
entered into an employment agreement with Mr. Reynolds in May 2008, which was
amended in November 2009. The agreement, as amended, provides: (i)
for an indefinite term of employment; (ii) for a base salary of $375,000 plus
benefits; (iii) for a grant of stock options to purchase 784,924 shares of
Common Stock; and (iv) that if Mr. Reynolds employment is terminated by the
Company without cause, or by Mr. Reynolds as a result of a constructive
termination by the Company, or as a result of the Mr. Reynolds death or
disability, then InVivo is obligated to pay severance (consisting of salary and
benefits as in effect at the time of termination) to Mr. Reynolds (or Mr.
Reynolds’ legal representatives) for a period of 18 months. In
addition, if Mr. Reynolds employment is terminated by the Company without cause,
or by Mr. Reynolds as a result of a constructive termination by the Company, the
Company will be obligated to pay Mr. Reynolds his annual bonus during such 18
month period. The amount of the bonus after the date of termination
will equal the greater of (i) the last such bonus before termination, or (ii)
the average of the three most recent bonuses paid before the date of termination
(or all such bonuses, if less than three).
The
agreement, as amended, provides for a possible bonus to Mr. Reynolds for the
12-month period commencing November 1, 2009, payable upon the attainment of
certain milestones. The bonus may range from 10% to 130% of Mr.
Reynolds’ 2009 base salary, depending on the number and type of milestones
attained. The most significant of these milestones (100% of 2009 base salary),
will be triggered if the Company obtains FDA approval to begin a human study on
or before October 31, 2010.
InVivo
entered into an employment contract in September 2010 with Mr. Pritchard
pursuant to which Mr. Pritchard will act as Chief Science Officer of InVivo. Mr.
Pritchard’s agreement provides: (i) a base salary of $225,000 plus benefits; and
(ii) options to purchase 909,989 shares of InVivo common stock at an exercise
price of $1.00 per share, vesting over four years commencing one year from the
date of grant. Mr. Pritchard’s contract is for an indefinite term of employment,
subject to early termination for death, disability or cause.
Outstanding
Equity Awards at Fiscal Year End
The following table summarizes the
equity awards made to our named executive officers that were outstanding at
December 31, 2009.
Name
|
|
No. of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
No. of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
Frank Reynolds (1)
|
|
|
0
|
|
784,924
|
|
$
|
0.91
|
|
12/12/2019
|
(1) The
options were granted on December 12, 2009, and vest as follows: 25% on each of
the first, second, third and fourth anniversaries of the date of
grant
Board
of Directors and Corporate Governance
Our Board
of Directors consists of five (5) members. On the Closing of the Merger, Peter
L. Coker and Peter A. Reichard, the sole members of the Board of Directors of
ITHC resigned, and simultaneously therewith, a new Board of Directors was
appointed. The Board consists of four (4) members who were former directors of
InVivo and Adam K. Stern, who was appointed at the Closing of the Merger at the
request of the Placement Agent.
Board
Independence and Committees
The
Company is not currently listed on any national securities exchange or in an
inter-dealer quotation system that has a requirement that the Board of Directors
be independent. However, in evaluating the independence of its members and the
composition of the committees of the Board of Directors, the Board utilizes the
definition of “independence” as that term is defined by applicable listing
standards of the Nasdaq Stock Market and SEC rules, including the rules relating
to the independence standards of an audit committee and the non-employee
director definition of Rule 16b-3 promulgated under the Exchange
Act.
The Board
of Directors expects to continue to evaluate its independence standards and
whether and to what extent the composition of the Board and its committees meets
those standards. The Company ultimately intends to appoint such persons to the
Board and committees of the Board as are expected to be required to meet the
corporate governance requirements imposed by a national securities exchange.
Therefore, the Company intends that a majority of its directors will be
independent directors of which at least one director will qualify as an “audit
committee financial expert,” within the meaning of Item 407(d)(5) of Regulation
S-K, as promulgated by the SEC.
Additionally,
the Board of Directors is expected to appoint an audit committee, governance
committee and compensation committee and to adopt charters relative to each such
committee.
We
believe that
Messrs. Nolen and
Roberts and Ms. Pedra are currently “independent” directors as that term is
defined by applicable listing standards of the Nasdaq Stock Market and SEC
rules, including the rules relating to the independence standards of an audit
committee and the non-employee director definition of Rule 16b-3 promulgated
under the Exchange Act. The Board determined that Mr. Stern is not independent
as a result of the payments to the Placement Agent and that Mr. Reynolds is not
independent as a result of his employment relationship with the
Company.
We
currently anticipate that Christi Pedra and Richard Roberts will initially serve
on our audit committee, and as stated above our Board of Directors believes that
all of the members are independent as that term is defined by applicable listing
standards of the Nasdaq Stock Market and SEC rules. We expect that George Nolen
and Richard Roberts will initially serve on our compensation
committee.
Code
of Ethics
ITHC has
adopted a written code of ethics. We believe that the code of ethics is
reasonably designed to deter wrongdoing and promote honest and ethical conduct;
provide full, fair, accurate, timely and understandable disclosure in public
reports; comply with applicable laws; ensure prompt internal reporting of code
violations; and provide accountability for adherence to the code.
2009 Non-Employee Director
Compensation
The
following table sets forth compensation earned and paid to each non-employee
director for service as a director during 2009.
Name
|
|
Fees Earned or
Paid in Cash
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
Richard
J. Roberts
(1)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
(1)
|
|
|
0
|
|
George
Nolen
(2)
|
|
|
0
|
|
|
|
0
|
|
|
|
112,780
|
|
|
|
0
|
|
|
|
112,780
|
|
Christi
M. Pedra
(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
(1) Mr.
Roberts was granted options to purchase 743,612 shares on Common Stock at a
price of $0.07 per share on June 1, 2007. The options, which expire
in June 2017, vest as follows: 25% on date of grant and the remainder
in three equal installments on the first, second and third anniversaries of the
grant date. In addition, Mr. Roberts was granted options to purchase
123,935 shares of Common Stock at a price of $0.07 per share on November 24,
2008. The options, which expire in November 2018, vest as
follows: 25% of the grants vests on each of the first, second, third
and fourth anniversaries of the grant date.
(2) Mr.
Nolen was granted options to purchase 123,934 shares of Common Stock in December
2009 at a price of $0.91 per share. The options, which expire in
December 2019, vest as follows: 25% of the grants vests on each of
the first, second, third and fourth anniversaries of the grant
date.
(3) Ms.
Pedra was granted options to purchase 123,934 shares of Common Stock in November
2008 at a price of $0.07 per share. The options, which expire in
November 2018, vest as follows: 25% of the grants vests on each of
the first, second, third and fourth anniversaries of the grant
date.
2010
Equity Incentive Plan
The Board
of Directors has adopted the 2010 Equity Incentive Plan in 2010, subject to
stockholder approval, which will reserve a total of 3,500,000 shares of our
Common Stock for issuance under the 2010 Plan. If an incentive award
granted under the 2010 Plan expires, terminates, is unexercised or is forfeited,
or if any shares are surrendered to us in connection with an incentive award,
the shares subject to such award and the surrendered shares will become
available for further awards under the 2010 Plan.
Shares
issued under the 2010 Plan through the settlement, assumption or substitution of
outstanding awards or obligations to grant future awards as a condition of
acquiring another entity are not expected to reduce the maximum number of shares
available under the 2010 Plan. In addition, the number of shares of
Common Stock subject to the 2010 Plan, any number of shares subject to any
numerical limit in the 2010 Plan, and the number of shares and terms of any
incentive award are expected to be adjusted in the event of any change in our
outstanding Common Stock by reason of any stock dividend, spin-off, split-up,
stock split, reverse stock split, recapitalization, reclassification, merger,
consolidation, liquidation, business combination or exchange of shares or
similar transaction.
If
stockholder approval is not obtained within 12 months after the Board’s adoption
of the 2010 Plan, all awards granted under the 2010 Plan will terminate. In
addition, no award under the 2010 Plan will become exercisable until stockholder
approval has been obtained.
Administration
It is
expected that the compensation committee of the Board, or the Board in the
absence of such a committee, will administer the 2010 Plan. Subject
to the terms of the 2010 Plan, the compensation committee would have complete
authority and discretion to determine the terms of awards under the 2010
Plan.
Grants
The 2010
Plan is expected to authorize the grant to 2010 Plan participants of
nonqualified stock options, incentive stock options, restricted stock awards,
restricted stock units, performance grants intended to comply with Section
162(m) of the Internal Revenue Code (as amended, the “
Cod
e”) and stock appreciation
rights, as described below:
|
·
|
Options
granted under the 2010 Plan entitle the grantee, upon exercise, to
purchase a specified number of shares from us at a specified exercise
price per share. The exercise price for shares of Common Stock
covered by an option cannot be less than the fair market value of the
Common Stock on the date of grant unless agreed to otherwise at the time
of the grant.
|
|
·
|
Restricted
stock awards and restricted stock units may be awarded on terms and
conditions established by the compensation committee, which may include
performance conditions for restricted stock awards and the lapse of
restrictions on the achievement of one or more performance goals for
restricted stock units.
|
|
·
|
The
compensation committee may make performance grants, each of which will
contain performance goals for the award, including the performance
criteria, the target and maximum amounts payable, and other terms and
conditions.
|
|
·
|
The
2010 Plan authorizes the granting of stock awards. The
compensation committee will establish the number of shares of Common Stock
to be awarded and the terms applicable to each award, including
performance restrictions.
|
|
·
|
Stock
appreciation rights (“
SARs
”) entitle the
participant to receive a distribution in an amount not to exceed the
number of shares of Common Stock subject to the portion of the SAR
exercised multiplied by the difference between the market price of a share
of Common Stock on the date of exercise of the SAR and the market price of
a share of Common Stock on the date of grant of the
SAR.
|
Duration,
Amendment, and Termination
The Board
is expected to have the power to amend, suspend or terminate the 2010 Plan
without stockholder approval or ratification at any time or from time to
time. No change may be made that increases the total number of shares
of Common Stock reserved for issuance pursuant to incentive awards or reduces
the minimum exercise price for options or exchange of options for other
incentive awards, unless such change is authorized by our stockholders within
one year. Unless sooner terminated, the 2010 Plan would terminate ten
years after it is adopted.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions
with ITHC Shareholders
Forward
Split, Split-Off and Share Cancellation
Our
Common Stock was forward-split on a 2.02898 for 1 basis effective October 22,
2010 so that there were 6,999,981 shares of the ITHC’s common stock issued and
outstanding before taking into account the issuance of shares of Common Stock to
purchasers of Units in the Offering and in the Merger and after giving pro forma
effect to the Split-Off, as discussed below.
Upon the
closing of the Merger, ITHC transferred all of its operating assets and
liabilities to DSSC and split-off DSSC through the sale of all of the
outstanding capital stock of DSSC (the “
Split-Off
”). In
connection with the Split-Off, 14,747,554 shares of Common Stock held by the
Split-Off Shareholders were surrendered and cancelled without further
consideration, other than the receipt of DSSC shares. An additional 1,014,490
shares of common stock were cancelled by a shareholder of ITHC for no
consideration (the “
Share
Cancellation
”)..
Transactions
with the Placement Agent and its Related Parties
The
Placement Agent also acted as finder to InVivo in connection with its sale of
$500,000 of principal amount of its Bridge Notes, which was consummated in
September 2010. The Company issued investors participating in this
bridge financing New Bridge Warrants to purchase an aggregate of 500,000 shares
of the Company’s Common Stock at a price of $1.00 per share. The New Bridge
Warrants have a term of five years and are fully exercisable. The
Bridge Notes were converted into Units in the Offering upon the closing of the
Offering. The Placement Agent earned Warrants (which are identical to the New
Bridge Warrants) to purchase 100,000 shares of Common Stock of the Company at a
price of $1.00 per Share as compensation for acting as a finder in the Bridge
Financing. Affiliates of the Placement Agent purchased $150,000 of
Bridge Notes in the Bridge Financing.
In
September 2010, several related parties to the Placement Agent, purchased an
aggregate of 1,920,000 shares of Common Stock (3,895,643 shares on a post stock
split adjusted basis) from various shareholders of ITHC. The aggregate purchase
price paid to such shareholders by the related parties for such shares was
approximately $49,000. Adam K. Stern, Senior Managing Director of the
Placement Agent and its designee to serve on the Company’s Board of Directors
upon the Closing of the Offering, beneficially owns 960,247 of these shares
(1,948,322 shares on a post-split basis).
ITHC
engaged the Placement Agent as its exclusive placement agent in connection with
the Offering. For its services, ITHC paid the Placement Agent (i) a cash fee
equal to 10% of the gross proceeds raised in the Offering ($1,051,410) and (ii)
a non-accountable expense allowance equal to 3% of the gross proceeds raised in
the Offering ($315,423). In addition, the Company granted to the
Placement Agent or its designees, for nominal consideration, five-year warrants
(“Placement Agent Warrants”) to purchase (i) 2,102,819 shares of Common Stock at
an exercise price of $1.00 per share and (ii) 2,102,819 shares of Common Stock
at an exercise price of $1.40 per share.
The
Company has agreed to engage the Placement Agent as its warrant solicitation
agent in the event the Investor Warrants are called for redemption and shall pay
a warrant solicitation fee to the Placement Agent equal to five (5%) percent of
the amount of funds solicited by the Placement Agent upon the exercise of the
Investor Warrants following such redemption.
The
Placement Agent was granted the right to designate one member to our Board of
Directors and has designated Adam K. Stern to fill such Board seat.
The
Company has also agreed to pay the Placement Agent compensation of $5,000 per
month for a period of two years for services relating to strategies
to maximize shareholder value; and entered into a non-exclusive finder’s fee
agreement with the Placement Agent providing that if the Placement Agent shall
introduce us to a third party that consummates certain investment or business
combination transactions with us during the eighteen (18) month period following
the later of the termination of this Offering or the final Closing of this
Offering, the Placement Agent will be paid a finder’s fee, payable in cash at
the closing of such transaction, equal to equal to 7% of the first $1 million of
consideration paid by or to the Company, plus 6% of the next $1 million of
consideration paid by or to the Company, plus 5% of the next $5 million of the
consideration paid by or to the Company, plus 4% of the next $1 million paid by
or to the Company, plus 3% of the next $1 million paid by or to the Company,
plus 2.5% of any consideration paid by or to the Company in excess of $9
million. The Placement Agent will not be entitled to a finder's fee with respect
to any transaction entered into with any party with whom the Company had a
pre-existing relationship prior to the date of the specific introduction and who
was not introduced to the Company by the Placement Agent.
Furthermore,
we granted the Placement Agent a preferential right of first refusal to act as
agent with respect to future private placements of the Company’s securities for
a period of eighteen (18) months from the date of the final Closing
of the Offering.
The price
of the Units was been determined following our discussions with the Placement
Agent. Among the factors considered in the negotiations were our
limited operating history, our history of losses, an assessment of our
management and our proposed operations, our current financial condition, the
prospects for the industry in which we operate, the prospects for the
development of our business with the capital raised in the Offering and the
general condition of the securities markets at the time of the
Offering. The Offering price of the Units or the exercise price of
the Investor Warrants does not necessarily bear any relationship to our assets,
book value or results of operations or any other generally accepted criterion of
value.
The
Company has agreed to indemnify the Placement Agent and other broker-dealers who
are FINRA members selected by the Placement Agent to offer and sell Units, to
the fullest extent permitted by law for a period of four (4) years from the
Closing of the Offering, against certain liabilities that may be incurred in
connection with this Offering, including certain civil liabilities under the
Securities Act, and, where such indemnification is not available, to contribute
to the payments the Placement Agent may be required to make in respect of such
liabilities. Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to the Placement Agent, pursuant to the
foregoing provisions or otherwise, the Company has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
Lock-ups
Officers,
directors and holders of 5% or more of the Company’s Common Stock and certain
employees and affiliates of the Placement Agent have agreed to “lock-up” and not
sell or otherwise transfer or hypothecate any of their shares for a term equal
to the earlier of (i) twelve (12) months from the Closing Date of the Merger; or
(ii) six (6) months following the effective date of the Registration Statement
registering the shares of Common Stock that were sold in the
Offering.
DESCRIPTION
OF CAPITAL STOCK
Authorized
Capital Stock
As of
October 26, 2010, our authorized capital stock consisted of 100,000,000 shares
of Common Stock, par value $0.00001 per share.
Issued
and Outstanding Capital Stock
After
giving effect to the Transactions, the Units sold in the Offering, the options
granted under the 2007 Plan (that were exchanged for ITHC Options upon Pubco’s
assumption of options issued under the 2007 Plan), and the warrants issued to
the Placement Agent in connection with the Offering, there are issued and
outstanding securities of the Company on the closing of the
Transactions:
|
§
|
49,161,268
shares of Common Stock;
|
|
§
|
Options
to purchase 5,915,615 shares of Common Stock granted under the 2007 Plan
that will be issued to holders at the closing of the Merger pursuant to
the assumption of the 2007 Plan;
|
|
§
|
Investor
Warrants to purchase 10,514,097 shares of Common Stock at $1.40 per share
issued to the investors in the Offering and warrants to purchase 2,102,819
shares of Common Stock at a price of $1.00 per share and 2,102,819
warrants exercisable at a price of $1.40 per share to be issued to the
Placement Agent in connection with this Offering;
and
|
|
§
|
New
Bridge Warrants issued to Bridge Investors in the Bridge Financing to
purchase 500,000 shares of Common Stock at $1.00 per share and 100,000 New
Bridge Warrants exercisable at a price of $1.00 per share issued to the
Placement Agent in connection with the Bridge
Financing.
|
Description
of Common Stock
The
holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders, including the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority (or, in the case of election of directors, by a plurality) of the votes
entitled to be cast by all shares of Common Stock that are present in person or
represented by proxy. Except as otherwise provided by law, amendments to the
articles of incorporation generally must be approved by a majority of the votes
entitled to be cast by all outstanding shares of Common Stock. The amended and
restated Articles of Incorporation do not provide for cumulative voting in the
election of directors. The Common Stock holders will be entitled to such cash
dividends as may be declared from time to time by the Board from funds
available. Upon liquidation, dissolution or winding up of the Company, the
Common Stock holders will be entitled to receive pro rata all assets available
for distribution to such holders.
Registration
Rights Agreement
The
Company is required to file within 90 days of the date of the final Closing of
the Offering (the “
Filing
Deadline
”), a Registration Statement registering for resale all shares of
Common Stock issued in the Offering, including Common Stock (i) included in the
Units; and (ii) issuable upon exercise of the Investor Warrants; consistent with
the terms and provisions of the Registration Rights Agreement, attached hereto
as an Exhibit 10.4. The holders of any registrable securities removed
from the Registration Statement a result of a Rule 415 or other comment from the
SEC shall have “piggyback” registration rights for the shares of Common Stock or
Common Stock underlying such warrants with respect to any registration statement
filed by the Company following the effectiveness of the Registration Statement
which would permit the inclusion of these shares. The Company has agreed to use
its reasonable efforts to have the registration statement declared effective
within 180 days of filing the registration statement (the “
Effective
Deadline
”).
If the
Registration Statement is not filed on or before the Filing Deadline or not
declared effective on or before the Effectiveness Deadline, the Company shall
pay to each holder of registrable securities an amount in cash equal to one-half
of one percent (0.5%) of such holder’s investment herein or in the Bridge
Financing on every thirty (30) day anniversary of such Filing Deadline or
Effectiveness Deadline failure until such failure is cured. The payment amount
shall be prorated for partial thirty (30) day periods. The maximum aggregate
amount of payments to be made by the Company as the result of such failures,
whether by reason of a Filing Deadline failure, Effectiveness Deadline failure
or any combination thereof, shall be an amount equal to 9% of each holder’s
investment amount. Notwithstanding the foregoing, no payments shall be owed with
respect to any period during which all of the holder’s registrable securities
may be sold by such holder under Rule 144 or pursuant to another exemption from
registration. Moreover, no such payments shall be due and payable
with respect to any registrable securities the Company is unable to register due
to limits imposed by the SEC’s interpretation of Rule 415 under the Securities
Act.
The
Company shall keep the Registration Statement “evergreen” for one (1) year from
the date it is declared effective by the SEC or until Rule 144 of the Securities
Act is available to Investors herein with respect to all of their shares,
whichever is earlier.
Description
of Investor Warrants
After the
consummation of the Merger and the simultaneous closing of the Offering, there
were Investor Warrants issued to purchase 10,514,097 shares of Common Stock held
by investors purchasing Units in the Offering. Each Investor Warrant entitles
the holder to purchase one share of Common Stock at a purchase price of $1.40
during the five (5) year period commencing on the issuance of the Investor
Warrants. The Investor Warrants may be called by the Company at any time the
Common Stock trades above $2.80 for twenty (20) consecutive days following the
effectiveness of the registration statement covering the resale of the
underlying Investor Warrant shares. The Investor Warrants can only be called if
a registration statement registering the shares underlying the Investor Warrants
is in effect at the time of the call.
The
Investor Warrants, at the option of the holder, may be exercised by cash payment
of the exercise price to the Company. The Investor Warrants may be exercised on
a cshless basis commencing one year after issuance if no registration statement
registering the shares underlying the Investor Warrants is then in
effect. The Placement Agent shall receive a warrant solicitation fee
equal to 5% of the funds solicited by the Placement Agent upon exercise of the
Investor Warrants if the Company elects to call the Investor Warrants. The
exercise price and number of shares of Common Stock issuable on exercise of the
Investor Warrants may be adjusted in certain circumstances including a weighted
average adjustment in the event of future issuances of the Company’s equity
securities at a price less than the exercise price of the Investor Warrant, in
the event of a stock dividend, or our recapitalization, reorganization, merger
or consolidation.
No
fractional shares will be issued upon exercise of the Investor Warrants. If,
upon exercise of the Investor Warrants, a holder would be entitled to receive a
fractional interest in a share, we will, upon exercise, round up to the nearest
whole number, the number of shares of Common Stock to be issued to the Investor
Warrant holder.
New
Bridge Warrants
In
September 2010, InVivo completed a Bridge Financing, wherein it sold $500,000 in
principal amount of its Bridge Notes and 36,310 Bridge Warrants to accredited
investors. The Bridge Warrants converted into 500,000 new Bridge Warrants, each
exercisable at a price of $1.00 per New Bridge Warrant, upon the closing of the
Offering and the Merger. Holders of the New Bridge Warrants received the same
registration rights with respect to the shares of Common Stock issuable upon
exercise of the New Bridge Warrants as the investors in the
Offering.
Placement
Agent Warrants
The
Placement Agent Warrants permit the Placement Agent or its designees, to
purchase for a five-year period, (i) 2,102,819 shares of Common Stock at an
exercise price of $1.00 per share and (ii) 2,102,819 shares of Common Stock at
an exercise price of $1.40 per share.. The Placement Agent Warrants have no
registration rights and contain weighted average anti-dilution and immediate
cashless exercise provisions.
Anti-Takeover
Effects of Provisions of Nevada State Law
We may be
or in the future we may become subject to Nevada’s control share laws. A
corporation is subject to Nevada’s control share law if it has more than 200
stockholders, at least 100 of whom are stockholders of record and residents of
Nevada, and if the corporation does business in Nevada, including through an
affiliated corporation. This control share law may have the effect of
discouraging corporate takeovers. The Company currently has less than 200
stockholders.
The
control share law focuses on the acquisition of a “controlling interest,” which
means the ownership of outstanding voting shares that would be sufficient, but
for the operation of the control share law, to enable the acquiring person to
exercise the following proportions of the voting power of the corporation in the
election of directors: (1) one-fifth or more but less than one-third; (2)
one-third or more but less than a majority; or (3) a majority or more. The
ability to exercise this voting power may be direct or indirect, as well as
individual or in association with others.
The
effect of the control share law is that an acquiring person, and those acting in
association with that person, will obtain only such voting rights in the control
shares as are conferred by a resolution of the stockholders of the corporation,
approved at a special or annual meeting of stockholders. The control share law
contemplates that voting rights will be considered only once by the other
stockholders. Thus, there is no authority to take away voting rights from the
control shares of an acquiring person once those rights have been approved. If
the stockholders do not grant voting rights to the control shares acquired by an
acquiring person, those shares no not become permanent non-voting shares. The
acquiring person is free to sell the shares to others. If the buyer or buyers of
those shares themselves do not acquire a controlling interest, the shares are
not governed by the control share law.
If
control shares are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of the voting power, and
stockholder of record, other than the acquiring person, who did not vote in
favor of approval of voting rights, is entitled to demand fair value for such
stockholder’s shares.
In
addition to the control share law, Nevada has a business combination law, which
prohibits certain business combinations between Nevada corporations and
“interested stockholders” for three years after the interested stockholder first
becomes an interested stockholder, unless the corporation’s board of directors
approves the combination in advance. For purposes of Nevada law, an interested
stockholder is any person who is: (a) the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the outstanding voting shares
of the corporation, or (b) an affiliate or associate of the corporation and at
any time within the previous three years was the beneficial owner, directly or
indirectly, of 10% or more of the voting power of the then-outstanding shares of
the corporation. The definition of “business combination” contained in the
statute is sufficiently broad to cover virtually any kind of transaction that
would allow a potential acquirer to use the corporation’s assets to finance the
acquisition or otherwise to benefit its own interests rather than the interests
of the corporation and its other stockholders.
The
effect of Nevada’s business combination law is to potentially discourage parties
interested in taking control of the Company from doing so if it cannot obtain
the approval of our board of directors.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
The
Common Stock is currently available for trading in the over-the-counter market
and is quoted on the OTC Bulletin Board under the symbol “NVIV.OB” As of the
Closing Date, there was no bid history for the Common Stock, because the Common
Stock had never been traded.
Trades in
the Common Stock may be subject to Rule 15g-9 of the Exchange Act, which imposes
requirements on broker/dealers who sell securities subject to the rule to
persons other than established customers and accredited investors. For
transactions covered by the rule, broker/dealers must make a special suitability
determination for purchasers of the securities and receive the purchaser’s
written agreement to the transaction before the sale.
The SEC
also has rules that regulate broker/dealer practices in connection with
transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities listed on certain
national exchanges, provided that the current price and volume information with
respect to transactions in that security is provided by the applicable exchange
or system). The penny stock rules require a broker/dealer, before effecting a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker/dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker/dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer’s account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing before effecting
the transaction, and must be given to the customer in writing before or with the
customer’s confirmation. These disclosure requirements may have the effect of
reducing the level of trading activity in the secondary market for shares of
Common Stock. As a result of these rules, investors may find it difficult to
sell their shares.
Holders
As of the
date of this filing, there are approximately 212 record holders of 49,161,268
shares of the Common Stock. As of the date of this filing, 15,319,736 shares of
Common Stock are issuable upon the exercise of outstanding warrants and options.
The shares issued in connection with the Transactions, including the Common
Stock issued to the former InVivo stockholders and investors in the Offering,
are “restricted securities,” which may be sold or otherwise transferred only if
such shares are first registered under the Securities Act or are exempt from the
registration requirements. As discussed elsewhere in this Current Report, we
have agreed to file a registration statement within 90 days of the Closing Date,
to register the
shares
of Common Stock and shares of Common Stock issuable upon exercise of the
Investor Warrants issued in the Offering and the shares of Common Stock issuable
upon exercise of the New Bridge Warrants.
Dividend
Policy
The
Company has never declared or paid dividends. We do not intend to pay cash
dividends on our Common Stock for the foreseeable future, but currently intend
to retain any future earnings to fund the development and growth of our
business. The payment of dividends if any, on the Common Stock will rest solely
within the discretion of our board of directors and will depend, among other
things, upon our earnings, capital requirements, financial condition, and other
relevant factors.
LEGAL
PROCEEDINGS
From time
to time, the Company may be named in claims arising in the ordinary course of
business. Currently, no legal proceedings or claims are pending against or
involve the Company that, in the opinion of management, could reasonably be
expected to have a material adverse effect on our business and financial
condition.
RECENT
SALES OF UNREGISTERED SECURITIES
Sales
by InVivo
Between
November 2006 and June 2008, Messrs. Reynolds, Langer and Teng were issued
1,100,000, 600,000 and 100,000 shares of InVivo’s common stock
respectively. These shares converted into 15,147,66 shares, 8,262,360
shares and 1,377,060 shares of our Common Stock, respectively, upon the closing
of the Merger. Between August 2006 and the date of this Report,
InVivo sold $4,181,000 of principal amount of convertible notes (the “
Convertible Notes
”) to 54
Accredited Investors and 79,536 shares of its common stock to one investor for
$1,000,000. The Convertible Notes were converted into 379,989 shares of InVivo
common stock on or before the Closing of this Offering. The 79,536 shares issued
to the investor converted into 1,095,259 Shares of our Common Stock and the
379,989 shares issuable to the Convertible Note holders converted into 5,232,677
Shares of our Common Stock upon the closing of the Merger.
In July
2010, InVivo agreed, pursuant to an agreement with its counsel, to issue to
counsel at the Closing of the Merger, $500,000 of InVivo common stock (500,000
shares of our Common Stock, following the Merger) for legal
services.
In August
2010, InVivo sold $500,000 of principal amount of Bridge Notes and Bridge
Warrants. $150,000 of principal amount of the Bridge Notes and Bridge Warrants
were purchased by an affiliate of the Placement Agent. Principal and accrued
interest on the Bridge Notes converted into and was used to acquire Units in the
Offering and upon the closing of the Merger, the Bridge Warrants were exchanged
for 500,000 New Bridge Warrants to acquire 500,000 shares of our Common Stock at
a price of $1.00 per share. As consideration for locating investors to
participate in the Bridge Financing, the Placement Agent received warrants from
InVivo that were exchanged on the closing of the Merger for new Bridge Warrants
to purchase 100,000 shares of Common Stock at a price of $1.00 per share. The
Placement Agent received, upon conversion of the Bridge Notes, compensation in
the same amount as it received for other Units sold in the
Offering.
The
transactions described above were exempt from registration under Section 4(2) of
the Securities Act and Rule 506 of Regulation D thereunder.
INDEMNIFICATION
OF OFFICERS AND DIRECTORS
Nevada
Revised Statutes (“
NRS
”)
Sections 78.7502 and 78.751 provide us with the power to indemnify any of our
directors, officers, employees and agents. The person entitled to
indemnification must have conducted himself in good faith, and must reasonably
believe that his conduct was in, or not opposed to, our best interests. In a
criminal action, the director, officer, employee or agent must not have had
reasonable cause to believe that his conduct was unlawful.
Under NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he has met the standards for indemnification
and will personally repay the expenses if it is determined that such officer or
director did not meet those standards.
Our
bylaws include an indemnification provision under which we have the power to
indemnify our directors, officers, former directors and officers, employees and
other agents (including heirs and personal representatives) against all costs,
charges and expenses actually and reasonably incurred, including an amount paid
to settle an action or satisfy a judgment to which a director or officer is made
a party by reason of being or having been a director or officer of the Company.
Our bylaws further provide for the advancement of all expenses incurred in
connection with a proceeding upon receipt of an undertaking by or on behalf of
such person to repay such amounts if it is determined that the party is not
entitled to be indemnified under our bylaws. No advance will be made by the
Company to a party if it is determined that the party acting in bad faith. These
indemnification rights are contractual, and as such will continue as to a person
who has ceased to be a director, officer, employee or other agent, and will
inure to the benefit of the heirs, executors and administrators of such a
person.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
PART
F/S
Reference
is made to the disclosure set forth under Item 9.01 of this Current Report,
which disclosure is incorporated herein by reference.
INDEX
TO EXHIBITS
See Item
9.01(c) below, which is incorporated by reference herein.
DESCRIPTION
OF EXHIBITS
See
Exhibit Index below and the corresponding exhibits, which are incorporated by
reference herein.
Item
3.02. Unregistered Sales of Equity
Securities.
The
disclosure set forth in Item 2.01 to this Current Report is incorporated into
this item by reference.
Item
4.01. Changes in Registrant’s
Certifying Accountant.
On October 29, 2010, we engaged Wolf
& Company, P.C. as our principal independent registered public accounting
firm , and effective October 29, 2010, we dismissed Sherb & Co., LLP, as our
principal independent registered public accounting firm . The
decision to dismiss Sherb & Co., LLP and to appoint Wolf & Company, P.C.
was approved by our board of directors.
Sherb & Co., LLP 's report on our
financial statements for either of the two most recent fiscal years ended March
31, 2010 and 2009 did not contain an adverse opinion or disclaimer of opinion,
or qualification or modification as to uncertainty, audit scope, or accounting
principles, except that such report on our financial statements contained an
explanatory paragraph in respect to the substantial doubt about our ability to
continue as a going concern.
During our two most recent fiscal years
ended March 31, 2010 and 2009 and in the subsequent interim period through the
date of dismissal, there were no disagreements, resolved or not, with Sherb
& Co., LLP on any matter of accounting principles or practices, financial
statement disclosure, or audit scope and procedures, which disagreement(s), if
not resolved to the satisfaction of Sherb & Co., LLP, would have caused
Sherb & Co., LLP to make reference to the subject matter of the
disagreement(s) in connection with its report.
During
our two most recent fiscal years ended March 31, 2010 and 2009 and in the
subsequent interim period through the date of dismissal, there were no
reportable events as described in Item 304(a)(1)(v) of Regulation
S-K.
We provided Sherb & Co., LLP with a
copy of the disclosure in this Item 4.01 of this Current Report on Form 8-K
prior to its filing with the Securities and Exchange Commission, and requested
that it furnish us with a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the statements made in this Item 4.01
of this current report on Form 8-K, and if not, stating the respects with which
it does not agree. A copy of the letter provided from Sherb & Co., LLP is
filed as an exhibit to this Current Report on Form 8-K.
During our two most recent fiscal years
ended March 31, 2010 and 2009 and in the subsequent interim period through the
date of appointment, we have not consulted with Wolf & Company, P.C.
regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, nor has Wolf & Company, P.C.
provided to us a written report or oral advice that Wolf & Company, P.C.
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue. In addition, during such
periods, we have not consulted with Wolf & Company, P.C. regarding any
matter that was either the subject of a disagreement (as defined in Item
304(a)(1)(iv) and the related instructions) or a reportable event (as described
in Item 304(a)(1)(v) of Regulation S-K).
Item
5.01. Changes in Control of the
Registrant.
As a
result of the private placement and the Merger, the Company experienced a change
in control, with the former stockholders of InVivo acquiring control of the
Company. The disclosure set forth in Item 2.01 to this Current Report is
incorporated into this item by reference.
Item
5.02. Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.
The
disclosure set forth in Item 2.01 to this Current Report is incorporated into
this item by reference.
Item
5.03. Amendments to Articles of
Incorporation or Bylaws; Change in Fiscal Year.
On October 26, 2010, concurrent with
the Merger, we adopted the fiscal year end of our InVivo subsidiary, thereby
changing our fiscal year end from March 31 to December 31. The audited financial
statements for the new fiscal year will be reflected in the Company's Form 10-K
for the year ending December 31, 2010.
Item
5.06. Change in Shell Company
Status.
The
disclosure set forth in Item 2.01 to this Current Report is incorporated into
this item by reference. As a result of the completion of the Merger, we believe
that we are no longer a shell company, as defined in Rule 405 of the Securities
Act and Rule 12b-2 of the Exchange Act.
Item
9.01. Financial Statements and
Exhibits.
(a)
Financial Statements of business acquired
In
accordance with Item 9.01(a), InVivo’s unaudited financial statements as of June
30, 2010 and for the years ended December 31, 2009 and 2008 are included with
this Current Report beginning on Page F-1.
(b)
Pro forma financial information
In
accordance with Item 9.01(b), unaudited pro-forma consolidated financial
statements are included with this Current Report beginning on Page
F-28.
(c)
Exhibits
Exhibit
No.
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Description
|
2.1
|
|
Agreement
and Plan of Merger and Reorganization, dated as of October 26, 2010, by
and among InVivo Therapeutics Holdings Corp. (f/k/a Design Source, Inc.),
a Nevada corporation, InVivo Therapeutics Acquisition Corp., a Delaware
corporation and InVivo Therapeutics Corporation, a Delaware
corporation*
|
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|
2.2
|
|
Certificate
of Merger*
|
|
|
|
3.1
|
|
Articles
of Incorporation of Design Source, Inc.) (incorporated by reference from
Exhibit 3.1 to the Company’s registration statement (SEC File No.
333-116161) on Form SB-2, as filed with the Securities and Exchange
Commission (the “SEC”) on June 4, 2004
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|
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|
3.1(i)
|
|
Articles
of Merger as filed with the Nevada Secretary of State on October 4, 2010
(incorporated by reference from Exhibit 2.1 to the Company’s Current
Report on Form 8-K, as filed with the SEC on October 6, 2010 (the “October
Form 8-K)
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|
|
|
3.1(ii)
|
|
Agreement
and Plan of Merger, dated October 4, 2010, by and between Design Source,
Inc. and InVivo Therapeutics Holdings Corp. (incorporated by reference
from Exhibit 2.2 to the October 2010 Form 8-K)
|
|
|
|
3.2
|
|
Amended
and Restated Bylaws of InVivo Therapeutics Holdings
Corp.*
|
|
|
|
4.1
|
|
Form
of Bridge Warrant of InVivo Therapeutics Corporation*
|
|
|
|
4.2
|
|
Form
of Bridge Promissory Note of InVivo Therapeutics
Corporation*
|
|
|
|
4.3
|
|
Form
of Investor Warrant of InVivo Therapeutics Holdings
Corp.*
|
|
|
|
4.4(i)
|
|
Form
of Warrant of InVivo Therapeutics Holdings Corp. ($1.00 exercise price)
issued to Placement Agent**
|
|
|
|
4.4(ii)
|
|
Form
of Warrant of InVivo Therapeutics Holdings Corp. ($1.40 exercise price)
issued to Placement Agent **
|
|
|
|
4.5
|
|
Form
of Warrant of InVivo Therapeutics Holdings Corp. issued to Bridge
Lenders*
|
4.6
|
|
Form
of Lock-Up Agreement**
|
10.1
|
|
Form
of Securities Purchase Agreement between InVivo Therapeutics Corporation
and the Bridge Lenders*
|
|
|
|
10.2
|
|
Escrow
Agreement, by and among InVivo Therapeutics Corp., InVivo Therapeutics
Holdings Corp. and Signature Bank**
|
|
|
|
10.3
|
|
Form
of Subscription Agreement, by and between InVivo Therapeutics Holdings
Corp. and the investors in the offering**
|
|
|
|
10.4
|
|
Form
of Registration Rights Agreement, by and between InVivo Therapeutics
Holdings Corp. and the investors in the offering*
|
|
|
|
10.5
|
|
Split-Off
Agreement, by and among InVivo Therapeutics Holdings Corp., DSource Split
Corp., Peter Reichard, Lawrence Reichard and Peter Coker
*
|
|
|
|
10.6
|
|
General
Release Agreement, dated as of October 26, 2010, by and among InVivo
Therapeutics Corp., DSource Split Corp., Peter Reichard, Lawrence Reichard
and Peter Coker *
|
|
|
|
10.7(i)
|
|
Employment
Agreement between Frank M. Reynolds and InVivo Therapeutics
Corporation*
|
|
|
|
10.7(ii)
|
|
Amendment
to Employment Agreement between Frank M. Reynolds and InVivo Therapeutics
Corporation*
|
|
|
|
10.8
|
|
Employment
Agreement between Christopher Pritchard and InVivo Therapeutics
Corp.*
|
|
|
|
10.9
|
|
InVivo
Therapeutics Corp. 2007 Stock Incentive Plan*
|
|
|
|
10.10
|
|
InVivo
Therapeutics Holdings Corp. 2010 Equity Incentive Plan*
|
|
|
|
10.11(i)
|
|
Form
of Incentive Stock Option Agreement by and between InVivo Therapeutics
Corp. and participants under the 2007 Stock Incentive
Plan*
|
|
|
|
10.11(ii)
|
|
Form
of Non-Qualified Stock Option Agreement by and between InVivo Therapeutics
Corp. and participants under the 2007 Stock Incentive
Plan*
|
|
|
|
10.12
|
|
License
Agreement dated July 2007 between InVivo Therapeutics Corp. and Children’s
Medical Center Corporation (1)**
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|
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|
10.13
|
|
Form
of Scientific Advisory Board Agreement entered into by InVivo Therapeutics
Corp.*
|
|
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|
10.14
|
|
Finder’s
Fee Agreement dated August 18, 2010, between InVivo Therapeutics
Corporation and Placement
Agent**
|
10.15
|
|
Placement
Agent Agreement dated October 4, 2010, between InVivo Therapeutics Corp.
and Placement Agent**
|
|
|
|
10.16
|
|
Finder’s
Fee Agreement dated October 26, 2010, between InVivo Therapeutics Corp.
and Placement Agent**
|
|
|
|
10.17
|
|
Master
Services Agreement dated October 26, 2010, between InVivo Therapeutics
Corp. and Placement Agent**
|
|
|
|
10.18
|
|
Founders’
Agreement among InVivo Therapeutics Corporation, Francis M. Reynolds,
Robert Langer and Yang Teng dated November 1, 2006*
|
14.1
|
|
Code
of Ethics (incorporated by reference from Exhibit 14.1 to the Company’s
Annual Report on Form 10-KSB for the year ended March 31,
2006)
|
|
|
|
16
|
|
Letter
re change in certifying accountant*
|
|
|
|
21.1
|
|
Subsidiaries
of InVivo Therapeutics Holdings
Corp.*
|
(1) Application
has been made with the Securities and Exchange Commission to seek confidential
treatment of certain provisions. Omitted material for which confidential
treatment has been requested has been filed separately with the Securities and
Exchange Commission.
*
Filed herewith
**
To be filed by amendment
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
INVIVO
THERAPEUTICS HOLDINGS CORP.
|
|
|
|
Date:
November 1, 2010
|
By:
|
/s/ Frank M. Reynolds
|
|
|
Name:
Frank M. Reynolds
|
|
|
Title:
Chief Executive Officer
|
FINANCIAL
STATEMENTS
Years
Ended December 31, 2009 and 2008
and the
Period from November 28, 2005
(Inception)
through December 31, 2009
CONTENTS
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
Balance
Sheets
|
|
F-3
|
|
|
|
Statements
of Operations
|
|
F-4
|
|
|
|
Statements
of Changes in Stockholders’ Deficit
|
|
F-5
|
|
|
|
Statements
of Cash Flows
|
|
F-6
|
|
|
|
Notes
to Financial Statements
|
|
F-8
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
InVivo
Therapeutics Corporation
Cambridge,
Massachusetts
We have
audited the accompanying balance sheets of InVivo Therapeutics Corporation as of
December 31, 2009 and 2008, and the related statements of operations,
changes in stockholders’ deficit and cash flows for the years then ended and for
the period from November 28, 2005 (inception) to December 31,
2009. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
2009 and 2008, and the results of its operations and its cash flows for the
years then ended and for the period from November 28, 2005 (inception) to the
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
has a significant accumulated deficit, has a significant stockholders’ deficit
and at December 31, 2009 the Company did not have sufficient capital to
fund its operations. This raises substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans
in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Wolf
& Company, P.C.
Boston,
Massachusetts
September 29, 2010
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
BALANCE
SHEETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
197,758
|
|
|
$
|
226,667
|
|
|
$
|
206,789
|
|
Prepaid
expenses
|
|
|
18,654
|
|
|
|
10,898
|
|
|
|
12,934
|
|
Total
current assets
|
|
|
216,412
|
|
|
|
237,565
|
|
|
|
219,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
171,328
|
|
|
|
173,797
|
|
|
|
25,983
|
|
Other
assets
|
|
|
56,139
|
|
|
|
58,639
|
|
|
|
63,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
443,879
|
|
|
$
|
470,001
|
|
|
$
|
309,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
52,540
|
|
|
$
|
81,175
|
|
|
$
|
104,423
|
|
Accrued
interest payable
|
|
|
88,514
|
|
|
|
283,608
|
|
|
|
231,477
|
|
Accrued
expenses
|
|
|
130,539
|
|
|
|
293,584
|
|
|
|
114,158
|
|
Total
current liabilities
|
|
|
271,593
|
|
|
|
658,367
|
|
|
|
450,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
payable
|
|
|
500,000
|
|
|
|
590,985
|
|
|
|
77,185
|
|
Convertible
notes payable
|
|
|
-
|
|
|
|
2,840,000
|
|
|
|
2,401,000
|
|
Total
liabilities
|
|
|
771,593
|
|
|
|
4,089,352
|
|
|
|
2,928,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock , $0.001 par value; authorized
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000,000
shares, issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
2,261,862
shares at June 30, 2010 and
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906,926
and 1,800,000 shares at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
and 2008, respectively
|
|
|
2,262
|
|
|
|
1,907
|
|
|
|
1,800
|
|
Additional
paid-in capital
|
|
|
6,273,906
|
|
|
|
1,558,191
|
|
|
|
42,873
|
|
Deficit
accumulated during the development stage
|
|
|
(6,603,882
|
)
|
|
|
(5,179,449
|
)
|
|
|
(2,663,571
|
)
|
Total
stockholders' deficit
|
|
|
(327,714
|
)
|
|
|
(3,619,351
|
)
|
|
|
(2,618,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
443,879
|
|
|
$
|
470,001
|
|
|
$
|
309,345
|
|
See
report of independent registered public accounting firm and notes to the
financial statements.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
|
|
Six Months
Ended June 30,
2010
|
|
|
Six Months
Ended June 30,
2009
|
|
|
Year Ended
December 31,
2009
|
|
|
Year Ended
December 31,
2008
|
|
|
Period from
November 28,
2005
(inception) to
December 31, 2009
|
|
|
Period from
November 28,
2005
(inception) to
June 30, 2010
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
625,428
|
|
|
$
|
790,034
|
|
|
$
|
1,807,908
|
|
|
$
|
936,550
|
|
|
$
|
4,273,602
|
|
|
$
|
4,899,030
|
|
General
and administrative
|
|
|
550,897
|
|
|
|
311,542
|
|
|
|
835,515
|
|
|
|
474,495
|
|
|
|
1,907,322
|
|
|
|
2,458,219
|
|
Total
operating expenses
|
|
|
1,176,325
|
|
|
|
1,101,576
|
|
|
|
2,643,423
|
|
|
|
1,411,045
|
|
|
|
6,180,924
|
|
|
|
7,357,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(1,176,325
|
)
|
|
|
(1,101,576
|
)
|
|
|
(2,643,423
|
)
|
|
|
(1,411,045
|
)
|
|
|
(6,180,924
|
)
|
|
|
(7,357,249
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
-
|
|
|
|
-
|
|
|
|
383,000
|
|
|
|
-
|
|
|
|
383,000
|
|
|
|
383,000
|
|
Interest
income
|
|
|
220
|
|
|
|
54
|
|
|
|
282
|
|
|
|
1,877
|
|
|
|
7,965
|
|
|
|
8,185
|
|
Interest
expense
|
|
|
(248,328
|
)
|
|
|
(123,987
|
)
|
|
|
(255,737
|
)
|
|
|
(154,901
|
)
|
|
|
(613,199
|
)
|
|
|
(861,527
|
)
|
Other
income (expense), net
|
|
|
(248,108
|
)
|
|
|
(123,933
|
)
|
|
|
127,545
|
|
|
|
(153,024
|
)
|
|
|
(222,234
|
)
|
|
|
(470,342
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,424,433
|
)
|
|
$
|
(1,225,509
|
)
|
|
$
|
(2,515,878
|
)
|
|
$
|
(1,564,069
|
)
|
|
$
|
(6,403,158
|
)
|
|
$
|
(7,827,591
|
)
|
See
report of independent registered public accounting firm and notes to the
financial statements.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During the
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
on inception date, November 28, 2005
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Issuance
of founders stock
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
-
|
|
|
|
(1,800
|
)
|
|
|
-
|
|
Share-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
18,347
|
|
|
|
-
|
|
|
|
18,347
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,097,702
|
)
|
|
|
(1,097,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
18,347
|
|
|
|
(1,099,502
|
)
|
|
|
(1,079,355
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
24,526
|
|
|
|
-
|
|
|
|
24,526
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,564,069
|
)
|
|
|
(1,564,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
1,800,000
|
|
|
|
1,800
|
|
|
|
42,873
|
|
|
|
(2,663,571
|
)
|
|
|
(2,618,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
171,059
|
|
|
|
-
|
|
|
|
171,059
|
|
Conversion
of convertible notes payable
|
|
|
106,926
|
|
|
|
107
|
|
|
|
1,344,259
|
|
|
|
-
|
|
|
|
1,344,366
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,515,878
|
)
|
|
|
(2,515,878
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.
|
|
|
|
|
|
Balance
as of December 31, 2009
|
|
|
1,906,926
|
|
|
|
1,907
|
|
|
|
1,558,191
|
|
|
|
(5,179,449
|
)
|
|
|
(3,619,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based
compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
253,532
|
|
|
|
-
|
|
|
|
253,532
|
|
Issuance
of common stock
|
|
|
79,536
|
|
|
|
80
|
|
|
|
999,920
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Conversion
of convertible notes payable
|
|
|
275,400
|
|
|
|
275
|
|
|
|
3,327,853
|
|
|
|
-
|
|
|
|
3,328,128
|
|
Beneficial
conversion on notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
134,410
|
|
|
|
-
|
|
|
|
134,410
|
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,424,433
|
)
|
|
|
(1,424,433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of June 30, 2010 (unaudited)
|
|
|
2,261,862
|
|
|
$
|
2,262
|
|
|
$
|
6,273,906
|
|
|
$
|
(6,603,882
|
)
|
|
$
|
(327,714
|
)
|
See
report of independent registered public accounting firm and notes to the
financial statements.
INVIVO THERAPEUTICS CORPORATION
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS
|
|
Six Months
Ended June 30,
2010
|
|
|
Six Months
Ended June 30,
2009
|
|
|
Year Ended
December 31,
2009
|
|
|
Year Ended
December 31,
2008
|
|
|
Period from
November 28,
2005 (inception)
to December 31,
2009
|
|
|
Period from
November 28,
2005
(inception) to
June 30, 2010
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,424,433
|
)
|
|
$
|
(1,225,509
|
)
|
|
$
|
(2,515,878
|
)
|
|
$
|
(1,564,069
|
)
|
|
$
|
(5,177,649
|
)
|
|
$
|
(6,602,082
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization expense
|
|
|
23,622
|
|
|
|
14,154
|
|
|
|
32,084
|
|
|
|
7,702
|
|
|
|
48,087
|
|
|
|
71,709
|
|
Non-cash
interest expense
|
|
|
191,604
|
|
|
|
120,075
|
|
|
|
221,899
|
|
|
|
146,678
|
|
|
|
434,299
|
|
|
|
625,903
|
|
Share-based
compensation expense
|
|
|
253,533
|
|
|
|
17,951
|
|
|
|
171,059
|
|
|
|
24,526
|
|
|
|
213,932
|
|
|
|
467,465
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(7,756
|
)
|
|
|
4,831
|
|
|
|
2,036
|
|
|
|
(9,851
|
)
|
|
|
(10,898
|
)
|
|
|
(18,654
|
)
|
Other
assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(75,000
|
)
|
|
|
(75,000
|
)
|
Accounts
payable
|
|
|
(28,635
|
)
|
|
|
(66,956
|
)
|
|
|
(23,248
|
)
|
|
|
82,218
|
|
|
|
81,175
|
|
|
|
52,540
|
|
Accrued
interest payable
|
|
|
35,839
|
|
|
|
3,912
|
|
|
|
33,598
|
|
|
|
6,225
|
|
|
|
52,675
|
|
|
|
88,514
|
|
Accrued
expenses
|
|
|
(163,045
|
)
|
|
|
(22,248
|
)
|
|
|
179,426
|
|
|
|
78,389
|
|
|
|
293,584
|
|
|
|
130,539
|
|
Net
cash used in operating activities
|
|
|
(1,119,271
|
)
|
|
|
(1,153,790
|
)
|
|
|
(1,899,024
|
)
|
|
|
(1,228,182
|
)
|
|
|
(4,139,795
|
)
|
|
|
(5,259,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(18,653
|
)
|
|
|
(100,448
|
)
|
|
|
(174,898
|
)
|
|
|
(23,637
|
)
|
|
|
(205,523
|
)
|
|
|
(224,176
|
)
|
Net
cash used in investing activities
|
|
|
(18,653
|
)
|
|
|
(100,448
|
)
|
|
|
(174,898
|
)
|
|
|
(23,637
|
)
|
|
|
(205,523
|
)
|
|
|
(224,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of convertible notes payable
|
|
|
200,000
|
|
|
|
1,200,000
|
|
|
|
1,580,000
|
|
|
|
1,436,000
|
|
|
|
3,981,000
|
|
|
|
4,181,000
|
|
Proceeds
from (payments on) loans payable
|
|
|
(90,985
|
)
|
|
|
-
|
|
|
|
513,800
|
|
|
|
-
|
|
|
|
590,985
|
|
|
|
500,000
|
|
Proceeds
from issuance of common stock
|
|
|
1,000,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000,000
|
|
Net
cash provided by financing activities
|
|
|
1,109,015
|
|
|
|
1,200,000
|
|
|
|
2,093,800
|
|
|
|
1,436,000
|
|
|
|
4,571,985
|
|
|
|
5,681,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
increase in cash and cash equivalents
|
|
|
(28,909
|
)
|
|
|
(54,238
|
)
|
|
|
19,878
|
|
|
|
184,181
|
|
|
|
226,667
|
|
|
|
197,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
226,667
|
|
|
|
206,789
|
|
|
|
206,789
|
|
|
|
22,608
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
197,758
|
|
|
$
|
152,551
|
|
|
$
|
226,667
|
|
|
$
|
206,789
|
|
|
$
|
226,667
|
|
|
$
|
197,758
|
|
(continued)
See
report of independent registered public accounting firm and notes to the
financial statements.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
STATEMENTS
OF CASH FLOWS (concluded)
|
|
Six Months
Ended June 30,
2010
|
|
|
Six Months
Ended June 30,
2009
|
|
|
Year Ended
December 31,
2009
|
|
|
Year Ended
December 31,
2008
|
|
|
Period from
November 28,
2005
(inception) to
December 31,
2009
|
|
|
Period from
November 28,
2005
(inception) to
June 30, 2010
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information and non-cash
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
20,924
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
20,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible ntoes payable and accrued interest into common
stock
|
|
$
|
3,328,128
|
|
|
$
|
1,055,438
|
|
|
$
|
1,344,356
|
|
|
$
|
-
|
|
|
$
|
1,344,356
|
|
|
$
|
4,672,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature on convertible notes payable
|
|
$
|
134,410
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
134,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of founders shares
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,800
|
|
|
$
|
1,800
|
|
See
report of independent registered public accounting firm and notes to the
financial statements.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Years
Ended December 31, 2009 and 2008, and the Period from
November
28, 2005 (Inception) through December 31, 2009
1. NATURE
OF OPERATIONS
Business
InVivo
Therapeutics Corporation (“InVivo” or the “Company”) was incorporated on
November 28, 2005 under the laws of the State of Delaware. The
Company is developing and commercializing biopolymer scaffolding devices for the
treatment of spinal cord injuries (“SCI”). The biopolymer devices are
designed to protect the damaged spinal cord from further secondary injury and
promote neuroplasticity, a process where functional recovery can occur through
the rerouting of signaling pathways to the spared healthy tissue.
Since its
inception, the Company has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical staff,
acquiring operating assets and raising capital. Accordingly, the
Company is considered to be in the development stage.
The
Company is subject to a number of risks similar to other companies in their
industry including rapid technological change, the risk that its products will
fail to demonstrate efficacy in clinical trials, uncertainty of market
acceptance of the product, competition from larger companies with similar
products and dependence on key personnel.
Going
concern
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As of December 31, 2009, the
Company had cash of approximately $227,000, an accumulated deficit of
approximately $5,179,000 and a stockholders’ deficit of approximately
$3,619,000. The Company is in the development stage, has no revenue
and has relied on raising capital to finance its operations. At
December 31, 2009, the Company did not have sufficient capital to fund its
operations. This, in turn, raises substantial doubt about the
Company’s ability to continue as a going concern. The Company has
plans for raising capital through a private placement of its common stock to
provide it with the capital required to continue funding its
operations.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
2. SIGNIFICANT
ACCOUNTING POLICIES
A summary
of the significant accounting policies followed by the Company in the
preparation of the financial statements is as follows:
Use of estimates
The
process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of assets and liabilities at the date of
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates and changes in estimates may occur.
Cash and cash
equivalents
The
Company considers all highly liquid investments with maturities of three months
or less at the date of purchase to be cash equivalents.
Property and equipment
Property
and equipment are carried at cost. Depreciation expense is provided
over the estimated useful lives of the assets using the straight-line
method. A summary of the estimated useful lives is as
follows:
Classification
|
|
Estimated Useful Life
|
Computer
hardware
|
|
5
years
|
Software
|
|
3
years
|
Research
and lab equipment
|
|
5
years
|
Depreciation
expense for the six months ended June 30, 2010 and for the years ended December
31, 2009 and 2008 was $21,122, $27,084 and $2,702,
respectively. Maintenance and repairs are charged to expense as
incurred, while any additions or improvements are capitalized.
Research and development
expenses
Costs
incurred for research and development are expensed as incurred.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
SIGNIFICANT ACCOUNTING POLICIES
(continued)
Income taxes
For
federal and state income taxes, deferred tax assets and liabilities are
recognized based upon temporary differences between the financial statement and
the tax basis of assets and liabilities. Deferred income taxes are
based upon prescribed rates and enacted laws applicable to periods in which
differences are expected to reverse. A valuation allowance is
recorded when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Accordingly, the Company
provides a valuation allowance, if necessary, to reduce deferred tax assets to
amounts that are realizable.
Tax
positions taken or expected to be taken in the course of preparing the Company’s
tax returns are required to be evaluated to determine whether the tax positions
are “more-likely-than-not” of being sustained by the applicable tax
authority. Tax positions not deemed to meet a more-likely-than-not
threshold would be recorded as a tax expense in the current
year. There were no uncertain tax positions that require accrual or
disclosure to the financial statements as of June 30, 2010 or December 31,
2009.
Concentrations of credit
risk
The
Company has no significant off-balance-sheet concentration of credit risk such
as foreign exchange contracts, option contracts or other foreign hedging
arrangements. The Company may from time to time have cash in banks in
excess of FDIC insurance limits.
Impairment of long-lived
assets
The
Company continually monitors events and changes in circumstances that could
indicate that carrying amounts of long-lived assets may not be
recoverable. An impairment loss is recognized when expected cash
flows are less than an asset’s carrying value. Accordingly, when
indicators of impairment are present, the Company evaluates the carrying value
of such assets in relation to the operating performance and future undiscounted
cash flows of the underlying assets. The Company’s policy is to
record an impairment loss when it is determined that the carrying value of the
asset may not be recoverable. No impairment charges were recorded in
the six months ended June 30, 2010 or for the years ended December 31, 2009 and
2008.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
SIGNIFICANT ACCOUNTING POLICIES
(continued)
Share-based payments
The
Company recognizes compensation costs resulting from the issuance of stock-based
awards to employees, non-employees and directors as an expense in the statement
of operations over the service period based on a measurement of fair value for
each stock-based award. The fair value of each option grant is
estimated as of the date of grant using the Black-Scholes option-pricing
model. The fair value is amortized as compensation cost on a
straight-line basis over the requisite service period of the awards, which is
generally the vesting period. Due to its limited operating history
and limited number of sales of its Common Stock, the Company estimates its
volatility in consideration of a number of factors including the volatility of
comparable public companies.
Recent accounting
pronouncements
In
June 2008, the Financial Accounting Standards Board (“FASB”) ratified an
accounting pronouncement that provides that an entity should use a two step
approach to evaluate whether an equity-linked financial instrument (or embedded
feature) is indexed to its own stock, including evaluating the instrument’s
contingent exercise and settlement provisions. This accounting
pronouncement is effective for fiscal years beginning after December 15,
2008. The consensus must be applied to outstanding instruments as of
the beginning of the fiscal year in which the consensus is adopted and should be
treated as a cumulative-effect adjustment to the opening balance of retained
earnings. Early adoption is not permitted. On
January 1, 2009, the Company adopted this pronouncement and it did not have
a material impact on the Company’s financial statements or related
disclosures.
In
October 2009, the FASB issued two related accounting pronouncements, Accounting
Standards Update (“ASU”) 2009-13 and ASU 2009-14, relating to revenue
recognition. One pronouncement provides guidance on allocating the
consideration in a multiple-deliverable revenue arrangement and requires
additional disclosure, while the other pronouncement provides guidance specific
to revenue arrangements that include software elements. Both of these
pronouncements are effective prospectively for revenue arrangements entered into
or materially modified in fiscal years beginning on or after June 15, 2010 and
both must be adopted together. The Company does not expect the
adoption of these pronouncements to have a material impact on its financial
statements.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
SIGNIFICANT ACCOUNTING POLICIES
(concluded)
Recent accounting pronouncements
(concluded)
In
January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
Disclosures (Topic 820), Improving Disclosures about Fair Value
Measurements. This Update requires new disclosures and clarifies
existing disclosures regarding recurring and nonrecurring fair value
measurements to provide increased transparency to users of the financial
statements. The new disclosures and clarification of existing
disclosures are effective for interim and annual periods beginning after
December 15, 2009, except for the disclosures pertaining to the roll forward of
activity for Level 3 fair value measurements, which are effective for fiscal
years beginning after December 15, 2010, and for interim periods within those
fiscal years. The adoption of this Update on January 1, 2010 did not
have a material impact on its financial statements.
3. OTHER
ASSETS
Other
assets consist of a patent licensing fee paid to license intellectual property
(see Note 12). The Company is amortizing the license fee to
research and development over its 15-year term.
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
licensing fee
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Accumulated
amortization
|
|
|
(18,861
|
)
|
|
|
(16,361
|
)
|
|
|
(11,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,139
|
|
|
$
|
58,639
|
|
|
$
|
63,639
|
|
4. PROPERTY
AND EQUIPMENT
Property
and equipment consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer
software and hardware
|
|
$
|
55,784
|
|
|
$
|
47,668
|
|
|
$
|
30,625
|
|
Research
and lab equipment
|
|
|
168,392
|
|
|
|
157,855
|
|
|
|
-
|
|
Less
accumulated depreciation
|
|
|
(52,848
|
)
|
|
|
(31,726
|
)
|
|
|
(4,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
171,328
|
|
|
$
|
173,797
|
|
|
$
|
25,983
|
|
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
5. ACCRUED
EXPENSES
Accrued
expenses consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
accrued expenses
|
|
$
|
3,000
|
|
|
$
|
138,750
|
|
|
$
|
11,725
|
|
Accrued
payroll
|
|
|
23,507
|
|
|
|
18,969
|
|
|
|
14,500
|
|
Accrued
vacation
|
|
|
24,032
|
|
|
|
15,865
|
|
|
|
7,933
|
|
Deferred
compensation
|
|
|
80,000
|
|
|
|
120,000
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,539
|
|
|
$
|
293,584
|
|
|
$
|
114,158
|
|
Deferred
compensation represents amounts owed to the Chief Executive Officer (“CEO”) and
majority shareholder with respect to annual bonuses granted but not
paid.
6. LOANS
PAYABLE
Loans
payable consisted of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
from related party
|
|
$
|
-
|
|
|
$
|
90,985
|
|
|
$
|
77,185
|
|
Loan
payable
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,000
|
|
|
$
|
590,985
|
|
|
$
|
77,185
|
|
Advances
from related party represent cash advances received from CEO and majority
shareholder which permitted the Company to continue to fund its operations until
it raised additional capital. Interest accrued on these advances at
an annual rate of 8%. Interest expense related to Advances from
related party was $2,310 in the six months ended June 30, 2010 and $8,437 and
$6,225 in the years ended December 31, 2009 and 2008, respectively.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
LOANS
PAYABLE (concluded)
The
Company issued a $500,000 Note Payable in June 2009 to the Massachusetts Life
Science Center, an independent public agency of the State of
Massachusetts. The Company received the $500,000 of funding from the
Massachusetts Life Science Accelerator Program which was established for the
purpose of providing seed capital to promising early stage life science
companies. The terms of the Note Payable call for full repayment upon
the earlier of five years, the sale of the Company or a financing that raises
minimum net proceeds of $5,000,000. Interest accrues on the Note
Payable at an annual rate of 10% and is payable at maturity. Interest
expense related to the Note Payable was $24,795 in the six months ended June 30,
2010 and $25,205 and none in the years ended December 31, 2009 and 2008,
respectively.
7. INCOME
TAXES
No
provision or benefit for federal or state income taxes has been recorded, as the
Company has incurred a net loss for all of the periods presented, and the
Company has provided a valuation allowance against its deferred tax
assets.
At June
30, 2010 and December 31, 2009, the Company had federal and Massachusetts net
operating loss carryforwards of approximately $5,491,000 and $4,139,000,
respectively, of which federal carryforwards will expire in varying amounts
beginning in 2021. Massachusetts net operating losses begin to expire
in 2011. Utilization of net operating losses may be subject to
substantial annual limitations due to the “change in ownership” provisions of
the Internal Revenue Code, and similar state provisions. The annual
limitations may result in the expiration of net operating losses before
utilization. The Company also had research and development tax credit
carryforwards at June 30, 2010 and December 31, 2009 of approximately $172,000
and $154,000, respectively, which will begin to expire in 2018 unless previously
utilized.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
INCOME
TAXES (continued)
Significant
components of the Company’s net deferred tax asset are as follows:
|
|
Six Months Ended
|
|
|
Years Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
2,215,000
|
|
|
$
|
1,679,000
|
|
|
$
|
812,000
|
|
Research
credit carryforward
|
|
|
172,000
|
|
|
|
154,000
|
|
|
|
114,000
|
|
Stock
based compensation
|
|
|
162,000
|
|
|
|
69,000
|
|
|
|
-
|
|
Accrued
interest
|
|
|
36,000
|
|
|
|
151,000
|
|
|
|
103,000
|
|
Other
temporary differences
|
|
|
36,000
|
|
|
|
52,000
|
|
|
|
32,000
|
|
|
|
|
2,621,000
|
|
|
|
2,105,000
|
|
|
|
1,061,000
|
|
Valuation
allowance
|
|
|
(2,621,000
|
)
|
|
|
(2,105,000
|
)
|
|
|
(1,061,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has maintained a full valuation allowance against its deferred tax
assets in all periods presented. A valuation allowance is required to
be recorded when it is more likely than not that some portion or all of the net
deferred tax assets will not be realized. Since the Company cannot be
assured of realizing the net deferred tax assets, a full valuation allowance has
been provided. In the years ended December 31, 2009 and 2008, the
valuation allowance increased by $1,044,000 and $630,000,
respectively.
The
Company has no unrecognized tax benefits at June 30, 2010 and December 31, 2009
that would affect its effective tax rate. The Company does not
anticipate a significant change in the amount of unrecognized tax benefits over
the next twelve months. Since the Company is in a loss carryforward
position, the Company is generally subject to US federal and state income tax
examinations by tax authorities for all years for which a loss carryforward is
available.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
INCOME
TAXES (concluded)
Income
tax benefits computed using the federal statutory income tax rate differs from
the Company’s effective tax rate primarily due to the following:
|
|
Six Months Ended
|
|
|
Years Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State
taxes, net of federal benefit
|
|
|
5.6
|
%
|
|
|
6.2
|
%
|
|
|
5.8
|
%
|
Permanent
differences and other
|
|
|
(3.7
|
)%
|
|
|
(0.2
|
)%
|
|
|
(2.6
|
)%
|
R&D
credits
|
|
|
1.3
|
%
|
|
|
1.6
|
%
|
|
|
3.5
|
%
|
Increase
in valuation reserve
|
|
|
(37.2
|
)%
|
|
|
(41.6
|
)%
|
|
|
(40.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
8. CONVERTIBLE
NOTES PAYABLE
The
Company issued Convertible Notes Payable to investors totaling
$4,181,000. In the six months ended June 30, 2010 and years
ended December 31, 2009 and 2008, these notes provided cash proceeds of
$200,000, $1,580,000 and $1,436,000, respectively.
The terms
of the Convertible Notes Payable stipulate that the notes will be converted into
shares of Common Stock upon the earlier of maturity of the notes or the
completion of a single financing or a series of related financings that raise a
minimum of $4,000,000 or $5,000,000 depending on the terms of the individual
notes. The notes convert at the offering price of such
financing.
Certain
of the notes entitled the holders to receive either a 10% or 20% discount on the
conversion price if the notes were converted prior to the maturity
date. The Company initially measured the contingent beneficial
conversion feature upon issuance as the difference between the conversion price
and the fair value of the Common Stock. The Company assumed the most
favorable conversion price that would be in effect assuming no changes to the
circumstances other than the passage of time. Therefore, no
beneficial conversion feature was recorded at issuance. In March
2010, the Company completed a series of financings exceeding $4 million which
accelerated the conversion of certain notes prior to their maturity dates
triggering the discount provisions discussed above.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
CONVERTIBLE
NOTES PAYABLE (concluded)
The
Company recorded the beneficial conversion features as a discount on the notes
and additional paid-in capital. As the discounts occurred
simultaneously with the conversion of the notes, the discounts were immediately
accreted to non-cash interest expense. In the six months ended June
30, 2010, the Company recorded beneficial conversion features and related
non-cash interest expense of $134,410.
In the
year ended December 31, 2009, Convertible Notes Payable with a principal balance
of $1,141,000 and accrued interest payable of $203,366 converted at maturity
into 106,926 shares of Common Stock.
In the
six months ended June 30, 2010, the remaining outstanding Convertible Notes
Payable of $3,040,000 and accrued interest payable of $288,128 converted into
275,400 shares of Common Stock upon a financing event, as defined
above. As of June 30, 2010, all of the Convertible Notes Payable had
been converted into Common Stock.
Interest
accrued on the outstanding balances at an annual rate of 8%. At the
election of the Company, the accrued interest was to be paid in cash or in
Common Stock at the time the notes were converted to Common
Stock. For the six months ended June 30, 2010 and the years ended
December 31, 2009 and 2008, the Company accrued interest expense on the notes of
$57,195, $221,899 and $146,678, respectively. For the six months
ended June 30, 2010, the Company accrued interest expense $29,852 for the
interest owed that the Company elected to pay in cash in lieu of Common
Stock.
9. COMMON
STOCK
The
Company has authorized 5,000,000 of Common Stock, $0.001 par value per share, of
which 2,261,862 shares, 1,906,926 shares and 1,800,000 shares were issued and
outstanding as of June 30, 2010 and December 31, 2009 and 2008,
respectively.
At
inception, the Company issued its founders 1,800,000 shares of common stock with
a par value of $1,800 for no consideration.
In March
2010, the Company sold 79,536 shares of Common Stock to an investor at a price
per share of $12.57 and the Company received cash proceeds of
$1,000,000.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
COMMON
STOCK (concluded)
In the
six months ended June 30, 2010, the Company issued 275,400 shares of Common
Stock to the holders of Convertible Notes Payable upon the conversion of these
notes. At the conversion date, the principal balance of $3,040,000
and accrued interest payable of $288,128 were converted into Common Stock at a
price of $12.57 per share. Certain notes provided for conversion at a
discount to the $12.57 price (see Note 8).
In 2009,
the Company issued 106,926 shares of Common Stock to the holders of Convertible
Notes Payable upon conversion of these notes. At the conversion
dates, the principal balance of $1,141,000 and accrued interest payable of
$203,366 were converted into Common Stock at a price of $12.57 per
share.
To date,
the Company has delivered stock certificates for 182,444 shares of Common Stock
to the holders of Convertible Notes Payable as a result of
conversions. The Company has requested that the holders sign an
acknowledgement that they accept the terms of the conversion and a stockholders
agreement. The Company intends to deliver the remaining stock
certificates for 199,882 share of Common Stock to holders upon receipt of the
acknowledgement letter and stockholders agreement. To date, the terms
of the conversion have been disputed by certain shareholders (see Note
13).
10. STOCK
OPTIONS
The
Company adopted a Stock Option Plan in 2007 (the “2007
Plan”). Pursuant to the 2007 Plan, the Company’s Board of Directors
(or committees and/or executive officers delegated by the Board of Directors)
may grant incentive and nonqualified stock options to the Company’s employees,
officers, directors, consultants and advisors. Plan options are
exercisable for up to 10 years from the date of issuance. As of
December 31, 2009, the aggregate number of common shares which may be issued
under the 2007 Plan was 1,000,000 shares.
Share-based compensation
For stock
options issued and outstanding during the six months ended June 30, 2010 and the
years ended December 31, 2009 and 2008, the Company recorded non-cash,
stock-based compensation expense of $253,533, $171,059 and $24,526,
respectively, each net of estimated forfeitures.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
STOCK OPTIONS (continued)
Share-based compensation
(continued)
The fair
value of each option award is estimated on the date of grant using the
Black-Scholes option pricing model that uses the assumptions noted in the
following table. Due to its limited operating history and limited
number of sales of its common stock, the Company estimated its volatility in
consideration of a number of factors including the volatility of comparable
public companies. The Company uses historical data, as well as
subsequent events occurring prior to the issuance of the financial statements,
to estimate option exercises and employee terminations within the valuation
model. The expected term of options granted under the Company’s stock
plans, all of which qualify as “plain vanilla,” is based on the average of the
contractual term (generally 10 years) and the vesting period (generally
48 months) as permitted under SEC Staff Accounting Bulletin Nos. 107 and
110. For non-employee options, the expected term is the contractual
term. The risk-free rate is based on the yield of a U.S. Treasury
security with a term consistent with the
option.
The
assumptions used principally in determining the fair value of options granted to
employees were as follows:
|
|
Six Months Ended
|
|
|
Years Ended December 31,
|
|
|
|
June 30, 2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
3.24
|
%
|
|
|
2.68
|
%
|
|
|
3.24
|
%
|
Expected
dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected
term (employee grants)
|
|
7.45
years
|
|
|
6.25
years
|
|
|
7.75
years
|
|
Expected
volatility
|
|
|
49.15
|
%
|
|
|
50.10
|
%
|
|
|
49.15
|
%
|
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
STOCK OPTIONS (concluded)
Share-based compensation
(concluded)
A summary
of option activity under the Company’s stock plans and options granted to
officers of the Company outside any plan as of June 30, 2010, December 31,
2009 and 2008 and changes during the periods then ended is presented
below:
Options
|
|
Shares
|
|
|
Weighted
-
Average
Exercise
Price
|
|
|
Weighted -
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2008
|
|
|
127,000
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
Granted
|
|
|
89,456
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2008
|
|
|
216,456
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
Granted
|
|
|
70,000
|
|
|
$
|
11.91
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6,000
|
)
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2009
|
|
|
280,456
|
|
|
$
|
3.72
|
|
|
|
8.46
|
|
|
$
|
2,481,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
42,000
|
|
|
$
|
12.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at June 30, 2010 (unaudited)
|
|
|
322,456
|
|
|
$
|
4.88
|
|
|
|
8.20
|
|
|
$
|
2,481,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
at December 31, 2009
|
|
|
106,865
|
|
|
$
|
1.00
|
|
|
|
7.76
|
|
|
$
|
1,236,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at December 31, 2009
|
|
|
173,591
|
|
|
$
|
5.40
|
|
|
|
8.89
|
|
|
$
|
1,244,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
at June 30, 2010 (unaudited)
|
|
|
134,166
|
|
|
$
|
1.00
|
|
|
|
7.25
|
|
|
$
|
1,552,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
at June 30, 2010 (unaudited)
|
|
|
188,290
|
|
|
$
|
7.64
|
|
|
|
8.89
|
|
|
$
|
928,955
|
|
The
weighted-average grant-date fair value of options granted during the six months
ended June 30, 2010 and the years ended December 31, 2009 and 2008 was $6.40,
$6.13 and $0.48 per share, respectively. The total fair value of
options that vested in the six months ended June 30, 2010 and the years ended
December 31, 2009 and 2008 was $139,505, $346,976 and $297,736,
respectively. As of June 30, 2010 and December 31, 2009, there
was approximately $1,031,986 and $1,026,595 of total unrecognized compensation
expense, respectively, related to non-vested share-based option compensation
arrangements. The unrecognized compensation expense is estimated to
be recognized over a period of 2.82 years at June 30, 2010 and 2.72 years at
December 31, 2009.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Continued)
11.
EMPLOYEE BENEFIT PLAN
In
November 2006, the Company adopted a 401(k) plan (the “Plan”) covering all
employees. Employees must be 21 years of age in order to participate
in the Plan. Under the Plan, the Company has the option to make
matching contributions but has elected not to do so.
12.
INTELLECTUAL PROPERTY LICENSE
The
Company has obtained a world-wide exclusive license (the “CMCC License”) for
patents co-owned by Massachusetts Institute of Technology and Harvard’s
Children’s Hospital covering the use of biopolymers to treat spinal cord
injuries, and to promote the survival and proliferation of human stem cells in
the spinal cord. The CMCC License has a 15-year term, or as long as
the life of the last expiring patent right, whichever is longer, unless
terminated earlier by the licensor. In connection with the CMCC License,
the Company paid an initial $75,000 licensing fee (see Note 3) and is required
to pay certain annual maintenance fees, milestone payments and royalties.
All costs associated with maintenance of the CMCC License are expensed as
incurred.
13.
COMMITMENTS AND CONTINGENCIES
In 2009,
the Company filed a lawsuit against a party alleging damages from a breach of a
contract under which the party was providing services to the
Company. In exchange for a payment of $383,000 from the party, the
Company agreed to dismiss the lawsuit. The $383,000 received was
recorded as Other Income in the Statement of Operations in the year ended
December 31, 2009.
The
Company has received a claim from a single holder of $200,000 of Convertible
Notes Payable disputing the terms of the conversion and the party has threatened
to litigate, although no such litigation has been commenced. Certain
other shareholders have also disputed the terms of the
conversion. The Company intends to vigorously defend itself in these
matters.
14. SUBSEQUENT
EVENTS
Management
has evaluated subsequent events through September 29, 2010, which is the date
the financial statements were available to be issued. Other than as
discussed below, there were no subsequent events that require adjustment to or
disclosure in the financial statements.
See
report of independent registered public accounting firm.
INVIVO
THERAPEUTICS CORPORATION
(A
Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS (Concluded)
SUBSEQUENT
EVENTS (concluded)
Bridge
financing
From July
through September 2010, the Company raised $500,000 from the sale of 6%
convertible promissory notes (the “Bridge Notes”). The Bridge Notes
will automatically convert into the equity securities of the next financing if a
minimum of $3 million is raised; otherwise the notes are due and payable on
December 31, 2010. The Bridge Notes accrue interest at a rate of 6%
per annum.
In
connection with the Bridge Notes, the Company also issued to the investors
warrants to purchase 36,310 shares of Common Stock. The warrants are
exercisable for a period of five years with an exercise price of $13.77 per
share. The warrants have anti-dilution rights. Therefore,
the Company expects to account for these warrants as derivative
liabilities.
The
Company engaged a registered broker-dealer as a placement agent in conjunction
with the Bridge Notes. As compensation, the placement agent received
a warrant to purchase 7,262 shares of Common Stock an exercise price of $13.77
per share.
See
report of independent registered public accounting firm.
Item
9.01(b) Pro Forma Financial Statements
Pro
Forma Financial Statements
InVivo
Therapeutics Holdings Corp.
And
Subsidiary
On
October 26, 2010, InVivo Therapeutics Corporation (“InVivo”) completed a reverse
merger transaction (the “Merger”) with InVivo Therapeutics Holdings Corp.
(formerly Design Source, Inc.). InVivo is a wholly owned subsidiary
of InVivo Therapeutics Holdings Corp (ITHC), which continues to operate the
business of InVivo. ITHC issued 31,647,190 shares of its common stock to the
holders of InVivo common stock.
The
Merger is being accounted for as a “reverse merger,” and InVivo is deemed to be
the acquirer in the reverse merger. Consequently, the assets and liabilities and
the historical operations that will be reflected in the financial statements
prior to the Merger will be those of InVivo and will be recorded at the
historical cost basis of InVivo, and the consolidated financial statements after
completion of the Merger will include the assets and liabilities of InVivo,
historical operations of InVivo and operations of InVivo from the Closing Date
of the Merger.
Upon the
closing of the Merger, ITHC transferred all of its operating assets and
liabilities to D Source Split Corp. and split-off D Source Split Corp. through
the sale of all of the outstanding capital stock of D Source Split Corp. (“the
Split-Off”). After the completion of the Merger and Split Off , InVivo
Therapuetics Holdings Corp.’s consolidated financial statements will include
only the assets and liabilities of InVivo.
Concurrent
with the completion of the Merger, ITHC completed a private placement
of 10,514,097 units of its securities for total gross proceeds of $10,514,097
and net proceeds of $8,756,000. Each Unit consisted of one share of
common stock and a warrant to purchase one share of common stock exercisable at
$1.40 per share. Upon closing the Merger and private placement, ITHC had
49,161,268 shares outstanding.
These pro
forma financial statements are prepared assuming the transaction occurred on
June 30, 2010 (as to the balance sheet) and on April 1, 2009 and
2010 (as to the income statements). InVivo has a December 31 year end
while ITHC has a March 31 year end. Since the year ends are within ninety
days, Vivo’s operations for the year
ended December 31, 2009 were combined with ITHC operations
for the year ended March 31, 2010.
Audited
financial statements of InVivo and Design Source, Inc have been used in the
preparation of the pro forma statement of operations for the year ended December
31, 2009 for InVivo and March 31, 2010 for Design Source, Inc. Unaudited
financial statements have been used in the preparation of the pro forma balance
sheet as of June 30, 2010 and for the statement of operations for the three
months ended June 30, 2010.
The pro
forma financial statements should be read in conjunction with the separate
financial statements and related notes thereto of the InVivo and Design Source,
Inc. These pro forma financial statements are not necessarily
indicative of the combined financial position, had the acquisition occurred at
the end of the periods indicated above, or the combined results of operations
which might have existed for the periods indicated or the results of operations
as they may be in the future.
PRO
FORMA BALANCE SHEET
INVIVO
THERAPEUTICS HOLDING CORP
AS
OF JUNE 30, 2010
UNAUDITED
|
|
Invivo
|
|
|
Design
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
|
|
|
|
Therapeutics, Inc.
|
|
|
Source, Inc.
|
|
|
(Note 1)
|
|
|
(Note 2)
|
|
|
Pro Forma
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
197,758
|
|
|
$
|
38,665
|
|
|
$
|
(38,665
|
)
|
|
$
|
8,255,948
|
|
|
$
|
8,453,706
|
|
Prepaid
expenses
|
|
|
18,654
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
216,412
|
|
|
|
38,665
|
|
|
|
(38,665
|
)
|
|
|
8,255,948
|
|
|
|
8,472,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
171,328
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,328
|
|
Other
assets
|
|
|
56,139
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
56,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
443,879
|
|
|
$
|
38,665
|
|
|
$
|
(38,665
|
)
|
|
$
|
8,255,948
|
|
|
$
|
8,699,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
52,540
|
|
|
$
|
13,216
|
|
|
$
|
(13,216
|
)
|
|
$
|
-
|
|
|
$
|
52,540
|
|
Convertible
notes
|
|
|
|
|
|
|
87,558
|
|
|
|
(87,558
|
)
|
|
|
-
|
|
|
|
-
|
|
Accrued
interest payable
|
|
|
88,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,514
|
|
Accrued
expenses
|
|
|
130,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,539
|
|
Total
current liabilities
|
|
|
271,593
|
|
|
|
100,774
|
|
|
|
(100,774
|
)
|
|
|
|
|
|
|
271,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
payable
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(500,000
|
)
|
|
|
-
|
|
Common
stock warrant liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,334,124
|
|
|
|
4,334,124
|
|
Convertible
notes payable
|
|
|
-
|
|
|
|
76,048
|
|
|
|
(76,048
|
)
|
|
|
|
|
|
|
-
|
|
Total
liabilities
|
|
|
771,593
|
|
|
|
176,822
|
|
|
|
(176,822
|
)
|
|
|
3,834,124
|
|
|
|
4,605,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock , $0.00001 par value; authorized 100,000,000 shares, issued and
outstanding 49,161,268 shares at June 30, 2010
|
|
|
2,262
|
|
|
|
113
|
|
|
|
(113
|
)
|
|
|
(1,770
|
)
|
|
|
492
|
|
Additional
paid-in capital
|
|
|
6,273,906
|
|
|
|
585,810
|
|
|
|
(585,810
|
)
|
|
|
4,423,594
|
|
|
|
10,697,500
|
|
Deficit
accumulated during the development stage
|
|
|
(6,603,882
|
)
|
|
|
(723,880
|
)
|
|
|
723,880
|
|
|
|
-
|
|
|
|
(6,603,882
|
)
|
Total
stockholders' equity (deficit)
|
|
|
(327,714
|
)
|
|
|
(137,957
|
)
|
|
|
137,957
|
|
|
|
4,421,824
|
|
|
|
4,094,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$
|
443,879
|
|
|
$
|
38,865
|
|
|
$
|
(38,865
|
)
|
|
$
|
8,255,948
|
|
|
$
|
8,699,827
|
|
Note 1-
Reflects the split off of the assets and liabilities of Design Source, Inc. per
the merger agreement.
Note
2-Reflects the closing on October 26, 2010 of private placement that raised
$10,506,000 gross and $8,756,000 net of expenses and:
The
recapitalization of InVivo as part of the merger agreement.
The
repayment of $500,000 loan on October 26, 2010.
The
allocation of $4,334,124 of gross proceeds from financing to common stock
warrant liability based on the fair value of the warrants.
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
INVIVO
THERAPEUTICS HOLDINGS COMPANY
YEAR
ENDED MARCH 31, 2010
UNAUDITED
|
|
Invivo
|
|
|
|
|
|
|
|
|
|
|
|
|
Therapeutics,
|
|
|
Design
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Source, Inc.
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
468,044
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
468,044
|
|
General
and administrative
|
|
|
326,227
|
|
|
|
26,161
|
|
|
|
-
|
|
|
|
352,388
|
|
Total
operating expenses
|
|
|
794,271
|
|
|
|
26,161
|
|
|
|
-
|
|
|
|
820,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(794,271
|
)
|
|
|
(26,161
|
)
|
|
|
-
|
|
|
|
(820,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Interest
income
|
|
|
133
|
|
|
|
5
|
|
|
|
|
|
|
|
138
|
|
Interest
expense
|
|
|
(176,307
|
)
|
|
|
(2,694
|
)
|
|
|
|
|
|
|
(179,001
|
)
|
Other
income (expense), net
|
|
|
(176,174
|
)
|
|
|
(2,689
|
)
|
|
|
-
|
|
|
|
(178,863
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(970,445
|
)
|
|
$
|
(28,850
|
)
|
|
$
|
-
|
|
|
$
|
(999,295
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
|
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
11,218,457
|
|
|
|
|
|
|
|
49,161,268
|
|
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR
ENDED MARCH, 31 2010
INVIVO
THERAPEUTICS HOLDINGS CORP.
UNAUDITED
|
|
Invivo
|
|
|
Design
|
|
|
|
|
|
|
|
|
|
Therapeutics,
|
|
|
Source, Inc.
|
|
|
|
|
|
|
|
|
|
Inc.
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
2010
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
1,807,908
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,807,908
|
|
General
and administrative
|
|
|
835,515
|
|
|
|
56,062
|
|
|
|
-
|
|
|
|
891,577
|
|
Total
operating expenses
|
|
|
2,643,423
|
|
|
|
56,062
|
|
|
|
-
|
|
|
|
2,699,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,643,423
|
)
|
|
|
(56,062
|
)
|
|
|
-
|
|
|
|
(2,699,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
383,000
|
|
|
|
-
|
|
|
|
|
|
|
|
383,000
|
|
Interest
income
|
|
|
282
|
|
|
|
-
|
|
|
|
|
|
|
|
282
|
|
Interest
expense
|
|
|
(255,737
|
)
|
|
|
(5,910
|
)
|
|
(248,812
|
)
(Note 1)
|
|
|
(510,459
|
)
|
Other
income (expense), net
|
|
|
127,545
|
|
|
|
(5,910
|
)
|
|
|
(248,812
|
)
|
|
|
(127,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,515,878
|
)
|
|
$
|
(61,972
|
)
|
|
$
|
(248,812
|
)
|
|
$
|
(2,826,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
|
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
11,218,457
|
|
|
|
|
|
|
|
49,161,268
|
|
Note 1:
Pro Forma adjustment assumes all notes payable converted on January 1, 2009
resulting in a reduction of interest expense of $221,689 offset by an
increase in interest expense of $470,501 due to the beneficial conversion
feature being triggered on certain notes due to early
conversion.
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
AMONG
INVIVO
THERAPEUTICS HOLDINGS CORP.
INVIVO
THERAPEUTICS ACQUISITION CORP.
AND
INVIVO
THERAPEUTICS CORPORATION
October
26, 2010
TABLE OF
CONTENTS
ARTICLE
I: THE MERGER
|
1
|
1.1
|
The
Merger
|
1
|
1.2
|
Private
Placement Offering
|
2
|
1.3
|
Registration
Statement
|
2
|
1.4
|
Bridge
Loan
|
2
|
1.5
|
The
Closing
|
3
|
1.6
|
Actions
at the Closing
|
3
|
1.7
|
Additional
Actions
|
3
|
1.8
|
Conversion
of Company Securities
|
4
|
1.9
|
Dissenting
Shares
|
4
|
1.10
|
Fractional
Shares
|
5
|
1.11
|
Options
and Warrants
|
5
|
1.12
|
[Intentionally
Omitted]
|
6
|
1.13
|
Certificate
of Incorporation and ByLaws
|
6
|
1.14
|
No
Further Rights
|
6
|
1.15
|
Closing
of Transfer Books
|
6
|
1.16
|
Post-Closing
Adjustment
|
7
|
1.17
|
Exemption
From Registration
|
8
|
ARTICLE
II: REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
|
8
|
2.1
|
Organization,
Qualification and Corporate Power
|
8
|
2.2
|
Capitalization
|
9
|
2.3
|
Authorization
of Transaction
|
9
|
2.4
|
Noncontravention
|
10
|
2.5
|
Subsidiaries
|
10
|
2.6
|
Financial
Statements
|
11
|
2.7
|
Absence
of Certain Changes
|
11
|
2.8
|
Undisclosed
Liabilities
|
11
|
2.9
|
Tax
Matters
|
11
|
2.10
|
Assets
|
13
|
2.11
|
Owned
Real Property
|
13
|
2.12
|
Real
Property Leases
|
13
|
2.13
|
Contracts
|
14
|
2.14
|
Accounts
Receivable
|
15
|
2.15
|
Powers
of Attorney
|
15
|
2.16
|
Insurance
|
15
|
2.17
|
Litigation
|
16
|
2.18
|
Employees
|
16
|
2.19
|
Employee
Benefits
|
16
|
2.20
|
Environmental
Matters
|
19
|
2.21
|
Legal
Compliance
|
19
|
2.22
|
Customers
and Suppliers
|
20
|
2.23
|
Permits
|
20
|
2.24
|
Certain
Business Relationships With Affiliates
|
20
|
2.25
|
Brokers’
Fees
|
20
|
2.26
|
Books
and Records
|
20
|
2.27
|
Intellectual
Property
|
20
|
2.28
|
Disclosure
|
22
|
2.29
|
Duty
to Make Inquiry
|
22
|
ARTICLE
III: REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
ACQUISITION SUBSIDIARY
|
22
|
3.1
|
Organization,
Qualification and Corporate Power
|
22
|
3.2
|
Capitalization
|
23
|
3.3
|
Authorization
of Transaction
|
24
|
3.4
|
Noncontravention
|
24
|
3.5
|
Subsidiaries
|
24
|
3.6
|
Exchange
Act Reports
|
25
|
3.7
|
Compliance
with Laws
|
25
|
3.8
|
Financial
Statements; Internal Controls
|
26
|
3.9
|
Absence
of Certain Changes
|
27
|
3.10
|
Litigation
|
27
|
3.11
|
Undisclosed
Liabilities
|
27
|
3.12
|
Tax
Matters
|
28
|
3.13
|
Assets
|
29
|
3.14
|
Owned
Real Property
|
29
|
3.15
|
Real
Property Leases
|
29
|
3.16
|
Contracts
|
30
|
3.17
|
Accounts
Receivable
|
31
|
3.18
|
Powers
of Attorney
|
31
|
3.19
|
Insurance
|
31
|
3.20
|
Warranties
|
32
|
3.21
|
Employees
|
32
|
3.22
|
Employee
Benefits
|
32
|
3.23
|
Environmental
Matters
|
34
|
3.24
|
Permits
|
35
|
3.25
|
Certain
Business Relationships With Affiliates
|
35
|
3.26
|
Tax-Free
Reorganization
|
35
|
3.27
|
Split-Off
|
36
|
3.28
|
Brokers’
Fees
|
36
|
3.29
|
Disclosure
|
36
|
3.30
|
Interested
Party Transactions
|
37
|
3.31
|
Duty
to Make Inquiry
|
37
|
3.32
|
Accountants
|
37
|
3.33
|
Minute
Books
|
37
|
3.34
|
Board
Action
|
37
|
ARTICLE
IV: COVENANTS
|
38
|
4.1
|
Closing
Efforts
|
38
|
4.2
|
Governmental
and Thirty Party Notices and Consents
|
38
|
4.3
|
Current
Report
|
38
|
4.4
|
Operation
of Business
|
38
|
4.5
|
Access
to Information
|
40
|
4.6
|
Operation
of Business
|
40
|
4.7
|
Access
to Information
|
42
|
4.8
|
Expenses
|
42
|
4.9
|
Indemnification
|
42
|
4.10
|
Quotation
of Merger Shares
|
43
|
4.11
|
Split-Off
|
43
|
4.12
|
Stock
Option Plan
|
43
|
4.13
|
Information
Provided to Company Stockholders
|
43
|
4.14
|
No
Shorting
|
44
|
ARTICLE
V: CONDITIONS TO CONSUMMATION OF MERGER
|
44
|
5.1
|
Conditions
to Each Party’s Obligations
|
44
|
5.2
|
Conditions
to Obligations of the Parent and the Acquisition
Subsidiary
|
44
|
5.3
|
Conditions
to Obligations of the Company
|
46
|
ARTICLE
VI: INDEMNIFICATION
|
48
|
6.1
|
Indemnification
by the Company Stockholders
|
48
|
6.2
|
Indemnification
by the Parent
|
48
|
6.3
|
Indemnification
Claims by the Parent
|
48
|
6.4
|
Survival
of Representations and Warranties
|
50
|
6.5
|
Limitations
on Parent’s Claims for Indemnification
|
50
|
ARTICLE
VII: DEFINITIONS
|
51
|
ARTICLE
VIII: TERMINATION
|
53
|
8.1
|
Termination
by Mutual Agreement
|
53
|
8.2
|
Termination
for Failure to Close
|
53
|
8.3
|
Termination
by Operation of Law
|
53
|
8.4
|
Termination
for Failure to Perform Covenants or Conditions
|
53
|
8.5
|
Effect
of Termination or Default; Remedies
|
54
|
8.6
|
Remedies;
Specific Performance
|
54
|
ARTICLE
IX: MISCELLANEOUS
|
54
|
9.1
|
Press
Releases and Announcements
|
54
|
9.2
|
No
Third Party Beneficiaries
|
54
|
9.3
|
Entire
Agreement
|
55
|
9.4
|
Succession
and Assignment
|
55
|
9.5
|
Counterparts
and Facsimile Signature
|
55
|
9.6
|
Headings
|
55
|
9.7
|
Notices
|
55
|
9.8
|
Governing
Law
|
56
|
9.9
|
Amendments
and Waivers
|
56
|
9.10
|
Severability
|
56
|
9.11
|
Submission
to Jurisdiction
|
57
|
9.12
|
Construction
|
57
|
EXHIBITS
|
|
Exhibit
A
|
Form
of Split-Off Agreement
|
Exhibit
B
|
Form
of Opinion of Counsel to the Company
|
Exhibit
C
|
Form
of Opinion of Counsel to the Parent and the Acquisition
Subsidiary
|
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER
(this “Agreement”), dated as of October 26, 2010, by and among InVivo
Therapeutics Holdings Corp. (f/k/a Design Source, Inc.), a Nevada corporation
(the “Parent”), InVivo Therapeutics Acquisition Corp., a Delaware corporation
(the “Acquisition Subsidiary”) and InVivo Therapeutics Corporation, a Delaware
corporation (the “Company”). The Parent, the Acquisition Subsidiary
and the Company are each a “Party” and referred to collectively herein as the
“Parties.”
WHEREAS,
this Agreement contemplates a merger of the Acquisition Subsidiary with and into
the Company, with the Company remaining as the surviving entity after the merger
(the “Merger”), whereby the stockholders of the Company will receive common
stock of the Parent in exchange for their capital stock of the
Company;
WHEREAS,
simultaneously with the closing of the Merger, the Parent shall complete a
private placement of 7,000,000 units of securities of the Parent, at the
purchase price of $1.00 per unit (the “PPO Price”), with the right, at the
placement agent’s and the Company’s discretion, to sell up to an additional
6,000,000 units (the “Private Placement Offering”), each unit consisting of one
share of the Parent’s common stock and one five year warrant to purchase one
share of Parent common stock at an exercise price of $1.40 per
share;
WHEREAS,
immediately following the Merger, the Parent intends to split-off its wholly
owned subsidiary, DSource Split Corp., a Delaware corporation (the “Split-Off
Subsidiary”), through the sale of all of the outstanding capital stock of the
Split-Off Subsidiary (the “Split-Off”) upon the terms and conditions of a
split-off agreement by and among the Parent, Peter A. Reichard, Lawrence J.
Reichard and Peter L. Coker (the “Buyers”), the Company and the Split-Off
Subsidiary, substantially in the form of
Exhibit A
attached
hereto (the “Split-Off Agreement”); and
WHEREAS,
the Parent, the Acquisition Subsidiary, and the Company desire that the Merger
qualifies as a “plan of reorganization” under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the “Code”) and not subject the holders of
equity securities of the Company to tax liability under the Code.
NOW,
THEREFORE, in consideration of the representations, warranties and covenants
herein contained, and for other good and valuable consideration the receipt,
adequacy and sufficiency of which are hereby acknowledged, the Parties hereto,
intending legally to be bound, agree as follows:
ARTICLE
I
THE
MERGER
1.1
The
Merger
. Upon and subject to the terms and conditions of this
Agreement, the Acquisition Subsidiary shall merge with and into the Company at
the Effective Time (as defined below). From and after the Effective
Time, the separate corporate existence of the Acquisition Subsidiary shall cease
and the Company shall continue as the surviving corporation in the Merger (the
“Surviving Corporation”). The “Effective Time” shall be the time at
which the Certificate of Merger (the “Certificate of Merger”) and other
appropriate or required documents prepared and executed in accordance with the
relevant provisions of the Delaware General Corporation Law (the “GCL”) are
filed with the Secretary of State of Delaware. The Merger shall have
the effects set forth in the applicable provisions of the GCL, including
Sections 251, 259, 260 and 261 of the GCL.
1.2
Private Placement
Offering
. In conjunction with the closing of the Merger,
Parent shall complete a private placement of 7,000,000 units of securities of
the Parent, at a price of $1.00 per unit, with the right, at the placement
agent’s and the Company’s discretion, to sell up to an additional 6,000,000
units. Each unit shall consist of one share of common stock of Parent (the
“Parent Common Stock”) and one five year warrant to purchase one share of Parent
Common Stock at an exercise price of $1.40 per share (the “Parent PPO Warrant”).
The Parent PPO Warrant shall be callable by Parent if the bid price for the
Parent’s Common Stock is 100% or more above the warrant exercise price for 20
consecutive trading days after effectiveness of Parent’s registration statement
registering, among other securities of Parent, the resale of the shares of
Parent Common Stock underlying the Parent PPO Warrants (the “Registration
Statement”). The closing of the Merger and the Private Placement Offering will
occur simultaneously and each will be a condition of the other. Parent and the
Company have engaged a registered broker-dealer (the “Placement Agent”) to serve
as the exclusive placement agent for the Private Placement Offering and be
compensated in accordance with its standard terms for such services. The terms
of the Placement Agent’s engagement as placement agent shall be set forth in a
Placement Agent Agreement.
1.3
Registration
Statement
. The Registration Statement will be prepared on Form
S-1 or such other available form and shall be used to register, to the extent
practicable, resales of (i) the shares of Parent Common Stock constituting part
of the units, (ii) the shares of Parent Common Stock underlying the Parent PPO
Warrants constituting part of the units, and (iii) the shares of Parent Common
Stock underlying the Parent Bridge Warrants (as defined in Section 1.4). The
terms and conditions of such registration shall be set forth in a Registration
Rights Agreement between Parent and the holders of registrable
securities.
1.4
Bridge
Loan
. The Company has effected the Bridge Loan in the amount
of $500,000 (the “Bridge Loan”), pursuant to which it issued convertible
promissory notes of the Company (the “Bridge Notes”) and 36,310 common stock
purchase warrants to investors. Upon the closing of the Merger (i) the Bridge
Notes will automatically convert into Private Placement Offering units at a
price of $1.00 per unit and (ii) the warrants accompanying the Bridge Notes
shall automatically convert into warrants to acquire 500,000 shares of the
Parent’s Common Stock at a price of $1.00 per share (the “Parent Bridge
Warrants”). The aggregate principal amount of the converted Bridge Notes plus
accrued and unpaid interest due thereon at the time of conversion will be deemed
part of the gross proceeds of the Private Placement Offering. The placement
agent for the Bridge Loan received Company Warrants which shall automatically
convert at the closing of the Merger into Parent Bridge Warrants to acquire
100,000 shares of the Parent’s Common Stock at a price of $1.00 per
share.
1.5
The
Closing
. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at the offices of Gottbetter &
Partners, LLP in New York, New York commencing at 10:00 a.m. local time on
the date hereof, or, if all of the conditions to the obligations of the Parties
to consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreeable later date as soon as
practicable (and in any event not later than three (3) business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Closing by any of the Parties) set forth in
Article V hereof (the “Closing Date”).
1.6
Actions at the
Closing
. At the Closing:
(a) the
Company shall deliver to the Parent and the Acquisition Subsidiary the various
certificates, instruments and documents referred to in Section 5.2;
(b) the
Parent and the Acquisition Subsidiary shall deliver to the Company the various
certificates, instruments and documents referred to in Section 5.3;
(c) the
Surviving Corporation shall file the Certificate of Merger with the Secretary of
State of the State of Delaware;
(d) each
of the stockholders of record of the Company immediately prior to the Effective
Time (collectively, the “Company Stockholders”) shall, if requested by the
Parent, deliver to the Parent the certificate(s) representing his, her or its
shares of Company common stock (the “Company Shares”);
(e) the
Parent agrees to promptly deliver certificates for the Merger Shares (as defined
below) to each Company Stockholder in accordance with Section 1.8;
(f) the
Parent shall deliver to the Company (i) evidence that the Parent’s board of
directors is authorized to consist of five individuals, (ii) the resignations of
all individuals who served as directors and/or officers of the Parent
immediately prior to the Closing Date, which resignations shall be effective as
of the Closing Date, (iii) evidence of the appointment of five directors to
serve immediately following the Closing Date, four of whom shall have been
designated by the Company and one of whom shall be designated by the Placement
Agent immediately prior to the Closing Date, provided that such appointee is
reasonably acceptable to the Company, and (v) evidence of the appointment of
such executive officers of the Parent to serve immediately upon the Closing Date
as shall have been designated by the Company; and
(g) the
Private Placement Offering shall be completed and the proceeds therefrom
distributed in accordance with the terms of the Private Placement
Offering.
1.7
Additional
Actions
. If at any time after the Effective Time the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments or assurances or any other acts or things are necessary, desirable
or proper (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either the
Company or Acquisition Subsidiary or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized (to the fullest extent allowed under
applicable law) to execute and deliver, in the name and on behalf of either the
Company or Acquisition Subsidiary, all such deeds, bills of sale, assignments
and assurances and do, in the name and on behalf of the Company or Acquisition
Subsidiary, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the
Company or Acquisition Subsidiary, as applicable, and otherwise to carry out the
purposes of this Agreement.
1.8
Conversion of Company and
Acquisition Subsidiary Securities
. At the Effective Time, by
virtue of the Merger and without any action on the part of any Party or the
holder of any of the following securities:
(a) Each
Company Share issued and outstanding immediately prior to the Effective Time
other than Dissenting Shares (as defined below) shall be converted into and
represent the right to receive (subject to the provisions of Section 1.9) such
number of shares of common stock, $0.00001 par value per share, of the Parent
(“Parent Common Stock”) as is equal to the Common Conversion Ratio (as defined
in Section 1.8(b)). An aggregate of approximately 31,647,190
shares of Parent Common
Stock shall be issued to the stockholders of the Company. In
addition, each Company stock option and common stock purchase warrant issued and
outstanding immediately prior to the Effective Time shall be converted into and
represent the right to receive such number of Parent stock options (the “Parent
Options”) and Parent Bridge Warrants as is equal to the Common Conversion Ratio
(as defined in Section 1.8(b) and a corresponding number of shares of Parent
Common Stock shall be reserved for issuance upon the exercise of the Parent
Options and Parent Bridge Warrants. Notwithstanding the foregoing, the number of
shares of Parent Common Stock issuable to the Company Stockholders upon
conversion of their Company Shares, and the number of shares reserved for
issuance upon the exercise of Parent Options and Parent Bridge Warrants may be
adjusted in accordance with Section 1.11(e).
(b) The
“Common Conversion Ratio” shall be 13.7706-for-1.
Stockholders of record
of the Company as of the Closing Date shall be entitled to receive
immediately
all of
the shares of Parent Common Stock into which their Company Shares were converted
pursuant to this Section 1.8 (the “Merger Shares”).
(c) Each
issued and outstanding share of common stock, par value $0.001 per share, of the
Acquisition Subsidiary shall be converted into one validly issued, fully paid
and nonassessable share of Surviving Corporation Common Stock.
1.9
Dissenting
Shares
.
(a) For
purposes of this Agreement, “Dissenting Shares” means Company Shares held as of
the Effective Time by a Company Stockholder who has not voted such Company
Shares in favor of the adoption of this Agreement and the Merger and with
respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the GCL and not effectively withdrawn or
forfeited prior to the Effective Time. Dissenting Shares shall not be
converted into or represent the right to receive shares of Parent Common Stock
unless such Company Stockholder’s right to appraisal shall have ceased in
accordance with Section 262 of the GCL. If such Company Stockholder
has so forfeited or withdrawn his, her or its right to appraisal of Dissenting
Shares, then, (i) as of the occurrence of such event, such holder’s
Dissenting Shares shall cease to be Dissenting Shares and shall be converted
into and represent the right to receive the Merger Shares issuable in respect of
such Company Shares pursuant to Section 1.8, and (ii) promptly
following the occurrence of such event, the Parent shall deliver to such Company
Stockholder a certificate representing the Merger Shares to which such holder is
entitled pursuant to Section 1.8.
(b) The
Company shall give the Parent prompt notice of any written demands for appraisal
of any Company Shares, withdrawals of such demands, and any other instruments
that relate to such demands received by the Company. The Company
shall not, except with the prior written consent of the Parent, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.10
Fractional
Shares
. No certificates or scrip representing fractional
Merger Shares shall be issued to Company Stockholders on the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Company Shares converted into Merger Shares pursuant to Section 1.8
(“Certificates”) and such Company Stockholders shall not be entitled to any
voting rights, rights to receive any dividends or distributions or other rights
as a stockholder of the Parent with respect to any fractional Merger Shares that
would have otherwise been issued to such Company Stockholders. In
lieu of any fractional Merger Shares that would have otherwise been issued, each
former Company Stockholder that would have been entitled to receive a fractional
Merger Share shall, on proper surrender of such person’s Certificates, receive
such whole number of Merger Shares as is equal to the precise number of Merger
Shares to which such Company Stockholder would be entitled, rounded up or down
to the nearest whole number (with a fractional interest equal to 0.5 rounded
upward to the nearest whole number); provided that each such Company Stockholder
shall receive at least one Merger Share.
1.11
Options and
Warrants
.
(a) As of the
Effective Time, all stock options to purchase Company Shares issued by the
Company, whether vested or unvested (the “Company Options”), shall automatically
become Parent Options without further action by the holder thereof. Each Parent
Option shall constitute an option to acquire such number of shares of Parent
Common Stock as is equal to the number of Company Shares subject to the
unexercised portion of the Company Option multiplied by the Common Conversion
Ratio (with any fraction resulting from such multiplication to be rounded to the
nearest whole number, and with 0.5 shares rounded upward to the nearest whole
number). The exercise price per share of each Parent Option shall be
equal to the exercise price of the Company Option divided by the Common
Conversion Ratio and the terms of such Parent Options shall otherwise remain the
same. The Parent Options shall be granted under the Company's
2007 Employee, Director and Consultant Stock Plan, as amended (the
“2007 Plan”), which shall be adopted and assumed in writing by the Parent in
connection with the Merger, and under the 2007 Plan’s terms, exercisability,
vesting schedule, and status as an “incentive stock option” under Section 422 of
the Code, if applicable. It is the intention of the Parties that any Company
Options intended to be “incentive stock options” under Section 422 of the Code
shall remain incentive stock options as Parent Options.
(b) As
soon as practicable after the Effective Time, the Parent or the Surviving
Corporation shall take appropriate actions to collect the Company Options and
the agreements evidencing the Company Options, which shall be deemed to be
canceled and shall entitle the holder to exchange the Company Options for Parent
Options.
(c) 5,915,615
shares of Parent Common Stock shall be reserved for issuance under the 2007 Plan
being assumed by Parent at Closing, and shall be issued upon the exercise of the
Parent Options in accordance with this Section 1.11. No additional
Options shall at any time hereafter be granted under the 2007 Plan.
(d) Upon
the Closing of the Merger, Parent Bridge Warrants to purchase an aggregate of
600,000 shares of Parent Common Stock at a price of $1.00 per share will be
granted to the holders of Company common stock purchase warrants (the “Company
Warrants”). 600,000
shares of Parent Common
Stock shall be reserved for issuance upon the exercise of the Parent Bridge
Warrants. As of the Effective Time, any and all outstanding Company
Warrants to purchase capital stock of the Company, whether vested or unvested,
shall be canceled.
(e) In
the event that any issued and outstanding Company Options or Company Warrants
are exercised prior to the Effective Time, the number of outstanding Company
Shares shall be increased by the number of Company Shares issued upon exercise
of Company Options and Company Warrants, and the number of outstanding Company
Options and Company Warrants shall be reduced by the same number, as applicable.
This will result in a decrease in the aggregate number of shares of Parent
Common Stock reserved for issuance upon exercise of the Parent Options and
Parent Bridge Warrants, and an increase in the number of shares of Parent Common
Stock issuable to Company Stockholders at the Effective
Time. Accordingly, regardless of the exercise of any Company
Warrants, the total number of shares of Parent Common Stock issuable to Company
Stockholders, and, upon exercise, to the holders of Parent Options and Parent
Warrants, in connection with the Merger (in accordance with Section 1.5 and this
Section 1.11) shall remain constant.
1.12
[Intentionally
Omitted]
.
1.13
Certificate of Incorporation
and Bylaws
.
(a) The
certificate of incorporation of the Company in effect immediately prior to the
Effective Time shall be the certificate of incorporation of the Surviving
Corporation until duly amended or repealed.
(b) The
bylaws of the Company in effect immediately prior to the Effective Time shall be
the bylaws of the Surviving Corporation until duly amended or
repealed.
1.14
No Further
Rights
. From and after the Effective Time, no Company Shares
shall be deemed to be outstanding, and holders of Certificates shall cease to
have any rights with respect thereto, except as provided herein or by
law.
1.15
Closing of Transfer
Books
. At the Effective Time, the stock transfer books of the
Company shall be closed and no transfer of Company Shares shall thereafter be
made. If, after the Effective Time, Certificates are presented to the
Parent or the Surviving Corporation, they shall be cancelled and exchanged for
Merger Shares in accordance with Section 1.8, subject to applicable law in
the case of Dissenting Shares.
1.16
Post-Closing
Adjustment
. In the event that, during the period commencing
from the Closing Date and ending on the second anniversary of the Closing Date,
the Parent or the Surviving Corporation incurs any Loss (as defined below) with
respect to, in connection with, or arising from any Parent Liabilities (as
defined below), then promptly following the filing by the Parent with the
Securities and Exchange Commission (the “SEC”) of a quarterly report relating to
the most recent completed quarter for which such determination has been made,
the Parent shall issue to the Company Stockholders and/or their designees such
number of shares of Parent Common Stock as would result from dividing (x) the
whole dollar amount representing such Losses by (y) the PPO Price, rounded to
the nearest whole number (with 0.5 shares rounded upwards to the nearest whole
number). The limit on the aggregate number of shares of Parent Common
Stock issuable under this Section 1.16 shall be 3,100,000 shares. As
used in this Section 1.16: (a) “Loss” shall mean any and all costs and expenses,
including reasonable attorneys’ fees, court costs, reasonable accountants’ fees,
and damages and losses, net of any insurance proceeds actually received by the
Party suffering the Loss with respect thereto; (b) “Claims” shall include, but
are not limited to, any claim, notice, suit, action, investigation, other
proceedings (whether actual or threatened); and (c) “Parent Liabilities” shall
mean all Claims against and liabilities, obligations or indebtedness of any
nature whatsoever of Split-Off Subsidiary, whenever accruing, and of the Parent
and the Acquisition Subsidiary, accruing on or before the Closing Date (whether
primary, secondary, direct, indirect, liquidated, unliquidated or contingent,
matured or unmatured), including, but not limited to (i) any litigation
threatened, pending or for which a basis exists against the Parent or any Parent
Subsidiary (as defined in this Agreement); (ii) any and all outstanding debts
owed by the Parent or any Parent Subsidiary; (iii) any and all internal or
employee related disputes, arbitrations or administrative proceedings
threatened, pending or otherwise outstanding, (iv) any and all liens,
foreclosures, settlements, or other threatened, pending or otherwise outstanding
financial, legal or similar obligations of the Parent or any Parent Subsidiary,
(v) any and all Taxes for which Parent or any of its direct or indirect assets
may be liable or subject, for any taxable period (or portion thereof) ending on
or before the Closing Date, including, without limitation, any and all Taxes
resulting from or attributable to Parent’s ownership or operation of the
Split-Off Subsidiary assets, (vi) any and all Taxes for which Parent or its
direct or indirect assets may be liable or subject (including, without
limitation, the interests and assets of the Surviving Corporation and any Parent
Subsidiary) as a consequence of Parent’s acquisition, formation, capitalization,
ownership, and Split-Off of Split-Off Subsidiary, whether related to a taxable
period (or portion thereof) ending on or after the Closing Date, and (vii) all
fees and expenses incurred in connection with effecting the adjustments
contemplated by this Section 1.16, as such Parent Liabilities are determined by
the Parent’s independent auditors, on a quarterly basis. Any shares
of Parent Common Stock that are issued under this Section 1.16 shall be issued
to the Company Stockholders pro rata according to their respective holdings of
the Merger Shares.
1.17
Exemption From
Registration
. Parent and the Company intend that the shares of
Parent Common Stock to be issued pursuant to Section 1.8 hereof or upon
exercise of Parent Options and Parent Warrants granted pursuant to Section 1.11
hereof or upon the provisions of Section 1.16 hereof in each case in connection
with the Merger will be issued in a transaction exempt from registration under
the Securities Act, by reason of Section 4(2) of the Securities Act, Rule 506 of
Regulation D promulgated by the SEC thereunder (“Regulation D”) and/or
Regulation S promulgated by the SEC (“Regulation S”) and that, except as
otherwise disclosed in Schedule 1.17 hereof, all recipients of such shares of
Parent Common Stock shall either be “accredited investors” or not “U.S. Persons”
as such terms are defined under Regulation D and Regulation S,
respectively.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Parent that the statements contained in
this Article II are true and correct, except as set forth in the disclosure
schedule provided by the Company to the Parent on the date hereof and accepted
in writing by the Parent (the “Disclosure Schedule”). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and except to the extent
that it is clear from the context thereof that such disclosure also applies to
any other paragraph, the disclosures in any paragraph of the Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II.
For purposes of this
Article II, the phrase “to the knowledge of the Company” or any phrase of
similar import shall be deemed to refer to the actual knowledge of the executive
officers of the Company, as well as any other knowledge which such executive
officers would have possessed had they made reasonable inquiry with respect to
the matter in question.
2.1
Organization, Qualification
and Corporate Power
. The Company is a corporation duly
organized, validly existing and in corporate and tax good standing under the
laws of the State of Delaware. The Company is duly qualified to
conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, except where the failure
to be so qualified or in good standing, individually or in the aggregate, has
not had and would not reasonably be expected to have a Company Material Adverse
Effect (as defined below). The Company has all requisite corporate
power and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. The Company has
furnished or made available to the Parent complete and accurate copies of its
certificate of incorporation and bylaws. The Company is not in
default under or in violation of any provision of its certificate of
incorporation, as amended to date, or its bylaws, as amended to
date. For purposes of this Agreement, “Company Material Adverse
Effect” means a material adverse effect on the assets, business, condition
(financial or otherwise), results of operations or future prospects of the
Company taken as a whole.
2.2
Capitalization
. The
authorized capital stock of the Company consists of 5,000,510 shares of which
5,000,000 shares are designated as common stock, $0.001 par value per share (the
“Company Shares”) and 510 shares are designated as preferred
stock. As of the date of this Agreement and the Closing, and assuming
receipt of the proceeds of the Private Placement Offering and conversion by the
holders of all of the Company’s convertible notes (the “Convertible Notes”),
there are (i) 2,297,884 Company Shares issued and outstanding; (ii) 429,579
Company Options issued and outstanding; and (iii) 43,572 Company Warrants issued
and outstanding.
Section 2.2 of the
Disclosure Schedule sets forth a complete and accurate list of (i) all holders
of Company Shares, indicating the number of Company Shares held by each holder;
(ii) all holders of Convertible Notes, indicating the amount of Convertible
Notes held by each holder and (iii) all holders of Company Options and Company
Warrants indicating (A) the number of Company Shares subject to each
Company Option and Company Warrant, (B) the exercise price, date of grant,
vesting schedule and expiration date for each Company Option or Company Warrant,
and (C) any terms regarding the acceleration of vesting, and (iii) all
stock option plans and other stock or equity-related plans of the
Company. All of the issued and outstanding Company Shares, and all
Company Shares that may be issued upon exercise of Company Options or Company
Warrants will be (upon issuance in accordance with their terms), duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Other than the Company Options and Company Warrants listed in
Section 2.2 of the Disclosure Schedule and except as otherwise discussed in
Section 2.2 of the Disclosure Schedule, there are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Company is a
party or which are binding upon the Company providing for the issuance or
redemption of any of its capital stock. Except as set forth in
Section 2.2 of the Disclosure Schedule, there are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the
Company. Except as set forth in Section 2.2 of the Disclosure
Schedule, there are no agreements to which the Company is a party or by which it
is bound with respect to the voting (including without limitation voting trusts
or proxies), registration under the Securities Act, or sale or transfer
(including without limitation agreements relating to pre-emptive rights, rights
of first refusal, co-sale rights or “drag-along” rights) of any securities of
the Company. Except as set forth in Section 2.2 of the Disclosure
Schedule, to the knowledge of the Company, there are no agreements among other
parties, to which the Company is not a party and by which it is not bound, with
respect to the voting (including without limitation voting trusts or proxies) or
sale or transfer (including without limitation agreements relating to rights of
first refusal, co-sale rights or “drag-along” rights) of any securities of the
Company. Except as listed in Section 2.2 of the Disclosure Schedule,
all of the issued and outstanding Company Shares and Convertible Notes were
issued in compliance with applicable federal and state securities laws.
2.3
Authorization of
Transaction
. The Company has all requisite power and authority
to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this
Agreement and, subject to the adoption of this Agreement and the approval of the
Merger by no less than a majority of the votes represented by the outstanding
Company Shares entitled to vote on this Agreement and the Merger (the
“Stockholder Approval”), the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. Without limiting the
generality of the foregoing, the board of directors of the Company
(i) determined that the Merger is fair and in the best interests of the
Company and the Company Stockholders, (ii) adopted this Agreement in
accordance with the provisions of the GCL, and (iii) directed that this
Agreement and the Merger be submitted to the Company Stockholders for their
adoption and approval and resolved to recommend that the Company Stockholders
vote in favor of the adoption of this Agreement and the approval of the
Merger. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms.
2.4
Noncontravention
. Subject
to the receipt of Stockholder Approval and the filing of the Certificate of
Merger as required by the GCL, neither the execution and delivery by the Company
of this Agreement, nor the consummation by the Company of the transactions
contemplated hereby, will (a) conflict with or violate any provision of the
certificate of incorporation or bylaws of the Company, as amended to date,
(b) require on the part of the Company any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a “Governmental Entity”), except for such permits,
authorizations, consents and approvals for which the Company is obligated to use
its Reasonable Best Efforts (as defined in Section 4.1), to obtain pursuant to
Section 4.2(a), (c) conflict with, result in a breach of, constitute (with
or without due notice or lapse of time or both) a default under, result in the
acceleration of obligations under, create in any Party the right to terminate,
modify or cancel, or require any notice, consent or waiver under, any contract
or instrument to which the Company is a party or by which the Company is bound
or to which any of their assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation in any contract
or instrument set forth in Section 2.4 of the Disclosure Schedule, for which the
Company is obligated to use its Reasonable Best Efforts to obtain waiver,
consent or approval pursuant to Section 4.2(b), (ii) any conflict, breach,
default, acceleration, termination, modification or cancellation which would not
have a Company Material Adverse Effect and would not adversely affect the
consummation of the transactions contemplated hereby or (iii) any notice,
consent or waiver the absence of which would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby, (d) result in the imposition of any Security Interest
(as defined below) upon any assets of the Company or (e) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to the Company
or any of its properties or assets. For purposes of this Agreement:
“Security Interest” means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic’s, materialmen’s, and similar liens, (ii) liens
arising under worker’s compensation, unemployment insurance, social security,
retirement, and similar legislation, and (iii) liens on goods in transit
incurred pursuant to documentary letters of credit, in each case arising in the
Ordinary Course of Business (as defined below) of the Company and not material
to the Company; and “Ordinary Course of Business” means the ordinary course of
the Company’s business, consistent with past custom and practice (including with
respect to frequency and amount).
2.5
Subsidiaries
. The
Company does not have any Subsidiaries. For purposes of this Agreement, a
“Subsidiary” shall mean any corporation, partnership, joint venture or other
entity in which a Party has, directly or indirectly, an equity interest
representing 50% or more of the equity securities thereof or other equity
interests therein (collectively, the “Subsidiaries”); “Parent
Subsidiary” is a Subsidiary of the Parent. Except as set forth in Section 2.5 of
the Disclosure Schedule, the Company does not control directly or indirectly or
have any direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business association.
2.6
Financial
Statements
. The Company will provide or make available to the
Parent prior to the Closing: (a) the audited consolidated balance sheet of the
Company (the “Company Balance Sheet”) at December 31, 2008 and December 31, 2009
(December 31, 2009 hereinafter defined as the “Company Balance Sheet Date”), and
the related consolidated statements of operations and cash flows for the period
from November 28, 2005 (inception) through December 31, 2009 (the “Company
Year-End Financial Statements”); and (b) the unaudited balance sheet of the
Company (the “Company Interim Balance Sheet”) at June 30, 2010 (June 30, 2010
hereinafter defined as the “Company Interim Balance Sheet Date”) and the related
statement of operations and cash flows for the six months ended June 30, 2010
(the “Company Interim Financial Statements” and together with the Year-End
Financial Statements, the “Company Financial Statements”). The
Company Financial Statements have been prepared in accordance with United States
generally accepted accounting principles (“GAAP”) applied on a consistent basis
throughout the periods covered thereby, fairly present in all material respects
the financial condition, results of operations and cash flows of the Company as
of the respective dates thereof and for the periods referred to therein, comply
as to form with the applicable rules and regulations of the SEC for inclusion of
such Company Financial Statements in the Parent’s filings with the SEC as
required by the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and are consistent in all material respects with the books and records of
the Company.
2.7
Absence of Certain
Changes
. Since the Company Interim Balance Sheet Date, and
except for the indebtedness incurred in connection with the Bridge Loan or as
set forth in Section 2.7 of the Disclosure Schedule, (a) to the knowledge
of the Company, there has occurred no event or development which, individually
or in the aggregate, has had, or could reasonably be expected to have in the
future, a Company Material Adverse Effect, and (b) the Company has not
taken any of the actions set forth in paragraphs (a) through (m) of
Section 4.4.
2.8
Undisclosed
Liabilities
. Except as set forth in Section 2.8 of the
Disclosure Schedules, the Company does not have any liability (whether known or
unknown, whether absolute or contingent, whether liquidated or unliquidated and
whether due or to become due), except for (a) liabilities shown on the
Company Interim Balance Sheet referred to in Section 2.6,
(b) liabilities which have arisen since the Company Interim Balance Sheet
Date in the Ordinary Course of Business and (c) contractual and other
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet.
2.9
Tax Matters
.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Taxes”
means all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government, or
any agency thereof, or other political subdivision of the United States or any
such government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof.
(ii) “Tax
Returns” means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) The
Company has filed on a timely basis all Tax Returns that it was required to
file, and all such Tax Returns were complete and accurate in all material
respects. The Company has not ever been a member of a group of
corporations with which it has filed (or been required to file) consolidated,
combined or unitary Tax Returns. The Company has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the
Company for tax periods through the Company Balance Sheet Date do not exceed the
accruals and reserves for Taxes (excluding accruals and reserves for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on the Company Balance Sheet. The Company has not had any
actual or potential liability for any Tax obligation of any taxpayer (including
without limitation any affiliated group of corporations or other entities that
included the Company during a prior period). All Taxes that the
Company is or was required by law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper
Governmental Entity.
(c) The
Company has delivered or made available to the Parent complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since the date of the
Company’s incorporation in Delaware (the “Organization Date”). No
examination or audit of any Tax Return of the Company by any Governmental Entity
is currently in progress or, to the knowledge of the Company, threatened or
contemplated. The Company has not been informed by any jurisdiction that the
jurisdiction believes that the Company was required to file any Tax Return that
was not filed. The Company has not waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
(d) The
Company: (i) is not a “consenting corporation” within the meaning of
Section 341(f) of the Code, and none of the assets of the Company are
subject to an election under Section 341(f) of the Code; (ii) has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in
Section 897(c)(l)(A)(ii) of the Code; (iii) has not made any payments,
is not obligated to make any payments, nor is it a party to any agreement that
could obligate it to make any payments that may be treated as an “excess
parachute payment” under Section 280G of the Code; (iv) has no actual
or potential liability for any Taxes of any person (other than the Company)
under Treasury Regulation Section 1.1502-6 (or any similar provision of
federal, state, local, or foreign law), or as a transferee or successor, by
contract, or otherwise; and (v) has not been required to make a basis
reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None
of the assets of the Company: (i) is property that is required to be
treated as being owned by any other person pursuant to the provisions of former
Section 168(f)(8) of the Code; (ii) is “tax-exempt use property”
within the meaning of Section 168(h) of the Code; or (iii) directly or
indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code.
(f) The
Company has not undergone a change in its method of accounting resulting in an
adjustment to its taxable income pursuant to Section 481 of the
Code.
(g) No
state or federal “net operating loss” of the Company determined as of the
Closing Date is subject to limitation on its use pursuant to Section 382 of
the Code or comparable provisions of state law as a result of any “ownership
change” within the meaning of Section 382(g) of the Code or comparable
provisions of any state law occurring prior to the Closing Date.
2.10
Assets
. The
Company owns or leases all tangible assets reasonably necessary for the conduct
of its businesses as presently conducted and as presently proposed to be
conducted. Except as set forth in Section 2.10 of the Disclosure
Schedule, each such tangible asset is free from material defects, has been
maintained in accordance with normal industry practice, is in good operating
condition and repair (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used. No asset of the Company
(tangible or intangible) is subject to any Security Interest.
2.11
Owned Real
Property
. The Company does not own any real property, except
as otherwise listed in Section 2.11 of the Disclosure
Schedule.
2.12
Real Property
Leases
. Section 2.12 of the Disclosure Schedule lists all
real property leased or subleased to or by the Company and lists the term of
such lease, any extension and expansion options, and the rent payable
thereunder. The Company has delivered or made available to the Parent
complete and accurate copies of the leases and subleases listed in
Section 2.12 of the Disclosure Schedule. With respect to each
lease and sublease listed in Section 2.12 of the Disclosure
Schedule:
(a) the
lease or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease or sublease will continue to be legal, valid, binding, enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect immediately prior to the Closing;
(c) neither
the Company nor, to the knowledge of the Company, any other party, is in breach
or violation of, or default under, any such lease or sublease, and no event has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute a
breach or default by the Company or, to the knowledge of the Company, any other
party under such lease or sublease;
(d) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold; and
(e) to
the knowledge of the Company, there is no Security Interest, easement, covenant
or other restriction applicable to the real property subject to such lease,
except for recorded easements, covenants and other restrictions which do not
materially impair the current uses or the occupancy by the Company of the
property subject thereto.
2.13
Contracts
.
(a) Section
2.13 of the Disclosure Schedule lists the following agreements (written or oral)
to which the Company is a party as of the date of this Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties providing for lease payments in excess of $50,000 per
annum or having a remaining term longer than 12 months;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $50,000, or (C) in which the Company has granted
manufacturing rights, “most favored nation” pricing provisions or exclusive
marketing or distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(iii) any
agreement which, to the knowledge of the Company, establishes a partnership or
joint venture;
(iv) other
than the Bridge Notes and the Convertible Notes, any agreement (or group of
related agreements) under which it has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness (including capitalized
lease obligations) involving more than $50,000 or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or
intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any officer, director or stockholder of the Company or any
affiliate, as defined in Rule 12b-2 under Exchange Act, thereof (an
“Affiliate”);
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Company Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Company to indemnify any
other party thereto (excluding indemnities contained in agreements for the
purchase, sale or license of products entered into in the Ordinary Course of
Business);
(x) any
other agreement (or group of related agreements) either involving more than
$50,000 or not entered into in the Ordinary Course of Business; and
(xi) any
agreement, other than as contemplated by this Agreement and the Bridge Loan,
relating to the sales of securities of the Company to which the Company is a
party.
(b) The
Company has delivered or made available to the Parent a complete and accurate
copy of each agreement listed in Section 2.13 of the Disclosure
Schedule. With respect to each agreement so listed, and except as set
forth in Section 2.13 of the Disclosure Schedule: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
and (iii) the Company is not nor, to the knowledge of the Company, is any
other party, in breach or violation of, or default under, any such agreement,
and no event has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Company or, to the knowledge of the
Company, any other party under such contract.
2.14
Accounts
Receivable
. All accounts receivable of the Company reflected
on the Company Interim Balance Sheet are valid receivables subject to no setoffs
or counterclaims and are current and collectible (within 90 days after the date
on which it first became due and payable), net of the applicable reserve for bad
debts on the Company Interim Balance Sheet. All accounts receivable
reflected in the financial or accounting records of the Company that have arisen
since the Company Balance Sheet Date are valid receivables subject to no setoffs
or counterclaims and are collectible (within 90 days after the date on which it
first became due and payable), net of a reserve for bad debts in an amount
proportionate to the reserve shown on the Company Interim Balance
Sheet.
2.15
Powers of
Attorney
. Except as set forth in Section 2.15 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company.
2.16
Insurance
. Section 2.16
of the Disclosure Schedule lists each insurance policy (including fire, theft,
casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Company is a party. Such insurance
policies are of the type and in amounts customarily carried by organizations
conducting businesses or owning assets similar to those of the
Company. There is no material claim pending under any such policy as
to which coverage has been questioned, denied or disputed by the underwriter of
such policy. All premiums due and payable under all such policies
have been paid, the Company may not be liable for retroactive premiums or
similar payments, and the Company is otherwise in compliance in all material
respects with the terms of such policies. The Company has no
knowledge of any threatened termination of, or material premium increase with
respect to, any such policy. Each such policy will continue to be
enforceable and in full force and effect immediately following the Effective
Time in accordance with the terms thereof as in effect immediately prior to the
Effective Time.
2.17
Litigation
.
As of the date of this
Agreement, there is no action, suit, proceeding, claim, arbitration or
investigation before any Governmental Entity or before any arbitrator (a “Legal
Proceeding”) which is pending or has been threatened in writing against the
Company which (a) seeks either damages in excess of $50,000 individually, or
$100,000 in the aggregate or (b) if determined adversely to the Company
could have, individually or in the aggregate, a Company Material Adverse
Effect.
2.18
Employees
.
(a) Section
2.18 of the Disclosure Schedule contains a list of all employees of the Company
whose annual rate of compensation exceeds
$75,000
per year, along with the
position and the annual rate of compensation of each such
person. Section 2.18 of the Disclosure Schedule contains a list of
all employees of the Company who are a party to a non-competition agreement with
the Company; copies of such agreements have previously been delivered to the
Parent. To the knowledge of the Company, no key employee or group of
employees has any plans to terminate employment with the Company.
(b) The
Company is not party to or bound by any collective bargaining agreement, nor has
any of them experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. To the knowledge
of the Company, no organizational effort has been made or threatened, either
currently or within the past two years, by or on behalf of any labor union with
respect to employees of the Company. To the knowledge of the Company
there are no circumstances or facts which could individually or collectively
give rise to a suit based on discrimination of any kind.
2.19
Employee
Benefits
.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Employee
Benefit Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) “ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
(iii) “ERISA
Affiliate” means any entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in Section 414(b)
of the Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the
Company.
(b) Section 2.19(b)
of the Disclosure Schedule contains a complete and accurate list of all Employee
Benefit Plans maintained, or contributed to, by the Company or any ERISA
Affiliate. Complete and accurate copies of (i) all Employee
Benefit Plans which have been reduced to writing, (ii) written summaries of
all unwritten Employee Benefit Plans, (iii) all related trust agreements,
insurance contracts and summary plan descriptions, and (iv) all annual
reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all
plan financial statements for the last five plan years for each Employee Benefit
Plan, have been delivered or made available to the Parent. Each
Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company and the ERISA Affiliates has
in all material respects met its obligations with respect to such Employee
Benefit Plan and has made all required contributions thereto. The
Company, each ERISA Affiliate and each Employee Benefit Plan are in compliance
in all material respects with the currently applicable provisions of ERISA and
the Code and the regulations thereunder (including without limitation
Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of
ERISA). All filings and reports as to each Employee Benefit Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been duly submitted.
(c) To
the knowledge of the Company, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(d) All
the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is
required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code
has been tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(e) Neither
the Company nor any ERISA Affiliate has ever maintained an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA.
(f) At
no time has the Company or any ERISA Affiliate been obligated to contribute to
any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are no unfunded obligations under any Employee Benefit Plan providing benefits
after termination of employment to any employee of the Company (or to any
beneficiary of any such employee), including but not limited to retiree health
coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state
law. The assets of each Employee Benefit Plan which is funded are
reported at their fair market value on the books and records of such Employee
Benefit Plan.
(h) No
act or omission has occurred and no condition exists with respect to any
Employee Benefit Plan maintained by the Company or any ERISA Affiliate that
would subject the Company or any ERISA Affiliate to (i) any material fine,
penalty, tax or liability of any kind imposed under ERISA or the Code or (ii)
any contractual indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Employee Benefit
Plan.
(i) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(j) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Company at
any time without liability to the Company as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or other
written communication distributed generally to employees by its terms prohibits
the Company from amending or terminating any such Employee Benefit
Plan.
(k) Section
2.19(k) of the Disclosure Schedule discloses each: (i) agreement with any
stockholder, director, executive officer or other key employee of the Company
(A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Company that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person’s
“parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Company, including without limitation
any stock option plan, stock appreciation right plan, restricted stock plan,
stock purchase plan, severance benefit plan or Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement. The accruals for vacation, sickness and disability
expenses are accounted for on the Company Interim Balance Sheet and are adequate
and materially reflect the expenses associated therewith in accordance with
GAAP.
2.20
Environmental
Matters
.
(a) The
Company has complied with all applicable Environmental Laws (as defined below),
except for violations of Environmental Laws that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. There is no pending or, to the knowledge of
the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information requests
that, individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of
this Agreement, “Environmental Law” means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life,
marine life and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing, processing, using,
distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms “release” and “environment”
shall have the meaning set forth in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”).
(b) Set
forth in Section 2.20(b) of the Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company (whether conducted by or on
behalf of the Company or a third party, and whether done at the initiative of
the Company or directed by a Governmental Entity or other third party) which
were issued or conducted during the past five years and which the Company has
possession of or access to. A complete and accurate copy of each such
document has been provided to the Parent.
(c) To the
knowledge of the Company, there is no material environmental liability with
respect to any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company.
2.21
Legal Compliance
. The
Company, and the conduct and operations of its business, is in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse
Effect.
2.22
Customers
. Section 2.22
of the Disclosure Schedule sets forth a list of each customer that accounted for
more than 5% of the consolidated revenues of the Company during the last full
fiscal year and the amount of revenues accounted for by such customer during
such period. No such customer has notified the Company in writing
within the past year that it will stop buying services from the
Company.
2.23
Permits
. Section
2.23 of the Disclosure Schedule sets forth a list of all material permits,
licenses, registrations, certificates, orders or approvals from any Governmental
Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) (“Permits”) issued to or held by the Company. Such
listed Permits are the only material Permits that are required for the Company
to conduct its business as presently conducted except for those the absence of
which, individually or in the aggregate, have not had and would not reasonably
be expected to have a Company Material Adverse Effect. Each such
Permit is in full force and effect and, to the knowledge of the Company, no
suspension or cancellation of such Permit is threatened and, to the knowledge of
the Company, there is no reasonable basis for believing that such Permit will
not be renewable upon expiration. Each such Permit will continue in
full force and effect immediately following the Closing.
2.24
Certain Business
Relationships With Affiliates
. Except as listed in Section
2.24 of the Disclosure Schedule, no Affiliate of the Company (a) owns any
material property or right, tangible or intangible, which is used in the
business of the Company, (b) has any claim or cause of action against the
Company, or (c) owes any money to, or is owed any money by, the
Company. Section 2.24 of the Disclosure Schedule describes any
transactions involving the receipt or payment in excess of $50,000 in any fiscal
year between the Company and any Affiliate thereof which have occurred or
existed since the Organization Date, other than employment
agreements.
2.25
Brokers’
Fees
. The Company does not have any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement, except as listed in Section 2.25 of
the Disclosure Schedule.
2.26
Books and
Records
. The minute books and other similar records of the
Company contain complete and accurate records, in all material respects, of all
actions taken at any meetings of the Company’s stockholders, board of directors
or any committees thereof and of all written consents executed in lieu of the
holding of any such meetings.
2.27
Intellectual
Property
.
(a) The
Company owns, is licensed or otherwise possesses legally enforceable rights to
use, license and exploit all issued patents, copyrights, trademarks, service
marks, trade names, trade secrets, and registered domain names and all
applications for registration therefor (collectively, the "Intellectual Property
Rights") and all computer programs and other computer software, databases,
know-how, proprietary technology, formulae, and development tools, together with
all goodwill related to any of the foregoing (collectively, the "Intellectual
Property"), in each case as is necessary to conduct its business as presently
conducted, the absence of which would be considered reasonably likely to result
in a Company Material Adverse Effect.
(b) Section
2.27(b) of the Disclosure Schedule sets forth, with respect to all issued
patents and all registered copyrights, trademarks, service marks and domain
names registered with any Governmental Entity or for which an application for
registration has been filed with any Governmental Entity, (i) the registration
or application number, the date filed and the title, if applicable, of the
registration or application and (ii) the names of the jurisdictions covered
by the applicable registration or application. Section 2.27(b) of the
Disclosure Schedule identifies each agreement currently in effect containing any
ongoing royalty or payment obligations of the Company in excess of $50,000 per
annum with respect to Intellectual Property Rights and Intellectual Property
that are licensed or otherwise made available to the Company.
(c) Except
as set forth on Section 2.27(c) of the Disclosure Schedule, all Intellectual
Property Rights that have been registered with any Governmental Entity are valid
and subsisting, except as would not reasonably be expected to have a Company
Material Adverse Effect. As of the Effective Date, in connection with such
registered Intellectual Property Rights, all necessary registration, maintenance
and renewal fees will have been paid and all necessary documents and
certificates will have been filed with the relevant Governmental
Entities.
(d) The
Company is not nor will, as a result of the consummation of the Merger or other
transactions contemplated by this Agreement be, in breach in any material
respect of any license, sublicense or other agreement relating to the
Intellectual Property Rights, or any licenses, sublicenses or other agreements
as to which the Company is a party and pursuant to which the Company uses any
patents, copyrights (including software), trademarks or other intellectual
property rights of or owned by third parties (the "Third Party Intellectual
Property Rights"), the breach of which would be reasonably likely to result in a
Company Material Adverse Effect.
(e) Except
as set forth on Section 2.27(e) of the Disclosure Schedule, the Company has not
been named as a defendant in any suit, action or proceeding which involves a
claim of infringement or misappropriation of any Third Party Intellectual
Property Right and the Company has not received any notice or other
communication (in writing or otherwise) of any actual or alleged infringement,
misappropriation or unlawful or unauthorized use of any Third Party Intellectual
Property. With respect to its marketed products, the Company does not, to its
knowledge, infringe any third party intellectual property rights. With respect
to its product candidates and products in research or development, after the
same are marketed, the Company will not, to its knowledge, infringe any third
party intellectual property rights.
(f) To
the knowledge of the Company, except as set forth on Section 2.27(f) of the
Disclosure Schedule, no other person is infringing, misappropriating or making
any unlawful or unauthorized use of any Intellectual Property Rights in a manner
that has a material impact on the business of the Company, except for such
infringement, misappropriation or unlawful or unauthorized use as would be
reasonably expected to have a Company Material Adverse Effect.
2.28
Disclosure
. No
representation or warranty by the Company contained in this Agreement, and no
statement contained in the Disclosure Schedule or any other document,
certificate or other instrument delivered or to be delivered by or on behalf of
the Company pursuant to this Agreement, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading. The
Company has disclosed to the Parent all material information relating to the
business of the Company or the transactions contemplated by this
Agreement.
2.29
Duty to Make
Inquiry
. To the extent that any of the representations or
warranties in this Article II are qualified by “knowledge” or “belief,” the
Company represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE PARENT AND THE ACQUISITION SUBSIDIARY
Each of
the Parent and the Acquisition Subsidiary represents and warrants to the Company
that the statements contained in this Article III are true and correct,
except as set forth in the disclosure schedule provided by the Parent and the
Acquisition Subsidiary to the Company on the date hereof and accepted in writing
by the Company (the “Parent Disclosure Schedule”). The Parent
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and except
to the extent that it is clear from the context thereof that such disclosure
also applies to any other paragraph, the disclosures in any paragraph of the
Parent Disclosure Schedule shall qualify only the corresponding paragraph in
this Article III.
For purposes of this
Article III, the phrase “to the knowledge of the Parent” or any phrase of
similar import shall be deemed to refer to the actual knowledge of the executive
officers of the Parent, as well as any other knowledge which such executive
officers would have possessed had they made reasonable inquiry with respect to
the matter in question.
3.1
Organization, Qualification
and Corporate Power
. Parent is a “shell company” as defined
under Section 12(b)(2) of the General Rules and Regulations under the Exchange
Act. Each of the Parent and Split-Off Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada, and the Acquisition Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Each of the Parent and the Parent Subsidiaries is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not have a Parent
Material Adverse Effect (as defined below). Each of the Parent and
the Parent Subsidiaries has all requisite corporate power and authority to carry
on the businesses in which it is engaged and to own and use the properties owned
and used by it. The Parent has furnished or made available to the
Company complete and accurate copies of its articles of incorporation and
bylaws, and the organizational documents of the Parent
Subsidiaries. Neither the Parent nor any Parent Subsidiary is in
default under or in violation of any provision of its articles of incorporation,
as amended to date, or its bylaws, as amended to date. For purposes
of this Agreement, “Parent Material Adverse Effect” means a material adverse
effect on the assets, business, condition (financial or otherwise), results of
operations or future prospects of the Parent and its Subsidiaries, taken as a
whole.
3.2
Capitalization
. The
authorized capital stock of the Parent consists of 100,000,000 shares of Parent
Common Stock, of which 22,762,027 (11,218,457 pre-split) shares were issued and
outstanding as of the date of this Agreement. The Parent Common Stock
is presently eligible for quotation and trading on OTC Markets and is not
subject to any notice of suspension or delisting. The Parent Common Stock is
registered under Section 12(g) of the Exchange Act. All of the issued
and outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid, nonassessable and free of all preemptive
rights. Except as contemplated by the Bridge Loan, the Private
Placement Offering, the Transaction Documentation (as defined in Section 3.3) or
described in Section 3.2 of the Parent Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Parent is a party or which are binding upon the Parent providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Parent. There are no agreements to which the
Parent is a party or by which it is bound with respect to the voting (including
without limitation voting trusts or proxies), registration under the Securities
Act, or sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or “drag-along”
rights) of any securities of the Parent. There are no agreements
among other parties, to which the Parent is not a party and by which it is not
bound, with respect to the voting (including without limitation voting trusts or
proxies) or sale or transfer (including without limitation agreements relating
to rights of first refusal, co-sale rights or “drag-along” rights) of any
securities of the Parent. All of the issued and outstanding shares of
Parent Common Stock were issued in compliance with applicable federal and state
securities laws. The approximately 31,647,190 Merger Shares to be
issued at the Closing pursuant to Section 1.5 hereof, when issued and delivered
in accordance with the terms hereof and of the Certificate of Merger, shall be
duly and validly issued, fully paid and nonassessable and free of all preemptive
rights and will be issued in compliance with applicable federal and state
securities laws. Furthermore, the shares of Parent Common Stock underlying the
Parent Options and Parent Warrants have been duly and validly authorized and
reserved for issuance, and when issued in accordance with the terms of the
Parent Options and Parent Warrants shall be duly and validly issued, fully paid
and nonassessable and free of all preemptive rights and will be issued in
compliance with applicable federal and state securities laws. Immediately after
the Effective Time, without giving effect to the Merger but after giving effect
to (i) the surrender of 14,747,555 (7,268,457 pre-split) shares of Parent Common
Stock by the Buyers (the “Share Contribution”) in connection with the Split-Off,
(ii) a cancellation of 1,014,490 (500,000 pre-split) shares, and (iii) a 2.02898
for 1 forward stock split, there will be 7,000,000 shares of Parent Common Stock
issued and outstanding.
3.3
Authorization of
Transaction
. Each of the Parent and the Acquisition Subsidiary
has all requisite power and authority to execute and deliver this Agreement and
(in the case of the Parent) the Escrow Agreement and the Split-Off Agreement and
to perform its obligations hereunder and thereunder. Split-Off
Subsidiary has all requisite power and authority to execute and deliver the
Split-Off Agreement and to perform its obligations thereunder. The
execution and delivery by the Parent and the Acquisition Subsidiary of this
Agreement and (in the case of the Parent) the Split-Off Agreement, and the
agreements contemplated hereby and thereby (collectively, the “Transaction
Documentation”), and the execution by Split-Off Subsidiary of the Split-Off
Agreement and the consummation by the Parent and the Acquisition Subsidiary of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Parent, the
Acquisition Subsidiary and the Split-Off Subsidiary,
respectively. This Agreement has been duly and validly executed and
delivered by the Parent and the Acquisition Subsidiary and constitutes a valid
and binding obligation of the Parent and the Acquisition Subsidiary, enforceable
against them in accordance with its terms.
3.4
Noncontravention
. Subject
to the filing of the Certificate of Merger as required by the GCL, neither the
execution and delivery by the Parent or the Acquisition Subsidiary of this
Agreement or the Transaction Documentation, nor the consummation by the Parent
or the Acquisition Subsidiary of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the articles or
certificate of incorporation or bylaws of the Parent or the Acquisition
Subsidiary, (b) require on the part of the Parent or the Acquisition
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any Party any right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which the Parent or the Acquisition Subsidiary is a
party or by which either is bound or to which any of their assets are subject,
except for (i) any conflict, breach, default, acceleration, termination,
modification or cancellation which would not have a Parent Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby or (ii) any notice, consent or waiver the absence of
which would not have a Parent Material Adverse Effect and would not adversely
affect the consummation of the transactions contemplated hereby, (d) result in
the imposition of any Security Interest upon any assets of the Parent or the
Acquisition Subsidiary or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Parent or the Acquisition
Subsidiary or any of their properties or assets.
3.5
Subsidiaries
.
(a) Parent
has no Subsidiaries other than the Acquisition Subsidiary and the Split-Off
Subsidiary. Each of the Acquisition Subsidiary and the Split-Off
Subsidiary is a corporation duly organized, validly existing and in corporate
and tax good standing under the laws of the jurisdiction of its
incorporation. The Acquisition Subsidiary was formed solely to
effectuate the Merger, the Split-Off Subsidiary was formed solely to effectuate
the Split-Off, and neither of them has conducted any business operations since
its organization. The Parent has delivered or made available to the
Company complete and accurate copies of the charter, bylaws or other
organizational documents of the Acquisition Subsidiary and the Split-Off
Subsidiary. Each of the Acquisition Subsidiary and the Split-Off Subsidiary has
no assets other than minimal paid-in capital, it has no liabilities or other
obligations, and it is not in default under or in violation of any provision of
its charter, bylaws or other organizational documents. All of the
issued and outstanding shares of capital stock of the Acquisition Subsidiary and
the Split-Off Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. All shares of the
Acquisition Subsidiary and the Split-Off Subsidiary are owned by Parent, free
and clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, Security Interests, options,
warrants, rights, contracts, calls, commitments, equities and
demands. There are no outstanding or authorized options, warrants,
rights, agreements or commitments to which the Parent, the Split-Off Subsidiary
or the Acquisition Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock of
any Parent Subsidiary. There are no outstanding stock appreciation,
phantom stock or similar rights with respect to the Acquisition Subsidiary or
the Split-Off Subsidiary. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of any capital
stock of the Acquisition Subsidiary or the Split-Off Subsidiary.
(b) At
all times from April 2, 2003, which was the date of incorporation of the Parent,
through the date of this Agreement, the business and operations of the Parent
have been conducted exclusively through the Parent.
(c) The
Parent does not control directly or indirectly or have any direct or indirect
participation or similar interest in any corporation, partnership or limited
liability company, joint venture, trust or business association which is not a
Subsidiary.
3.6
Exchange Act
Reports
. The Parent has furnished or made available to the
Company complete and accurate copies, as amended or supplemented, of its (a)
Annual Report on Form 10-K for the fiscal year ended March 31, 2010, as filed
with the SEC, which contained audited balance sheets of the Parent as of March
31, 2010 and 2009, and the related statements of operations, changes in
shareholders’ equity and cash flows for the years then ended; and (b) all other
reports filed by the Parent under Section 13 or subsections (a) or (c) of
Section 14 of the Exchange Act with the SEC (such reports are collectively
referred to herein as the “Parent Reports”). The Parent Reports
constitute all of the documents required to be filed by the Parent with the SEC,
including under Section 13 or subsections (a) or (c) of Section 14 of the
Exchange Act, through the date of this Agreement. The Parent Reports
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder when filed. As of the date
hereof, there are no outstanding or unresolved comments in comment letters
received from the staff of the SEC with respect to any of the Parent
Reports. As of their respective dates, the Parent Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. No order
suspending the effectiveness of the Parent’s registration statement on Form SB-2
has been issued by the SEC and, to the Parent’s knowledge, no proceedings for
that purpose have been initiated or threatened by the SEC.
3.7
Compliance with
Laws
. Each of the Parent and its Subsidiaries:
(a) and
the conduct and operations of their respective businesses, are in compliance
with each applicable law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental Entity, except
for any violations or defaults that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Parent Material Adverse
Effect;
(b) has
complied with all federal and state securities laws and regulations, including
being current in all of its reporting obligations under such federal and state
securities laws and regulations;
(c) has
not, and the past and present officers, directors and Affiliates of the Parent
have not, been the subject of, nor does any officer or director of the Parent
have any reason to believe that Parent or any of its officers, directors or
Affiliates will be the subject of, any civil or criminal proceeding or
investigation by any federal or state agency alleging a violation of securities
laws;
(d) has
not been the subject of any voluntary or involuntary bankruptcy proceeding, nor
has it been a party to any material litigation;
(e) has
not, and the past and present officers, directors and Affiliates have not, been
the subject of, nor does any officer or director of the Parent have any reason
to believe that the Parent or any of its officers, directors or affiliates will
be the subject of, any civil, criminal or administrative investigation or
proceeding brought by any federal or state agency having regulatory authority
over such entity or person; and
(f) does
not and will not on the Closing, have any liabilities, contingent or otherwise,
including but not limited to notes payable and accounts payable, and is not a
party to any executory agreements.
3.8
Financial Statements;
Internal Controls
.
(a) The
audited financial statements and unaudited interim financial statements of the
Parent included in the Parent Reports (collectively, the “Parent Financial
Statements”) (i) complied as to form in all material respects with applicable
accounting requirements and, as appropriate, the published rules and regulations
of the SEC with respect thereto when filed, (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition, results of
operations and cash flows of the Parent as of the respective dates thereof and
for the periods referred to therein, and (iv) are consistent with the books and
records of the Parent.
(b) The
Parent has designed and maintains a system of internal controls over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
sufficient to provide reasonable assurances regarding the reliability of
financial reporting for the Parent and its Subsidiaries. The Parent
(i) has designed and maintains disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to reasonably
ensure that material information required to be disclosed by the Parent in the
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms and is accumulated and communicated to the Parent’s management as
appropriate to allow timely decisions regarding required disclosure and
(ii) has disclosed to the Parent’s auditors and the Board of Directors of
the Parent (and made summaries of such disclosures available to Parent)
(A) any significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting that are reasonably
likely to adversely affect in any material respect the Parent’s ability to
record, process, summarize and report financial information and (B) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Parent’s internal controls over financial
reporting. The Parent is in compliance in all material respects with
all effective provisions of the Sarbanes-Oxley Act.
(c) Neither
the Parent nor any Subsidiary nor, to the knowledge of the Parent, any director,
officer, auditor, accountant or representative of the Parent or any Subsidiary
has received or otherwise had or obtained knowledge of any substantive
complaint, allegation, assertion or claim, whether written or oral, that the
Parent or any Subsidiary has engaged in questionable accounting or auditing
practices. No current or former attorney representing the Parent or
any Subsidiary has reported evidence of a material violation of securities laws,
breach of fiduciary duty or similar violation by the Parent or any Subsidiary,
or any of their respective officers, directors, employees or agents, to the
current Board of Directors of the Parent or any committee thereof or to any
current director or executive officer of the Parent.
(d) To
the knowledge of the Parent, no employee of the Parent or any Subsidiary has
provided or is providing information to any law enforcement agency regarding the
commission or possible commission of any crime or the violation or possible
violation of any applicable legal requirements of the type described in
Section 806 of the Sarbanes-Oxley Act by the Parent or any Subsidiary.
Neither the Parent nor any Subsidiary nor, to the knowledge of the Parent, any
director, officer, employee, contractor, subcontractor or agent of the Parent or
any Subsidiary, has discharged, demoted, suspended, threatened, harassed or in
any other manner discriminated against an employee of the Parent or any Parent
Subsidiary in the terms and conditions of employment because of any lawful act
of such employee described in Section 806 of the Sarbanes-Oxley
Act.
3.9
Absence of Certain
Changes
. Since the date of the balance sheet contained in the
most recent Parent Report, (a) there has occurred no event or development which,
individually or in the aggregate, has had, or could reasonably be expected to
have in the future, a Parent Material Adverse Effect and (b) neither the Parent
or the Acquisition Subsidiary has taken any or the actions set forth in
paragraphs (a) through (m) of Section 4.6.
3.10
Litigation
. Except
as disclosed in the Parent Reports, as of the date of this Agreement, there is
no Legal Proceeding which is pending or, to the Parent’s knowledge, threatened
against the Parent or any Subsidiary of the Parent which, if determined
adversely to the Parent or such Subsidiary, could have, individually or in the
aggregate, a Parent Material Adverse Effect or which in any manner challenges or
seeks to prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. For purposes of this Section 3.10, any such pending or
threatened Legal Proceedings where the amount at issue exceeds or could
reasonably be expected to exceed the lesser of $10,000 per Legal Proceeding or
$25,000 in the aggregate shall be considered to possibly result in a Parent
Material Adverse Effect hereunder.
3.11
Undisclosed
Liabilities
. None of the Parent and its Subsidiaries has any
liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities shown on the balance sheet contained in the most recent Parent
Report, (b) liabilities which have arisen since the date of the balance sheet
contained in the most recent Parent Report in the Ordinary Course of Business
which do not exceed $5,000 and (c) contractual and other liabilities incurred in
the Ordinary Course of Business which are not required by GAAP to be reflected
on a balance sheet.
3.12
Tax
Matters
.
(a) Each
of the Parent and the Subsidiaries has filed on a timely basis all Tax Returns
that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. Neither the Parent nor any Subsidiary is or
has ever been a member of a group of corporations with which it has filed (or
been required to file) consolidated, combined or unitary Tax Returns, other than
a group of which only the Parent and the Subsidiaries are or were
members. Each of the Parent and the Parent Subsidiaries has paid on a
timely basis all Taxes that were due and payable. The unpaid Taxes of
the Parent and the Parent Subsidiaries for tax periods through the date of the
balance sheet contained in the most recent Parent Report do not exceed the
accruals and reserves for Taxes (excluding accruals and reserves for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth on such balance sheet. Neither the Parent nor any Parent
Subsidiary has any actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Parent or any Parent Subsidiary during a prior
period) other than the Parent and the Parent Subsidiaries. All Taxes
that the Parent or any Parent Subsidiary is or was required by law to withhold
or collect have been duly withheld or collected and, to the extent required,
have been paid to the proper Governmental Entity.
(b) The
Parent has delivered or made available to the Company complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Parent or any Subsidiary since
April 2, 2003. No examination or audit of any Tax Return of the
Parent or any Parent Subsidiary by any Governmental Entity is currently in
progress or, to the knowledge of the Parent, threatened or
contemplated. Neither the Parent nor any Parent Subsidiary has been
informed by any jurisdiction that the jurisdiction believes that the Parent or
such Subsidiary was required to file any Tax Return that was not
filed. Neither the Parent nor any Parent Subsidiary has waived any
statute of limitations with respect to Taxes or agreed to an extension of time
with respect to a Tax assessment or deficiency.
(c) Neither
the Parent nor any Parent Subsidiary: (i) is a “consenting corporation”
within the meaning of Section 341(f) of the Code, and none of the assets of
the Parent or the Parent Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of
the Code; (iii) has made any payments, is obligated to make any payments,
or is a party to any agreement that could obligate it to make any payments that
may be treated as an “excess parachute payment” under Section 280G of the
Code; (iv) has any actual or potential liability for any Taxes of any
person (other than the Parent and its Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of federal, state, local, or
foreign law), or as a transferee or successor, by contract, or otherwise; or
(v) is or has been required to make a basis reduction pursuant to Treasury
Regulation Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).
(d) None
of the assets of the Parent or any Subsidiary: (i) is property that is
required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is
“tax-exempt use property” within the meaning of Section 168(h) of the Code;
or (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
(e) Neither
the Parent nor any Subsidiary has undergone a change in its method of accounting
resulting in an adjustment to its taxable income pursuant to Section 481 of
the Code.
(f) No
state or federal “net operating loss” of the Parent determined as of the Closing
Date is subject to limitation on its use pursuant to Section 382 of the
Code or comparable provisions of state law as a result of any “ownership change”
within the meaning of Section 382(g) of the Code or comparable provisions
of any state law occurring prior to the Closing Date.
3.13
Assets
. Each
of the Parent and the Acquisition Subsidiary owns or leases all tangible assets
necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. Each such tangible asset is free
from material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is
used. No asset of the Parent or any Parent Subsidiary (tangible or
intangible) is subject to any Security Interest.
3.14
Owned Real
Property
. Neither the Parent nor any Parent Subsidiary owns
any real property.
3.15
Real Property
Leases
. Section 3.15 of the Parent Disclosure Schedule lists
all real property leased or subleased to or by the Parent or any Parent
Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Parent has delivered or
made available to the Company complete and accurate copies of the leases and
subleases listed in Section 3.15 of the Parent Disclosure
Schedule. With respect to each lease and sublease listed in
Section 3.15 of the Parent Disclosure Schedule:
(a) the
lease or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease or sublease will continue to be legal, valid, binding, enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect immediately prior to the Closing;
(c) neither
the Parent nor any Parent Subsidiary nor, to the knowledge of the Parent, any
other party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Parent, is threatened, which, after the giving of notice, with lapse of time, or
otherwise, would constitute a breach or default by the Parent or any Parent
Subsidiary or, to the knowledge of the Parent, any other party under such lease
or sublease;
(d) neither
the Parent nor any Parent Subsidiary has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold; and
(e) the
Parent is not aware of any Security Interest, easement, covenant or other
restriction applicable to the real property subject to such lease, except for
recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Parent or a Parent Subsidiary of
the property subject thereto.
3.16
Contracts
.
(a) Section
3.16 of the Parent Disclosure Schedule lists the following agreements (written
or oral) to which the Parent or any Parent Subsidiary is a party as of the date
of this Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services;
(iii) any
agreement establishing a partnership or joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $5,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality or noncompetition;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any current or former officer, director or stockholder of
the Parent or any Affiliate thereof;
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Parent Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Parent or any Parent
Subsidiary to indemnify any other party thereto (excluding indemnities contained
in agreements for the purchase, sale or license of products entered into in the
Ordinary Course of Business);
(x) any
other agreement (or group of related agreements) either involving more than
$5,000 or not entered into in the Ordinary Course of Business; and
(xi)
any agreement, other than as contemplated by the Private Placement Offering,
this Agreement and the Split-Off, relating to the sales of securities of Parent
or any Parent Subsidiary to which the Parent or such Subsidiary is a
party.
(b) The
Parent has delivered or made available to the Company a complete and accurate
copy of each agreement listed in Section 3.16 of the Parent Disclosure
Schedule. With respect to each agreement so
listed: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing; and (iii) neither the Parent nor
any Parent Subsidiary nor, to the knowledge of the Parent, any other party, is
in breach or violation of, or default under, any such agreement, and no event
has occurred, is pending or, to the knowledge of the Parent, is threatened,
which, after the giving of notice, with lapse of time, or otherwise, would
constitute a breach or default by the Parent or any Parent Subsidiary or, to the
knowledge of the Parent, any other party under such contract.
3.17
Accounts
Receivable
. All accounts receivable of the Parent and the
Subsidiaries reflected on the Parent Reports are valid receivables subject to no
setoffs or counterclaims and are current and collectible (within 90 days after
the date on which it first became due and payable), net of the applicable
reserve for bad debts on the balance sheet contained in the most recent Parent
Report. All accounts receivable reflected in the financial or
accounting records of the Parent that have arisen since the date of the balance
sheet contained in the most recent Parent Report are valid receivables subject
to no setoffs or counterclaims and are collectible (within 90 days after the
date on which it first became due and payable), net of a reserve for bad debts
in an amount proportionate to the reserve shown on the balance sheet contained
in the most recent Parent Report.
3.18
Powers of
Attorney
. There are no outstanding powers of attorney executed
on behalf of the Parent or any Parent Subsidiary.
3.19
Insurance
. Section 3.19
of the Parent Disclosure Schedule lists each insurance policy (including fire,
theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Parent or any Parent Subsidiary is a
party. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Parent and the Parent Subsidiaries. There is
no material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All
premiums due and payable under all such policies have been paid, neither the
Parent nor any Parent Subsidiary may be liable for retroactive premiums or
similar payments, and the Parent and the Parent Subsidiaries are otherwise in
compliance in all material respects with the terms of such
policies. The Parent has no knowledge of any threatened termination
of, or material premium increase with respect to, any such
policy. Each such policy will continue to be enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing.
3.20
Warranties
. No
product or service sold or delivered by the Parent or any Parent Subsidiary is
subject to any guaranty, warranty, right of credit or other indemnity other than
the applicable standard terms and conditions of sale of the Parent or the
appropriate Parent Subsidiary, which are set forth in Section 3.20 of the
Parent Disclosure Schedule.
3.21
Employees
.
(a) The
Parent Reports contain all material information concerning the employees of
Parent.
(b) Neither
the Parent nor any Parent Subsidiary is a party to or bound by any collective
bargaining agreement, nor have any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining
disputes. The Parent has no knowledge of any organizational effort
made or threatened, either currently or since the date of organization of the
Parent, by or on behalf of any labor union with respect to employees of the
Parent or any Parent Subsidiary.
3.22
Employee
Benefits
.
(a) Section 3.22(a)
of the Parent Disclosure Schedule contains a complete and accurate list of all
Employee Benefit Plans maintained, or contributed to, by the Parent, any Parent
Subsidiary or any ERISA Affiliate. Complete and accurate copies of
(i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans,
(iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or
5500R and (for all funded plans) all plan financial statements for the last five
plan years for each Employee Benefit Plan, have been delivered or made available
to the Parent. Each Employee Benefit Plan has been administered in
all material respects in accordance with its terms and each of the Parent, the
Parent Subsidiaries and the ERISA Affiliates has in all material respects met
its obligations with respect to such Employee Benefit Plan and has made all
required contributions thereto. The Parent, each Subsidiary of the
Parent, each ERISA Affiliate and each Employee Benefit Plan are in compliance in
all material respects with the currently applicable provisions of ERISA and the
Code and the regulations thereunder (including without limitation
Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of
ERISA). All filings and reports as to each Employee Benefit Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been duly submitted.
(b) To
the knowledge of the Parent, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All
the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is
required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code
has been tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(d) Neither
the Parent, any Parent Subsidiary, nor any ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At
no time has the Parent, any Parent Subsidiary or any ERISA Affiliate been
obligated to contribute to any “multiemployer plan” (as defined in
Section 4001(a)(3) of ERISA).
(f) There
are no unfunded obligations under any Employee Benefit Plan providing benefits
after termination of employment to any employee of the Parent or any Parent
Subsidiary (or to any beneficiary of any such employee), including but not
limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan
which is funded are reported at their fair market value on the books and records
of such Employee Benefit Plan.
(g) No
act or omission has occurred and no condition exists with respect to any
Employee Benefit Plan maintained by the Parent, any Parent Subsidiary or any
ERISA Affiliate that would subject the Parent, any Parent Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(h) No
Employee Benefit Plan is funded by, associated with or related to a “voluntary
employee’s beneficiary association” within the meaning of Section 501(c)(9)
of the Code.
(i) Each
Employee Benefit Plan is amendable and terminable unilaterally by the Parent at
any time without liability to the Parent as a result thereof and no Employee
Benefit Plan, plan documentation or agreement, summary plan description or other
written communication distributed generally to employees by its terms prohibits
the Parent from amending or terminating any such Employee Benefit
Plan.
(j) Section
3.22(j) of the Parent Disclosure Schedule discloses
each: (i) agreement with any stockholder, director, executive
officer or other key employee of the Parent or any Parent Subsidiary
(A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Parent or
any Parent Subsidiary of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Parent or any Parent Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of
such person’s “parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Parent or any Parent Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness
and disability expenses are accounted for on the Most Recent Balance Sheet and
are adequate and materially reflect the expenses associated therewith in
accordance with GAAP.
3.23
Environmental
Matters
.
(a) Each
of the Parent and the Parent Subsidiaries has complied with all applicable
Environmental Laws, except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. There is no
pending or, to the knowledge of the Parent, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Parent or any Parent Subsidiary,
except for litigation, notices of violations, formal administrative proceedings
or investigations, inquiries or information requests that, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect.
(b) Set
forth in Section 3.23(b) of the Parent Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Parent or a Parent Subsidiary (whether
conducted by or on behalf of the Parent or a Parent Subsidiary or a
third party, and whether done at the initiative of the Parent or a Parent
Subsidiary or directed by a Governmental Entity or other third party) which were
issued or conducted during the past five years and which the Parent has
possession of or access to. A complete and accurate copy of each such
document has been provided to the Parent.
(c) The
Parent is not aware of any material environmental liability of any solid or
hazardous waste transporter or treatment, storage or disposal facility that has
been used by the Parent or any Parent Subsidiary.
3.24
Permits
. Section
3.24 of the Parent Disclosure Schedule sets forth a list of all permits,
licenses, registrations, certificates, orders or approvals from any Governmental
Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) (“Parent Permits”) issued to or held by the Parent or any Parent
Subsidiary. Such listed Permits are the only Parent Permits that are
required for the Parent and the Parent Subsidiaries to conduct their respective
businesses as presently conducted except for those the absence of which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. Each such Parent
Permit is in full force and effect and, to the knowledge of the Parent, no
suspension or cancellation of such Parent Permit is threatened and there is no
basis for believing that such Parent Permit will not be renewable upon
expiration. Each such Parent Permit will continue in full force and
effect immediately following the Closing.
3.25
Certain Business
Relationships With Affiliates
. No Affiliate of the Parent or
of any Parent Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Parent or any Parent
Subsidiary, (b) has any claim or cause of action against the Parent or any
Parent Subsidiary, or (c) owes any money to, or is owed any money by, the
Parent or any Parent Subsidiary. Section 3.25 of the Parent
Disclosure Schedule describes any transactions involving the receipt or payment
in excess of $1,000 in any fiscal year between the Parent or a Parent Subsidiary
and any Affiliate thereof which have occurred or existed since the beginning of
the time period covered by the Parent Financial Statements.
3.26
Tax-Free
Reorganization
.
(a) The
Parent (i) is not an “investment company” as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present
plan or intention to liquidate the Surviving Corporation or to merge the
Surviving Corporation with or into any other corporation or entity, or to sell
or otherwise dispose of the stock of the Surviving Corporation which Parent will
acquire in the Merger, or to cause the Surviving Corporation to sell or
otherwise dispose of its assets, all except in the ordinary course of business
or if such liquidation, merger, disposition is described in
Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(d)(4) or
Section 1368-2(k); and (iii) has no present plan or intention,
following the Merger, to issue any additional shares of stock of the Surviving
Corporation or to create any new class of stock of the Surviving
Corporation.
(b) The
Acquisition Subsidiary is a wholly-owned subsidiary of the Parent, formed solely
for the purpose of engaging in the Merger, and will carry on no business prior
to the Merger.
(c) Immediately
prior to the Merger, the Parent will be in control of Acquisition Subsidiary
within the meaning of Section 368(c) of the Code.
(d) Immediately
following the Merger, the Surviving Corporation will hold at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets held by the Company immediately prior to the Merger (for
purposes of this representation, amounts used by the Company to pay
reorganization expenses, if any, will be included as assets of the Company held
immediately prior to the Merger).
(e) The
Parent has no present plan or intention to reacquire any of the Merger
Shares.
(f) The
Acquisition Subsidiary will have no liabilities assumed by the Surviving
Corporation and will not transfer to the Surviving Corporation any assets
subject to liabilities in the Merger.
(g) Following
the Merger, the Surviving Corporation will continue the Company’s historic
business or use a significant portion of the Company’s historic business assets
in a business as required by Section 368 of the Code and the Treasury
Regulations promulgated thereunder.
(h) The
Split-Off Agreement will constitute a legally binding obligation among the
Parent, the Split-Off Subsidiary and Buyers prior to the Effective Time;
immediately following consummation of the Merger, Parent will distribute the
stock of the Split-Off Subsidiary to Buyers in cancellation of the Purchase
Price Shares (as such term is defined in the Split-Off Agreement); no property
other than the capital stock of the Split-Off Subsidiary will be distributed by
Parent to Buyer in connection with or following the Merger; upon execution of
the Split-Off Agreement, Buyer will have no right to sell or transfer the
Purchase Price Shares to any person without Parent's prior written consent, and
Parent will not consent (nor will it permit others to consent) to any such sale
or transfer; upon execution of the Split-Off Agreement, there will be no other
plan, arrangement, agreement, contract, intention, or understanding, whether
written or verbal and whether or not enforceable in law or equity, that would
permit Buyer to vote the Purchase Price Shares or receive any property or other
distributions from Parent with respect to the Purchase Price Shares other than
the capital stock of the Split-Off Subsidiary.
3.27
Split-Off
. Immediately
after the Effective Time, the Parent will have discontinued all of its business
operations which it conducted prior to the Effective Time by closing the
transactions contemplated by the Split-Off Agreement. Upon the
closing of the transactions contemplated by the Split-Off Agreement, without
giving effect to the Merger, the Parent will have no liabilities, contingent or
otherwise, of any kind whatsoever, including but not limited to liabilities in
any way related to its pre-Effective Time business operations.
3.28
Brokers’
Fees
. Except as set forth on Section 3.28 of the Parent
Disclosure Schedule, neither the Parent nor the Acquisition Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this
Agreement.
3.29
Disclosure
. No
representation or warranty by the Parent contained in this Agreement or in any
of the Transaction Documentation, and no statement contained in the any
document, certificate or other instrument delivered or to be delivered by or on
behalf of the Parent pursuant to this Agreement or therein, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not
misleading. The Parent has disclosed to the Company all material
information relating to the business of the Parent or any Parent Subsidiary or
the transactions contemplated by this Agreement.
3.30
Interested Party
Transactions
. Except for the Split-Off Agreement, to the
knowledge of the Parent, no officer, director or stockholder of Parent or any
“affiliate” (as such term is defined in Rule 12b-2 under the Exchange Act)
or “associate” (as such term is defined in Rule 405 under the Securities Act) of
any such person currently has or has had, either directly or indirectly, (a) an
interest in any person that (i) furnishes or sells services or products that are
furnished or sold or are proposed to be furnished or sold by Parent or any
Parent Subsidiary or (ii) purchases from or sells or furnishes to Parent or any
Parent Subsidiary any goods or services, or (b) a beneficial interest in any
contract or agreement to which Parent or any Parent Subsidiary is a party or by
which it may be bound or affected. Neither Parent or any Parent
Subsidiary has extended or maintained credit, arranged for the extension of
credit, or renewed an extension of credit, in the form of a personal loan to or
for any director or executive officer (or equivalent thereof) of the Parent or
any Parent Subsidiary.
3.31
Duty to Make
Inquiry
. To the extent that any of the representations or
warranties in this Article III are qualified by “knowledge” or “belief,” Parent
represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
3.32
Accountants
. Sherb
& Co. LLP (“Sherb”), is and has been the Parent’s registered public
accounting firm since October 10, 2007. Throughout its engagement by Parent,
Sherb has been (a) a registered public accounting firm (as defined in Section
2(a)(12) of the Sarbanes-Oxley Act of 2002), (b) “independent” with respect to
Parent within the meaning of Regulation S-X and (c) in compliance with
subsections (g) through (l) of Section 10A of the Exchange Act and the related
rules of the Commission and the Public Company Accounting Oversight Board. The
report of Sherb on the financial statements of Parent for the past fiscal year
did not contain an adverse opinion or a disclaimer of opinion, nor was it
qualified as to audit scope or accounting principles, although it did express
uncertainty as to Parent’s ability to continue as a going
concern. During Parent’s most recent fiscal year and the subsequent
interim periods, there were no disagreements with Sherb on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures. None of the reportable events listed in Item
304(a)(1)(iv) of Regulation S-K occurred with respect to Sherb.
3.33
Minute
Books
. The minute books and other similar records of the
Parent and each Parent Subsidiary contain, in all material respects, complete
and accurate records of all actions taken at any meetings of directors and
stockholders or actions by written consent in lieu of the holding of any such
meetings since the time of organization of each such corporation through the
date of this Agreement. The Parent has provided true and complete
copies of all such minute books, and other similar records to the Company’s
representatives.
3.34
Board
Action
. The Parent’s Board of Directors (a) has unanimously
determined that the Merger is advisable and in the best interests of the
Parent’s stockholders and is on terms that are fair to such Parent stockholders
and (b) has caused the Parent, in its capacity as the sole stockholder of the
Acquisition Subsidiary, and the Board of Directors of the Acquisition
Subsidiary, to approve the Merger and this Agreement by unanimous written
consent.
ARTICLE
IV
COVENANTS
4.1
Closing
Efforts
. Each of the Parties shall use its best efforts, to
the extent commercially reasonable (“Reasonable Best Efforts”), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2
Governmental and Third-Party
Notices and Consents
.
(a) Each
Party shall use its Reasonable Best Efforts to obtain, at its expense, all
waivers, permits, consents, approvals or other authorizations from Governmental
Entities, and to effect all registrations, filings and notices with or to
Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The
Company shall use its Reasonable Best Efforts to obtain, at its expense, all
such waivers, consents or approvals from third parties, and to give all such
notices to third parties, as are required to be listed in Section 2.4 of
the Disclosure Schedule.
4.3
Current
Report
. As soon as reasonably practicable after the execution
of this Agreement, the Parties shall prepare a current report on Form 8-K
relating to this Agreement and the transactions contemplated hereby (the
“Current Report”). Each of the Company and Parent shall use its
Reasonable Best Efforts to cause the Current Report to be filed with the SEC
within four business days of the execution of this Agreement and to otherwise
comply with all requirements of applicable federal and state securities
laws.
4.4
Operation of
Business
. Except as contemplated by this Agreement, during the period
from the date of this Agreement to the Effective Time, the Company shall conduct
its operations in the Ordinary Course of Business and in material compliance
with all applicable laws and regulations and, to the extent consistent
therewith, use its Reasonable Best Efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the
foregoing, prior to the Effective Time, the Company shall not, without the
written consent of the Parent (which shall not be unreasonably withheld or
delayed):
(a) issue
or sell, or redeem or repurchase, any stock or other securities of the Company
or any Company Warrants, Company Options or other rights to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Company Options or Company Warrants outstanding on the
date hereof), or amend any of the terms of (including without limitation the
vesting of) any such convertible securities or Company Options or Company
Warrants;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases) except in the Ordinary Course of Business or in connection with the
transactions contemplated by this Agreement or the Bridge Loan; assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or entity; or
make any loans, advances or capital contributions to, or investments in, any
other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay any
bonus or other benefit to its directors, officers or employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any
corporation, partnership, association or other business organization or division
thereof), other than purchases and sales of assets in the Ordinary Course of
Business;
(f)
mortgage or pledge any of its property or assets or subject
any such property or assets to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its charter, by-laws or other organizational documents;
(i)
change in any material respect its
accounting methods, principles or practices, except insofar as may be required
by a generally applicable change in GAAP;
(j)
enter into, amend, terminate, take or omit
to take any action that would constitute a violation of or default under, or
waive any rights under, any material contract or agreement;
(k) institute
or settle any Legal Proceeding;
(l)
take any action or fail to take any action permitted by this Agreement with the
knowledge that such action or failure to take action would result in
(i) any of the representations and warranties of the Company set forth in
this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied; or
(m) agree
in writing or otherwise to take any of the foregoing actions.
4.5
Access to
Information
.
(a) The
Company shall permit representatives of the Parent to have full access (at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company) to all premises, properties, financial and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company.
(b) Each
of the Parent and the Acquisition Subsidiary (i) shall treat and hold as
confidential any Company Confidential Information (as defined below),
(ii) shall not use any of the Company Confidential Information except in
connection with this Agreement, and (iii) if this Agreement is terminated
for any reason whatsoever, shall return to the Company all tangible embodiments
(and all copies) thereof which are in its possession. For purposes of
this Agreement, “Company Confidential Information” means any information of the
Company that is furnished to the Parent or the Acquisition Subsidiary by the
Company in connection with this Agreement;
provided
,
however
, that it
shall not include any information (A) which, at the time of disclosure, is
available publicly other than as a result of disclosure by the Parent, the
Acquisition Subsidiary or their respective directors, officers, employees,
agents or advisors, (B) which, after disclosure, becomes available publicly
through no fault of the Parent or the Acquisition Subsidiary or their respective
directors, officers, employees, agents or advisors, (C) which the Parent or
the Acquisition Subsidiary knew or to which the Parent or the Acquisition
Subsidiary had access prior to disclosure, provided that the source of such
information is not known by the Parent or the Acquisition Subsidiary to be bound
by a confidentiality obligation to the Company, or (D) which the Parent or
the Acquisition Subsidiary rightfully obtains from a source other than the
Company provided that the source of such information is not known by the Parent
or the Acquisition Subsidiary to be bound by a confidentiality obligation to the
Company.
4.6
Operation of
Business
. Except as contemplated by this Agreement, during the
period from the date of this Agreement to the Effective Time, the Parent shall
(and shall cause each Parent Subsidiary to) conduct its operations in the
Ordinary Course of Business and in material compliance with all applicable laws
and regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, prior to
the Effective Time, the Parent shall not (and shall cause each Parent Subsidiary
not to), without the written consent of the Company:
(a) issue
or sell, or redeem or repurchase, any stock or other securities of the Parent or
any rights, warrants or options to acquire any such stock or other securities,
except as contemplated by, and in connection with, the Private Placement
Offering and the Merger;
(b) split,
combine or reclassify any shares of its capital stock; declare, set aside or pay
any dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, except as contemplated by,
and in connection with, the Stock Split;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to, or
investments in, any other person or entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its directors, officers or employees, generally or individually, or pay any
bonus or other benefit to its directors, officers or employees, except for the
adoption of Parent’s 2010 Stock Option Plan (the “Parent Option Plan”) covering
3,500,000 shares of Parent Common Stock;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any Parent
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), except as contemplated by, and in connection
with, the Split-Off;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its charter, by-laws or other organizational documents except that Parent shall
adopt such new by-laws as shall be mutually agreed to by the Parent and the
Company.
(i) change
in any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
(j) enter
into, amend, terminate, take or omit to take any action that would constitute a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any action or fail to take any action permitted by this Agreement with the
knowledge that such action or failure to take action would result in
(i) any of the representations and warranties of the Parent and/or the
Acquisition Subsidiary set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions to the Merger set forth in
Article V not being satisfied; or
(m) agree
in writing or otherwise to take any of the foregoing actions.
4.7
Access to
Information
.
(a) The
Parent shall (and shall cause the Acquisition Subsidiary to) permit
representatives of the Company to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Parent and the Acquisition Subsidiary) to all premises, properties, financial
and accounting records, contracts, other records and documents, and personnel,
of or pertaining to the Parent and the Acquisition Subsidiary.
(b) The
Company (i) shall treat and hold as confidential any Parent Confidential
Information (as defined below), (ii) shall not use any of the Parent
Confidential Information except in connection with this Agreement, and
(iii) if this Agreement is terminated for any reason whatsoever, shall
return to the Parent all tangible embodiments (and all copies) thereof which are
in its possession. For purposes of this Agreement, “Parent
Confidential Information” means any information of the Parent or any Parent
Subsidiary that is furnished to the Company by the Parent or the Acquisition
Subsidiary in connection with this Agreement;
provided
,
however
, that it
shall not include any information (A) which, at the time of disclosure, is
available publicly other than as a result of disclosure by the Company or its
directors, officers, employees, agents or advisors, (B) which, after
disclosure, becomes available publicly through no fault of the Company or its
directors, officers, employees, agents or advisors, (C) which the Company
knew or to which the Company had access prior to disclosure, provided that the
sources of such information is not known by the Company to be bound by a
confidentiality obligation to Parent or any Parent Subsidiary or (D) which
the Company rightfully obtains from a source other than the Parent or an Parent
Subsidiary, provided that the source of such information is not known by the
Company to be bound by a confidentiality obligation to Parent or any Parent
Subsidiary.
4.8
Expenses
. The
costs and expenses of the Parent and the Company (including legal fees and
expenses of Parent and the Company) incurred in connection with this Agreement
and the transactions contemplated hereby shall be payable at Closing from the
proceeds of the Private Placement Offering with the exception of Placement Agent
legal fees and expenses that will be payable from the Placement Agent’s 3%
non-accountable expense allowance. The Parent’s legal fees shall be limited to
$145,000 in the aggregate. The Parent’s expenses shall be limited to reasonable
expenses actually incurred.
4.9
Indemnification
.
(a) Except
as otherwise contemplated by this Agreement, the Parent shall not, for a period
of three years after the Effective Time, take any action to alter or impair any
exculpatory or indemnification provisions now existing in the certificate of
incorporation or bylaws of the Company for the benefit of any individual who
served as a director or officer of the Company at any time prior to the
Effective Time, except for any changes which may be required to conform with
changes in applicable law and any changes which do not affect the application of
such provisions to acts or omissions of such individuals prior to the Effective
Time.
(b) From
and after the Effective Time, the Parent agrees that it will, and will cause the
Surviving Corporation to, indemnify and hold harmless each present and former
director and officer of the Company (the “Indemnified Executives”) against any
costs or expenses (including attorneys’ fees), judgments, fines, losses, claims,
damages, liabilities or amounts paid in settlement incurred in connection with
any claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Nevada or Delaware law, as applicable (and the Parent and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under Nevada or Delaware law, as applicable,
provided the Indemnified Executive to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Executive is not entitled to indemnification).
4.10
Quotation of Merger
Shares
. The Parent shall take whatever steps are necessary to
cause the Merger Shares (and any shares of Parent Common Stock that may be
issued pursuant to Section 1.16) to be eligible for quotation on OTC
Markets.
4.11
Split-Off
. The
Parent shall take whatever steps are necessary to enable it to effect the
Split-Off immediately after the Effective Time.
4.12
Stock Option
Plan
. The Board of Directors of Parent shall adopt, prior to
or as of the Effective Time, the 2010 Option Plan, subject to stockholder
approval, reserving for issuance 3,500,000 shares of Parent Common Stock.
4.13
Information Provided to
Company Stockholders
. The Company shall prepare, with the
cooperation of the Parent, information to be sent to the holders of Company
Shares in connection with receiving their approval of the Merger, this Agreement
and related transactions. Such information shall constitute a disclosure of the
offer and issuance of the shares of Parent Common Stock to be received by the
Company Stockholders in the Merger. The Parent and the Company shall each use
Reasonable Best Efforts to cause information provided to such holders to comply
with applicable federal and state securities and business corporation law
requirements. Each of the Parent and the Company agrees to provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the information sent, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
information to be sent to the holders of Company Shares. The Company will
promptly advise the Parent, and the Parent will promptly advise the Company, in
writing if at any time prior to the Effective Time either the Company or the
Parent shall obtain knowledge of any facts that might make it necessary or
appropriate to amend or supplement the information sent in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law. The information sent shall contain the
recommendation of the Board of Directors of the Company that the holders of
Company Shares approve the Merger and this Agreement and the conclusion of the
Board of Directors of the Company that the terms and conditions of the Merger
are advisable and fair and reasonable to the such holders. Anything to the
contrary contained herein notwithstanding, the Company shall not include in the
information sent to such holders any information with respect to the Parent or
its affiliates or associates, the form and content of which information shall
not have been approved by the Parent prior to such inclusion.
4.14
No
Shorting
. The Parent and the Company shall use their
Reasonable Best Efforts to ensure that each officer and director of Parent and
each Stockholder of Parent beneficially owning 5% or more of the Parent Common
Stock after giving effect to the Merger, Split-Off and Private Placement
Offering, agrees that it will not, for a period commencing on the date hereof
and terminating one year after the Effective Time, directly or indirectly,
effect or agree to effect any short sale (as defined in Rule 200 under
Regulation SHO of the Exchange Act), whether or not against the box, establish
any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange
Act) with respect to the Parent Common Stock, borrow or pre-borrow any shares of
Parent Common Stock, or grant any other right (including, without limitation,
any put or call option) with respect to the Parent Common Stock or with respect
to any security that includes, relates to or derives any significant part of its
value from the Parent Common Stock or otherwise seek to hedge its position in
the Parent Common Stock (each, a “Prohibited Transaction”).
ARTICLE
V
CONDITIONS
TO CONSUMMATION OF MERGER
5.1
Conditions to Each Party’s
Obligations
. The respective obligations of each Party to
consummate the Merger are subject to the satisfaction of the following
conditions:
(a) this
Agreement and the Merger shall have received the approval of at least 80% of the
votes represented by the outstanding Company Shares entitled to vote on this
Agreement and the Merger;
(b) the
completion of the offer and sale of the Private Placement Offering;
(c) satisfactory
completion by Parent and Company of all necessary legal due
diligence;
(d) consummation
of all required definitive instruments and agreements including, but not limited
to, the Merger Agreement, in forms acceptable to the Company and
Parent;
(e) the
Company and Parent obtaining all necessary board, shareholder, and third party
consents; and
(f) that
there be no injunction or order in effect by any governmental authority
prohibiting the Merger.
5.2
Conditions to Obligations of
the Parent and the Acquisition Subsidiary
. The obligation of
each of the Parent and the Acquisition Subsidiary to consummate the Merger is
subject to the satisfaction (or waiver by the Parent) of the following
additional conditions:
(a) the
number of Dissenting Shares shall not exceed 20% of the number of outstanding
Company Shares as of the Effective Time;
(b) the
Company shall have obtained (and shall have provided copies thereof to the
Parent) all waivers, permits, consents, approvals or other authorizations, and
effected all of the registrations, filings and notices, referred to in
Section 4.2 which are required on the part of the Company, except for any
the failure of which to obtain or effect does not, individually or in the
aggregate, have a Company Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
(c) the
representations and warranties of the Company set forth in this Agreement (when
read without regard to any qualification as to materiality or Material Adverse
Effect contained therein) shall be true and correct as of the date of this
Agreement and shall be true and correct as of the Effective Time as though made
as of the Effective Time (provided, however, that to the extent such
representation and warranty expressly relates to an earlier date, such
representation and warranty shall be true and correct as of such earlier date),
except for any untrue or incorrect representation and warranty that,
individually or in the aggregate, does not have a Company Material Adverse
Effect or a material adverse effect on the ability of the Parties to consummate
the transactions contemplated by this Agreement;
(d) the
Company shall have performed or complied in all material respects with its
agreements and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(e) no
Legal Proceeding shall be pending wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of any of
the transactions contemplated by this Agreement, or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(f) the
Company shall have delivered to the Parent and the Acquisition Subsidiary a
certificate (the “Company Certificate”) to the effect that each of the
conditions specified in clauses (a ) and (c) (with respect to the Company’s
due diligence of the Parent) of Section 5.1 and clauses (a) through (e)
(insofar as clause (e) relates to Legal Proceedings involving the Company)
of this Section 5.2 is satisfied in all respects;
(g) the
Company’s officers, directors and 5% shareholders shall enter into lock-up
agreements with the Parent pursuant to which they shall have agreed to certain
restrictions on the sale or other disposition of the Parent Common Stock
acquired by them prior to the Merger for a term equal to the earlier of (i)
twelve months from the Closing Date; or (ii) six months following the effective
date of the Registration Statement;
(h) the
Company Stockholders shall have agreed not to engage in any Prohibited
Transactions;
(i) the
Parent shall have received from Meister Seelig & Fein LLP, counsel to the
Company, an opinion with respect to the matters set forth in
Exhibit C
attached hereto, addressed to the Parent and the Placement Agent and dated as of
the Closing Date;
(j) that
there have been no material adverse changes to the Company’s business since the
date of this Agreement; and
(k) the
Company shall have provided audited financial statements from an independent
accounting firm, qualified to conduct public company audits, for the year ended
December 31, 2009 and the operating results and period end financial condition
reflected therein shall not have been materially different from the unaudited
financial statements already provided for the same period.
5.3
Conditions to Obligations of
the Company
. The obligation of the Company to consummate the
Merger is subject to the satisfaction of the following additional
conditions:
(a) the
Parent shall have obtained (and shall have provided copies thereof to the
Company) all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2 which are required on the part of the Parent,
except for any the failure of which to obtain or effect does not, individually
or in the aggregate, have a Parent Material Adverse Effect or a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement;
(b) the
representations and warranties of the Parent set forth in this Agreement (when
read without regard to any qualification as to materiality or Material Adverse
Effect contained therein) shall be true and correct as of the date of this
Agreement and shall be true and correct as of the Effective Time as though made
as of the Effective Time (provided, however, that to the extent such
representation or warranty expressly relates to an earlier date, such
representation and warranty shall be true and correct as of such earlier date),
except for any untrue or incorrect representation and warranty that,
individually or in the aggregate, do not have a Parent Material Adverse Effect
or a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement;
(c) each
of the Parent and the Acquisition Subsidiary shall have performed or complied
with its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Effective Time;
(d) no
material Legal Proceedings shall be pending or threatened against Parent or the
Acquisition Subsidiary and no Legal Proceeding shall be pending wherein an
unfavorable judgment, order, decree, stipulation or injunction would
(i) prevent consummation of any of the transactions contemplated by this
Agreement, or (ii) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, and no such judgment, order,
decree, stipulation or injunction shall be in effect;
(e) the
Parent shall have delivered to the Company a certificate (the “Parent
Certificate”) to the effect that each of the conditions specified in clauses (b)
and (c) (with respect to the Parent’s due diligence of the Company) of Section
5.1 and clauses (a) through (d) (insofar as clause (d) relates to
Legal Proceedings involving the Parent and its Subsidiaries) of this
Section 5.3 is satisfied in all respects;
(f) the
Company shall have received from Gottbetter & Partners, LLP, counsel to the
Parent and the Acquisition Subsidiary, an opinion with respect to the matters
set forth in
Exhibit
D
attached hereto, addressed to the Company and the Placement Agent and
dated as of the Closing Date;
(g) the
total number of shares of Parent Common Stock issued and outstanding immediately
after the Effective Time, shall equal 7,000,000 shares, after giving effect to a
2.02898 for 1 forward stock split, the Split-Off, and the cancellation of
500,000 pre-split shares, but excluding (i) the shares of Parent Common Stock to
be issued to investors in the Private Placement Offering, (ii) the issuance of
the Merger Shares to be issued to Company Stockholders and the holders of the
Parent Options and Parent Bridge Warrants (upon the exercise of such Parent
Options and Parent Bridge Warrants) in connection with the Merger; and (iii) the
issuance of shares of Parent Common Stock underlying warrants (A) to be issued
to investors in the Private Placement Offering (upon the exercise thereof); and
(B) to be issued to the Placement agent in the Private Placement Offering (upon
the exercise of warrants to be issued to the Placement Agent in connection with
the sale of units under the Private Placement Offering).
(h) Frank
Reynolds shall have an employment agreement mutually satisfactory to the
Company, the Parent and Mr. Reynolds;
(i) the
Parent shall have adopted the Parent Option Plan;
(j) the
Company shall have received a certificate of Parent’s transfer agent and
registrar certifying that as of the Closing Date there are 22,762,027 post-split
shares of Parent Common Stock issued and outstanding (without giving effect to
the cancellation of 1,014,490 shares of Parent Common Stock and the retirement,
pursuant to the Split-Off, of 14,747,555 post-split shares of Parent Common
Stock, such transactions to be effected immediately after the Effective Time,
after which cancelation and retirement there will be 7,000,000 shares of Parent
Common Stock issued and outstanding);
(k) contemporaneously
with the closing of the Merger, the Parent, the Split-Off Subsidiary, and the
Buyer shall execute the Split-Off Agreement, which Split-Off shall be effective
immediately following the Closing of the Merger;
(l) after
giving prior effect to the Split-Off, the Parent shall have no
liabilities;
(m) the
Parent shall have filed with the SEC and transmitted to its shareholders of
record at least 10 days prior to the Closing the information required by Rule
14f-1 under the Exchange Act; and
(n)
that there have been no material adverse changes to the
Parent’s business since the date of this Agreement.
ARTICLE
VI
INDEMNIFICATION
6.1
Indemnification by the
Company
. The Company shall indemnify the Parent in respect of,
and hold it harmless against, any and all Damages incurred or suffered by the
Parent resulting from, relating to or constituting any misrepresentation, breach
of warranty or failure to perform any covenant or agreement of the Company
contained in this Agreement or the Company Certificate.
6.2
Indemnification by the
Parent
. The Parent shall indemnify the Company in respect of,
and hold it harmless against, any and all Damages incurred or suffered by the
Company resulting from, relating to or constituting any misrepresentation,
breach of warranty or failure to perform any covenant or agreement of the Parent
or the Acquisition Subsidiary contained in this Agreement or the Parent
Certificate.
6.3
Indemnification Claims by
the Parties
.
(a) In
the event that a Party is entitled, or seeks to assert rights, to
indemnification under this Article VI, the Party seeking indemnification (the
“Indemnitee”) shall give written notification to the Party from whom
indemnification is sought (the “Indemnitor”) of the commencement of any suit or
proceeding relating to a third party claim for which indemnification pursuant to
this Article VI may be sought. Such notification shall be given
within 20 business days after receipt by the Indemnitee of notice of such suit
or proceeding, and shall describe in reasonable detail (to the extent known by
the Indemnitee) the facts constituting the basis for such suit or proceeding and
the amount of the claimed damages; provided, however, that no delay on the part
of the Indemnitee in notifying the Indemnitor shall relieve the Indemnitor of
any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days
after delivery of such notification, the Indemnitor may, upon written notice
thereof to the Indemnitee, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Indemnitee; provided that
the Indemnitor may not assume control of the defense of a suit or proceeding
involving criminal liability or in which equitable relief is sought against the
Indemnitee. If the Indemnitor does not so assume control of such
defense, the Indemnitee shall control such defense. The party not
controlling such defense (the “Non-Controlling Party”) may participate therein
at its own expense; provided that if the Indemnitor assumes control of such
defense and the Indemnitee reasonably concludes that the Indemnitor and the
Indemnitee have conflicting interests or different defenses available with
respect to such suit or proceeding, the reasonable fees and expenses of counsel
to the Indemnitee shall be considered “Damages” for purposes of this
Agreement. The party controlling such defense (the “Controlling
Party”) shall keep the Non-Controlling Party advised of the status of such suit
or proceeding and the defense thereof and shall consider in good faith
recommendations made by the Non-Controlling Party with respect
thereto. The Non-Controlling Party shall furnish the Controlling
Party with such information as it may have with respect to such suit or
proceeding (including copies of any summons, complaint or other pleading which
may have been served on such party and any written claim, demand, invoice,
billing or other document evidencing or asserting the same) and shall otherwise
cooperate with and assist the Controlling Party in the defense of such suit or
proceeding. The Indemnitor shall not agree to any settlement of, or
the entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnitee, which shall not be unreasonably
withheld or delayed; provided that the consent of the Indemnitee shall not be
required if the Indemnitor agrees in writing to pay any amounts payable pursuant
to such settlement or judgment and such settlement or judgment includes a
complete release of the Indemnitee from further liability and has no other
materially adverse effect on the Indemnitee. The Indemnitee shall not
agree to any settlement of, or the entry of any judgment arising from, any such
suit or proceeding without the prior written consent of the Indemnitor, which
shall not be unreasonably withheld or delayed.
(b) In
order to seek indemnification under this Article VI, Indemnitee shall give
written notification (a “Claim Notice”) to the Indemnitor which contains (i) a
description and the amount (the “Claimed Amount”) of any Damages incurred or
reasonably expected to be incurred by the Indemnitee, (ii) a statement that the
Indemnitee is entitled to indemnification under this Article VI for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment (in the manner provided in paragraph (c) below) in the amount
of such Claimed Amount.
(c) Within
20 days after delivery of a Claim Notice, the Indemnitor shall deliver to the
Indemnitee a written response (the “Response”) in which Indemnitor
shall: (i) agree that the Indemnitee is entitled to receive all
of the Claimed Amount, (ii) agree that the Indemnitee is entitled to
receive part, but not all, of the Claimed Amount (the “Agreed Amount”), or
(iii) dispute that the Indemnitee is entitled to receive any of the Claimed
Amount. If the Indemnitor in the Response disputes its liability for
all or part of the Claimed Amount, the Indemnitor and the Indemnitee shall
follow the procedures set forth in Section 6.3(d) for the resolution of
such dispute (a “Dispute”).
(d) During
the 60-day period following the delivery of a Response that reflects a Dispute,
the Indemnitor and the Indemnitee shall use good faith efforts to resolve the
Dispute. If the Dispute is not resolved within such 60-day period,
the Indemnitor and the Indemnitee shall discuss in good faith the submission of
the Dispute to a mutually acceptable alternative dispute resolution procedure
(which may be non-binding or binding upon the parties, as they agree in advance)
(the “ADR Procedure”). In the event the Indemnitor and the Indemnitee
agree upon an ADR Procedure, such parties shall, in consultation with the chosen
dispute resolution service (the “ADR Service”), promptly agree upon a format and
timetable for the ADR Procedure, agree upon the rules applicable to the ADR
Procedure, and promptly undertake the ADR Procedure. The provisions
of this Section 6.3(d) shall not obligate the Indemnitor and the Indemnitee
to pursue an ADR Procedure or prevent either such party from pursuing the
Dispute in a court of competent jurisdiction; provided that, if the Indemnitor
and the Indemnitee agree to pursue an ADR Procedure, neither the Indemnitor nor
the Indemnitee may commence litigation or seek other remedies with respect to
the Dispute prior to the completion of such ADR Procedure. Any ADR
Procedure undertaken by the Indemnitor and the Indemnitee shall be considered a
compromise negotiation for purposes of federal and state rules of evidence, and
all statements, offers, opinions and disclosures (whether written or oral) made
in the course of the ADR Procedure by or on behalf of the Indemnitor, or any of
the Indemnifying Stockholders, the Indemnitee or the ADR Service shall be
treated as confidential and, where appropriate, as privileged work
product. Such statements, offers, opinions and disclosures shall not
be discoverable or admissible for any purposes in any litigation or other
proceeding relating to the Dispute (provided that this sentence shall not be
construed to exclude from discovery or admission any matter that is otherwise
discoverable or admissible). The fees and expenses of any ADR Service
used by the Indemnitor and the Indemnitee shall be considered
Damages.
(e) Notwithstanding
the other provisions of this Section 6.3, if a third party asserts (other
than by means of a lawsuit) that the Indemnitee is liable to such third party
for a monetary or other obligation which may constitute or result in Damages for
which such Indemnitee may be entitled to indemnification pursuant to this
Article VI, and the Indemnitee reasonably determines in good faith that it
has a valid business reason to fulfill such obligation, then (i)
Indemnitee shall be entitled to satisfy such obligation, with prior notice to
but without prior consent from the Indemnitor, (ii) Indemnitee may
subsequently make a claim for indemnification in accordance with the provisions
of this Article VI, and (iii) Indemnitee shall be reimbursed, in
accordance with the provisions of this Article VI, for any such Damages for
which it is entitled to indemnification pursuant to this Article VI
(subject to the right of the Indemnitor to dispute the Indemnitee’s entitlement
to indemnification, or the amount for which it is entitled to indemnification,
under the terms of this Article VI).
6.4
Survival of Representations
and Warranties
. All representations and warranties contained
in this Agreement, the Company Certificate or the Parent Certificate shall
(a) survive the Closing and any investigation at any time made by or on
behalf of Parent or the Company and (b) shall expire on the date two years
following the Closing Date. If Parent delivers to an Indemnifying
Stockholders, before expiration of a representation or warranty, either a Claim
Notice based upon a breach of such representation or warranty, or a notice that,
as a result a legal proceeding instituted by or written claim made by a third
party, the Parent reasonably expects to incur Damages as a result of a breach of
such representation or warranty (an “Expected Claim Notice”), then such
representation or warranty shall survive until, but only for purposes of, the
resolution of the matter covered by such Expected Claim Notice. If
the legal proceeding or written claim with respect to which an Expected Claim
Notice has been given is definitively withdrawn or resolved in favor of the
Parent, the Parent shall promptly so notify the Indemnifying Stockholders; and
if the Parent has delivered a copy of the Expected Claim Notice to the Escrow
Agent and Escrow Shares have been retained in escrow after the Termination Date
(as defined in the Escrow Agreement) with respect to such Expected Claim Notice,
the Indemnifying Stockholders and the Parent shall promptly deliver to the
Escrow Agent a written notice executed by both parties instructing the Escrow
Agent to distribute such retained Escrow Shares to the Indemnifying Stockholders
in accordance with the terms of the Escrow Agreement.
6.5
Limitations on Claims for
Indemnification
.
(a) Notwithstanding
anything to the contrary herein, no Party shall be entitled to recover, or be
indemnified for, Damages arising out of a misrepresentation or breach of
warranty set forth in Article II unless and until the aggregate of all such
Damages paid or payable by the Indemnitor collectively exceeds $50,000 (the
“Damages Threshold”) and then, if such aggregate threshold is reached, the
Indemnitee shall only be entitled to recover for Damages in excess of such
respective threshold; and in no event shall any Indemnitor be liable under this
Article VI for an aggregate amount in excess of $250,000.
ARTICLE
VII
DEFINITIONS
For
purposes of this Agreement, each of the following defined terms is defined in
the Section of this Agreement indicated below.
Defined Term
|
|
Section
|
|
|
|
Acquisition
Subsidiary
|
|
Introduction
|
ADR
Procedure
|
|
6.3(d)
|
ADR
Service
|
|
6.3(d)
|
Affiliate
|
|
2.13(a)(vii)
|
Agreed
Amount
|
|
6.3(c)
|
Agreement
|
|
Introduction
|
Buyers
|
|
Introduction
|
CERCLA
|
|
2.20(a)
|
Certificate
of Merger
|
|
1.1
|
Certificates
|
|
1.10
|
Claim
Notice
|
|
6.3(b)
|
Claimed
Amount
|
|
6.3(b)
|
Claims
|
|
1.16
|
Closing
|
|
1.5
|
Closing
Date
|
|
1.5
|
Code
|
|
Introduction
|
Common
Conversion Ratio
|
|
1.8(b)
|
Company
|
|
Introduction
|
Company
Balance Sheet
|
|
2.6
|
Company
Balance Sheet Date
|
|
2.6
|
Company
Certificate
|
|
5.2(f)
|
Company
Confidential Information
|
|
4.5(b)
|
Company
Financial Statements
|
|
2.6
|
Company
Material Adverse Effect
|
|
2.1
|
Company
Options
|
|
1.11(a)
|
Company
Shares
|
|
1.6(d)
|
Company
Stockholders
|
|
1.6(d)
|
Company
Warrants
|
|
1.11(d)
|
Contemplated
Transactions
|
|
8.3
|
Controlling
Party
|
|
6.3(a)
|
Convertible
Notes
|
|
2.2
|
Current
Report
|
|
4.3
|
Damages
|
|
6.1
|
Damages
Threshold
|
|
6.5(a)
|
Defaulting
Party
|
|
8.6
|
Disclosure
Schedule
|
|
Article II
|
Dispute
|
|
6.3(c)
|
Defined Term
|
|
Section
|
|
|
|
Dissenting
Shares
|
|
1.9(a)
|
Effective
Time
|
|
1.1
|
Employee
Benefit Plan
|
|
2.19(a)(i)
|
Environmental
Law
|
|
2.20(a)
|
ERISA
|
|
2.19(a)(ii)
|
ERISA
Affiliate
|
|
2.19(a)(iii)
|
Escrow
Agent
|
|
1.6(g)
|
Escrow
Agreement
|
|
1.6(g)
|
Escrow
Shares
|
|
1.8(b)
|
Exchange
Act
|
|
2.6
|
Expected
Claim Notice
|
|
6.4
|
GAAP
|
|
2.6
|
GCL
|
|
1.1
|
Governmental
Entity
|
|
2.4
|
Indemnified
Executives
|
|
4.9(b)
|
Intellectual
Property
|
|
2.27(a)
|
Intellectual
Property Rights
|
|
2.27(a)
|
Legal
Proceeding
|
|
2.17
|
Loss
|
|
1.16
|
Merger
|
|
Introduction
|
Merger
Shares
|
|
1.8(b)
|
Non-Controlling
Party
|
|
6.3(a)
|
Non-Defaulting
Party
|
|
8.6
|
Ordinary
Course of Business
|
|
2.4
|
Organization
Date
|
|
2.9(c)
|
OTCBB
|
|
3.2
|
Parent
|
|
Introduction
|
Parent
Bridge Warrants
|
|
1.4
|
Parent
Certificate
|
|
5.3(e)
|
Parent
Common Stock
|
|
1.8(a)
|
Parent
Confidential Information
|
|
4.7(b)
|
Parent
Disclosure Schedule
|
|
Article
III
|
Parent
Financial Statements
|
|
3.8
|
Parent
Liabilities
|
|
1.16
|
Parent
Material Adverse Effect
|
|
3.1
|
Parent
Options
|
|
1.8(a)
|
Parent
Option Plan
|
|
4.6(d)
|
Parent
PPO Warrants
|
|
1.2
|
Parent
Reports
|
|
3.6
|
Parent
Subsidiary
|
|
2.5
|
Party
|
|
Introduction
|
Permits
|
|
2.23
|
Prohibited
Transaction
|
|
4.15
|
PPO
Price
|
|
Introduction
|
Private
Placement Offering
|
|
Introduction
|
Defined Term
|
|
Section
|
|
|
|
Reasonable
Best Efforts
|
|
4.1
|
Registration
Statement
|
|
1.2
|
Response
|
|
6.3(c)
|
SEC
|
|
1.16
|
Securities
Act
|
|
1.3(c)
|
Security
Interest
|
|
2.4
|
Share
Contribution
|
|
3.2
|
Split-Off
|
|
Introduction
|
Split-Off
Agreement
|
|
Introduction
|
Split-Off
Subsidiary
|
|
Introduction
|
Stockholder
Approval
|
|
2.3
|
Subsidiary
|
|
2.5
|
Surviving
Corporation
|
|
1.1
|
Tax
Returns
|
|
2.9(a)(ii)
|
Taxes
|
|
2.9(a)(i)
|
Transaction
Documentation
|
|
3.3
|
2010
Plan
|
|
1.11(a)
|
Value
|
|
6.3(c)
|
ARTICLE
VIII
TERMINATION
8.1
Termination by Mutual
Agreement
. This Agreement may be terminated at any time by
mutual written consent of the Parties.
8.2
Termination for Failure to
Close
. This Agreement shall be automatically terminated if the
Closing Date shall not have occurred by December 31, 2010, unless such date is
extended by mutual written consent of the Parties.
8.3
Termination by Operation of
Law
. This Agreement may be terminated by any Party hereto if
there shall be any statute, rule or regulation that renders consummation of the
transactions contemplated by this Agreement (the “Contemplated Transactions)
illegal or otherwise prohibited, or a court of competent jurisdiction or any
government (or governmental authority) shall have issued an order, decree or
ruling, or has taken any other action restraining, enjoining or otherwise
prohibiting the consummation of such transactions and such order, decree, ruling
or other action shall have become final and nonappealable.
8.4
Termination for Failure to
Perform Covenants or Conditions
. This Agreement may be
terminated prior to the Effective Time:
(a) by
the Parent and the Acquisition Subsidiary if: (i) any of the
representations and warranties made in this Agreement by the Company shall not
be materially true and correct, when made or at any time prior to consummation
of the Contemplated Transactions as if made at and as of such time;
(ii) any of the conditions set forth in Section 5.2 hereof have not been
fulfilled in all material respects by the Closing Date; (iii) the Company
shall have failed to observe or perform any of its material obligations under
this Agreement; or (iv) as otherwise set forth herein; or
(b) by
the Company if: (i) any of the representations and warranties of the Parent
or the Acquisition Subsidiary shall not be materially true and correct when made
or at any time prior to consummation of the Contemplated Transactions as if made
at and as of such time; (ii) any of the conditions set forth in Section 5.3
hereof have not been fulfilled in all material respects by the Closing Date;
(iii) the Parent or the Acquisition Subsidiary shall have failed to observe
or perform any of their material respective obligations under this Agreement; or
(iv) as otherwise set forth herein.
8.5
Effect of Termination or
Default; Remedies
. In the event of termination of this
Agreement as set forth above, this Agreement shall forthwith become void and
there shall be no liability on the part of any Party hereto, provided that such
Party is a Non-Defaulting Party (as defined below). The foregoing
shall not relieve any Party from liability for damages actually incurred as a
result of such Party’s breach of any term or provision of this
Agreement.
8.6
Remedies; Specific
Performance
. In the event that any Party shall fail or refuse
to consummate the Contemplated Transactions or if any default under or beach of
any representation, warranty, covenant or condition of this Agreement on the
part of any Party (the “Defaulting Party”) shall have occurred that results in
the failure to consummate the Contemplated Transactions, then in addition to the
other remedies provided herein, the non-defaulting Party (the “Non-Defaulting
Party”) shall be entitled to seek and obtain money damages from the Defaulting
Party, or may seek to obtain an order of specific performance thereof against
the Defaulting Party from a court of competent jurisdiction, provided that the
Non-Defaulting Party seeking such protection must file its request with such
court within forty-five (45) days after it becomes aware of the Defaulting
Party’s failure, refusal, default or breach. In addition, the
Non-Defaulting Party shall be entitled to obtain from the Defaulting Party court
costs and reasonable attorneys’ fees incurred in connection with or in pursuit
of enforcing the rights and remedies provided hereunder.
ARTICLE
IX
MISCELLANEOUS
9.1
Press Releases and
Announcements
. No Party shall issue any press release or
public announcement relating to the subject matter of this Agreement without the
prior written approval of the other Parties;
provided
,
however
, that any
Party may make any public disclosure it believes in good faith is required by
applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the
disclosure).
9.2
No Third Party
Beneficiaries
. This Agreement shall not confer any rights or
remedies upon any person other than the Parties and their respective successors
and permitted assigns;
provided
,
however
, that
(a) the provisions in Article I concerning issuance of the Merger
Shares and Article VI concerning indemnification are intended for the
benefit of the Company Stockholders , (b) the provisions in
Section 4.9 concerning indemnification are intended for the benefit of the
individuals specified therein and their successors and assigns, and (c) the
provisions of Articles II and III covering the representations and warranties of
the Company to the Parent and the Parent and Acquisition Subsidiary to the
Company are also intended for the benefit of the Placement Agent.
9.3
Entire
Agreement
. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
9.4
Succession and
Assignment
. This Agreement shall be binding upon and inure to
the benefit of the Parties named herein and their respective successors and
permitted assigns. No Party may assign either this Agreement or any
of its rights, interests or obligations hereunder without the prior written
approval of the other Parties; provided that the Acquisition Subsidiary may
assign its rights, interests and obligations hereunder to a wholly-owned
subsidiary of the Parent.
9.5
Counterparts and Facsimile
Signature
. 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. This Agreement
may be executed by facsimile signature.
9.6
Headings
. The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
9.7
Notices
. All
notices, requests, demands, claims, and other communications hereunder shall be
in writing. Any notice, request, demand, claim or other communication
hereunder shall be deemed duly delivered four business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent for next business day delivery via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
If
to the Company or the Parent (subsequent to the Closing):
|
|
Copy
to (which copy shall not constitute
notice hereunder):
|
|
|
|
InVivo
Therapeutics Corporation
|
|
Meister
Selig & Fein LLP
|
One
Broadway, 14
th
Floor
|
|
Two
Grand Central Tower
|
Cambridge,
Ma. 02142
|
|
140
East 45
th
Street, 19
th
Floor
|
Attn: Frank
M. Reynolds, President
|
|
New
York, NY 10017
|
Facsimile:
(617) 225-4430
|
|
Attn: Mitchell
L. Lampert
|
|
|
Facsimile:
(212) 655-3535
|
If
to the Parent or the Acquisition Subsidiary (prior to the
Closing):
|
|
Copy
to (which copy shall not constitute
notice hereunder):
|
|
|
|
InVivo
Therapeutics Holdings Corp.
|
|
Gottbetter
& Partners, LLP
|
100
Europa Drive, Suite 455
|
|
488
Madison Avenue, 12
th
Floor
|
Chapel
Hill, NC 27517
|
|
New
York, NY 10022
|
Attn: Peter
Reichard, President
|
|
Attn:
Adam S. Gottbetter, Esq.
|
Facsimile:
(919) 933-2730
|
|
Facsimile:
(212) 400-6901
|
Any Party
may give any notice, request, demand, claim or other communication hereunder
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the Party for whom it is
intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set
forth.
9.8
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdiction) that would cause the application of laws of
any jurisdictions other than those of the State of Delaware.
9.9
Amendments and
Waivers
. The Parties may mutually amend any provision of this
Agreement at any time prior to the Effective Time. No amendment of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver of any right or
remedy hereunder shall be valid unless the same shall be in writing and signed
by the Party giving such waiver. No waiver by any Party with respect
to any default, misrepresentation or breach of warranty or covenant hereunder
shall be deemed to extend to any prior or subsequent default, misrepresentation
or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
9.10
Severability
. Any
term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11
Submission to
Jurisdiction
. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in the County of New York in
the State of New York in any action or proceeding arising out of or relating to
this Agreement, (b) agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court, and (c) agrees
not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense
of inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety or other security that might be required of any
other Party with respect thereto. Any Party may make service on
another Party by sending or delivering a copy of the process to the Party to be
served at the address and in the manner provided for the giving of notices in
Section 9.7. Nothing in this Section 9.11, however, shall
affect the right of any Party to serve legal process in any other manner
permitted by law.
9.12
Construction
.
(a) The
language used in this Agreement shall be deemed to be the language chosen by the
Parties to express their mutual intent, and no rule of strict construction shall
be applied against any Party.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.
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PARENT:
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INVIVO
THERAPEUTICS HOLDINGS CORP.
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By:
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Name:
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Peter
Reichard
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Title:
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President
and Chief Executive Officer
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ACQUISITION
SUBSIDIARY:
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INVIVO
THERAPEUTICS ACQUISITION CORP.
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By:
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Name:
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Peter
Reichard
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Title:
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President
and Chief Executive Officer
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COMPANY:
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INVIVO
THERAPEUTICS CORPORATION
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By:
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Name:
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Frank
Reynolds
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Title:
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Chief
Executive
Officer
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STATE
OF DELAWARE
CERTIFICATE
OF MERGER OF
DOMESTIC
CORPORATIONS
Pursuant
to Title 8, Section 251(c) of the Delaware General Corporation Law, the
undersigned corporation executed the following Certificate of
Merger:
FIRST:
The name of the
surviving corporation is InVivo Therapeutics Corporation, a Delaware
corporation, and the name of the corporation being merged into this surviving
corporation is InVivo Therapeutics Acquisition Corp., a Delaware
corporation.
SECOND:
The Agreement of
Merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations.
THIRD:
The name of the
surviving corporation is InVivo Therapeutics Corporation, a Delaware
corporation.
FOURTH:
The Certificate of
Incorporation of the surviving corporation shall be its Certificate of
Incorporation.
FIFTH:
The merger is to become
effective upon filing with the Secretary of State of the State of
Delaware.
SIXTH:
The Agreement of Merger
is on file at One Broadway, 14th Floor, Cambridge, MA 02142, the place of
business of the surviving corporation.
SEVENTH:
A copy of the
Agreement of Merger will be furnished by the surviving corporation on request,
without cost, to any stockholder of the constituent corporations.
IN WITNESS WHEREOF
, said
surviving corporation has caused this certificate to be signed by an authorized
officer, the _____ day of October 2010.
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By:
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Authorized
Officer
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Name:
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Frank M. Reynolds
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Print
or Type
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|
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Title:
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President
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AMENDED
AND RESTATED
BYLAWS
OF
INVIVO
THERAPEUTICS HOLDINGS CORP.,
a Nevada
Corporation
(October
26, 2010)
ARTICLE
I
OFFICES
Section
1.
Principal Office and
Registered Agent
. The principal office of the Corporation in
the state of Nevada shall be at 4675 W. Teco Avenue, Suite 240, Las Vegas, Clark
County, Nevada 89118. The name and address of the registered agent is
the VCorp Services, LLC, 4675 W. Teco Avenue, Suite 240, Las Vegas, Clark
County, Nevada 89118.
Section
2.
Other
Offices
. The Corporation may also have offices at such other
places both within and without the State of Nevada as the Board of Directors may
from time to time determine or the business of the Corporation may
require.
ARTICLE
II
STOCKHOLDERS
Section
1.
Place of
Meeting
. All meetings of the stockholders shall be held at the
principal office of the Corporation, or at such other place within or without
the State of Nevada as shall be specified or fixed in the notices or waivers of
notice thereof.
Section
2.
Quorum, Adjournment of
Meeting
. Unless otherwise required by law or provided in the
Articles of Incorporation or these Bylaws, the holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business and the act of a majority of such stock so
represented at any meeting of stockholders at which a quorum is present shall
constitute the act of the stockholders. The stockholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Notwithstanding
the other provisions of the Articles of Incorporation or these Bylaws, the
chairman of the meeting or the holders of a majority of the issued and
outstanding stock, present in person or represented by proxy, at any meeting of
stockholders, whether or not a quorum is present, shall have the power to
adjourn such meeting from time to time, without any notice other than
announcement at the meeting of the time and place of the holding of the
adjourned meeting. If the adjournment is for more than thirty (30)
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting. At such adjourned meeting at
which a quorum shall be present or represented any business may be transacted
which might have been transacted at the meeting as originally
called.
Section
3.
Annual
Meetings
. An annual meeting of the stockholders, for the
election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, within or without the State of Nevada, on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting.
Section
4.
Special
Meetings
. Special meetings of stockholders of the Corporation
may be called only by the Chairman of the Board, the President or the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors of the Corporation (as determined in accordance with the Bylaws of the
Corporation). Notwithstanding anything contained in the Articles of
Incorporation or Bylaws of the Corporation to the contrary, the affirmative vote
of the holders of at least 80% of the voting power of the then outstanding
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal this Section 4 or adopt any provision inconsistent with any
provision of this Section 4.
Section
5.
Record
Date
. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors of the Corporation may fix in advance, a date as
the record date for any such determination of stockholders, which date shall not
be more than sixty (60) days nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the
Board of Directors does not fix a record date for any meeting of the
stockholders, the record date for determining stockholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, if in accordance with Article
VIII, Section 3 of these Bylaws, notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. If,
in accordance with Section 12 of this Article II, corporate action without
a meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day on
which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of business
on the date on which the Board of Directors adopts the resolution relating
thereto.
A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section
6.
Notice of
Meetings
. Written notice signed by the President, Vice
President, Secretary, or Assistant Secretary, or other persons as the President
or Board of Directors may designate, of the place, date and hour of all
meetings, and, in case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given by or at the direction of the Chairman of
the Board or the President, the Secretary or the other person(s) calling the
meeting to each stockholder entitled to vote thereat not less than ten (10) nor
more than sixty (60) days before the date of the meeting. Such notice
may be delivered either personally or by mail. If mailed, notice is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the
Corporation.
Section
7.
Stock
List
. A complete list of stockholders entitled to vote at any
meeting of stockholders, arranged in alphabetical order for each class of stock
and showing the address of each such stockholder and the number of shares
registered in the name of such stockholder, shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at the offices of the Corporation in Cambridge, Massachusetts, or a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or if not so specified, at the place where the
meeting is to be held. The stock list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section
8.
Proxies
. Each
stockholder entitled to vote at a meeting of stockholders or to express consent
or dissent to a corporate action in writing without a meeting may authorize
another person or persons to act for him by proxy. Proxies for use at
any meeting of stockholders shall be in writing and filed with the Secretary, or
such other officer as the Board of Directors may from time to time determine by
resolution, before or at the time of the meeting. All proxies shall
be received and taken charge of and all ballots shall be received and canvassed
by the secretary of the meeting who shall decide all questions touching upon the
qualification of voters, the validity of the proxies and the acceptance or
rejection of votes, unless an inspector or inspectors shall have been appointed
by the chairman of the meeting, in which event such inspector or inspectors
shall decide all such questions.
No proxy
shall be valid after six (6) months from its date, unless the proxy provides for
a longer period, which in no event may exceed seven (7) years. Each
proxy shall be revocable unless expressly provided therein to be irrevocable and
coupled with an interest sufficient in law to support an irrevocable
power.
Should a
proxy designate two or more persons to act as proxies, unless such instrument
shall provide the contrary, a majority of such persons present at any meeting at
which their powers thereunder are to be exercised shall have and may exercise
all the powers of voting or giving consents thereby conferred, or if only one be
present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, each proxy so
attending shall be entitled to exercise such powers in respect of the same
portion of the shares as he is of the proxies representing such
shares.
Section
9.
Voting, Elections;
Inspections
. Unless otherwise required by law or provided in
the Articles of Incorporation, each stockholder shall have one vote for each
share of stock entitled to vote which is registered in his name on the record
date for the meeting. Shares registered in the name of another
corporation, domestic or foreign, may be voted by such officer, agent or proxy
as the bylaw (or comparable instrument) of such corporation may prescribe, or in
the absence of such provision, as the Board of Directors (or comparable body) of
such corporation may determine. Shares registered in the name of a
deceased person may be voted by his executor or administrator, either in person
or by proxy.
All
voting, except as required by the Articles of Incorporation or where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by stockholders holding a majority of the issued and outstanding stock
present in person or by proxy at any meeting a stock vote shall be
taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the
meeting. All elections of directors shall be by ballot, unless
otherwise provided in the Articles of Incorporation.
At any
meeting at which a vote is taken by ballots, the chairman of the meeting may
appoint one or more inspectors, each of whom shall subscribe an oath or
affirmation to execute faithfully the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may
appoint any person to serve as inspector, except no candidate for the office of
director shall be appointed as an inspector.
Unless
otherwise provided in the Articles of Incorporation, cumulative voting for the
election of directors shall be prohibited.
Section
10.
Conduct of
Meetings
. The meetings of the stockholders shall be presided
over by the Chairman of the Board, or if he is not present, by the President, or
if neither the Chairman of the Board nor the President is present, by a chairman
elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or if he is not present, an Assistant
Secretary shall so act; if neither the Secretary nor an Assistant Secretary is
present, then a secretary shall be appointed by the chairman of the
meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to him
in order.
Section
11.
Treasury
Stock
. The Corporation shall not vote, directly or indirectly,
shares of its own stock owned by it and such shares shall not be counted for
quorum purposes.
Section
12.
Action Without
Meeting
. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Notwithstanding anything contained in
the Articles of Incorporation or Bylaws of the Corporation to the contrary, the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, shall be required to amend or
repeal this Section 12 or adopt any provision inconsistent with any provision of
this Section 12.
Section
13.
Nominations and Business at
Stockholder Meetings
.
(A)
Annual Meetings of
Stockholders
. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of other
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation’s notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation (i) who was a stockholder of record at the time of giving of notice
provided for in this Section 13, and at the time of the annual meeting, (ii) is
entitled to vote at the meeting and (iii) complies with the notice procedures
set forth in this Section 13 as to such business or nomination.
(2) Without
qualification, for any nominations or any other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (3) of paragraph
(A) of this Section 13, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder’s notice shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year’s annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment or postponement of an annual meeting
commence a new time period for the giving of a stockholder’s notice as described
above. .
(3) To
be in proper form, a stockholder’s notice (whether given pursuant to paragraph
A(1) above or paragraph B below) to the Secretary must:
(a) set
forth, as to the stockholder giving the notice and the beneficial owner, if any,
on whose behalf the nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation’s books, and of such
beneficial owner, if any, (ii) (A) the class or series and number of shares of
the Corporation which are, directly or indirectly, owned beneficially and of
record by such stockholder and such beneficial owner, (B) any option, warrant,
convertible security, stock appreciation right, or similar right with an
exercise or conversion privilege or a settlement payment or mechanism at a price
related to any class or series of shares of the Corporation or with a value
derived in whole or in part from the value of any class or series of shares of
the Corporation, whether or not such instrument or right shall be subject to
settlement in the underlying class or series of capital stock of the Corporation
or otherwise (a “Derivative Instrument”) directly or indirectly owned
beneficially by such stockholder and any other direct or indirect opportunity to
profit or share in any profit derived from any increase or decrease in the value
of shares of the Corporation, (C) any proxy, contract, arrangement,
understanding, or relationship pursuant to which such stockholder has a right to
vote any shares of any security of the Company, (D) any short interest in any
security of the Company (for purposes of this Section 13, a person shall be
deemed to have a short interest in a security if such person, directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has the opportunity to profit or share in any profit derived from any
decrease in the value of the subject security), (E) any rights to dividends on
the shares of the Corporation owned beneficially by such stockholder that are
separated or separable from the underlying shares of the Corporation, (F) any
proportionate interest in shares of the Corporation or Derivative Instruments
held, directly or indirectly, by a general or limited partnership in which such
stockholder is a general partner or, directly or indirectly, beneficially owns
an interest in a general partner and (G) any performance-related fees (other
than an asset-based fee) that such stockholder is entitled to based on any
increase or decrease in the value of shares of the Corporation or Derivative
Instruments, if any, as of the date of such notice including, without
limitation, any such interests held by members of such stockholder’s immediate
family sharing the same household (which information shall be supplemented by
such stockholder and beneficial owner, if any, not later than 10 days after the
record date for the meeting to disclose such ownership as of the record date),
and (iii) any other information relating to such stockholder and beneficial
owner, if any, that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitations of proxies
for, as applicable, the proposal and/or for the election of directors in a
contested election pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), and the rules and regulations promulgated
thereunder;
(b) if
the notice relates to any business other than a nomination of a director or
directors that the stockholder proposes to bring before the meeting, set forth
(i) a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest of such stockholder and beneficial owner, if any, in such
business and (ii) a description of all agreements, arrangements and
understandings between such stockholder and beneficial owner, if any, and any
other person or persons (including their names) in connection with the proposal
of such business by such stockholder;
(c) set
forth, as to each person, if any, whom the stockholder proposes to nominate for
election or reelection to the Board of Directors (i) all information relating to
such person that would be required to be disclosed in a proxy statement or other
filings required to be made in connection with solicitations of proxies for
election of directors in a contested election pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder (including
such person’s written consent to being named in the proxy statement as a nominee
and to serving as a director if elected) and (ii) a description of all direct
and indirect compensation and other material monetary agreements, arrangements
and understandings during the past three years, and any other material
relationships, between or among such stockholder and beneficial owner, if any,
and their respective affiliates and associates, or others acting in concert
therewith, on the one hand, and each proposed nominee, and his or her respective
affiliates and associates, or others acting in concert therewith, on the other
hand, including, without limitation all information that would be required to be
disclosed pursuant to Rule 404 promulgated under Regulation S-K (or any
successor rule) if the stockholder making the nomination and any beneficial
owner on whose behalf the nomination is made, if any, or any affiliate or
associate thereof or person acting in concert therewith, were the “registrant”
for purposes of such rule and the nominee were a director or executive officer
of such registrant; and
(d) with
respect to each nominee for election or reelection to the Board of Directors,
include a completed, dated and signed questionnaire, representation and
agreement and any other information required by paragraph (D)
below.
(4) Notwithstanding
anything in the second sentence of paragraph (A)(2) of this Section 13 to the
contrary, in the event that the number of directors to be elected to the Board
of Directors of the Corporation is increased and there is no public announcement
by the Corporation naming all of the nominees for director or specifying the
size of the increased Board of Directors at least 70 days prior to the first
anniversary of the preceding year’s annual meeting, a stockholder’s notice
required by this Section 13 shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the
Corporation.
(B)
Special Meetings of
Stockholders
. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation’s notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected pursuant to the
Corporation’s notice of meeting (1) by or at the direction of the Board of
Directors or (2) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who (a) is a stockholder of record at the time of giving of notice
provided for in this Section 13, (b) is entitled to vote at the meeting, and (c)
complies with the notice procedures set forth in this Section 13 as to such
nomination. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation’s
notice of meeting, if the stockholder’s notice required by paragraph (A)(2) of
this Section 13 with respect to any nomination (including the completed
and signed questionnaire, representation and agreement required by paragraph D
below) shall be delivered to the Secretary at the principal executive offices of
the Corporation not earlier than the close of business on the 90th day prior to
the date of such special meeting and not later than the close of business on the
later of the 60th day prior to the date of such special meeting or, if the first
public announcement of the date of such special meeting is less than 70 days
prior to the date of such special meeting, the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment
or postponement of a special meeting commence a new time period for the giving
of a stockholder’s notice as described above.
(C)
General
. (2)
Only such persons who are nominated in accordance with the procedures set forth
in this Section 13 shall be eligible to serve as directors and only such
other business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this Section 13 . Except as otherwise provided by law, the Articles
of Incorporation or these Bylaws, the Chairman of the meeting shall have the
power and duty to determine whether a nomination or any other business proposed
to be brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this Section 13, and, if any
proposed nomination or business is not in compliance with this Section 13 , to
declare that such defective proposal or nomination shall be
disregarded.
(2) For
purposes of this Section 13, “public announcement” shall mean disclosure in a
press release reported by a national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations
promulgated thereunder.
(3) Notwithstanding
the foregoing provisions of this Section 13, a stockholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in this Section 13;
provided, however, that any reference in these Bylaws to the Exchange Act or the
rules and regulations promulgated thereunder are not intended to and shall not
limit the requirements applicable to nominations or proposals as to any other
business to be considered pursuant to paragraph (A)(1)(c) or paragraph (B) of
this Section 13. Nothing in this Section 13 shall be deemed to
affect any rights (i) of stockholders to request inclusion of proposals in the
Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock if and to the extent
provided for under law, the Articles of Incorporation or these
Bylaws.
(D)
Submission of Questionnaire,
Representation and Agreement; Other Information
. To be
eligible to be a nominee for election or reelection as a director of the
Corporation, a person must deliver (in accordance with the time periods
prescribed for delivery of notice under Section 13) to the Secretary at the
principal executive offices of the Corporation a written questionnaire with
respect to the background and qualification of such person and the background of
any other person or entity on whose behalf the nomination is being made (which
questionnaire shall be provided by the Secretary upon written request) and a
written representation and agreement (in the form provided by the Secretary upon
written request) that such person (1) is not and will not become a party to (a)
any agreement, arrangement or understanding with, and has not given any
commitment or assurance to, any person or entity as to how such person, if
elected as a director of the Corporation, will act or vote on any issue or
question (a “Voting Commitment”) that has not been disclosed to the Corporation
or (b) any Voting Commitment that could limit or interfere with such person’s
ability to comply, if elected as a director of the Corporation, with such
person’s fiduciary duties under applicable law, (2) is not and will not become a
party to any agreement, arrangement or understanding with any person or entity
other than the Corporation with respect to any direct or indirect compensation,
reimbursement or indemnification in connection with service or action as a
director that has not been disclosed therein, and (3) in such person’s
individual capacity and on behalf of any person or entity on whose behalf the
nomination is being made, would be in compliance, if elected as a director of
the Corporation, and will comply with all applicable publicly disclosed
corporate governance, conflict of interest, confidentiality and stock ownership
and trading policies and guidelines of the Corporation. The
Corporation may also require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as an independent director of the
Corporation or that could be material to a reasonable stockholder’s
understanding of the independence, or lack thereof, of such
nominee.
(E)
Amendment
. Notwithstanding
any other provisions of the Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, the Articles of Incorporation or the Bylaws of the
Corporation), the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of the Corporation, voting together as a
single class, shall be required to alter, amend, repeal or adopt any provision
inconsistent with this Section 13.
ARTICLE
III
BOARD OF
DIRECTORS
Section
1. (a)
Number, Election and Terms
of Directors
. The business and affairs of the Corporation
shall be managed by a Board of Directors which shall consist of not less than
one (1) nor more than thirteen (13) persons, who need not be residents of the
State of Nevada or stockholders of the Corporation. The exact number
of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the entire Board of
Directors.
(b)
Classification of
Directors
. In lieu of electing the entire number of directors annually,
the Board of Directors may provide that the directors be divided into either two
or three classes, each class to be as nearly equal in number as possible, the
term of office of the directors of the first class to expire at the first annual
meeting of shareholders after their election, that of the second class to expire
at the second annual meeting after their election, and that of the third class,
if any, to expire at the third annual meeting after their election. At each
annual meeting after such classification, the number of directors equal to the
number of the class whose term expires at the time of such meeting shall be
elected to hold office until the second succeeding annual meeting, if there be
two classes, or until the third succeeding annual meeting, if there be three
classes.
(b)
Newly Created
Directorships
. A directorship to be filled by reason of any
increase in the number of directors may be filled (i) by election at an annual
or special meeting of stockholders called for that purpose or (ii) by the Board
of Directors for a term of office continuing only until the next election of one
or more directors by the stockholders- provided that the Board of Directors may
not fill more than two such directorships during the period between any two
successive annual meetings of stockholders.
(c)
Vacancies in the Board of
Directors
. Any vacancies in the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from office or
other cause shall be filled by a majority vote of the directors then in office,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which they have been
elected expires. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent
director.
(d)
Removal of
Directors
. Any director, or the entire Board of Directors, may
be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
(e)
Amendment, Repeal,
etc
. Notwithstanding any other provisions of the Articles of
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, the Articles of Incorporation
or the Bylaws of the Corporation), the affirmative vote of the holders of at
least 80% of the voting power of the then outstanding shares of the Corporation,
voting together as a single class, shall be required to alter, amend, repeal or
adopt any provision inconsistent with this Section 1.
Section
2.
Quorum
. Unless
otherwise provided in the Articles of Incorporation, a majority of the total
number of directors shall constitute a quorum for the transaction of business of
the Board of Directors and the vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors.
Section
3.
Place of Meetings, Order of
Business
. The directors may hold their meetings and may have
an office and keep the books of the Corporation, except as otherwise provided by
law, in such place or places, within or without the State of Nevada, as the
Board of Directors may from time to time determine by resolution. The
meetings of the Board of Directors shall be presided over by the Chairman of the
Board, or if he is not present, by the President, and the business of the
meeting shall be transacted in such order as shall from time to time be
determined by the Chairman of the Board, or in his absence, by the President, or
by resolution of the Board of Directors.
Section
4.
First
Meeting
. Each newly elected Board of Directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year
at which a quorum shall be present, held next after the annual meeting of
stockholders, the Board of Directors shall proceed to the election of the
officers of the Corporation.
Section
5.
Regular
Meetings
. Regular meetings of the Board of Directors shall be
held at such times and places as shall be designated from time to time by
resolution of the Board of Directors. Notice of such regular meetings
shall not be required.
Section
6.
Special
Meetings
. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President or on the written request of
any two directors, by the Secretary, in each case on at least twenty-four (24)
hours personal, written, telegraphic, cable or wireless notice to each
director. Such notice, or any waiver thereof pursuant to Article
VIII, Section 3 hereof, need not state the purpose or purposes of such meeting,
except as may otherwise be required by law or provided for in the Articles of
Incorporation or these Bylaws.
Section
7.
Compensation
. Unless
otherwise restricted by the Articles of Incorporation, the Board of Directors
shall have the authority to fix the compensation of directors.
Section
8.
Action Without a Meeting;
Telephone Conference Meeting
. Unless otherwise restricted by
the Articles of Incorporation, any action required or permitted to be taken at
any meeting of the Board of Directors, or any committee designated by the Board
of Directors, may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, either originally or in
counterparts, consent thereto in writing. Such consent shall have the
same force and effect as a unanimous vote at a meeting, and may be stated as
such in any document or instrument filed with the Secretary of State of
Nevada.
Unless
otherwise restricted by the Articles of Incorporation, subject to the
requirement for notice of meetings, members of the Board of Directors, or
members of any committee designated by the Board of Directors, may participate
in a meeting of such Board of Directors or committee, as the case may be, by
means of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in such a meeting shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called or convened.
Section
9.
Approval or Ratification of
Acts or Contracts by Stockholders
. The Board of Directors in
its discretion may submit any act or contract for approval or ratification at
any annual meeting of the stockholders, or at any special meeting of the
stockholders called for the purpose of considering any such act or contract, and
any act or contract that shall be approved or be ratified by the vote of the
stockholders holding a majority of the issued and outstanding shares of stock of
the Corporation entitled to vote and present in person or by proxy at such
meeting (provided that a quorum is present), shall be as valid and as binding
upon the Corporation and upon all the stockholders as if it has been approved or
ratified by every stockholder of the Corporation. In addition, any
such act or contract may be approved or ratified by the written consent of
stockholders holding a majority of the issued and outstanding shares of capital
stock of the Corporation entitled to vote and such consent shall be as valid and
as binding upon the Corporation and upon all the stockholders as if it had been
approved or ratified by every stockholder of the Corporation.
Section
10.
Limitation on Directors’
Liability
. Except as otherwise provided by law, a director shall not be
personally liable for monetary damages as such for any action taken, or failure
to take any action, unless:
(a) The
director has breached or failed to perform the duties of his office as provided
in the Nevada General Corporation Law; and
(b) The
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness.
ARTICLE
IV
COMMITTEES
Section
1.
Designation;
Powers
. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, including, if
they shall so determine, an executive committee, each such committee to consist
of one or more of the directors of the Corporation. Any such
designated committee shall have and may exercise such of the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that no
such Committee shall have the power or authority of the Board of Directors in
reference to amending the Articles of Incorporation, adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation’s property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution of the Corporation, or amending, altering or
repealing the Bylaws or adopting new Bylaws for the Corporation and, unless such
resolution or the Articles of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such designated committee may
authorize the seal of the Corporation to be affixed to all papers which may
require it. In addition to the above, such committee or committees
shall have such other powers and limitations of authority as may be determined
from time to time by resolution adopted by the Board of Directors.
Section
2.
Procedure; Meetings,
Quorum
. Any committee designated pursuant to Section 1 of this
Article shall choose its own chairman, shall keep regular minutes of its
proceedings and report the same to the Board of Directors when requested, shall
fix its own rules or procedures, and shall meet at such times and at such place
or places as may be provided by such rules, or by resolution of such committee
or resolution of the Board of Directors. At every meeting of any such
committee, the presence of a majority of all the members thereof shall
constitute a quorum and the affirmative vote of a majority of the members
present shall be necessary for the adoption by it of any
resolution.
Section
3.
Substitution of
Members
. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. In the absence
or disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of the absent or disqualified
member.
Article
V
OFFICERS
Section
1.
Number, Titles and Term of
Office
. The officers of the Corporation shall be a President,
one or more Vice Presidents (any one or more of whom may be designated Executive
Vice President or Senior Vice President), a Treasurer, a Secretary, a Registered
Agent and, if the Board of Directors so elects, a Chairman of the Board and such
other officers as the Board of Directors may from time to time elect or
appoint. Each officer shall hold office until his successor shall be
duly elected and shall qualify or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided. Any
number of offices may be held by the same person, unless the Articles of
Incorporation provides otherwise. Except for the Chairman of the
Board, if any, no officers need be a director.
Section
2.
Salaries
. The
salaries or other compensation of the officers and agents of the Corporation
shall be fixed from time to time by the Board of Directors.
Section
3.
Removal
. Any
officer or agent elected or appointed by the Board of Directors may be removed,
either with or without cause, by the vote of a majority of the whole Board of
Directors at a special meeting called for the purpose, or at any regular meeting
of the Board of Directors, provided the notice for such meeting shall specify
that the matter of any such proposed removal will be considered at the meeting
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section
4.
Vacancies
. Any
vacancy occurring in any office of the Corporation may be filled by the Board of
Directors.
Section
5.
Powers and Duties of the
Chief Executive Officer
. The President shall be the chief
executive officer of the Corporation unless the Board of Directors designates
the Chairman of the Board as chief executive officer. Subject to the
control of the Board of Directors and the executive committee (if any), the
chief executive officer shall have general executive charge, management and
control of the properties, business and operations of the Corporation with all
such powers as may be reasonably incident to such responsibilities; he may agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation and may sign all certificates for
shares of capital stock of the Corporation and shall have such other powers and
duties as designated in accordance with these Bylaws and as from time to time
may be assigned to him by the Board of Directors.
Section
6.
Powers and Duties of the
Chairman of the Board
. The Chairman of the Board shall have no
administrative duties relating to the Corporation or its property and he shall
act as a consultant and advisor to the President. The Chairman of the
Board shall preside when present at meetings of the stockholders and the Board
of Directors. In addition, he shall exercise such other powers and
perform such other duties as may be assigned to him from time to time by the
Board of Directors or as may be prescribed by the Bylaws.
Section
7.
Powers and Duties of the
President
. Unless the Board of Directors otherwise determines,
the President shall have the authority to agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation; and he shall have such other powers and duties as designated in
accordance with these Bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section
8.
Vice
Presidents
. In the absence of the President, or in the event
of his inability or refusal to act, a Vice President designated by the Board of
Directors shall perform the duties of the President, and when so acting shall
have all the powers of and be subject to all the restrictions of the
President. In the absence of a designation by the Board of Directors
of a Vice President to perform the duties of the President, or in the event of
his absence or inability or refusal to act, the Vice President who is present
and who is senior in terms of time as a Vice President of the Corporation shall
so act. The Vice Presidents shall perform such other duties and have
such other powers as the chief executive officer or the Board of Directors may
from time to time prescribe.
Section
9.
Treasurer
. The
Treasurer shall have responsibility for the custody and control of all the funds
and securities of the Corporation, and he shall have such other powers and
duties as designated in these Bylaws and as from time to time may be assigned to
him by the Board of Directors. He shall perform all acts incident to
the position of Treasurer, subject to the control of the chief executive officer
and the Board of Directors; and he shall, if required by the Board of Directors,
give such bond for the faithful discharge of his duties in such form as the
Board of Directors may require.
Section
10.
Assistant
Treasurers
. Each Assistant Treasurer shall have the usual
powers and duties pertaining to his office, together with such other powers and
duties as designated in these Bylaws and as from time to time may be assigned to
him by the chief executive officer or the Board of Directors. The
Assistant Treasurers shall exercise the powers of the Treasurer during that
officer’s absence or inability or refusal to act.
Section
11.
Secretary
. The
Secretary shall keep the minutes of all meetings of the Board of Directors,
committees of directors and the stockholders, in books provided for that
purpose; he shall attend to the giving and serving of all notices; he may in the
name of the Corporation affix the seal of the Corporation to all contracts of
the Corporation and attest the affixation of the seal of the Corporation
thereto; he may sign with the other appointed officers all certificates for
shares of capital stock of the Corporation; he shall have charge of the
certificate books, transfer books and stock ledgers, and such other books and
papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; he shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to him by the Board of Directors; and he shall in general perform all
acts incident to the office of Secretary, subject to the control of the chief
executive officer and the Board of Directors.
Section
12.
Assistant
Secretaries
. Each Assistant Secretary shall have the usual
powers and duties pertaining to his office, together with such other powers and
duties as designated in these Bylaws and as from time to time may be assigned to
him by the chief executive officer or the Board of Directors. The
Assistant Secretaries shall exercise the powers of the Secretary during that
officer’s absence or inability or refusal to act.
Section
13.
Resident
Agent
. The Resident Agent shall be either a natural person or
a corporation, resident or located in the State of Nevada. Along with
all other powers authorized by law, the Articles of Incorporation or these
Bylaws the Registered Agent may accept legal process, demand or notice
authorized by law to be served upon the Corporation.
Section
14.
Action with Respect to
Securities of Other Corporations
. Unless otherwise directed by
the Board of Directors, the chief executive officer shall have the power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of security holders of or with respect to any action of security holders
of any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other
corporations.
ARTICLE
VI
INDEMNIFICATION
OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
Section
1. To
the fullest extent allowed by Nevada law, any director of the Corporation shall
not be liable to the corporation or its shareholders for monetary damages for an
act or omission in the director’s capacity as a director, except that this
Article V does not eliminate or limit the liability of a director
for:
(a) an
act or omission which involves intentional misconduct, fraud or a knowing
violation of law; or
(b) the
payment of dividends in violation of N.R.S. 78.300.
Section
2. The
Corporation shall indemnify each director, officer, agent and employee, now or
hereafter serving the Corporation, each former director, officer, agent and
employee, and each person who may now or hereafter serve or who may have
heretofore served at the Corporation’s request as a director, officer, agent or
employee of another corporation or other business enterprise, and the respective
heirs, executors, administrators and personal representatives of each of them
against all expenses actually and reasonably incurred by, or imposed upon, him
in connection with the defense of any claim, action, suit or proceeding, civil
or criminal against him by reason of his being or having been such director,
officer, agent or employee, except in relation to such matters as to which he
shall be adjudged by a court of competent jurisdiction after exhaustion of all
appeals therefrom in such action, suit or proceedings to be liable for gross
negligence or willful misconduct in the performance of duty. For
purposes hereof, the term “expenses” shall include but not be limited to all
expenses, costs, attorneys’ fees, judgments (including adjudications other than
on the merits), fines, penalties, arbitration awards, costs of arbitration and
sums paid out and liabilities actually and reasonably incurred or imposed in
connection with any suit, claim, action or proceeding, and any settlement or
compromise thereof approved by the Board of Directors as being in the best
interests of the Corporation. However, in any case in which there is
no disinterested majority of the Board of Directors available, the
indemnification shall be made: (1) only if the Corporation shall be advised in
writing by counsel that in the opinion of counsel (a) such officer, director,
agent or employee was not adjudged or found liable for gross negligence or
willful misconduct in the performance of duty as such director, officer, agent
or employee or the indemnification provided is only in connection with such
matters as to which the person to be indemnified was not so liable, and in the
case of settlement or compromise, the same is in the best interests of the
Corporation; and (b) indemnification under the circumstances is lawful and falls
within the provisions of these Bylaws and (2) only in such amount as counsel
shall advise the Corporation in writing is, in his opinion,
proper. In making or refusing to make any payment under this or any
other provisions of these Bylaws, the Corporation, its directors, officers,
employees and agents shall be fully protected if they rely upon the written
opinion of counsel selected by, or in the manner designated by, the Board of
Directors.
Section
3. Expenses
incurred in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
Corporation as authorized in these Bylaws.
Section
4. The
Corporation may indemnify each person, though he is not or was not a director,
officer, employee or agent of the Corporation, who served at the request of the
Corporation on a committee created by the Board to consider and report to it in
respect of any matter. Any such indemnification may be made under the
provisions hereof and shall be subject to the limitations hereof, except that
(as indicated) any such committee member need not be nor have been a director,
officer, employee or agent of the Corporation.
Section
5. The
provisions hereof shall be applicable to actions, suits or proceedings
(including appeals) commenced after the adoption hereof, whether arising from
acts or omissions to act occurring before or after the adoption
hereof.
Section
6. The
indemnification provisions herein provided shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, or by
law or statute, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or Agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
Section
7. The
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and persons described in Section 4 of this Article above, against
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have the
power to indemnity him against such liability under the provisions of these
Bylaws.
ARTICLE
VII
CAPITAL
STOCK
Section
1.
Certificates of
Stock
. The shares of capital stock of the Corporation shall be
represented by a certificate, unless the Board of Directors of the Corporation
adopts a resolution permitting shares to be uncertificated. Every
holder of capital stock of the Corporation shall be entitled to have a
certificate for shares of capital stock. The certificates for shares
of the capital stock of the Corporation shall be in such form, not inconsistent
with that required by law and the Articles of Incorporation, as shall be
approved by the Board of Directors. The President or a Vice President
shall cause to be issued to each stockholder one or more certificates, under the
seal of the Corporation or a facsimile thereof if the Board of Directors shall
have provided for such seal, and signed by the President or a Vice President and
the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer certifying the number of shares (and, if the stock of the Corporation
shall be divided into classes or series, the class and series of such shares)
owned by such stockholder in the Corporation; provided however, that any of or
all the signatures on the certificate may be facsimile. The stock
record books and the blank stock certificate books shall be kept by the
Secretary, or at the office of such transfer agent or transfer agents as the
Board of Directors may from time to time by resolution determine. In
case any officer, transfer agent or registrar who shall have signed or whose
facsimile signature or signatures shall have been placed upon any such
certificate or certificates shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued by the Corporation, such
certificate may nevertheless be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. The stock certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder’s name and number of shares.
Section
2.
Transfer of
Shares
. Stock of the Corporation shall be transferable in the
manner prescribed by applicable law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation, and in the case of
certificated shares of stock, only by the person named in the certificate or by
such person’s attorney lawfully constituted in writing and upon the surrender of
the certificate therefor, properly endorsed for transfer and payment of all
necessary transfer taxes; or, in the case of uncertificated shares of stock,
upon receipt of proper transfer instructions from the registered holder of the
shares or by such person’s attorney lawfully constituted in writing, and upon
payment of all necessary transfer taxes and compliance with appropriate
procedures for transferring shares in uncertificated form; provided, however,
that such surrender and endorsement, compliance or payment of taxes shall not be
required in any case in which the officers of the Corporation shall determine to
waive such requirement. With respect to certificated shares of stock,
every certificate exchanged, returned or surrendered to the Corporation shall be
marked “Cancelled,” with the date of cancellation, by the Secretary or Assistant
Secretary of the Corporation or the transfer agent thereof. No
transfer of stock shall be valid as against the Corporation for any purpose
until it shall have been entered in the stock records of the Corporation by an
entry showing from and to whom transferred.
Section
3.
Ownership of
Shares
. The Corporation shall be entitled to treat the holder
of record of any share or shares of capital stock of the Corporation as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of the State of
Nevada.
Section
4.
Regulations Regarding
Certificates
. The Board of Directors shall have the power and
authority to make all such rules, restrictions and regulations as they may deem
expedient concerning the issue, transfer and registration or the replacement of
certificates for shares of capital stock of the Corporation.
Section
5.
Lost or Destroyed
Certificates
. The Board of Directors may determine the
conditions upon which a new certificate of stock may be issued in place of a
certificate which is alleged to have been lost, stolen or destroyed; and may, in
their discretion, require the owner of such certificate or his legal
representative to give bond, with sufficient surety, to indemnity the
Corporation and each transfer agent and registrar against any and all losses or
claims which may arise by reason of the issue of a new certificate in the place
of the one so lost, stolen or destroyed.
Article
VIII
MISCELLANEOUS
PROVISIONS
Section
1.
Fiscal
Year
. The fiscal year of the Corporation shall be such as
established from time to time by the Board of Directors.
Section
2.
Corporate
Seal
. The Board of Directors may provide a suitable seal
containing the name of the Corporation. The Secretary shall have
charge of the seal (if any). If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used by
the Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section
3.
Notice and Waiver of
Notice
. Whenever any notice is required to be given by law,
the Articles of Incorporation or under the provisions of these Bylaws, said
notice shall be deemed to be sufficient if given (i) by telegraphic, cable,
electronic mail or wireless transmission or (ii) by deposit of the same in a
post office box in a sealed prepaid wrapper addressed to the person entitled
thereto at his post office address, as it appears on the records of the
Corporation, and such notice shall be deemed to have been given on the day of
such transmission or mailing as the case may be.
Whenever
notice is required to be given by law, the Articles of Incorporation or under
any of the provisions of these Bylaws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the Articles of Incorporation or
the Bylaws.
Section
4.
Resignations
. Any
director, member of a committee or officer may resign at any
time. Such resignation shall be made in writing and shall take effect
at the time specified therein, or if no time be specified, at the time of its
receipt by the chief executive officer or Secretary. The acceptance
of a resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
Section
5.
Facsimile
Signatures
. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section
6.
Reliance Upon Books, Reports
and Records
. Each director and each member of any committee
designated by the Board of Directors shall, in the performance of his duties, be
fully protected in relying in good faith upon the books of account or reports
made to the Corporation by any of its officers, or by an independent certified
public accountant, or by an appraiser selected with reasonable care by the Board
of Directors or by any such committee, or in relying in good faith upon other
records of the Corporation.
Article
IX
AMENDMENTS
The Board
of Directors shall have the power to adopt, amend and repeal from time to time
the Bylaws of the Corporation, subject to the right of the stockholders entitled
to vote by law with respect thereto to amend or repeal such Bylaws as adopted or
amended by the Board of Directors; provided, however, that in the case of
amendments by stockholders or any repeal by stockholders, notwithstanding any
other provisions of these Bylaws or any other provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of any particular class or series of the capital stock of
the Corporation required by law, the Articles of Incorporation or these Bylaws,
the affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding shares of the Corporation entitled to vote, voting
together as a single class, shall be required to alter, amend or repeal any
provision of these Bylaws.
Warrant
Certificate No. ___
NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Effective
Date: [ ], 2010
|
Void
After: [ ],
2015
|
INVIVO
THERAPEUTICS CORPORATION
WARRANT
TO PURCHASE COMMON STOCK
InVivo
Therapeutics Corporation, a Delaware corporation (the “
Company
”), for value received
on [ ], 2010 (the “
Effective Date
”), hereby
issues to
[ ]
(the “
Holder
”)
this Warrant (the “
Warrant
”) to purchase,
[ ]
shares (each such share as from time to time adjusted as hereinafter provided
being a “
Warrant Share
”
and all such shares being the “
Warrant Shares
”) of the
Company’s Common Stock (as defined below), at the Exercise Price (as defined
below), as adjusted from time to time as provided herein, on or before
[ ], 2015 (the “
Expiration Date
”), all subject
to the following terms and conditions. Unless otherwise defined in this Warrant,
terms appearing in initial capitalized form shall have the meaning ascribed to
them in that certain Securities Purchase Agreement between the Company and the
purchaser signatory thereto pursuant to which this Warrant was issued (the
“
Securities Purchase
Agreement
”).
As used
in this Warrant, (i) “
Business
Day
” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York, New York, are authorized or required
by law or executive order to close; (ii) “
Common Stock
” means the common
stock of the Company, par value $0.001 per share, including any securities
issued or issuable with respect thereto or into which or for which such shares
may be exchanged for, or converted into, pursuant to any stock dividend, stock
split, stock combination, recapitalization, reclassification, reorganization or
other similar event; (iii) “
Exercise Price
” means
$13.7706 per share of Common Stock, subject to adjustment as provided
herein; (iv) “
Trading
Day
” means any day on which the Common Stock is traded on the primary
national or regional stock exchange on which the Common Stock is listed, or if
not so listed, the OTC Bulletin Board, if quoted thereon,
is open for the transaction of business;
and (v) “
Affiliate
”
means any person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with, a
person, as such terms are used and construed in Rule 144 promulgated under the
Securities Act of 1933, as amended (the “
Securities
Act
”).
1.
|
DURATION
AND EXERCISE OF WARRANTS
|
(a)
Exercise
Period
. The Holder may exercise this Warrant in whole or in
part on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration
Date, at which time this Warrant shall become void and of no value.
(b)
Exercise
Procedures
.
(i) While
this Warrant remains outstanding and exercisable in accordance with Section
1(a), in addition to the manner set forth in Section 1(b)(ii) below, the Holder
may exercise this Warrant in whole or in part at any time and from time to time
by:
(A) delivery
to the Company of a duly executed copy of the Notice of Exercise attached as
Exhibi
t A
;
(B) surrender
of this Warrant to the Secretary of the Company at its principal offices or at
such other office or agency as the Company may specify in writing to the Holder;
and
(C) payment
of the then-applicable Exercise Price per share multiplied by the number of
Warrant Shares being purchased upon exercise of the Warrant (such amount, the
“
Aggregate Exercise
Price
”) made in the form of cash, or by certified check, bank draft or
money order payable in lawful money of the United States of America or in the
form of a Cashless Exercise to the extent permitted in Section 1(b)(ii)
below.
(ii) At
any time when a registration statement covering the resale of the Warrant Shares
by the Holder is not available after the first anniversary of the Effective
Date, the Holder may, in its sole discretion, exercise all or any part of the
Warrant in a “cashless” or “net-issue” exercise (a “
Cashless Exercise
”) by
delivering to the Company (1) the Notice of Exercise and (2) the original
Warrant, pursuant to which the Holder shall surrender the right to receive upon
exercise of this Warrant, a number of Warrant Shares having a value (as
determined below) equal to the Aggregate Exercise Price, in which case, the
number of Warrant Shares to be issued to the Holder upon such exercise
shall be calculated using the following formula:
with: X
= the
number of Warrant Shares to be issued to the Holder
|
Y
=
|
the
number of Warrant Shares with respect to which the Warrant is being
exercised
|
|
A
=
|
the
fair value per share of Common Stock on the date of exercise of this
Warrant
|
|
B =
|
the
then-current Exercise Price of the
Warrant
|
Solely
for the purposes of this paragraph, “fair value” per share of Common Stock shall
mean (A) the average of the closing sales prices, as quoted on the primary
national or regional stock exchange on which the Common Stock is listed, or, if
not listed, the OTC Bulletin Board if quoted thereon, on the twenty (20) trading
days immediately preceding the date on which the Notice of Exercise is deemed to
have been sent to the Company, or (B) if the Common Stock is not publicly traded
as set forth above, as reasonably and in good faith determined by the Board of
Directors of the Company as of the date which the Notice of Exercise is
deemed to have been sent to the Company.
Notwithstanding
the foregoing provisions of this Section 1(b)(ii), the Holder may not make a
Cashless Exercise if and to the extent that such exercise would require the
Company to issue a number of shares of Common Stock in excess of its authorized
but unissued shares of Common Stock, less all amounts of Common Stock that have
been reserved for issue upon the conversion of all outstanding securities
convertible into shares of Common Stock and the exercise of all outstanding
options, warrants and other rights exercisable for shares of Common
Stock. If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to permit the Holder to make a
Cashless Exercise, the Company shall use commercially reasonable efforts to
obtain the necessary stockholder consent to increase the authorized number of
shares of Common Stock to permit such Holder to make a Cashless Exercise
pursuant to this Section 1(b)(ii).
(iii) Upon
the exercise of this Warrant in compliance with the provisions of this Section
1(b), and except as limited pursuant to the last paragraph of Section 1(b)(ii),
the Company shall promptly issue and cause to be delivered to the Holder a
certificate for the Warrant Shares purchased by the Holder. Each
exercise of this Warrant shall be effective immediately prior to the close of
business on the date (the “
Date
of Exercise
”) that the conditions set forth in Section 1(b) have been
satisfied, as the case may be. On the first Business Day following
the date on which the Company has received each of the Notice of Exercise and
the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance
with Section 1(b)(ii)) (the “
Exercise Delivery
Document
s
”), the
Company shall transmit an acknowledgment of receipt of the Exercise Delivery
Documents to the Company’s transfer agent (the “
Transfer Agent
”). On or before
the third Business Day following the date on which the Company has received all
of the Exercise Delivery Documents (the “
Share Delivery Date
”), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“
DTC
”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Notice of Exercise, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares. If this Warrant is submitted in connection with any
exercise pursuant to Section 1(a) and the number of Warrant Shares represented
by this Warrant submitted for exercise is greater than the actual number of
Warrant Shares being acquired upon such
an exercise, then the
Company shall as soon as practicable and in no event later than three (3)
Business Days after any exercise and at its own expense, issue a new Warrant of
like tenor representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is
exercised.
(iv) If
the Company shall fail for any reason or for no reason to issue to the Holder,
within three (3) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “
Buy-In
”),
then the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “
Buy-In Price
”), at which point
the Company’s obligation to deliver such certificate (and to issue such shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the closing bid price on the date of exercise.
(c)
Partial
Exercise
. This Warrant shall be exercisable, either in its
entirety or, from time to time, for part only of the number of Warrant Shares
referenced by this Warrant. If this Warrant is exercised in part, the Company
shall issue, at its expense, a new Warrant, in substantially the form of this
Warrant, referencing such reduced number of Warrant Shares that remain subject
to this Warrant.
(d)
Disputes
. In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 15.
2.
|
ISSUANCE
OF WARRANT SHARES
|
(a) The
Company covenants that all Warrant Shares will, upon issuance in accordance with
the terms of this Warrant, be (i) duly authorized, fully paid and
non-assessable, and (ii) free from all liens, charges and security interests,
with the exception of claims arising through the acts or omissions of any Holder
and except as arising from applicable Federal and state securities
laws.
(b) The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose in the name of the record holder of such Warrant from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner thereof for the purpose of any exercise thereof, any
distribution to the Holder thereof and for all other purposes.
(c) The
Company will not, by amendment of its certificate of formation, by-laws or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all action necessary or appropriate in order to protect the rights of
the Holder to exercise this Warrant, or against impairment of such
rights.
3.
|
ADJUSTMENTS
OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT
SHARES
|
(a) The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3(a);
provided
, that
notwithstanding the provisions of this Section 3, the Company shall not be
required to make any adjustment if and to the extent that such adjustment would
require the Company to issue a number of shares of Common Stock in excess of its
authorized but unissued shares of Common Stock, less all amounts of Common Stock
that have been reserved for issue upon the conversion of all outstanding
securities convertible into shares of Common Stock and the exercise of all
outstanding options, warrants and other rights exercisable for shares of Common
Stock. If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to make any adjustment, the
Company shall use its commercially best efforts to obtain the necessary
stockholder consent to increase the authorized number of shares of Common Stock
to make such an adjustment pursuant to this Section 3(a).
(i)
Subdivision or Combination
of Stock
. In case the Company shall at any time subdivide (whether by way
of stock dividend, stock split or otherwise) its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares shall be proportionately increased, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined (whether by
way of stock combination, reverse stock split or otherwise) into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
shall be proportionately decreased. The Exercise Price and the
Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this Section
3(a)(i).
(ii)
Dividends i
n Stock, Property,
Reclassification
. If at any time, or from time to time, all of the
holders of Common Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefore:
(A) any
shares of stock or other securities that are at any time directly or indirectly
convertible into or exchangeable for Common Stock, or any rights or options to
subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(B) additional
stock or other securities or property (including cash) by way of spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than shares of Common Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3(a)(i)
above),
then and
in each such case, the Exercise Price and the number of Warrant Shares to be
obtained upon exercise of this Warrant shall be adjusted proportionately, and
the Holder hereof shall, upon the exercise of this Warrant, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to above) that such Holder would hold on the date of such exercise had
such Holder been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such
shares or all other additional stock and other securities and
property. The Exercise Price and the Warrant Shares, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
event or events described in this Section 3(a)(ii)
.
(iii)
Reorganization,
Reclassification, Consolidation, Merger or Sale
. If any recapitalization,
reclassification or reorganization of the capital stock of the Company, or any
consolidation or
merger of
the Company with another corporation, or the sale of all or substantially all of
its assets or other transaction shall be effected in such a way that holders of
Common Stock shall be entitled to receive stock, securities, or other assets or
pro
p
erty (an “
Organic
Change
”
), then, as a condition of such Organic
Change, lawful and adequate provisions shall be made by the Company whereby the
Holder hereof shall thereafter have the right to purchase and receive (in lieu
of the shares of the Common Stoc
k of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented by this Warrant) such shares of stock, securities or other assets or
property as may be issued or payable with respect to or in exchange for a
n
umber of outstanding shares of such
Common Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable assuming the full exercise of the rights represented
by this Warrant. In the event of any Organic Change, appro
p
riate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Exercise Price and of the number of
shares purchasable and receivable upon
the exercise of this Warrant
and registration rights
) shall thereafter be applicable, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise hereof. The Company will not effe
ct any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instru
m
ent reasonably satisfactory in form and
substance to the Holder executed and mailed or delivered to the registered
Holder hereof at the last address of such Holder appearing on the books of the
Company, the obligation to deliver to such Holder such shares
of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
If there is an Organic Change, then the
Company shall cause to be mailed to the Holder at its last address as it shall
appear on the b
ooks and
records of the Company, at least 10 calendar days before the effective date of
the Organic Change, a notice stating the date on which such Organic Change is
expected to become effective or close, and the date as of which it is expected
that holde
r
s of the Common Stock of record shall
be entitled to exchange their shares for securities, cash, or other property
delivered upon such Organic Change;
provided
, that the failure to mail such notice
or any defect therein or in the mailing thereof shall not
affect the validity of the corporate
action required to be specified in such notice. The Holder is
entitled to exercise this Warrant during the 10-day period commencing on the
date of such notice to the effective date of the event triggering such
notice.
In any event, the successor corporation
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall be deemed to assume such obligation to
deliver to such Holder such shares of stock, securities
or assets even in the absence of a
written instrument assuming such obligation to the extent such assumption occurs
by operation of law.
(b)
Certificate as to
Adjustments
. Upon the occurrence of each adjustment or readjustment
pursuant to this Section 3, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall promptly furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; and (ii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
(c)
Certain Events
. If
any event occurs as to which the other provisions of this Section 3 are not
strictly applicable but the lack of any adjustment would not fairly protect the
purchase rights of the Holder under this Warrant in accordance with the basic
intent and principles of such provisions, or if strictly applicable would not
fairly protect the purchase rights of the Holder under this Warrant in
accordance with the basic intent and principles of such provisions, then the
Company's Board of Directors will, in good faith, make an appropriate adjustment
to protect the rights of the Holder;
provided
, that no
such adjustment pursuant to this Section 3(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 3.
(d)
Adjustment of Exercise Price
Upon Issuance of Additional Shares of Common Stock
. If the
Company issues Additional Shares of Common Stock, as defined below, without
consideration or for a consideration per share less than a price (the “
Applicable Price
”)
equal to the Exercise Price in effect immediately prior to such issuance, then
immediately after such issuance the Exercise Price then in effect shall be
reduced to an amount equal to such consideration per share, provided that in no
event shall the Exercise Price be reduced below $0.001. In the event
the Company shall at any time prior to the Expiration Date issue Additional
Shares of Common Stock, as defined below, without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior
to such issue, then the Exercise Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Exercise Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Company for the total number of Additional
Shares of Common Stock so issued would purchase at such Exercise Price; and (B)
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued;
provided
that, (i)
for the purpose of this Section 3(d), all shares of Common Stock issuable upon
conversion or exchange of convertible securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) the number of shares
of Common Stock deemed issuable upon conversion or exchange of such outstanding
convertible securities shall be determined without giving effect to any
adjustments to the conversion or exchange price or conversion or exchange rate
of such convertible securities resulting from the issuance of Additional Shares
of Common Stock that is the subject of this calculation. For purposes
of this Warrant, “Additional Shares of Common Stock” shall mean all shares of
Common Stock issued by the Company after the Effective Date (including without
limitation any shares of Common Stock issuable upon conversion or exchange of
any convertible securities or upon exercise of any option or warrant, on an
as-converted basis), other than: (i) shares of Common Stock issued or
issuable upon conversion or exchange of any convertible securities or exercise
of any options or warrants outstanding on the Effective Date; (ii) shares
of Common Stock issued or issuable by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock that is covered by
Sections 3(a)(i) through 3(a)(iii) above; (iii) shares of Common Stock (or
options with respect thereto) issued or issuable to employees or directors of,
or consultants to, the Company or any of its subsidiaries pursuant to a plan,
agreement or arrangement approved by the Board of Directors of the Company; (iv)
any securities issued or issuable by the Company pursuant to (A) the Securities
Purchase Agreement, (B) the reverse triangular merger of the Company into a
publicly-held company (“Merger”), or (C) any private placement offering that
closes (including subsequent closings) as part of the Merger; and (v) securities
issued pursuant to acquisitions or strategic transactions approved by a majority
of disinterested directors of the Company, provided that any such issuance shall
only be to a person which is, itself or through its subsidiaries, an operating
company in a business synergistic with the business of the Company and in which
the Company receives benefits in addition to the investment of funds, but shall
not include a transaction in which the Company is issuing securities primarily
for the purpose of raising capital or to an entity whose primary business is
investing in securities. The provisions of this Section 3(d) shall
not operate to increase the Exercise Price.
Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section
3(d), the number of Warrant Shares issuable upon exercise of this Warrant shall
be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
4.
|
TRANSFERS
AND EXCHANGES OF WARRANT AND WARRANT
SHARES
|
(a)
Registration of Transfers
and Exchanges
. Subject to Section 4(c), upon the Holder’s surrender of
this Warrant, with a duly executed copy of the Form of Assignment attached as
Exhibit B
, to the
Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder, the Company shall
register the transfer of all or any portion of this Warrant. Upon such
registration of transfer, the Company shall issue a new Warrant, in
substantially the form of this Warrant, evidencing the acquisition rights
transferred to the transferee and a new Warrant, in similar form,
evidencing the remaining acquisition rights not transferred, to the Holder
requesting the transfer.
(b)
Warrant Exchangeable for
Different Denominations
. The Holder may exchange this Warrant for a new
Warrant or Warrants, in substantially the form of this Warrant, evidencing in
the aggregate the right to purchase the number of Warrant Shares which may then
be purchased hereunder, each of such new Warrants to be dated the date of such
exchange and to represent the right to purchase such number of Warrant Shares as
shall be designated by the Holder. The Holder shall surrender this Warrant with
duly executed instructions regarding such re-certification of this Warrant to
the Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder.
(c)
Restrictions on
Transfers
. This Warrant may not be transferred at any time without (i)
registration under the Securities Act or (ii) an exemption from such
registration and a written opinion of legal counsel addressed to the Company
that the proposed transfer of the Warrant may be effected without registration
under the Securities Act, which opinion will be in form and from counsel
reasonably satisfactory to the Company.
(d)
Permitted Transfers and
Assignments
. Notwithstanding any provision to the contrary in
this Section 4, the Holder may transfer, with or without consideration, this
Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s
Affiliates (as such term is defined under Rule 144 of the Securities Act)
without obtaining the opinion from counsel that may be required by Section
4(c)(ii),
provided,
that the
Holder delivers to the Company and its counsel certification, documentation, and
other assurances reasonably required by the Company’s counsel to enable the
Company’s counsel to render an opinion to the Company’s Transfer Agent that such
transfer does not violate applicable securities laws.
5.
|
MUTILATED
OR MISSING WARRANT CERTIFICATE
|
If this Warrant is mutilated, lost,
stolen or destroyed, upon request by the Holder, the Company will, at its
expense, issue, in exchange for and upon cancellation of the mutilated Warrant,
or in substitution for the lost, stolen or destroyed Warrant, a new
Warrant, in substantially the form of this Warrant, representing the right
to acquire the equivalent number of Warrant Shares;
provided
, that, as a
prerequisite to the issuance of a substitute Warrant, the Company may require
satisfactory evidence of loss, theft or destruction as well as an indemnity from
the Holder of a lost, stolen or destroyed Warrant.
The
Company will pay all transfer and stock issuance taxes attributable to the
preparation, issuance and delivery of this Warrant and the Warrant Shares (and
replacement Warrants) including, without limitation, all documentary and stamp
taxes;
provided
,
however
, that the
Company shall not be required to pay any tax in respect of the transfer of this
Warrant, or the issuance or delivery of certificates for Warrant Shares or other
securities in respect of the Warrant Shares to any person or entity other than
to the Holder.
7. FRACTIONAL
WARRANT SHARES
No
fractional Warrant Shares shall be issued upon exercise of this Warrant. The
Company, in lieu of issuing any fractional Warrant Share, shall round up the
number of Warrant Shares issuable to nearest whole share.
8.
|
NO
STOCK RIGHTS AND LEGEND
|
No holder
of this Warrant, as such, shall be entitled to vote or be deemed the holder of
any other securities of the Company that may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise (except as provide herein).
Each certificate for Warrant Shares
initially issued upon the exercise of this Warrant, and each certificate for
Warrant Shares issued to any subsequent transferee of any such certificate,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS.”
9.
|
REGISTRATION
UNDER THE SECURITIES ACT OF 1933
|
In connection with any Organic Change
in which the Company is not the surviving corporation, the Company shall cause
the surviving corporation to provide registration rights with respect to the
resale of the Warrant Shares (or the warrant shares issuable upon the exercise
of the warrant that is exchanged for this Warrant at the time of the closing of
such Organic Change) under the Securities Act which are equal to any
registration rights that are afforded to any purchasers of securities that are
sold at the time of the Organic Change.
All notices, consents, waivers, and
other communications under this Warrant must be in writing and will be deemed
given to a party when (a) delivered to the appropriate address by hand or by
nationally recognized overnight courier service (costs prepaid); (b) sent by
facsimile or e-mail with confirmation of transmission by the transmitting
equipment; (c) received or rejected by the addressee, if sent by certified mail,
return receipt requested, if to the registered Holder hereof; or (d) seven days
after the placement of the notice into the mails (first class postage
prepaid), to the Holder at the address, facsimile number, or e-mail address
furnished by the registered Holder to the Company in accordance with the
Securities Purchase Agreement by and between the Company and the Holder, or if
to the Company, to it at One Broadway, 14th Floor, Cambridge, Ma. 02142,
Attention: Frank Reynolds, Chief Executive Officer (or to such other address,
facsimile number, or e-mail address as the Holder or the Company as a party may
designate by notice the other party) with a copy to Meister Seelig & Fein
LLP, 2 Grand Central Tower, 140 East 45
th
Street,
19
th
Floor, New York, NY 10017, Attention: Mitchell L. Lampert,
Esq.
If a
court of competent jurisdiction holds any provision of this Warrant invalid or
unenforceable, the other provisions of this Warrant will remain in full force
and effect. Any provision of this Warrant held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
This
Warrant shall be binding upon and inure to the sole and exclusive benefit of the
Company, its successors and assigns, the registered Holder or Holders from time
to time of this Warrant and the Warrant Shares.
13.
|
SURVIVAL
OF RIGHTS AND DUTIES
|
This
Warrant shall terminate and be of no further force and effect on the earlier of
5:00 P.M., Eastern Time, on the Expiration Date or the date on which this
Warrant has been exercised in full.
This
Warrant will be governed by and construed under the laws of the State of New
York without regard to conflicts of laws principles that would require the
application of any other law.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Notice of Exercise giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation of the Exercise Price or
the Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days, submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten (10) Business Days from the time it
receives the disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.
16.
|
NOTICES
OF RECORD DATE
|
Upon (a)
any establishment by the Company of a record date of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or right or option to acquire
securities of the Company, or any other right, or (b) any capital
reorganization, reclassification, recapitalization, merger or consolidation of
the Company with or into any other corporation, any transfer of all or
substantially all the assets of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or the sale, in a single
transaction, of a majority of the Company’s voting stock (whether newly issued,
or from treasury, or previously issued and then outstanding, or any combination
thereof), the Company shall mail to the Holder at least ten (10) Business Days,
or such longer period as may be required by law, prior to the record date
specified therein, a notice specifying (i) the date established as the record
date for the purpose of such dividend, distribution, option or right and a
description of such dividend, option or right, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up, or sale is expected to become effective and (iii) the
date, if any, fixed as to when the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolation, merger, dissolution, liquidation or winding up.
17.
|
RESERVATION
OF SHARES
|
The
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock for issuance upon the exercise of this Warrant, free from
pre-emptive rights, such number of shares of Common Stock for which this Warrant
shall from time to time be exercisable. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation. Without limiting the generality of the foregoing, the Company
covenants that it will use commercially reasonable efforts to take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares upon the exercise
of this Warrant and use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents, including but not limited to consents
from the Company’s stockholders or Board of Directors or any public regulatory
body, as may be necessary to enable the Company to perform its obligations under
this Warrant.
18.
|
NO
THIRD PARTY RIGHTS
|
This
Warrant is not intended, and will not be construed, to create any rights in any
parties other than the Company and the Holder, and no person or entity may
assert any rights as third-party beneficiary hereunder.
[SIGNATURE
PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has
caused this Warrant to be duly executed as of the date first set forth
above.
INVIVO
THERAPEUTICS CORPORATION
|
|
|
|
By:
|
|
|
Name:
Frank
Reynolds
|
|
Title:
Chief
Executive Officer
|
|
EXHIBIT
A
NOTICE OF
EXERCISE
(To be
executed by the Holder of Warrant if such Holder desires to exercise
Warrant)
To InVivo
Therapeutics Corporation:
The
undersigned hereby irrevocably elects to exercise this Warrant and to purchase
thereunder, ___________________ full shares of InVivo Therapeutics Corporation
common stock issuable upon exercise of the Warrant and delivery of:
(1) $_________
(in cash as provided for in the foregoing Warrant) and any applicable taxes
payable by the undersigned pursuant to such Warrant; and
(2) __________
shares of Common Stock (pursuant to a Cashless Exercise in accordance with
Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to
deliver an unspecified number of shares equal the number sufficient to effect a
Cashless Exercise [___]).
The undersigned requests that
certificates for such shares be issued in the name of:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
If the shares issuable upon this
exercise of the Warrant are not all of the Warrant Shares which the Holder is
entitled to acquire upon the exercise of the Warrant, the undersigned requests
that a new Warrant evidencing the rights not so exercised be issued in the name
of and delivered to:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
EXHIBIT
B
FORM OF
ASSIGNMENT
FOR VALUE
RECEIVED, ___________________________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
under the Warrant (as defined in and evidenced by the attached Warrant) to
acquire the number of Warrant Shares set opposite the name of such assignee
below and in and to the foregoing Warrant with respect to said acquisition
rights and the shares issuable upon exercise of the Warrant:
Name
of Assignee
|
|
Address
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
If the
total of the Warrant Shares are not all of the Warrant Shares evidenced by the
foregoing Warrant, the undersigned requests that a new Warrant evidencing the
right to acquire the Warrant Shares not so assigned be issued in the name of and
delivered to the undersigned.
6%
CONVERTIBLE PROMISSORY NOTE
THIS
PROMISSORY NOTE AND THE SECURITIES THAT MAY BE OBTAINABLE UPON CONVERSION HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (“THE
ACT”), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION
FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A
LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF
WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
6%
CONVERTIBLE PROMISSORY NOTE
No.
ICPN-[ ]
|
______
__, 2010
|
U.S.
$ _____________
|
|
FOR VALUE
RECEIVED, the undersigned, InVivo Therapeutics Corporation, a Delaware
corporation (the “Company”), hereby unconditionally promises to pay
____________________ (the “Holder”), on the Maturity Date (as defined in
Section 1
hereof) to
the order of the Holder, in lawful money of the United States of America and in
immediately available funds, the principal amount of _____________________
($________) Dollars (the “Principal Amount”). Interest shall accrue
the rate of 6% per annum (“Interest”) based on a 360 day year and shall be
payable for the actual number of days the Note is outstanding on the Maturity
Date unless earlier converted pursuant to Section 2 hereof.
This Note
shall be binding upon the Company and its successors and permitted assigns and
shall inure to the benefit of the Holder and its successors and
assigns. The Company may not assign or delegate any of its duties or
obligations under this Note without the written consent of the
Holder.
This Note
is one of a series of 6% convertible promissory notes of like tenor and ranking
made by the Company in favor of certain investors and issued, from time to time
(collectively, the “Notes”) pursuant to that certain Securities Purchase
Agreement by and between the Company and certain investors, including the
Holder, of even date herewith (the “Securities Purchase
Agreement”). Each of the Notes shall rank equally without preference
or priority of any kind over one another, and all payments on account of
principal and interest with respect to any of the Notes shall be applied ratably
and proportionately on the outstanding Notes on the basis of the principal
amount of the outstanding indebtedness represented thereby.
As
described in the Securities Purchase Agreement, each $50,000 principal amount of
this Note entitled the Holder to 3,631 common stock purchase warrants (“Bridge
Warrants”).
1.
Maturity
. Unless
otherwise converted into Next Round Equity Securities, as such term is defined
in Section 2 hereof, in accordance with the provisions of said Section 2, this
Note shall mature on December 31, 2010 (such date, the “Maturity
Date”). On the Maturity Date, unless, and to the extent, converted
into Next Round Equity Securities in accordance with the provisions of Section 2
hereof, any and all outstanding principal and Interest due and owing under the
Note shall be immediately paid by the Company.
2.
Conversion
.
(a)
General
. The
outstanding Principal Amount, plus accrued but unpaid Interest on this Note
shall automatically convert into the Company’s equity securities or equity
securities of Pubco (as defined below), which may include common stock,
convertible preferred stock, convertible debt instruments, and/or warrants
exercisable for any of the foregoing, singularly or in the form of units
comprised of two or more of such kinds of equity securities (the “Next Round
Equity Securities”) upon the closing of the earlier of either (i) the Company’s
next financing resulting in gross proceeds to the Company from the sale of Next
Round Equity Securities of at least $3,000,000 or (ii) a financing of at least
$7,000,000 of gross proceeds that is conducted concurrent with a reverse merger
transaction between the Company and a publicly held company (“Pubco”) that
results in the Company (or the surviving corporation in connection with such
transaction) being (or remaining) subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. A financing referred to
in either (i) or (ii) above is referred to herein as a “Qualified Next Round
Financing.” For purposes of calculating the aggregate amount of such proceeds,
the aggregate amount of the Notes, all of which are convertible into Next Round
Equity Securities in connection with the Qualified Next Round Financing, shall
be included.
The
quantity of Next Round Equity Securities to be issued upon such conversion shall
equal (i) the entire outstanding principal amount of this Note plus accrued but
unpaid Interest through the date of closing on a Qualified Next Round Financing
divided by (ii) 100% of the price (a) per security or (b) per unit of securities
at which the Next Round Equity Securities are sold in the Qualified Next Round
Financing (hereinafter referred to as the “Conversion Price”). The
Next Round Equity Securities issued to Holder shall have rights, preferences,
privileges and restrictions (including, without limitation, registration rights,
preemptive rights and any other contractual rights) identical to those granted
to or received by the other investors in the Qualified Next Round Financing. The
Company covenants to cause such securities, when issued pursuant to this Section
2(a), to be fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issuance thereof, other than any taxes, liens or
charges not caused by the Company.
(b)
Mechanics of
Conversion
. No later than five (5) business days prior to the
first closing of the Qualified Next Round Financing, the Company shall notify
Holder of such closing and the conversion terms of this Note, including
providing any offering documents that are utilized in connection with the
Qualified Next Round Financing. The date of such closing is herein referred to
as the “Conversion Date.” The Next Round Equity Securities issuable
on the Conversion Date are herein referred to as the “Conversion
Securities.” No fractions of Conversion Securities will be issued
upon the conversion of this Note. Any fractional amount will be
rounded up. Subject to Section 2(c) below, on the Conversion Date,
the repayment rights and other rights of Holder under this Note shall cease, and
the person in whose name the Conversion Securities shall be issuable upon such
conversion shall become the holder of record of the Conversion
Securities.
(c)
Rights as a
Stockholder
. Holder shall not be entitled to vote or
receive distributions or be deemed the holder of Conversion Securities or any
other securities of the Company which may at any time be issuable upon the
conversion of this Note for any purpose, nor shall anything contained herein be
construed to confer upon Holder, as such, any of the rights of a stockholder of
the Company or any right to vote as a stockholder of the Company or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
equity securities of the Company, reclassification of equity securities of the
Company, consolidation, merger, transfer of assets or otherwise) or to receive
notice of meetings, or to receive distributions or subscription rights or
otherwise unless and until this Note is converted in accordance with the terms
hereof.
(d)
Optional Conversion in
Certain Events
. In the event a Qualified Next Round Financing
is not consummated on or before the Maturity Date, the entire Principal Amount
of this Note, along with all accrued Interest thereon, shall, at the option of
the Holder, be convertible into the Company’s common stock at a conversion price
equal to $13.7706 per share. To exercise such optional conversion,
Holder must complete the attached Optional Conversion Notice Addendum (the
“
Addendum
”),
and deliver the original of this Note (or an affidavit of loss reasonably
acceptable to the Company) and the executed Addendum to the Company on or before
that date that is within 10 business days following the Maturity
Date. Subject to the terms below, the conversion will be effective
two (2) business days following the Company’s receipt of the original of this
Note and the Addendum.
(e)
Reservation of Common
Stock
. As set forth in the Securities Purchase Agreement, the
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of conversion of this Note and
the exercise of the Bridge Warrants and other warrants issued to broker-dealers
retained in connection with the transactions contemplated by the Securities
Purchase Agreement (the “BD Warrants”), that number of shares of Common Stock
equal to the sum of (i) the number of shares of Common Stock into which the Note
is convertible based upon the Conversion Price, plus (ii) the number of shares
of Common Stock for which the Bridge Warrants are exercisable from time to time
based upon the exercise price, plus (iii) the number of shares of Common Stock
for which the BD Warrants are exercisable from time to time based upon the
exercise price.
3.
Adjustments.
The
Conversion Price shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3.
(a)
Stock Dividends and
Splits
. If the Company, at any time while this Note is outstanding: (A)
pays a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (B) subdivides outstanding shares of Common
Stock into a larger number of shares, (C) combines (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issues by reclassification of shares of the Common Stock any shares of
capital stock of the Company, then in each case the Conversion Price shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding immediately before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding immediately after such event and the number of shares issuable
upon conversion of this Note shall be proportionately adjusted. Any
adjustment made pursuant to this
Section 3(a)
shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(b)
Mergers, Consolidations,
Etc
. Subject to Section 2 above, in the event of any consolidation or
merger of Company with or into another corporation or the conveyance of all or
substantially all of the assets of Company to another corporation or entity,
this Note shall thereafter be convertible into the number of shares of capital
stock or other securities or property to which a holder of the number of Common
Stock deliverable upon conversion hereof would have been entitled upon such
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interest of Holder thereafter, to the end that
the provisions set forth herein (including provisions with respect to
adjustments in the Conversion Price) shall thereafter be applicable, as nearly
as may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the conversion hereof.
4.
Events of
Default
. The term “Event of Default” shall mean any of the
events set forth in this Section 4:
(a)
the
Company shall default in the performance of, or violate any of the covenants and
agreements contained in this Note or in the Securities Purchase Agreement,
including without limitation, the failure to pay amounts due under this Note on
its Maturity Date, or any of the other Notes on their Maturity
Date;
(b)
any
representation, warranty or certification made by or on behalf of the Company in
this Note or in the Securities Purchase Agreement shall have been incorrect in
any material respect when made;
(c)
there
shall be a dissolution, termination of existence, suspension or discontinuance
of the Company’s business for a continuous period of 20 days or it ceases to
operate as going concern;
(d)
if
the Company shall:
(i) admit
in writing its inability to pay its debts generally as they become
due;
(ii) file
a petition in bankruptcy or a petition to take advantage of any insolvency
act;
(iii) convey
any material portion of the assets of the Company to a trustee, mortgage or
liquidating agent or make an assignment for the benefit of
creditors;
(iv) consent
to the appointment of a receiver, trustee, custodian or similar official, for
the Company or any material portion of the property or assets of the
Company;
(v) on
a petition in bankruptcy filed against it, be adjudicated a bankrupt;
or
(vi) file
a petition or answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any State, district or territory thereof;
(e)
if
a court of competent jurisdiction shall enter an order, judgment, or decree
appointing, without the consent of the Company, a receiver of the whole or any
substantial part of the Company’s assets, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from the date of
entry thereof;
(f)
if,
under the provisions of any other law for the relief or aid of debtors, any
court of competent jurisdiction shall assume custody or control of the whole or
any substantial part of the Company’s assets and such custody or control shall
not be terminated or stayed within 60 days from the date of assumption of such
custody or control; or
(g)
the
Company shall default in any of its obligations under any other promissory note,
indenture or any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
of the Company in an amount exceeding $100,000, whether such indebtedness now
exists or shall hereafter be created and such default shall result in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise become due and payable.
If any
Event of Default described in clause (d) of Section 4 shall occur, the Principal
Amount of this Note, together with all accrued and unpaid Interest shall
automatically be and become immediately due and payable, without notice or
demand.
If any
Event of Default (other than any Event of Default described in clause (d) of
Section 4) shall occur for any reason, whether voluntary or involuntary, and be
continuing, for ten (10) days after notice, the Holder may, upon notice to the
Company, declare all or any portion of the outstanding Principal Amount,
together with all accrued and unpaid Interest, to be due and payable, whereupon
the full unpaid Principal Amount hereof, together with all accrued and unpaid
Interest shall be so declared due and payable shall be and become immediately
due and payable, without further notice, demand, or presentment.
5.
Remedies
. In
case any one or more of the Events of Default specified in Section 4 hereof
shall have occurred and be continuing, the Holder may proceed to protect and
enforce the Holder’s rights either by suit in equity and/or by action at law,
whether for the specific performance of any covenant or agreement contained in
this Note or in aid of the exercise of any power granted in this Note, or the
Holder may proceed to enforce the payment of all sums due upon this Note or to
enforce any other legal or equitable right of the Holder.
6.
Amendments and
Waivers
. The terms of this Note may be amended and the
observance of any term of this Note may be waived (either generally or in a
particular instance and either retroactively or prospectively) with the Holder’s
consent.
7.
Notices
.
(a)
Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Securities Purchase Agreement.
(b)
Any
party may give any notice, request, consent or other communication under this
Note using any other means (including personal delivery, messenger service,
telecopy, first class mail or electronic mail), but no such notice, request,
consent or other communication shall be deemed to have been duly given unless
and until it is actually received by the party for whom it is
intended. Any party may change the address to which notices,
requests, consents or other communications hereunder are to be delivered by
giving the other parties notice in the manner set forth in this Section
7.
8.
Severability
. The
unenforceability or invalidity of any provision or provisions of this Note as to
any persons or circumstances shall not render that provision or those provisions
unenforceable or invalid as to any other provisions or circumstances, and all
provisions hereof, in all other respects, shall remain valid and
enforceable.
9.
Governing
Law
. This Note shall be governed by and construed under the
laws of the State of New York applicable to agreements made and to be performed
entirely within such jurisdiction.
10.
Waivers
. The
nonexercise by either party of any of its rights hereunder in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance.
11.
Attorneys’ Fees;
Costs
. If this Note is not paid when due or if any Event of
Default occurs, the Company promises to pay all costs of enforcement and
collection, including but not limited to, Holder’s attorneys’ fees,
whether or not any action or proceeding is brought to enforce the provisions
hereof.
[Signature
Page Follows]
IN
WITNESS WHEREOF, the Company has caused its duly authorized officers to execute
this Note as of the date first written above.
COMPANY:
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INVIVO THERAPEUTICS
CORPORATION
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By:
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Name:
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Frank
Reynolds
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Title:
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Chief
Executive Officer
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Optional Conversion
Notice
______________________, the registered
holder of this 6% Convertible Promissory Note, issued ________, 2010, hereby
gives notice of the conversion of all outstanding principal and accrued interest
into Common Stock of Invivo Therapeutics Corporation at a conversion price equal
to $13.7706 per share.
Signature
of Holder:
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(must
be in exact name as listed on the first page of this Note)
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Warrant
Certificate No. ___
NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Effective
Date: [ ], 2010
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Void
After: [ ],
2015
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INVIVO
THERAPEUTICS HOLDINGS CORP.
WARRANT
TO PURCHASE COMMON STOCK
InVivo Therapeutics Holdings
Corp.
, a Nevada corporation (the “
Company
”), for value received
on
[ ],
2010 (the “
Effective
Date
”), hereby issues to
[ ]
(the “
Holder
” or
“
Warrant Holder
”) this
Warrant (the “
Warrant
”)
to purchase
[ ]
shares, (each such share as from time to time adjusted as hereinafter provided
being a “
Warrant Share
”
and all such shares being the “
Warrant Shares
”) of the
Company’s Common Stock (as defined below), at the Exercise Price (as defined
below), as adjusted from time to time as provided herein, on or before
[ ], 2015 (the “
Expiration Date
”), all subject
to the following terms and conditions. This Warrant is one of a series of
warrants of like tenor that have been issued in connection with the Company’s
private offering solely to accredited investors of units in accordance with, and
subject to, the terms and conditions described in the Subscription Agreement,
attached to the Confidential Private Placement Memorandum of the Company dated
October 4, 2010, as the same may be amended and supplemented from time to time
(the “
Subscription
Agreement
” and the “
Private Placement Memorandum
”
respectively).
As used
in this Warrant, (i) “
Business
Day
” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York, New York, are authorized or required
by law or executive order to close; (ii) “
Common Stock
” means the common
stock of the Company, par value $0.00001 per share, including any securities
issued or issuable with respect thereto or into which or for which such shares
may be exchanged for, or converted into, pursuant to any stock dividend, stock
split, stock combination, recapitalization, reclassification, reorganization or
other similar event; (iii) “
Exercise Price
” means $1.40
per share of Common Stock, subject to adjustment as provided herein; (iv) “
Trading Day
” means any day on
which the Common Stock is traded (or available for trading) on its principal
trading market; (v) “
Affiliate
” means any person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, a person, as such terms are used
and construed in Rule 144 promulgated under the Securities Act of 1933, as
amended (the “
Securities
Act
”) and (vi) “
Warrantholders
” means the
holders of Warrants issued pursuant to the Subscription Agreement and Private
Placement Memorandum.
1.
|
DURATION
AND EXERCISE OF WARRANTS
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(a)
Exercise
Period
. The Holder may exercise this Warrant in whole or in
part on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration
Date, at which time this Warrant shall become void and of no value.
(b)
Exercise
Procedures
.
(i) While
this Warrant remains outstanding and exercisable in accordance with Section
1(a), in addition to the manner set forth in Section 1(b)(ii) below, the Holder
may exercise this Warrant in whole or in part at any time and from time to time
by:
(A) delivery
to the Company of a duly executed copy of the Notice of Exercise attached as
Exhibit A
;
(B) surrender
of this Warrant to the Secretary of the Company at its principal offices or at
such other office or agency as the Company may specify in writing to the Holder;
and
(C) payment
of the then-applicable Exercise Price per share multiplied by the number of
Warrant Shares being purchased upon exercise of the Warrant (such amount, the
“
Aggregate Exercise
Price
”) made in the form of cash, or by certified check, bank draft or
money order payable in lawful money of the United States of America or in the
form of a Cashless Exercise to the extent permitted in Section 1(b)(ii)
below.
(ii) In
addition to the provisions of Section 1(b)(i) above, if any time after the first
anniversary of the date of the filing of the Current Report on Form 8-K
reporting the reverse merger of InVivo Therapeutics Corporation, and a wholly
owned subsidiary of the Company, a registration statement covering the
resale of the Warrant Shares by the Holder is not effective with the Securities
and Exchange Commission (the “
S
EC
”), the Holder may, in its
sole discretion, exercise all or any part of the Warrant in a “cashless” or
“net-issue” exercise (a “
Cashless Exercise
”) by
delivering to the Company (1) the Notice of Exercise and (2) the original
Warrant, pursuant to which the Holder shall surrender the right to receive upon
exercise of this Warrant, a number of Warrant Shares having a value (as
determined below) equal to the Aggregate Exercise Price, in which case, the
number of Warrant Shares to be issued to the Holder upon such exercise
shall be calculated using the following formula:
with: X
= the
number of Warrant Shares to be issued to the Holder
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Y
=
|
the
number of Warrant Shares with respect to which the Warrant is being
exercised
|
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A
=
|
the
fair value per share of Common Stock on the date of exercise of this
Warrant
|
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B =
|
the
then-current Exercise Price of the
Warrant
|
Solely
for the purposes of this paragraph, “
fair value
” per share of
Common Stock shall mean the average Closing Price (as defined below) per share
of Common Stock for the twenty (20) trading days immediately preceding the date
on which the Notice of Exercise is deemed to have been sent to the
Company. “
Closing
Price
” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on the New York Stock Exchange, the American Stock Exchange,
the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital
Market or any other national securities exchange, the closing price per
share of the Common Stock for such date (or the nearest preceding date) on the
primary eligible market or exchange on which the Common Stock is then listed or
quoted; (b) if prices for the Common Stock are then quoted on the OTC Bulletin
Board, the closing bid price per share of the Common Stock for such date (or the
nearest preceding date) so quoted; or (c) if prices for the Common Stock are
then reported in the “Pink Sheets” published by the National Quotation Bureau
Incorporated (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent closing bid price per share of the Common
Stock so reported. If the Common Stock is not publicly traded as set
forth above, the “fair value” per share of Common Stock shall be reasonably and
in good faith determined by the Board of Directors of the Company as of the date
which the Notice of Exercise is deemed to have been sent to the
Company.
Notwithstanding
the foregoing, provided that a registration statement covering the resale of the
Warrant Shares by the Holder has (x) been declared effective by the SEC and
(y) remained effective for a period of one year, any Cashless Exercise right
hereunder shall thereupon terminate.
For purposes of Rule 144 promulgated
under the Securities Act, it is intended, understood and acknowledged that the
Warrant Shares issued in a cashless exercise transaction shall be deemed to have
been acquired by the Holder, and the holding period for such shares shall be
deemed to have commenced, on the date this Warrant was originally
issued.
(iii) Upon
the exercise of this Warrant in compliance with the provisions of this Section
1(b), and except as limited pursuant to the last paragraph of Section 1(b)(ii),
the Company shall promptly issue and cause to be delivered to the Holder a
certificate for the Warrant Shares purchased by the Holder. Each
exercise of this Warrant shall be effective immediately prior to the close of
business on the date (the “
Date
of Exercis
e
”)
that the conditions set forth in Section 1(b) have been satisfied, as the case
may be. On the first Business Day following the date on which the
Company has received each of the Notice of Exercise and the Aggregate Exercise
Price (or notice of a Cashless Exercise in accordance with Section 1(b)(ii))
(the “
Exercise Delivery
Documents
”), the Company shall transmit an acknowledgment of receipt of
the Exercise Delivery Documents to the Company’s transfer agent (the “
Transfer Agent
”). On or before
the third Business Day following the date on which the Company has received all
of the Exercise Delivery Documents (the “
Share Delivery Date
”), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“
DTC
”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Notice of Exercise, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares.
(iv) If
the Company shall fail for any reason or for no reason to issue to the Holder,
within three (3) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “
Buy
-In
”), then the Company shall,
within three (3) Business Days after the Holder’s request and in the Holder’s
discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s
total purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased (the “
Buy-In Price
”), at which point
the Company’s obligation to deliver such certificate (and to issue such shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the closing bid price on the date of
exercise.
(c)
Partial
Exercise
. This Warrant shall be exercisable, either in its
entirety or, from time to time, for part only of the number of Warrant Shares
referenced by this Warrant. If this Warrant is submitted in connection with any
exercise pursuant to Section 1 and the number of Warrant Shares represented by
this Warrant submitted for exercise is greater than the actual number of Warrant
Shares being acquired upon such
an exercise, then the
Company shall as soon as practicable and in no event later than five (5)
Business Days after any exercise and at its own expense, issue a new Warrant of
like tenor representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is
exercised.
(d)
Disputes
. In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 16.
2.
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ISSUANCE
OF WARRANT SHARES
|
(a) The
Company covenants that all Warrant Shares will, upon issuance in accordance with
the terms of this Warrant, be (i) duly authorized, fully paid and
non-assessable, and (ii) free from all liens, charges and security interests,
with the exception of claims arising through the acts or omissions of any Holder
and except as arising from applicable Federal and state securities
laws.
(b) The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose in the name of the record holder of such Warrant from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner thereof for the purpose of any exercise thereof, any
distribution to the Holder thereof and for all other purposes.
(c) The
Company will not, by amendment of its certificate of incorporation, by-laws or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all action necessary or appropriate in order to protect the rights of
the Holder to exercise this Warrant, or against impairment of such
rights.
3.
|
ADJUSTMENTS
OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT
SHARES
|
(a) The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3;
provided
, that
notwithstanding the provisions of this Section 3, the Company shall not be
required to make any adjustment if and to the extent that such adjustment would
require the Company to issue a number of shares of Common Stock in excess of its
authorized but unissued shares of Common Stock, less all amounts of Common Stock
that have been reserved for issue upon the conversion of all outstanding
securities convertible into shares of Common Stock and the exercise of all
outstanding options, warrants and other rights exercisable for shares of Common
Stock. If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to make any adjustment, the
Company shall use its commercially best efforts to obtain the necessary
stockholder consent to increase the authorized number of shares of Common Stock
to make such an adjustment pursuant to this Section 3.
(i)
Subdivision or Combination
of Stock
. In case the Company shall at any time subdivide (whether by way
of stock dividend, stock split or otherwise) its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares shall be proportionately increased, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined (whether by
way of stock combination, reverse stock split or otherwise) into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
shall be proportionately decreased. The Exercise Price and the
Warrant Shares, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this Section
3(a)(i).
(ii)
Dividends in Stock,
Property, Reclassification
. If at any time, or from time to time, all of
the holders of Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefore:
(A) any
shares of stock or other securities that are at any time directly or indirectly
convertible into or exchangeable for Common Stock, or any rights or options to
subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(B) additional
stock or other securities or property (including cash) by way of spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than shares of Common Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3(a)(i)
above),
then and
in each such case, the Exercise Price and the number of Warrant Shares to be
obtained upon exercise of this Warrant shall be adjusted proportionately, and
the Holder hereof shall, upon the exercise of this Warrant, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to above) that such Holder would hold on the date of such exercise
had such Holder been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and property. The
Exercise Price and the Warrant Shares, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive event or events described
in this Section 3(a)(ii)
.
(iii)
Reorganization,
Reclassification, Consolidation, Merger or Sale
. If any reca
pitalization, reclassification or
reorganization of the capital stock of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets or other transaction shall be effected in
s
u
ch a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
“
Organic
Change
”
), then, as a condition of such Organic
Change, lawful and adequate provisions shall be made by the Company whereby the
Ho
lder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented by this Warrant) such shares of
st
o
ck, securities or other assets or
property as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable as
s
uming the full exercise of the rights
represented by this Warrant. In the event of any Organic Change, appropriate
provision shall be made by the Company with respect to the rights and interests
of the Holder of this Warrant to the end that the provisions
hereof (including, without limitation,
provisions for adjustments of the Exercise Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant and registration
rights) shall thereafter be applicable, in relation to any sh
a
res of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Company will not effect any
such consolidation, merger or sale unless, prior to the consummation thereof,
the successor corporation (if other than the Company) resulti
n
g from such consolidation or merger or
the corporation purchasing such assets shall assume by written instrument
reasonably satisfactory in form and substance to the Holder executed and mailed
or delivered to the registered Holder hereof at the last addre
s
s of such Holder appearing on the books
of the Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
If there is an Organic Ch
ange, then the Company shall cause to
be mailed to the Holder at its last address as it shall appear on the books and
records of the Company, at least 10 calendar days before the effective date of
the Organic Change, a notice stating the date on which suc
h
Organic Change is expected to become
effective or close, and the date as of which it is expected that holders of the
Common Stock of record shall be entitled to exchange their shares for
securities, cash, or other property delivered upon such Organic Cha
n
ge; provided, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such
notice. The Holder is entitled to exercise this Warrant during the
1
0
-day period commencing on the date of
such notice to the effective date of the event triggering such
notice.
In any event, the successor corporation
(if other than the Company) resulting from such consolidation or merger or the
corporation purchasing such
assets shall be deemed to assume such
obligation to deliver to such Holder such shares of stock, securities or assets
even in the absence of a written instrument assuming such obligation to the
extent such assumption occurs by operation of law.
(b)
Cer
tificate as to
Adjustments
. Upon the occurrence of each adjustment or readjustment
pursuant to this Section 3, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall promptly furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; and (ii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
(c)
Certain Events
. If
any event occurs as to which the other provisions of this Section 3 are not
strictly applicable but the lack of any adjustment would not fairly protect the
purchase rights of the Holder under this Warrant in accordance with the basic
intent and principles of such provisions, or if strictly applicable would not
fairly protect the purchase rights of the Holder under this Warrant in
accordance with the basic intent and principles of such provisions, then the
Company's Board of Directors will, in good faith, make an appropriate adjustment
to protect the rights of the Holder;
provided
, that no
such adjustment pursuant to this Section 3(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 3.
(d)
Adjustment of Exercise Price
Up
on Issuance
of Additional Shares of Common Stock
. In the event the Company
shall at any time prior to the Expiration Date issue Additional Shares of Common
Stock, as defined below, without consideration or for a consideration per share
less than the Exercise Price in effect immediately prior to such issue, then the
Exercise Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Exercise Price
by a fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to be
received by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Exercise Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued;
provided
that, (i)
for the purpose of this Section 3(d), all shares of Common Stock issuable upon
conversion or exchange of convertible securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) the number of shares
of Common Stock deemed issuable upon conversion or exchange of such outstanding
convertible securities shall be determined without giving effect to any
adjustments to the conversion or exchange price or conversion or exchange rate
of such convertible securities resulting from the issuance of Additional Shares
of Common Stock that is the subject of this calculation. For purposes
of this Warrant, “Additional Shares of Common Stock” shall mean all shares of
Common Stock issued by the Company after the Effective Date (including without
limitation any shares of Common Stock issuable upon conversion or exchange of
any convertible securities or upon exercise of any option or warrant, on an
as-converted basis), other than: (i) shares of Common Stock issued or
issuable upon conversion or exchange of any convertible securities or exercise
of any options or warrants outstanding on the Effective Date; (ii) shares
of Common Stock issued or issuable by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock that is covered by
Sections 3(a)(i) through 3(a)(iii) above; (iii) shares of Common Stock (or
options with respect thereto) issued or issuable to employees or directors of,
or consultants to, the Company or any of its subsidiaries pursuant to a plan,
agreement or arrangement approved by the Board of Directors of the Company; (iv)
any securities issued or issuable by the Company pursuant to (A) the Company’s
Private Placement Memorandum and Subscription Agreements thereunder
or (B) the reverse triangular merger of InVivo Therapeutics Corporation with a
wholly owned subsidiary of the Company as contemplated in the Private Placement
Memorandum “Merger”); (v) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of disinterested directors of the
Company, provided that any such issuance shall only be to a person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities and (vi) securities issued to financial institutions, institutional
investors or lessors in connection with credit arrangements, equipment
financings or similar transactions approved by a majority of disinterested
directors of the Company. The provisions of this Section 3(d) shall
not operate to increase the Exercise Price.
Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section
3(d), the number of Warrant Shares issuable upon exercise of this Warrant shall
be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
4. REDEMPTION
OF WARRANTS
(a)
General
. Prior
to the Expiration Date, the Company shall have the option, subject to the
conditions set forth herein, to redeem all of the Warrants then outstanding upon
not less than thirty (30) days nor more than sixty (60) days prior written
notice to the Warrant Holders at any time provided that, at the time of delivery
of such notice (i) there is an effective registration statement covering the
resale of the Warrant Shares, and (ii) the closing bid price of the Company’s
Common Stock for each of the twenty (20) consecutive Trading Days prior to the
date of the notice of redemption is at least $2.80, as proportionately adjusted
to reflect any stock splits, stock dividends, combination of shares or like
events.
(b)
Notice
. Notice
of redemption will be effective upon mailing in accordance with this Section and
such date may be referred to below as the “
Notice Date
.
” Notice of redemption
shall be mailed by first class mail, postage prepaid, by the Company not less
than 30 days prior to the date fixed for redemption to the Holders of the
Warrants to be redeemed at their last addresses as they shall appear on the
registration books. Any notice mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the Holder received
such notice.
(c)
Redemption Date and
Redemption Price
. The notice of redemption shall state the
date set for redemption, which date shall be not less than thirty (30) days, or
more than sixty (60) days, from the Notice Date (the “
Redemption Date
”). The Company
shall not mail the notice of redemption unless all funds necessary to pay for
redemption of the Warrants to be redeemed shall have first been set aside by the
Company for the benefit of the Warrant Holders so as to be and continue to be
available therefor. The redemption price to be paid to the Warrant Holders will
be $0.00001 for each share of Common Stock of the Company to which the Warrant
Holder would then be entitled upon exercise of the Warrant being redeemed, as
adjusted from time to time as provided herein (the “
Redemption
Price
”).
(d)
Exercise
. Following
the Notice Date, the Warrant Holders may exercise their Warrants in accordance
with Section 1 of this Warrant between the Notice Date and 5:00 p.m. Eastern
Time on the Redemption Date and such exercise shall be timely if the form of
election to purchase duly executed and the Warrant Exercise Price for the shares
of Common Stock to be purchased are actually received by the Company at its
principal offices prior to 5:00 p.m. Eastern Time on the Redemption
Date.
(e)
Mailing
. If any
Warrant Holder does not wish to exercise any Warrant being redeemed, he should
mail such Warrant to the Company at its principal offices after receiving the
notice of redemption. On and after 5:00 p.m. Eastern Time on the Redemption
Date, notwithstanding that any Warrant subject to redemption shall not have been
surrendered for redemption, the obligation evidenced by all Warrants not
surrendered for redemption or effectively exercised shall be deemed no longer
outstanding, and all rights with respect thereto shall forthwith cease and
terminate, except only the right of the holder of each Warrant subject to
redemption to receive the Redemption Price for each share of Common Stock to
which he would be entitled if he exercised the Warrant upon receiving notice of
redemption of the Warrant subject to redemption held by him.
5.
|
TRANSFERS
AND EXCHANGES OF WARRANT AND WARRANT
SHARES
|
(a)
Registration of
Transfer
s and
Exchanges
. Subject to Section 5(c), upon the Holder’s surrender of this
Warrant, with a duly executed copy of the Form of Assignment attached as
Exhibit B
, to the Secretary of
the Company at its principal offices or at such other office or agency as the
Company may specify in writing to the Holder, the Company shall register the
transfer of all or any portion of this Warrant. Upon such registration of
transfer, the Company shall issue a new Warrant, in substantially the form of
this Warrant, evidencing the acquisition rights transferred to the transferee
and a new Warrant, in similar form, evidencing the remaining acquisition rights
not transferred, to the Holder requesting the transfer.
(b)
Warrant Exchangeable for
Different Denominations
. The Holder may exchange this Warrant for a new
Warrant or Warrants, in substantially the form of this Warrant, evidencing in
the aggregate the right to purchase the number of Warrant Shares which may then
be purchased hereunder, each of such new Warrants to be dated the date of such
exchange and to represent the right to purchase such number of Warrant Shares as
shall be designated by the Holder. The Holder shall surrender this Warrant with
duly executed instructions regarding such re-certification of this Warrant to
the Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder.
(c)
Restrictions on
Transfers
. This Warrant may not be transferred at any time without (i)
registration under the Securities Act or (ii) an exemption from such
registration and a written opinion of legal counsel addressed to the Company
that the proposed transfer of the Warrant may be effected without registration
under the Securities Act, which opinion will be in form and from counsel
reasonably satisfactory to the Company.
(d)
Permitted Transfers and
Assignments
. Notwithstanding any provision to the contrary in
this Section 5, the Holder may transfer, with or without consideration, this
Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s
Affiliates (as such term is defined under Rule 144 of the Securities Act)
without obtaining the opinion from counsel that may be required by Section
5(c)(ii),
provided,
that the
Holder delivers to the Company and its counsel certification, documentation, and
other assurances reasonably required by the Company’s counsel to enable the
Company’s counsel to render an opinion to the Company’s Transfer Agent that such
transfer does not violate applicable securities laws.
6.
|
MUTILATED
OR MISSING WARRANT CERTIFICATE
|
If this Warrant is mutilated, lost,
stolen or destroyed, upon request by the Holder, the Company will, at its
expense, issue, in exchange for and upon cancellation of the mutilated Warrant,
or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in
substantially the form of this Warrant, representing the right to acquire the
equivalent number of Warrant Shares;
provided
, that, as a
prerequisite to the issuance of a substitute Warrant, the Company may require
satisfactory evidence of loss, theft or destruction as well as an indemnity from
the Holder of a lost, stolen or destroyed Warrant.
The
Company will pay all transfer and stock issuance taxes attributable to the
preparation, issuance and delivery of this Warrant and the Warrant Shares (and
replacement Warrants) including, without limitation, all documentary and stamp
taxes;
provided
,
however
, that the
Company shall not be required to pay any tax in respect of the transfer of this
Warrant, or the issuance or delivery of certificates for Warrant Shares or other
securities in respect of the Warrant Shares to any person or entity other than
to the Holder.
8. FRACTIONAL
WARRANT SHARES
No
fractional Warrant Shares shall be issued upon exercise of this Warrant. The
Company, in lieu of issuing any fractional Warrant Share, shall round up the
number of Warrant Shares issuable to nearest whole share.
9.
|
NO
STOCK RIGHTS AND LEGEND
|
No holder
of this Warrant, as such, shall be entitled to vote or be deemed the holder of
any other securities of the Company that may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise (except as provide herein).
Each certificate for Warrant Shares
initially issued upon the exercise of this Warrant, and each certificate for
Warrant Shares issued to any subsequent transferee of any such certificate,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS.”
The Holder shall be entitled to the
registration rights as are contained in the Registration Rights Agreement of
even date herewith, by and among the Company, the Holder and the other
subscribers of the Company’s securities pursuant to the Subscription Agreements,
the provisions of which are deemed incorporated herein by
reference.
11. NOTICES
All notices, consents, waivers, and
other communications under this Warrant must be in writing and will be deemed
given to a party when (a) delivered to the appropriate address by hand or by
nationally recognized overnight courier service (costs prepaid); (b) sent by
facsimile or e-mail with confirmation of transmission by the transmitting
equipment; (c) received or rejected by the addressee, if sent by certified mail,
return receipt requested, if to the registered Holder hereof; or (d) seven days
after the placement of the notice into the mails (first class postage prepaid),
to the Holder at the address, facsimile number, or e-mail address furnished by
the registered Holder to the Company in accordance with the Subscription
Agreement by and between the Company and the Holder, or if to the Company, to it
at One Broadway, 14th Floor, Cambridge, Ma. 02142, Attention: Frank Reynolds,
Chief Executive Officer (or to such other address, facsimile number, or e-mail
address as the Holder or the Company as a party may designate by notice the
other party) with a copy to Meister Seelig & Fein LLP, 2 Grand Central
Tower, 140 East 45
th
Street,
19
th
Floor, New York, NY 10017, Attention: Mitchell L. Lampert,
Esq.
If a
court of competent jurisdiction holds any provision of this Warrant invalid or
unenforceable, the other provisions of this Warrant will remain in full force
and effect. Any provision of this Warrant held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
This
Warrant shall be binding upon and inure to the sole and exclusive benefit of the
Company, its successors and assigns, the registered Holder or Holders from time
to time of this Warrant and the Warrant Shares.
14.
|
SURVIVAL
OF RIGHTS AND DUTIES
|
This
Warrant shall terminate and be of no further force and effect on the earlier of
5:00 P.M., Eastern Time, on the Expiration Date or the date on which this
Warrant has been exercised in full.
This
Warrant will be governed by and construed under the laws of the State of New
York without regard to conflicts of laws principles that would require the
application of any other law.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Notice of Exercise giving rise to such dispute,
as the case may be, to the Holder. If the Holder and the Company are unable to
agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days, submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by
the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Warrant Shares to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten (10)
Business Days from the time it receives the disputed determinations or
calculations. Such investment bank’s or accountant’s determination or
calculation, as the case may be, shall be binding upon all parties absent
demonstrable error.
17.
|
NOTICES
OF RECORD DATE
|
Upon (a)
any establishment by the Company of a record date of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or right or option to acquire
securities of the Company, or any other right, or (b) any capital
reorganization, reclassification, recapitalization, merger or consolidation of
the Company with or into any other corporation, any transfer of all or
substantially all the assets of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or the sale, in a single
transaction, of a majority of the Company’s voting stock (whether newly issued,
or from treasury, or previously issued and then outstanding, or any combination
thereof), the Company shall mail to the Holder at least ten (10) Business Days,
or such longer period as may be required by law, prior to the record date
specified therein, a notice specifying (i) the date established as the record
date for the purpose of such dividend, distribution, option or right and a
description of such dividend, option or right, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up, or sale is expected to become effective and (iii) the
date, if any, fixed as to when the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolation, merger, dissolution, liquidation or winding up.
18.
|
RESERVATION
OF SHARES
|
The
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock for issuance upon the exercise of this Warrant, free from
pre-emptive rights, such number of shares of Common Stock for which this Warrant
shall from time to time be exercisable. The Company will take all
such reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law or
regulation. Without limiting the generality of the foregoing, the Company
covenants that it will use commercially reasonable efforts to take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and use commercially reasonable efforts to obtain all
such authorizations, exemptions or consents, including but not limited to
consents from the Company’s stockholders or Board of Directors or any public
regulatory body, as may be necessary to enable the Company to perform its
obligations under this Warrant.
19.
|
NO
THIRD PARTY RIGHTS
|
This
Warrant is not intended, and will not be construed, to create any rights in any
parties other than the Company and the Holder, and no person or entity may
assert any rights as third-party beneficiary hereunder.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of
the date first set forth above.
INVIVO
THERAPEUTICS HOLDINGS CORP.
|
|
|
|
|
By:
|
|
|
|
Name:
|
Frank
Reynolds
|
|
|
Title:
|
President
and Chief Executive
Officer
|
EXHIBIT
A
NOTICE OF
EXERCISE
(To be
executed by the Holder of Warrant if such Holder desires to exercise
Warrant)
To InVivo
Therapeutics Holdings Corp.:
The
undersigned hereby irrevocably elects to exercise this Warrant and to purchase
thereunder, ___________________ full shares of [InVivo Therapeutics Holdings
Corp.] common stock issuable upon exercise of the Warrant and delivery
of:
(1) $_________
(in cash as provided for in the foregoing Warrant) and any applicable taxes
payable by the undersigned pursuant to such Warrant; and
(2) __________
shares of Common Stock (pursuant to a Cashless Exercise in accordance with
Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to
deliver an unspecified number of shares equal the number sufficient to effect a
Cashless Exercise [___]).
The undersigned requests that
certificates for such shares be issued in the name of:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
If the shares issuable upon this
exercise of the Warrant are not all of the Warrant Shares which the Holder is
entitled to acquire upon the exercise of the Warrant, the undersigned requests
that a new Warrant evidencing the rights not so exercised be issued in the name
of and delivered to:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
EXHIBIT
B
FORM OF
ASSIGNMENT
FOR VALUE
RECEIVED, ___________________________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
under the Warrant (as defined in and evidenced by the attached Warrant) to
acquire the number of Warrant Shares set opposite the name of such assignee
below and in and to the foregoing Warrant with respect to said acquisition
rights and the shares issuable upon exercise of the Warrant:
Name
of Assignee
|
|
Address
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the
total of the Warrant Shares are not all of the Warrant Shares evidenced by the
foregoing Warrant, the undersigned requests that a new Warrant evidencing the
right to acquire the Warrant Shares not so assigned be issued in the name of and
delivered to the undersigned.
Warrant
Certificate No. ___
NEITHER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
THE EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH
SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES
LAWS.
Effective
Date: October [ ], 2010
|
Void
After: October [ ],
20__
|
INVIVO
THERAPEUTICS HOLDINGS CORP.
WARRANT
TO PURCHASE COMMON STOCK
InVivo Therapeutics Holdings
Corp.
, a Nevada corporation (the “
Company
”), for value received
on October [ ], 2010 (the “
Effective Date
”), hereby
issues to
[ ]
(the “
Holder
” or
“
Warrant Holder
”) this
Warrant (the “
Warrant
”)
to purchase
[ ]
shares, (each such share as from time to time adjusted as hereinafter provided
being a “
Warrant Share
”
and all such shares being the “
Warrant Shares
”) of the
Company’s Common Stock (as defined below), at the Exercise Price (as defined
below), as adjusted from time to time as provided herein, on or before
[ ], 2015 (the “
Expiration Date
”), all subject
to the following terms and conditions.
As used
in this Warrant, (i) “
Business
Day
” means any day other than Saturday, Sunday or any other day on which
commercial banks in the City of New York, New York, are authorized or required
by law or executive order to close; (ii) “
Common Stock
” means the common
stock of the Company, par value $0.00001 per share, including any securities
issued or issuable with respect thereto or into which or for which such shares
may be exchanged for, or converted into, pursuant to any stock dividend, stock
split, stock combination, recapitalization, reclassification, reorganization or
other similar event; (iii) “
Exercise Price
” means $1.00
per share of Common Stock, subject to adjustment as provided herein; (iv) “
Trading Day
” means any day on
which the Common Stock is traded (or available for trading) on its principal
trading market; (v) “
Affiliate
” means any person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, a person, as such terms are used
and construed in Rule 144 promulgated under the Securities Act of 1933, as
amended (the “
Securities
Act
”) and (vi) “
Warrantholders
” means the
holder of this Warrant and other warrants of like tenor issued simultaneously
herewith.
1.
|
DURATION
AND EXERCISE OF WARRANTS
|
(a)
Exercise
Period
. The Holder may exercise this Warrant in whole or in
part on any Business Day on or before 5:00 P.M., Eastern Time, on the Expiration
Date, at which time this Warrant shall become void and of no value.
|
(b)
|
Exercise
Procedures
.
|
(i) While
this Warrant remains outstanding and exercisable in accordance with Section
1(a), in addition to the manner set forth in Section 1(b)(ii) below, the Holder
may exercise this Warrant in whole or in part at any time and from time to time
by:
(A) delivery
to the Company of a duly executed copy of the Notice of Exercise attached as
Exhibit A
;
(B) surrender
of this Warrant to the Secretary of the Company at its principal offices or at
such other office or agency as the Company may specify in writing to the Holder;
and
(C) payment
of the then-applicable Exercise Price per share multiplied by the number of
Warrant Shares being purchased upon exercise of the Warrant (such amount, the
“
Aggregate Exercise
Price
”) made in the form of cash, or by certified check, bank draft or
money order payable in lawful money of the United States of America or in the
form of a Cashless Exercise to the extent permitted in Section 1(b)(ii)
below.
(ii) In
addition to the provisions of Section 1(b)(i) above, if any time after the first
anniversary of the date of the filing of the Current Report on Form 8-K
reporting the reverse merger (the “Merger”) of InVivo Therapeutics Corporation,
and a wholly owned subsidiary of the Company, a registration statement
covering the resale of the Warrant Shares by the Holder is not effective with
the Securities and Exchange Commission (the “
SEC
”), the Holder may, in its
sole discretion, exercise all or any part of the Warrant in a “cashless” or
“net-issue” exercise (a “
Cashless Exercise
”) by
delivering to the Company (1) the Notice of Exercise and (2) the original
Warrant, pursuant to which the Holder shall surrender the right to receive upon
exercise of this Warrant, a number of Warrant Shares having a value (as
determined below) equal to the Aggregate Exercise Price, in which case, the
number of Warrant Shares to be issued to the Holder upon such exercise shall be
calculated using the following formula:
X =
Y * (A -
B)
A
with:
X
= the number of
Warrant Shares to be issued to the Holder
|
Y
=
|
the
number of Warrant Shares with respect to which the Warrant is being
exercised
|
|
A
=
|
the
fair value per share of Common Stock on the date of exercise of this
Warrant
|
B
= the
then-current Exercise Price of the Warrant
Solely
for the purposes of this paragraph, “
fair value
” per share of
Common Stock shall mean the average Closing Price (as defined below) per share
of Common Stock for the twenty (20) trading days immediately preceding the date
on which the Notice of Exercise is deemed to have been sent to the
Company. “
Closing
Price
” means, for any date, the price determined by the first of the
following clauses that applies: (a) if the Common Stock is then
listed or quoted on the New York Stock Exchange, the American Stock Exchange,
the NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital
Market or any other national securities exchange, the closing price per
share of the Common Stock for such date (or the nearest preceding date) on the
primary eligible market or exchange on which the Common Stock is then listed or
quoted; (b) if prices for the Common Stock are then quoted on the OTC Bulletin
Board, the closing bid price per share of the Common Stock for such date (or the
nearest preceding date) so quoted; or (c) if prices for the Common Stock are
then reported in the “Pink Sheets” published by the National Quotation
Bureau Incorporated (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent closing bid price per share of
the Common Stock so reported. If the Common Stock is not publicly
traded as set forth above, the “fair value” per share of Common Stock shall be
reasonably and in good faith determined by the Board of Directors of the Company
as of the date which the Notice of Exercise is deemed to have been sent to the
Company.
Notwithstanding
the foregoing, provided that a registration statement covering the resale of the
Warrant Shares by the Holder has (x) been declared effective by the SEC and
(y) remained effective for a period of one year, any Cashless Exercise right
hereunder shall thereupon terminate.
For purposes of Rule 144 promulgated
under the Securities Act, it is intended, understood and acknowledged that the
Warrant Shares issued in a cashless exercise transaction shall be deemed to have
been acquired by the Holder, and the holding period for such shares shall be
deemed to have commenced, on the date this Warrant was originally
issued.
(iii) Upon
the exercise of this Warrant in compliance with the provisions of this Section
1(b), and except as limited pursuant to the last paragraph of Section 1(b)(ii),
the Company shall promptly issue and cause to be delivered to the Holder a
certificate for the Warrant Shares purchased by the Holder. Each
exercise of this Warrant shall be effective immediately prior to the close of
business on the date (the “
Date
of Exercise
”) that the conditions set forth in Section 1(b) have been
satisfied, as the case may be. On the first Business Day following
the date on which the Company has received each of the Notice of Exercise and
the Aggregate Exercise Price (or notice of a Cashless Exercise in accordance
with Section 1(b)(ii)) (the “
Exercise Delivery Documents
”),
the Company shall transmit an acknowledgment of receipt of the Exercise Delivery
Documents to the Company’s transfer agent (the “
Transfer Ag
ent
”). On or before the third
Business Day following the date on which the Company has received all of the
Exercise Delivery Documents (the “
Share Delivery Date
”), the
Company shall (X) provided that the Transfer Agent is participating in The
Depository Trust Company (“
DTC
”) Fast Automated
Securities Transfer Program, upon the request of the Holder, credit such
aggregate number of shares of Common Stock to which the Holder is entitled
pursuant to such exercise to the Holder’s or its designee’s balance account with
DTC through its Deposit Withdrawal Agent Commission system, or (Y) if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, issue and dispatch by overnight courier to the address as
specified in the Notice of Exercise, a certificate, registered in the Company’s
share register in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder is entitled pursuant to such
exercise. Upon delivery of the Exercise Delivery Documents, the
Holder shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised, irrespective of the date of delivery of the certificates evidencing
such Warrant Shares.
(iv) If
the Company shall fail for any reason or for no reason to issue to the Holder,
within three (3) Business Days of receipt of the Exercise Delivery Documents, a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or to credit the Holder’s balance account with DTC for such number of
shares of Common Stock to which the Holder is entitled upon the Holder’s
exercise of this Warrant, and if on or after such Business Day the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of shares of Common Stock
issuable upon such exercise that the Holder anticipated receiving from the
Company (a “
Buy-In
”),
then the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “
Buy-In Price
”), at which point
the Company’s obligation to deliver such certificate (and to issue such shares
of Common Stock) shall terminate, or (ii) promptly honor its obligation to
deliver to the Holder a certificate or certificates representing such shares of
Common Stock and pay cash to the Holder in an amount equal to the excess (if
any) of the Buy-In Price over the product of (A) such number of shares of Common
Stock, times (B) the closing bid price on the date of
exercise.
(c)
Partial
Exercise
. This Warrant shall be exercisable, either in its
entirety or, from time to time, for part only of the number of Warrant Shares
referenced by this Warrant. If this Warrant is submitted in connection with any
exercise pursuant to Section 1 and the number of Warrant Shares represented by
this Warrant submitted for exercise is greater than the actual number of Warrant
Shares being acquired upon such
an exercise, then the
Company shall as soon as practicable and in no event later than five (5)
Business Days after any exercise and at its own expense, issue a new Warrant of
like tenor representing the right to purchase the number of Warrant Shares
purchasable immediately prior to such exercise under this Warrant, less the
number of Warrant Shares with respect to which this Warrant is
exercised.
(d)
Disputes
. In
the case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall promptly issue
to the Holder the number of Warrant Shares that are not disputed and resolve
such dispute in accordance with Section 16.
2.
|
ISSUANCE
OF WARRANT SHARES
|
(a) The
Company covenants that all Warrant Shares will, upon issuance in accordance with
the terms of this Warrant, be (i) duly authorized, fully paid and
non-assessable, and (ii) free from all liens, charges and security interests,
with the exception of claims arising through the acts or omissions of any Holder
and except as arising from applicable Federal and state securities
laws.
(b) The
Company shall register this Warrant upon records to be maintained by the Company
for that purpose in the name of the record holder of such Warrant from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner thereof for the purpose of any exercise thereof, any
distribution to the Holder thereof and for all other purposes.
(c) The
Company will not, by amendment of its certificate of incorporation, by-laws or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all action necessary or appropriate in order to protect the rights of
the Holder to exercise this Warrant, or against impairment of such
rights.
3.
|
ADJUSTMENTS
OF EXERCISE PRICE, NUMBER AND TYPE OF WARRANT
SHARES
|
(a) The
Exercise Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3;
provided
, that
notwithstanding the provisions of this Section 3, the Company shall not be
required to make any adjustment if and to the extent that such adjustment would
require the Company to issue a number of shares of Common Stock in excess of its
authorized but unissued shares of Common Stock, less all amounts of Common Stock
that have been reserved for issue upon the conversion of all outstanding
securities convertible into shares of Common Stock and the exercise of all
outstanding options, warrants and other rights exercisable for shares of Common
Stock. If the Company does not have the requisite number of
authorized but unissued shares of Common Stock to make any adjustment, the
Company shall use its commercially best efforts to obtain the necessary
stockholder consent to increase the authorized number of shares of Common Stock
to make such an adjustment pursuant to this Section 3.
(i)
Subdivision or Combination
of Stock
. In case the Company shall at any time subdivide (whether by way
of stock dividend, stock split or otherwise) its outstanding shares of Common
Stock into a greater number of shares, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced and the number of
Warrant Shares shall be proportionately increased, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined (whether by
way of stock combination, reverse stock split or otherwise) into a smaller
number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of Warrant Shares
shall be proportionately decreased. The Exercise Price and the
Warrant Shares, as so adjusted, shall be readjusted in the same manner upon
the happening of any successive event or events described in this Section
3(a)(i).
(ii)
Dividends in Stock,
Property, Reclassification
. If at any time, or from time to time, all of
the holders of Common Stock (or any shares of stock or other securities at the
time receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefore:
(A) any
shares of stock or other securities that are at any time directly or indirectly
convertible into or exchangeable for Common Stock, or any rights or options to
subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution, or
(B) additional
stock or other securities or property (including cash) by way of spin-off,
split-up, reclassification, combination of shares or similar corporate
rearrangement (other than shares of Common Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3(a)(i)
above),
then and
in each such case, the Exercise Price and the number of Warrant Shares to be
obtained upon exercise of this Warrant shall be adjusted proportionately, and
the Holder hereof shall, upon the exercise of this Warrant, be entitled to
receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to above) that such Holder would hold on the date of such exercise had
such Holder been the holder of record of such Common Stock as of the date on
which holders of Common Stock received or became entitled to receive such shares
or all other additional stock and other securities and
property. The Exercise Price and the Warrant Shares, as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
event or events described in this Section 3(a)(ii)
.
(iii)
Reorganization,
Reclassification, Consolidation
, Merger or
Sale
. If any
recapitalization, reclassification or reorganization of the capital stock of the
Company, or any consolidation or merger of the Company with another corporation,
or the sale of all or substantially all of its assets or other
transa
ction shall be
effected in such a way that holders of Common Stock shall be entitled to receive
stock, securities, or other assets or property (an “
Organic
Change
”
), then, as a condition of such Organic
Change, lawful and adequate provisions shall be made
by the Company whereby the Holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Common Stock of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented by th
i
s Warrant) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore
p
urchasable and receivable assuming the
full exercise of the rights represented by this Warrant. In the event of any
Organic Change, appropriate provision shall be made by the Company with respect
to the rights and interests of the Holder of this Warrant t
o
the end that the provisions hereof
(including, without limitation, provisions for adjustments of the Exercise Price
and of the number of shares purchasable and receivable upon the exercise of this
Warrant and registration rights) shall thereafter be appl
i
cable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if ot
h
er than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument reasonably satisfactory in form and substance to
the Holder executed and mailed or delivered to the registered Ho
l
der hereof at the last address of such
Holder appearing on the books of the Company, the obligation to deliver to such
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purcha
s
e.
If there is an Organic Change, then the
Company shall cause to be mailed to the Holder at its last address as it shall
appear on the books and records of the Company, at least 10 calendar days before
the effective date of the Organic Change, a notice s
tating the date on which such Organic
Change is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares for securities, cash, or other property de
l
ivered upon such Organic Change;
provided, that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice. The Holder is entitled to
exerc
i
se this Warrant during the 10-day
period commencing on the date of such notice to the effective date of the event
triggering such notice.
In any event, the successor corporation
(if other than the Company) resulting from such consolidation or merger or
th
e corporation purchasing
such assets shall be deemed to assume such obligation to deliver to such Holder
such shares of stock, securities or assets even in the absence of a written
instrument assuming such obligation to the extent such assumption occurs
b
y
operation of law.
(b)
Certificate as to
Adjustments
. Upon the occurrence of each adjustment or readjustment
pursuant to this Section 3, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall promptly furnish or cause to be
furnished to such Holder a like certificate setting forth: (i) such adjustments
and readjustments; and (ii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
(c)
Certain Events
. If
any event occurs as to which the other provisions of this Section 3 are not
strictly applicable but the lack of any adjustment would not fairly protect the
purchase rights of the Holder under this Warrant in accordance with the basic
intent and principles of such provisions, or if strictly applicable would not
fairly protect the purchase rights of the Holder under this Warrant in
accordance with the basic intent and principles of such provisions, then the
Company's Board of Directors will, in good faith, make an appropriate adjustment
to protect the rights of the Holder;
provided
, that no
such adjustment pursuant to this Section 3(c) will increase the Exercise Price
or decrease the number of Warrant Shares as otherwise determined pursuant to
this Section 3.
(d)
Ad
justment of Exercise Price
Upon Issuance of Additional Shares of Common Stock
. In the
event the Company shall at any time prior to the Expiration Date issue
Additional Shares of Common Stock, as defined below, without consideration or
for a consideration per share less than the Exercise Price in effect immediately
prior to such issue, then the Exercise Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Exercise Price by a fraction, (A) the numerator of which shall
be (1) the number of shares of Common Stock outstanding immediately prior to
such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Exercise
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued;
provided
that, (i)
for the purpose of this Section 3(d), all shares of Common Stock issuable upon
conversion or exchange of convertible securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) the number of shares
of Common Stock deemed issuable upon conversion or exchange of such outstanding
convertible securities shall be determined without giving effect to any
adjustments to the conversion or exchange price or conversion or exchange rate
of such convertible securities resulting from the issuance of Additional Shares
of Common Stock that is the subject of this calculation. For purposes
of this Warrant, “Additional Shares of Common Stock” shall mean all shares of
Common Stock issued by the Company after the Effective Date (including without
limitation any shares of Common Stock issuable upon conversion or exchange of
any convertible securities or upon exercise of any option or warrant, on an
as-converted basis), other than: (i) shares of Common Stock issued or
issuable upon conversion or exchange of any convertible securities or exercise
of any options or warrants outstanding on the Effective Date; (ii) shares
of Common Stock issued or issuable by reason of a dividend, stock split,
split-up or other distribution on shares of Common Stock that is covered by
Sections 3(a)(i) through 3(a)(iii) above; (iii) shares of Common Stock (or
options with respect thereto) issued or issuable to employees or directors of,
or consultants to, the Company or any of its subsidiaries pursuant to a plan,
agreement or arrangement approved by the Board of Directors of the Company; (iv)
any securities issued or issuable by the Company pursuant to (A) the Company’s
private offering (the “Offering”) of securities pursuant to a Private
Placement Memorandum, dated as of October 4, 2010 (the “Memorandum”)
and the related Subscription Agreements (the “Subscription Agreement”)
thereunder, (B) the Merger or (C) the transactions contemplated by the
Memorandum and the Merger; (v) securities issued pursuant to acquisitions or
strategic transactions approved by a majority of disinterested directors of the
Company, provided that any such issuance shall only be to a person which is,
itself or through its subsidiaries, an operating company in a business
synergistic with the business of the Company and in which the Company receives
benefits in addition to the investment of funds, but shall not include a
transaction in which the Company is issuing securities primarily for the purpose
of raising capital or to an entity whose primary business is investing in
securities and (vi) securities issued to financial institutions, institutional
investors or lessors in connection with credit arrangements, equipment
financings or similar transactions approved by a majority of disinterested
directors of the Company. The provisions of this Section 3(d) shall
not operate to increase the Exercise Price.
Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section
3(d), the number of Warrant Shares issuable upon exercise of this Warrant shall
be adjusted by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
4.
|
TRANSFERS
AND EXCHANGES OF WARRANT AND WARRANT
SHARES
|
(a)
Registration of Transfers
and Exchanges
. Subject to Section 4(c), upon the Holder’s surrender of
this Warrant, with a duly executed copy of the Form of Assignment attached as
Exhibit B
, to the
Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder, the Company shall
register the transfer of all or any portion of this Warrant. Upon such
registration of transfer, the Company shall issue a new Warrant, in
substantially the form of this Warrant, evidencing the acquisition rights
transferred to the transferee and a new Warrant, in similar form, evidencing the
remaining acquisition rights not transferred, to the Holder requesting the
transfer.
(b)
Warrant Exchangeable for
Different Denominations
. The Holder may exchange this Warrant for a new
Warrant or Warrants, in substantially the form of this Warrant, evidencing in
the aggregate the right to purchase the number of Warrant Shares which may then
be purchased hereunder, each of such new Warrants to be dated the date of such
exchange and to represent the right to purchase such number of Warrant Shares as
shall be designated by the Holder. The Holder shall surrender this Warrant with
duly executed instructions regarding such re-certification of this Warrant to
the Secretary of the Company at its principal offices or at such other office or
agency as the Company may specify in writing to the Holder.
(c)
Restrictions on
Transfers
. This Warrant may not be transferred at any time without (i)
registration under the Securities Act or (ii) an exemption from such
registration and a written opinion of legal counsel addressed to the Company
that the proposed transfer of the Warrant may be effected without registration
under the Securities Act, which opinion will be in form and from counsel
reasonably satisfactory to the Company.
(d)
Permitted Transfers and
Assignments
. Notwithstanding any provision to the contrary in
this Section 4, the Holder may transfer, with or without consideration, this
Warrant or any of the Warrant Shares (or a portion thereof) to the Holder’s
Affiliates (as such term is defined under Rule 144 of the Securities Act)
without obtaining the opinion from counsel that may be required by Section
4(c)(ii),
provided,
that the
Holder delivers to the Company and its counsel certification, documentation, and
other assurances reasonably required by the Company’s counsel to enable the
Company’s counsel to render an opinion to the Company’s Transfer Agent that such
transfer does not violate applicable securities laws.
5.
|
MUTILATED
OR MISSING WARRANT CERTIFICATE
|
If this Warrant is mutilated, lost,
stolen or destroyed, upon request by the Holder, the Company will, at its
expense, issue, in exchange for and upon cancellation of the mutilated Warrant,
or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in
substantially the form of this Warrant, representing the right to acquire the
equivalent number of Warrant Shares;
provided
, that, as a
prerequisite to the issuance of a substitute Warrant, the Company may require
satisfactory evidence of loss, theft or destruction as well as an indemnity from
the Holder of a lost, stolen or destroyed Warrant.
The
Company will pay all transfer and stock issuance taxes attributable to the
preparation, issuance and delivery of this Warrant and the Warrant Shares (and
replacement Warrants) including, without limitation, all documentary and stamp
taxes;
provided
,
however
, that the
Company shall not be required to pay any tax in respect of the transfer of this
Warrant, or the issuance or delivery of certificates for Warrant Shares or other
securities in respect of the Warrant Shares to any person or entity other than
to the Holder.
7. FRACTIONAL
WARRANT SHARES
No
fractional Warrant Shares shall be issued upon exercise of this Warrant. The
Company, in lieu of issuing any fractional Warrant Share, shall round up the
number of Warrant Shares issuable to nearest whole share.
8.
|
NO
STOCK RIGHTS AND LEGEND
|
No holder
of this Warrant, as such, shall be entitled to vote or be deemed the holder of
any other securities of the Company that may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise (except as provide herein).
Each certificate for Warrant Shares
initially issued upon the exercise of this Warrant, and each certificate for
Warrant Shares issued to any subsequent transferee of any such certificate,
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
“THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN
EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
STATE SECURITIES LAWS.”
The Holder shall be entitled to the
registration rights as are contained in the Registration Rights Agreement of
even date herewith, by and among the Company, the Holder and (i) the holders of
warrants of like tenor; and (ii) the subscribers to the
Offering.
All notices, consents, waivers, and
other communications under this Warrant must be in writing and will be deemed
given to a party when (a) delivered to the appropriate address by hand or by
nationally recognized overnight courier service (costs prepaid); (b) sent by
facsimile or e-mail with confirmation of transmission by the transmitting
equipment; (c) received or rejected by the addressee, if sent by certified mail,
return receipt requested, if to the registered Holder hereof; or (d) seven days
after the placement of the notice into the mails (first class postage prepaid),
to the Holder at the address, facsimile number, or e-mail address of the
registered Holder as set forth in the books and records of the Company, or as
otherwise provided by the registered Holder to the Company, or if to the
Company, to it at One Broadway, 14th Floor, Cambridge, Ma. 02142, Attention:
Frank Reynolds, Chief Executive Officer (or to such other address, facsimile
number, or e-mail address as the Holder or the Company as a party may designate
by notice the other party) with a copy to Meister Seelig & Fein LLP, 2 Grand
Central Tower, 140 East 45
th
Street,
19
th
Floor, New York, NY 10017, Attention: Mitchell L. Lampert,
Esq.
If a
court of competent jurisdiction holds any provision of this Warrant invalid or
unenforceable, the other provisions of this Warrant will remain in full force
and effect. Any provision of this Warrant held invalid or unenforceable only in
part or degree will remain in full force and effect to the extent not held
invalid or unenforceable.
This
Warrant shall be binding upon and inure to the sole and exclusive benefit of the
Company, its successors and assigns, the registered Holder or Holders from time
to time of this Warrant and the Warrant Shares.
13.
|
SURVIVAL
OF RIGHTS AND DUTIES
|
This
Warrant shall terminate and be of no further force and effect on the earlier of
5:00 P.M., Eastern Time, on the Expiration Date or the date on which this
Warrant has been exercised in full.
This
Warrant will be governed by and construed under the laws of the State of New
York without regard to conflicts of laws principles that would require the
application of any other law.
In the
case of a dispute as to the determination of the Exercise Price or the
arithmetic calculation of the Warrant Shares, the Company shall submit the
disputed determinations or arithmetic calculations via facsimile within two
Business Days of receipt of the Notice of Exercise giving rise to such dispute,
as the case may be, to the Holder. If the Holder and the Company are unable
to agree upon such determination or calculation of the Exercise Price or the
Warrant Shares within three Business Days of such disputed determination or
arithmetic calculation being submitted to the Holder, then the Company shall,
within two Business Days, submit via facsimile (a) the disputed determination of
the Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the Holder or (b) the disputed arithmetic calculation of
the Warrant Shares to the Company’s independent, outside accountant. The Company
shall cause at its expense the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the Company and
the Holder of the results no later than ten (10) Business Days from the
time it receives the disputed determinations or calculations. Such investment
bank’s or accountant’s determination or calculation, as the case may be, shall
be binding upon all parties absent demonstrable error.
16.
|
NOTICES
OF RECORD DATE
|
Upon (a)
any establishment by the Company of a record date of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or right or option to acquire
securities of the Company, or any other right, or (b) any capital
reorganization, reclassification, recapitalization, merger or consolidation of
the Company with or into any other corporation, any transfer of all or
substantially all the assets of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or the sale, in a single
transaction, of a majority of the Company’s voting stock (whether newly issued,
or from treasury, or previously issued and then outstanding, or any combination
thereof), the Company shall mail to the Holder at least ten (10) Business Days,
or such longer period as may be required by law, prior to the record date
specified therein, a notice specifying (i) the date established as the
record date for the purpose of such dividend, distribution, option or right and
a description of such dividend, option or right, (ii) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up, or sale is expected to become effective and (iii) the
date, if any, fixed as to when the holders of record of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, transfer,
consolation, merger, dissolution, liquidation or winding up.
17.
|
RESERVATION
OF SHARES
|
The
Company shall reserve and keep available out of its authorized but unissued
shares of Common Stock for issuance upon the exercise of this Warrant, free from
pre-emptive rights, such number of shares of Common Stock for which this Warrant
shall from time to time be exercisable. The Company will take all
such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation. Without limiting the generality of the foregoing, the Company
covenants that it will use commercially reasonable efforts to take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable Warrant Shares upon the exercise
of this Warrant and use commercially reasonable efforts to obtain all such
authorizations, exemptions or consents, including but not limited to consents
from the Company’s stockholders or Board of Directors or any public regulatory
body, as may be necessary to enable the Company to perform its obligations under
this Warrant.
18.
|
NO
THIRD PARTY RIGHTS
|
This
Warrant is not intended, and will not be construed, to create any rights in any
parties other than the Company and the Holder, and no person or entity may
assert any rights as third-party beneficiary hereunder.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of
the date first set forth above.
INVIVO
THERAPEUTICS HOLDINGS CORP.
|
|
By:
|
|
|
Name:
|
Frank
Reynolds
|
|
Title:
|
President
and Chief Executive
Officer
|
EXHIBIT
A
NOTICE OF
EXERCISE
(To be
executed by the Holder of Warrant if such Holder desires to exercise
Warrant)
To InVivo
Therapeutics Holdings Corp.:
The
undersigned hereby irrevocably elects to exercise this Warrant and to purchase
thereunder, ___________________ full shares of InVivo Therapeutics Holdings
Corp. common stock issuable upon exercise of the Warrant and delivery
of:
(1) $_________
(in cash as provided for in the foregoing Warrant) and any applicable taxes
payable by the undersigned pursuant to such Warrant; and
(2) __________
shares of Common Stock (pursuant to a Cashless Exercise in accordance with
Section 1(b)(ii) of the Warrant) (check here if the undersigned desires to
deliver an unspecified number of shares equal the number sufficient to effect a
Cashless Exercise [___]).
The
undersigned requests that certificates for such shares be issued in the name
of:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
If the
shares issuable upon this exercise of the Warrant are not all of the Warrant
Shares which the Holder is entitled to acquire upon the exercise of the Warrant,
the undersigned requests that a new Warrant evidencing the rights not so
exercised be issued in the name of and delivered to:
_________________________________________
(Please
print name, address and social security or federal employer
identification
number (if applicable))
_________________________________________
_________________________________________
Name of Holder
(print): ________________________
(Signature): ___________________________________
(By:) _________________________________________
(Title:) ________________________________________
Dated: ________________________________________
EXHIBIT
B
FORM OF
ASSIGNMENT
FOR VALUE
RECEIVED, ___________________________________ hereby sells, assigns and
transfers to each assignee set forth below all of the rights of the undersigned
under the Warrant (as defined in and evidenced by the attached Warrant) to
acquire the number of Warrant Shares set opposite the name of such assignee
below and in and to the foregoing Warrant with respect to said acquisition
rights and the shares issuable upon exercise of the Warrant:
Name of Assignee
|
|
Address
|
|
Number of Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If the
total of the Warrant Shares are not all of the Warrant Shares evidenced by the
foregoing Warrant, the undersigned requests that a new Warrant evidencing the
right to acquire the Warrant Shares not so assigned be issued in the name of and
delivered to the undersigned.
Name of Holder
(print): ________________________
(Signature): ___________________________________
(By:) _________________________________________
(Title:)
________________________________________
Dated: ________________________________________
SECURITIES
PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the
“Agreement”) is made as of the___ day of August, 2010, by and between InVivo
Therapeutics Corporation, a Delaware corporation (the “Company”), and the
investors listed on the Schedule of Investors attached hereto (each an
“Investor” and collectively, the “Investors”).
WITNESSETH:
WHEREAS, the Company desires to sell to
the Investors, and the Investors desire to purchase from the Company, units
comprised of (a) 6% convertible promissory notes in the aggregate principal
amount of up to $500,000 (each a “Note and collectively, the “Notes”), in the
form attached as
Exhibit A
hereto, and
(b) a warrant (each a “Warrant” and collectively, the “Warrants”), in the form
attached as
Exhibit
B
hereto, to purchase a number of shares of the Company’s common stock,
$0.001 par value per share (the “Common Stock”) equal to the principal amount of
the Notes divided by the exercise price of $13.7706 per share, pursuant to the
provisions of this Agreement at a purchase price per unit equal to the principal
amount of the Notes included in such unit; and
NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties do hereby agree as follows:
1.
Purchase and Sale of Notes
and Warrants
.
1.1
Issuance and Sale of Notes
and Warrants
. Subject to the terms and conditions of this Agreement, the
Investors severally and not jointly agree to purchase at the Closing (as
hereafter defined), and the Company agrees to issue and sell to the Investors at
the Closing, the amount of Notes and the Warrants based on the purchase price
set forth opposite each Investor’s name on the Signature Page hereto, for an
aggregate purchase price of up to Five Hundred Thousand ($500,000) Dollars (the
“Aggregate Offering Amount”; and the offering of the Notes and Warrants being
offered hereunder referred to as the “Offering”).
1.2
Payment
.
The Investor is
enclosing with its delivery of its Signature Page hereto a check payable to, or
will promptly immediately make a wire transfer payment to, “InVivo Therapeutics
Corporation” in the full amount of the purchase price of the Notes and Warrants
being subscribed for (“Purchase Price”). Wire instructions are as
follows:
|
Domestic Wiring
|
|
|
|
Routing:
026009593
|
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Account:
004604684378
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InVivo
Therapeutics Corporation
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Bank
of America
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226
Main St.
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Cambridge,
MA 02142
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International Wiring
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Routing:
026009593
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Account:
004604684378
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InVivo
Therapeutics Corporation
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One
Broadway, 14
th
Floor
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Cambridge,
MA 02142
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CEO
Name: Francis M Reynolds
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SWIFT
Code: BOFAUS3N
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For both domestic and
international
:
FBO:
Investor
Name
Social Security
Number
Address
All
payments made by check as provided in Section 1.2 hereof shall be promptly
deposited by the Company or Spencer Trask Ventures, Inc. (in its capacity as the
“Finder”) with the aforementioned bank, and all payments hereunder shall be held
in a non-interest-bearing account (the “Account”) until the earliest to occur of
(a) the Closing (as defined below), (b) the rejection of such proposed
investment by the Company or the Finder and (c) the termination of the Offering
by the Company or the Finder.
1.3
Closing
.
(a) The
initial closing of the purchase and sale of Notes and Warrants under this
Agreement (the “
Initial Closing
”)
shall be held at the offices of the Company, One Broadway, 14
th
Floor,
Cambridge, MA 02142 (or remotely via the exchange of documents and signatures),
on or before September 30, 2010, subject to the Company’s right to extend the
Offering until October 31, 2010 (the date of the Initial Closing is hereinafter
referred to as the “
Initial Closing
Date
”). The subsequent closing(s) of the purchase and sale of Notes (up
to Aggregate Offering Amount) and Warrants under this Agreement (the “
Subsequent
Closing(s)
”) shall take place at a time agreed upon by the Company and
the Finder (the date(s) of the Subsequent Closing(s) is hereinafter referred to
as the “
Subsequent
Closing Date(s)
”), all of which shall occur in any event no later than
October 31, 2010. The Investors agree that any additional persons or
entities that acquire Notes and Warrants at any Subsequent Closing shall become
Investors under this Agreement with all rights and obligations attendant
thereto, upon their execution of this Agreement without further action by any
other Investor. For purposes of this Agreement, the terms “
Closing
” and “
Closing Date
”, unless
otherwise indicated, refer to the applicable closing and closing date of the
Initial Closing or the Subsequent Closing(s), as the case may
be.
(b) At
each Closing, the Company shall deliver the Notes and the Warrants to the
Investors against payment of the Purchase Price to the Company as described
above, along with delivery by the Investors of an Accredited Investor
Certification and Investor Profile to the Company.
2.
Representations and
Warranties of the Company.
The Company hereby represents and
warrants to the Investors, except as set forth on a Schedule of Exceptions to
Representations and Warranties attached hereto as
Exhibit C
(the
“Schedule of Exceptions”), the following:
2.1
Subsidiaries
. The
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity (as hereinafter
defined) (each, a “Subsidiary” and collectively, the
“Subsidiaries”). Unless the context requires otherwise, all
references herein to the “Company” shall refer to the Company and its
Subsidiaries. The Company is not a party to any joint venture, partnership, or
similar arrangement.
2.2
Organization, Good Standing,
and Qualification
. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to carry on its
business as now conducted. The Subsidiaries are duly organized in
their respective jurisdictions of organization, validly existing and in good
standing in such respective jurisdictions and each has the power and authority
to carry on its respective business as now conducted. The Company and the
Subsidiaries are duly qualified to transact business and are in good standing in
each jurisdiction in which the failure so to qualify would have a Material
Adverse Effect (as hereafter defined) on the Company’s business or
properties.
2.3
Capitalization and Voting
Rights
. The authorized capital stock of the Company
consists of 5,000,000 shares of Common Stock and 510 shares of preferred stock,
$0.001 par value per share (“Preferred Stock”). As of the date of
this Agreement, there was issued and outstanding (i)1,986,956 shares of Common
Stock; (ii) $2,945,000 principal amount of convertible promissory notes
(“Convertible Notes”) that are convertible into 264,215 shares of common stock;
and (iii) no shares of Preferred Stock. As of the date of this
Agreement, there were issued and outstanding options (“Options”) to purchase
322,456 shares of Common Stock and no warrants. It is contemplated
that the Company will be issuing an additional 33,041 options to a CFO it
anticipates hiring during fiscal 2010. All of the issued and outstanding shares
of Common Stock, and all shares of Common Stock that may be issued upon exercise
or conversion of Options, Convertible Notes or Warrants will be (upon issuance
in accordance with their terms), duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights with respect to the transactions
contemplated by this Agreement. Other than such Options, Convertible
Notes and Outstanding Warrants, there are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance or redemption of
any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock or similar rights with respect to the
Company. The Company and the shareholders of the Company are parties
to a shareholders’ agreement
which contains
certain customary rights of first refusal, drag-long and tag-along rights and
super-majority voting requirements amongst the shareholders for approving
certain corporate actions
.
All of the issued
and shares of Common Stock were issued in compliance with applicable federal and
state securities laws.
2.4
Authorization
. All
corporate action on the part of the Company, its officers, directors, and
shareholders necessary for the authorization, execution and delivery of this
Agreement, the Notes and the Warrants (collectively, the “Transaction
Documents”), the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Notes and the Warrants being sold hereunder and the Common Stock
issuable upon exercise of the Warrants (collectively, the “Securities”), has
been taken or will be taken prior to the Closing, and the Transaction Documents
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Transaction Documents may be limited
by applicable federal or state laws.
2.5
Valid Issuance of Notes,
Warrants and Common Stock
.
(a) The
Notes and the Warrants are being purchased by the Investors hereunder, when
issued, sold, and delivered in accordance with the terms hereof for the
consideration provided for herein, will be duly and validly issued, and, based
in part upon the representations of the Investors in this Agreement, will be
issued in compliance with all applicable federal and state securities
laws. The equity securities issuable upon exercise of the Warrant
have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Warrant (and upon payment of the exercise price
as required by the Warrant), shall be duly and validly issued, fully paid and
nonassessable, and issued in compliance with all applicable securities laws, as
presently in effect, of the United States and each of the states whose
securities laws govern the issuance of the Warrants hereunder.
(b) All
outstanding shares of Common Stock of the Company are duly and validly
authorized and issued, fully paid and nonassessable, and were issued in
compliance with all applicable federal and state securities
laws.
2.6
Filings, Consents and
Approvals
. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, give any notice to, or
make any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of the Transaction Documents,
other than (i) a proper Form D in accordance with Regulation D promulgated under
the Securities Act of 1933, as amended (the “Act”), and applicable Blue Sky
filings and (ii) in all other cases where the failure to obtain such consent,
waiver, authorization or order, or to give such notice or make such filing or
registration could not have or result in, individually or in the aggregate, a
material and adverse effect on the results, operations, properties, prospects or
financial condition of the Company and its Subsidiaries taken as a whole
(“Material Adverse Effect”).
2.7
Litigation
. There
is no action, suit, proceeding, claim or investigation pending or, to the
knowledge of the Company, currently threatened against the Company which
questions the validity of the Transaction Documents, or the right of the Company
to enter into any of them, or to consummate the transactions contemplated hereby
or thereby, or which might result, either individually or in the aggregate, in
any material adverse changes in the assets, condition, affairs, or prospects of
the Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis for
the foregoing, other than a claim by a single holder of $200,000 of Convertible
Notes relating to the Company’s valuation on conversion of his Convertible
Notes. The foregoing includes, without limitation, actions, pending
or threatened (or any basis therefor known to the Company), involving the prior
employment of any of the Company’s employees, their use in connection with the
Company’s business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers. The Company is not a party or subject to the provisions of
any order, writ, injunction, judgment, or decree of any court or government
agency or instrumentality.
2.8
Compliance with Other
Instruments
. The Company is not in violation or default of any
provisions of its Certificate of Incorporation, as amended to date, or Bylaws
or, to its knowledge, of any instrument, judgment, order, writ, decree,
mortgage, indenture, lease, license or contract to which it is a party or by
which it is bound or, to its knowledge, of any provision of federal, state, or
local statute, rule, or regulation applicable to the Company, except as would
not reasonably be expected, singly or in the aggregate, to have a Material
Adverse Effect. The execution, delivery, and performance of the
Transaction Documents and the consummation of the transactions contemplated
thereby will not, to the Company’s knowledge, result in any such violation or be
in conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree or contract, or an event which results in the creation of
any lien, charge, or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture, or nonrenewal of any material
permit, license, authorization, or approval applicable to the Company, its
business or operations, or any of its assets or properties, except as would not
reasonably be expected, singly or in the aggregate, to have a Material Adverse
Effect.
2.9
Compliance with
Laws
. The conduct of business by the Company and each
Subsidiary as presently and proposed to be conducted is not subject to
continuing oversight, supervision, regulation or examination by any governmental
official or body of the United States or any other jurisdiction wherein the
Company or any Subsidiary conducts or proposes to conduct such business, except
such regulation as is applicable to commercial enterprises
generally. Neither the Company nor any of the Subsidiaries has
received any notice of any violation of or noncompliance with, any federal,
state, local or foreign laws, ordinances, regulations and orders (including,
without limitation, those relating to environmental protection, occupational
safety and health, federal securities laws, equal employment opportunity,
consumer protection, credit reporting, "truth-in-lending", and warranties and
trade practices) applicable to its business or to the business of any
Subsidiary, the violation of, or noncompliance with, which would have a
materially adverse effect on either the Company's business or operations, or
that of any Subsidiary, and the Company knows of no facts or set of
circumstances which would give rise to such a notice.
2.10.
Insurance
. The
Company has in full force and effect fire and casualty insurance policies, with
extended coverage, sufficient in amount (subject to reasonable deductibles) to
allow it to replace any of its properties that might be damaged or destroyed,
and the Company has insurance against other hazards, risks, and liabilities to
persons and property to the extent and in the manner customary for companies in
similar businesses similarly situated.
3.
Representations and
Warranties of the Investors.
Each of the Investors, severally
and not jointly, hereby represents and warrants that:
3.1
Authorization
. The
Transaction Documents constitute valid and legally binding obligations of the
Investor enforceable in accordance with their terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors’ rights generally and
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.2
Purchase Entirely for Own
Account
. The Securities to be purchased by the Investor will
be acquired for investment for the Investor’s own account and not with a view to
the resale or distribution of any part thereof, and such Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Such Investor does not have any contract, undertaking,
agreement, or arrangement with any person to sell, transfer, or grant
participation to any person with respect to any of the
Securities. Investor represents that it has full power and authority
to enter into this Agreement.
3.3
Disclosure of
Information
. The Investor acknowledges that it has received
all the information that it has requested relating to the Company and the
purchase of the Notes and the Warrants. The Investor further
represents that it has had an opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the Notes
and the Warrants. The foregoing, however, does not limit or modify
the representations and warranties of the Company in Section 2 of this
Agreement or the right of the Investor to rely thereon.
3.4
Investment
Experience
. Investor is an investor in securities of companies
in the development stage and acknowledges that it is able to fend for itself,
can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities. If other than
an individual, Investor also represents it has not been organized for the
purpose of acquiring the Securities.
3.5
Accredited
Investor
. The Investor is an “accredited investor” within the
meaning of Rule 501 of Regulation D of the Securities and Exchange
Commission (the “SEC”), as presently in effect as more particularly specified in
the Accredited Investor Certification and Investor Profile that the Investor is
delivering to the Company prior to the Closing.
3.6
Restricted
Securities
. Investor understands that the Notes and the
Warrants (and the equity securities issuable upon conversion of the Notes and
Common Stock issuable upon exercise of the Warrant) that it is purchasing are
characterized as “restricted securities” under the 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 Act, only in
certain limited circumstances. In this connection, the Investor
represents that it is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the
Act.
3.7
High Risk and Speculative
Investment
. Investor recognizes that the purchase of
the Notes involves a high degree of risk including, but not limited to, the
following: (a) the Company requires funds in addition to the proceeds to be
derived from the sale of the Notes; (b) an investment in the Company is highly
speculative, and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Notes; (c) the
Subscriber may not be able to liquidate its investment; (d) transferability of
the Notes and the Warrants is extremely limited; (e) in the event of a
disposition, the Investor could sustain the loss of its entire investment; (f)
the Company has not paid any dividends since its inception and does not
anticipate paying any dividends; (g) the Company may issue additional securities
in the future which have rights and preferences that are senior to those of the
Notes, Warrants and the Common Stock; and (h) that the Common Stock may not
successfully become actively traded. Investor has reviewed the Risk
Factors which are set forth in Schedule 3.7 hereto.
3.8
Use of
Proceeds
. Investor acknowledges and understands that the
proceeds from the sale of the Notes are expected to be used by the Company in
the manner set forth on Schedule 3.8 hereto.
3.9
Fees
. No
Investor will have, as a result of the transactions contemplated by the
Transaction Documents, any valid right, interest or claim against or upon the
Company, any Subsidiary or any other Investor for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of such Investor.
3.10
Legends
. It
is understood that the certificates evidencing the Notes and the Warrants (and
the equity securities issuable upon conversion and exercise thereof,
respectively) may bear one or all of the following legends:
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“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AS SET FORTH IN THIS
CERTIFICATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL, REASONABLY
ACCEPTABLE TO COUNSEL FOR THE COMPANY, TO THE EFFECT THAT THE PROPOSED
SALE, TRANSFER, OR DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION
UNDER THE ACT.”
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4.
Conditions of the Investors’
Obligations at Closing.
The obligations of the Investors under
subsection 1.1(a) of this Agreement are subject to the fulfillment on or
before the Closing of each of the following conditions, the waiver of which
shall not be effective against any Investor who does not consent
thereto:
4.1
Representations and
Warranties
. The representations and warranties of the Company
contained in Section 2 hereof shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the date of such Closing.
4.2
Performance
. The
Company shall have performed and complied with all agreements, obligations, and
conditions contained in this Agreement that are required to be performed or
complied with by it on or before the Closing.
4.3
Proceedings and
Documents
. All corporate and other proceedings in connection
with the transactions contemplated at the Closing and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Finder and
counsel to the Finder, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.
5.
Conditions of the Company’s
Obligations at Closing
. The obligations of the Company to the
Investors under this Agreement are subject to the fulfillment on or before any
Closing of each of the following conditions by the Investors:
5.1
Representations and
Warranties
. The representations and warranties of the
Investors contained in Section 3 shall be true on and as of such Closing with
the same effect as though such representations and warranties had been made on
and as of such Closing.
5.2
Payment of Purchase
Price
. The Investors shall have delivered the purchase price
specified in Section 1.2.
6.
Indemnification
. The
Investors, severally and not jointly, agree to indemnify and hold harmless the
Company, the Finder, and their respective officers, directors, employees,
agents, control persons and affiliates from and against all losses, liabilities,
claims, damages, costs, fees and expenses whatsoever (including, but not limited
to, any and all expenses incurred in investigating, preparing or defending
against any litigation commenced or threatened) based upon or arising out of any
actual or alleged false acknowledgment, representation or warranty, or
misrepresentation or omission to state a material fact, or breach by the
Investor of any covenant or agreement made by the Investor herein or in any
other document delivered in connection with this Agreement.
7.
Miscellaneous.
7.1
Survival of
Warranties
. All of the representations and warranties made
herein shall survive the execution and delivery of this Agreement for a period
of one year. The Investors are entitled to rely, and the parties
hereby acknowledge that the Investors have so relied, upon the truth, accuracy
and completeness of each of the representations and warranties of the Company
contained herein, irrespective of any independent investigation made by
Investors. The Company is entitled to rely, and the parties hereby
acknowledge that the Company has so relied, upon the truth, accuracy and
completeness of each of the representations and warranties of the Investors
contained herein, irrespective of any independent investigation made by the
Company.
7.2
Successors and
Assigns
. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties (including transferees of
any Notes sold hereunder or any Common Stock issued upon conversion
thereof). 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 expressly provided in this
Agreement.
7.3
Governing
Law
. This Agreement shall be governed by and construed under
the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York. The parties
hereto (1) agree that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The
Company further agrees to accept and acknowledge service of any and all process
which may be served in any such suit, action or proceeding in the New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding. THE PARTIES HERETO AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED
HEREBY.
7.4
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. This Agreement may also be executed via facsimile or by e-mail
delivery of a “.pdf” format data file, either of which shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) this Agreement with the same force and effect as if such facsimile or
“.pdf” signature page were an original thereof.
7.5
Titles and
Subtitles
. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6
Notices
. Unless
otherwise provided, any notice, authorization, request or demand required or
permitted to be given under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or three (3) days following deposit with the United States Post Office, by
registered or certified mail, postage prepaid, or two days after it is sent by
an overnight delivery service, or when sent by facsimile with machine
confirmation of delivery addressed as follows:
If
to the Investors to:
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The
addresses sent forth on the signature pages attached.
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If
to Company, to:
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InVivo
Therapeutics Corporation
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One
Broadway, 14th Floor
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Cambridge,
Ma. 02142
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Attention
:
Frank Reynolds, Chief Executive Officer
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Fax: (617)
401-3769
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With
a copy to:
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Meister
Seelig & Fein LLP
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Two
Grand Central Tower
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140
East 45
th
Street
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New
York, NY 10017
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Attention
:
Mitchell L. Lampert, Esq.
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Fax: (212)
655-3535.
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Any party
may change its address for such communications by giving notice thereof to the
other parties in conformity with this Section.
7.7
Compensation of
Finder
. The Investor acknowledges that it is aware that the
Finder will receive from the Company, in consideration of its services as Finder
in respect of the transactions contemplated hereby, five-year warrants to
purchase such number of equity securities of the Company as is equal to 20% of
the equity securities into which the Warrants are exercisable, with an exercise
price equal to the exercise price of the Warrants issued to Investors in this
Offering. In addition, upon conversion of the Notes in a Qualified Next Round
Financing (as such term is defined in the Notes), the principal and interest due
under this Note shall be deemed to be an investment in the such financing and
the Finder shall be entitled to receive compensation and expense allowance with
respect to the Notes in the same amount and kind as a Placement Agent is
receiving for funds raised in such financing.
7.8
Transaction Expenses;
Enforcement of Transaction Documents
. The Company and each
Investor shall pay their respective costs and expenses incurred with respect to
the negotiation, execution, delivery and performance of this
Agreement. If any action at law or in equity is necessary to
enforce or interpret the terms of the Transaction Documents, the prevailing
party shall be entitled to reasonable attorney’s fees, costs, and necessary
disbursements in addition to any other relief to which such party may be
entitled.
7.9
Amendments and
Waivers
. This Agreement may be amended or terminated and the
observance of any term of this Agreement may be waived with respect to all
parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent of the Company
and the Note Requisite Holders (as defined below). Notwithstanding
the foregoing, (a) this Agreement may not be amended or terminated and the
observance of any term hereunder may not be waived with respect to any Investor
without the written consent of such Investor unless such amendment, termination
or waiver applies to all Investors in the same fashion and (b) the Schedule of
Investors hereto may be amended by the Company from time to time to add
information regarding additional Investors participating in Subsequent Closings
without the consent of the other parties hereto. The Company shall
give prompt written notice of any amendment or termination hereof or waiver
hereunder to any party hereto that did not consent in writing to such amendment,
termination or waiver. Any amendment, termination or waiver affected
in accordance with this Section 7.9 shall be binding on all parties hereto, even
if they do not execute such consent. No waivers of or exceptions to
any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company. For purposes hereof, “Note
Requisite Holder(s)” shall mean holders of Notes representing at least 66% of
the aggregate amount of principal and accrued interest then outstanding under
such Notes.
7.10
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.
7.11
Entire
Agreement
. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
7.12
Independent Nature of
Investors
. The obligations of each Investor under this
Agreement or other transaction document are several and not joint with the
obligations of any other Investor, and no Investor shall be responsible in any
way for the performance of the obligations of any other Investor under this
Agreement or any other transaction document. Each Investor shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder. The decision of each Investor to purchase Notes
and Warrants pursuant to this Agreement has been made by such Investor
independently of any other Investor and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial or
otherwise) or prospects of the Company which may have been made or given by any
other Investor or by any agent or employee of any other Investor, and no
Investor or any of its agents or employees shall have any liability to any other
Investor (or any other person) relating to or arising from any such information,
materials, statements or opinions. Nothing contained herein or in any
other transaction document, and no action taken by any Investor pursuant hereto
or thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by this
Agreement. Except as otherwise provided in this Agreement or any
other transaction document, each Investor shall be entitled to independently
protect and enforce its rights arising out of this Agreement or out of the other
transaction documents, and it shall not be necessary for any other Investor to
be joined as an additional party in any proceeding for such
purpose. Each Investor represents and warrants that it has been
represented by its own separate legal counsel in connection with the
transactions contemplated hereby and acknowledges and understands that Meister
Seelig & Fein LLP has served as counsel to the Company only, and the
Investors cannot rely upon Meister Seelig & Fein LLP in any manner with
regard to their decision to participate in the transactions contemplated
hereby.
[Signatures
on page following]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
Company:
INVIVO
THERAPEUTICS CORPORATION
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By:
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Name:
Frank Reynolds
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Title:
Chief Executive Officer
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Investors:
[TO
SIGN AND COMPLETE SIGNATURE PAGE ANNEXED HERETO]
By execution and delivery of this
signature page, you are agreeing to become an Investor, as defined in that
certain Securities Purchase Agreement (the “Purchase Agreement”) by and among
InVivo Therapeutics Corp., a Delaware corporation (the “Company”) and the
Investors (as defined in the Purchase Agreement), dated as of August __, 2010,
and acknowledges having read the representations in the Purchase Agreement
section entitled “Representations and Warranties of the Investors,” and hereby
represents that the statements contained therein are complete and accurate with
respect to the undersigned as an Investor.
INVESTOR:
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Print
Name: ___________________________
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Purchase
Price: $______________________
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Signature:_____________________________
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Date:
_____________________
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Title
(if entity)__________________________
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Contact
Person: _________________________
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_____________________________________
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Telephone
No. ________________________
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Street
Address
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E-mail
Address: _______________________
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_____________________________________
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Street
Address – 2
nd
line
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Soc
Sec # or Fed ID #___________________
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_____________________________________
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City,
State, Zip
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SCHEDULE
OF INVESTORS
[TO BE
COMPLETED BY COMPANY AT EACH CLOSING]
Name
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Purchase Price
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Note Amount
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Number of
Warrants
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SCHEDULE
3.7
RISK
FACTORS
An
investment in the Notes and Warrants is speculative and illiquid and involves a
high degree of risk, including the risk of a loss of your entire
investment. You should carefully consider the risks and uncertainties
described below, the risks set forth in our filings with the SEC and the other
information contained in this Agreement before purchasing any Notes and
Warrants. The risks set forth below are not the only ones facing our
Company. Additional risks and uncertainties may exist that could also
adversely affect our business, operations and prospects. If any of
the following risks actually materialize, our business, financial condition,
prospects and/or operations could suffer. In such event, the value of
the securities you are purchasing could decline, and you could lose all or a
substantial portion of the money that you invest. No inference should
be drawn as to the magnitude of any particular risk from its position in the
list of risk factors. As used in these Risk Factors, “we” and
“our” refers to the Company, InVivo Therapeutics Corp., a Delaware
corporation.
RISKS
RELATED TO THE COMPANY AND ITS BUSINESS
Our products
represent new and rapidly evolving technologies
The
Company’s proprietary spinal cord injury treatment technology depends on new,
rapidly evolving technologies and on the marketability and profitability of
InVivo products. Commercialization of the Company’s spinal cord injury treatment
technology could fail for a variety of reasons, both within and outside of its
control.
We
have a history of losses and a deficit net worth
The
Company’s expenses have exceeded its revenues since its formation. It can be
expected that the Company will continue to incur significant operating expenses
and may continue to experience losses in the foreseeable future. As a result,
the Company cannot predict when, if ever, it might achieve profitability and
cannot be certain that it will be able to sustain profitability, if achieved. In
addition, as at June 30, 2010, we had a deficit net worth that may hinder our
ability to receive financing in the future.
We
have convertible notes outstanding
The
Company has sold $4,181,000 of convertible notes since its inception. The
Company is in the process of seeking conversion of such notes to common stock
and has contacted all of the note holders regarding conversion. As of the date
of this Agreement, holders of $1,236,000 have executed and returned conversion
agreements to the Company, thereby converting such debt obligations to 107,420
shares of common stock. The Company expects most if not all of its remaining
note holders to voluntarily convert their notes to shares of the Company’s
common stock, but there can be no assurance that the Company is correct in its
assessment.
Notes which are not voluntarily
converted by the remaining note holders will auto
matically convert into shares of the Company
’
s common stock on
or before
May 31, 2011 and the Company has no obligation to repay
any principal amounts of such notes but may either pay accrued interest on the
notes in cash or convert such amount into shares
of its common stock.
If all of the
notes are converted, the Company will issue an additional 264,215 shares to the
note holders in exchange for such notes.
We
will be subject to competition from substantial competitors
The
biotechnology industry is subject to intense competition and rapid and
significant technological change. The Company has many potential competitors,
including major drug companies, specialized biotechnology firms, academic
institutions, government agencies and private and public research institutions.
Many of these competitors have significantly greater financial and technical
resources, experience and expertise in research and development, preclinical
testing, designing and implementing clinical trials; regulatory processes and
approvals; production and manufacturing; and sales and marketing of approved
products.
Principal
competitive factors in the Company’s industry include the quality and breadth of
an organization’s technology; management of the organization and the execution
of the organization’s strategy; the skill and experience of an organization’s
employees and its ability to recruit and retain skilled and experienced
employees; an organization’s intellectual property portfolio; the range of
capabilities, from target identification and validation to drug and device
discovery and development to manufacturing and marketing; and the availability
of substantial capital resources to fund discovery, development and
commercialization activities.
Large and
established companies compete in the biotech market. In particular, these
companies have greater experience and expertise in securing government contracts
and grants to support their research and development efforts, conducting testing
and clinical trials, obtaining regulatory approvals to market products,
manufacturing such products on a broad scale and marketing approved
products.
Smaller
or early-stage companies and research institutions may also prove to be
significant competitors, particularly through collaborative arrangements with
large and established biotech or other companies. The Company will also face
competition from these parties in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and registering
subjects for clinical trials.
In order
to effectively compete, the Company will have to make substantial investments in
development, testing, manufacturing and sales and marketing or partner with one
or more established companies. There is no assurance that the Company will be
successful in gaining significant market share for any of its products. The
Company’s technologies and products also may be rendered obsolete or
noncompetitive as a result of products introduced by its
competitors.
The
Company may have product liability exposure from the sale of its
products.
The
Company will have exposure to claims for product liability. Products liability
coverage is expensive and sometimes difficult to obtain. The Company may not be
able to obtain or maintain insurance at a reasonable cost. There can be no
assurance that existing insurance coverage will extend to other products in the
future. Any product liability insurance coverage may not be sufficient to
satisfy all liabilities resulting from product liability claims. A successful
claim may prevent the Company from obtaining adequate product liability
insurance in the future on commercially desirable items, if at all. Even if a
claim is not successful, defending such a claim would be time-consuming and
expensive, may damage the Company’s reputation in the marketplace, and would
likely divert management’s attention.
The
near and long-term viability of the Company’s products will depend on its
ability to successfully establish strategic relationships.
The near
and long-term viability of the Company’s product will depend in part on its
ability to successfully establish new strategic collaborations with
biotechnology companies, hospitals, insurance companies and government agencies.
Establishing strategic collaborations is difficult and time-consuming. Potential
collaborators may reject collaborations based upon their assessment of the
Company’s financial, regulatory or intellectual property position. If the
Company fails to establish a sufficient number of collaborations on acceptable
terms, it may not be able to commercialize its products or generate sufficient
revenue to fund further research and development efforts.
Even if
the Company establishes new collaborations, these relationships may never result
in the successful development or commercialization of any product candidates for
several reasons both within and outside of the Company’s control.
Before
the Company could begin commercial manufacturing of any of its product
candidates, the Company and its collaborators must pass a pre-approval
inspection before FDA approval and comply with the FDA’s current Good
Manufacturing Practices. If the Company’s collaborators fail to comply with
these requirements, its product candidates would not be approved. If the
Company’s collaborators fail to comply with these requirements after approval,
the Company would be subject to possible regulatory action and may be limited in
the jurisdictions in which it is permitted to sell products.
The
Company has been and will continue to be dependent on third-party research
organizations to conduct some of its laboratory testing, animal and human
studies.
The
Company has been and will continue to be dependent on third-party research
organizations to conduct some of its laboratory testing, animal and human
studies. If the Company is unable to obtain any necessary testing services on
acceptable terms, it may not complete its product development efforts in a
timely manner. If the Company relies on third parties for laboratory testing
and/or animal and human studies, it may lose some control over these activities
and become too dependent upon these parties. These third parties may not
complete testing activities on schedule or when the Company requests. The
Company may not be able to secure and maintain suitable research organizations
to conduct its laboratory testing and/or animal and human studies. The Company
is responsible for confirming that each of its clinical trials is conducted in
accordance with its general plan and protocol. Moreover, the FDA and foreign
regulatory agencies require the Company to comply with regulations and
standards, commonly referred to as good clinical practices, for conducting,
recording and reporting the results of clinical trials to assure that data and
reported results are credible and accurate and that the trial participants are
adequately protected. The Company’s reliance on third parties does not relieve
it of these responsibilities and requirements. If these third parties do not
successfully carry out their contractual duties or regulatory obligations or
meet expected deadlines, if the third parties need to be replaced or if the
quality or accuracy of the data they obtain is compromised due to the failure to
adhere to the Company’s clinical protocols or regulatory requirements or for
other reasons, the Company pre-clinical development activities or clinical
trials may be extended, delayed, suspended or terminated, and the Company may
not be able to obtain regulatory approval for its product
candidates.
The
Company will access to a constant, steady, reliable supply of
products.
Completion
of InVivo’s clinical trials and commercialization of InVivo’s products will
require access to, or development of, facilities to manufacture a sufficient
supply of InVivo’s product or other product candidates. If InVivo is unable to
manufacture its products in commercial quantities, then it will need to rely on
third parties. These third-party manufacturers must also receive FDA approval
before they can produce clinical material or commercial products. InVivo’s
product or other of InVivo’s products may be in competition with other products
for access to these facilities and may be subject to delays in manufacture if
third parties give other products greater priority. In addition, InVivo may not
be able to enter into any necessary third-party manufacturing arrangements on
acceptable terms, or on a timely basis. In addition, InVivo would have to enter
into a technical transfer agreement and share its know-how with the third party
manufacturer.
The
Company may rely on third-party suppliers for some its materials.
The
Company may rely on third-party suppliers and vendors for some of the materials
used in the manufacture of InVivo’s product or other of its product candidates.
Any significant problem experienced by one of InVivo’s suppliers could result in
a delay or interruption in the supply of materials to InVivo until such supplier
resolves the problem or an alternative source of supply is located. Any delay or
interruption could negatively affect InVivo’s operations.
The
Company’s Products and approach to the planned treatment of spinal cord injury
(“SCI”) is new and unproven.
The
Company’s planned products have not been utilized in the past for SCI treatment.
As is typical in the case of a new and rapidly evolving technology or medical
treatment, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty and risk. In
addition, physicians and hospitals will need to establish training and
procedures to utilize and implement the Company’s products. There can be no
assurance that these parties will adopt the Company’s products or that they
develop sufficient training and procedures to utilize the Company’s
products.
The Company’s
ability to sell its products will depend to a large extent upon reimbursement
from health care insurance companies.
The
Company’s successes may depend, in part, on the extent to which reimbursement
for the costs of therapeutic products and related treatments will be available
from third-party payers such as government health administration authorities,
private health insurers, managed care programs, and other organizations. Over
the past decade, the cost of health care has risen significantly, and there have
been numerous proposals by legislators, regulators, and third-party health care
payers to curb these costs. Some of these proposals have involved limitations on
the amount of reimbursement for certain products. Similar federal or state
health care legislation may be adopted in the future and any products that the
Company or its collaborators seek to commercialize may not be considered
cost-effective. Adequate third-party insurance coverage may not be available for
the Company to establish and maintain price levels that are sufficient for
realization of an appropriate return on investment in product
development.
The
manufacture and sale of the Company’s products requires regulatory approval from
the FDA.
The
development, manufacture and marketing of the Company’s products are subject to
government regulation in the United States and other countries. In the United
States and most foreign countries, the Company must complete rigorous
preclinical testing and extensive human clinical trials that demonstrate the
safety and efficacy of a product in order to apply for regulatory approval to
market the product.
The steps
required by the FDA before InVivo’s proposed products may be marketed in the
United States include performance of preclinical (animal and laboratory) tests;
submissions to the FDA of an IDE (Investigational Device Exemption) which must
become effective before human clinical trials may commence; performance of
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the product in the intended target population; performance of a
consistent and reproducible manufacturing process intended for commercial use;
Pre-Market Approval Application (“PMA”); and FDA approval of the PMA before any
commercial sale or shipment of the product.
The
processes are expensive and can take many years to complete, and the Company may
not be able to demonstrate the safety and efficacy of its products to the
satisfaction of such regulatory authorities. The start of clinical trials can be
delayed or take longer than anticipated for many and varied reasons, many of
which are outside of the Company’s control. Safety concerns may emerge that
could lengthen the ongoing trials or require additional trials to be conducted.
Regulatory authorities may also require additional testing, and the Company may
be required to demonstrate that its proposed products represent an improved form
of treatment over existing therapies, which the Company may be unable to do
without conducting further clinical studies. Moreover, if the FDA grants
regulatory approval of a product, the approval may be limited to specific
indications or limited with respect to its distribution. Expanded or additional
indications for approved devices or drugs may not be approved, which could limit
the Company revenues. Foreign regulatory authorities may apply similar
limitations or may refuse to grant any approval. Consequently, even if the
Company believes that preclinical and clinical data are sufficient to support
regulatory approval for its product candidates, the FDA and foreign regulatory
authorities may not ultimately grant approval for commercial sale in any
jurisdiction. If the Company’s products are not approved, its ability to
generate revenues will be limited and its business will be adversely
affected.
Even if a
product gains regulatory approval, such approval is likely to limit the
indicated uses for which it may be marketed, and the product and the
manufacturer of the product will be subject to continuing regulatory review,
including adverse event reporting requirements and the FDA’s general prohibition
against promoting products for unapproved uses. Failure to comply with any
post-approval requirements can, among other things, result in warning letters,
product seizures, recalls, substantial fines, injunctions, suspensions or
revocations of marketing licenses, operating restrictions and criminal
prosecutions. Any of these enforcement actions, any unanticipated changes in
existing regulatory requirements or the adoption of new requirements, or any
safety issues that arise with any approved products, could adversely affect the
Company’s ability to market products and generate revenues and thus adversely
affect its ability to continue InVivo’s business.
The
Company also may be restricted or prohibited from marketing or manufacturing a
product, even after obtaining product approval, if previously unknown problems
with the product or its manufacture are subsequently discovered and the Company
cannot provide assurance that newly discovered or developed safety issues will
not arise following any regulatory approval. With the use of any treatment by a
wide patient population, serious adverse events may occur from time to time that
initially do not appear to relate to the treatment itself, and only if the
specific event occurs with some regularity over a period of time does the
treatment become suspect as having a causal relationship to the adverse event.
Any safety issues could cause the Company to suspend or cease marketing of its
approved products, possibly subject it to substantial liabilities, and adversely
affect its ability to generate revenues.
The manufacture
and sale of the Company’s products in foreign jurisdictions will require
regulatory approval
from
International Regulatory Agencies.
The
Company intends to also have its product candidates marketed outside the United
States. In order to market products in the European Union and many other
non-U.S. jurisdictions, the Company must obtain separate regulatory approvals
and comply with numerous and varying regulatory requirements. The Company may
not obtain foreign regulatory approvals on a timely basis, if at all. Approval
by the FDA does not ensure approval by regulatory agencies in other foreign
countries or by the FDA. However, a failure or delay in obtaining regulatory
approval in one jurisdiction may have a negative effect on the regulatory
approval process in other jurisdictions, including approval by the FDA. The
failure to obtain regulatory approval in foreign jurisdictions could harm the
Company’s business.
The Company is
subject to various
e
nvironmental,
health and safety laws.
The
Company is subject to various laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals, emissions and wastewater discharges, and the use and disposal of
hazardous or potentially hazardous substances used in connection with its
research, including infectious disease agents. The Company also cannot
accurately predict the extent of regulations that might result from any future
legislative or administrative action. Any of these laws or regulations could
cause the Company to incur additional expense or restrict its operations.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair the Company’s research,
development or production efforts.
The
Company will depend on its patent portfolio, its licensed technology and other
trade secrets in the conduct of its business and must ensure that it does not
violate the patent or intellectual rights of others.
The
Company’s success in large part depends on its ability to maintain the
proprietary nature of its licensed technology and other trade secrets. To do so,
the Company and its licensors must prosecute and maintain existing patents,
obtain new patents and pursue trade secret and other intellectual property
protection. The Company also must operate without infringing the proprietary
rights of third parties or allowing third parties infringe its rights. The
Company’s research, development and commercialization activities, including any
product candidates or products resulting from these activities, may infringe or
be claimed to infringe patents owned by third parties and to which the Company
does not hold licenses or other rights. There may be rights that the
Company is not aware of, including applications that have been filed but not
published that, when issued, could be asserted against the Company. These third
parties could bring claims against the Company that would cause it to incur
substantial expenses and, if successful, could cause the Company to pay
substantial damages. Further, if a patent infringement suit were brought against
the Company, it could be forced to stop or delay research, development,
manufacturing or sales of the product or biologic treatment candidate that is
the subject of the suit.
In
addition, competitors may infringe the Company’s patents or the patents of its
collaborators or licensors. As a result, the Company may be required to file
infringement claims to counter infringement for unauthorized use. This can be
expensive and time-consuming. In addition, in an infringement proceeding, a
court may decide that a patent owned by the Company is not valid or is
unenforceable, or may refuse to stop the other party from using the technology
at issue on the grounds that the Company’s patents do not cover its technology.
An adverse determination of any litigation or defense proceedings could put one
or more of the Company’s patents at risk of being invalidated or interpreted
narrowly and could put the Company’s patent applications at the risk of not
issuing.
Furthermore,
because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of the Company‘s
confidential information could be compromised by disclosure during this type of
litigation.
RISKS
RELATED TO OUR COMMON STOCK AND THE OFFERING
The
Notes will not be registered for resale, and there is no assurance that the
Notes will convert into our equity securities in the future or that any such
equity securities will be subject to unrestricted sale to the public upon
issuance or at a later date.
The Notes
will not be registered for resale and are thus not saleable to the
public. There is no assurance that the Notes will be converted
into any of our equity securities in the future. Even if the Notes do
convert into any such equity securities, the equity securities will be
restricted as to resale under the Securities Act of 1933, as amended (the
“Securities Act”). We cannot assure that any of these equity
securities will be publicly saleable upon issuance or at a later date, whether
pursuant to a valid exemption from the registration requirements under the
Securities Act or pursuant to a valid registration statement. The
inability to publicly resell the Notes, and possibly the equity securities, upon
conversion, limits or prevents the potential the resell the Notes or the equity
securities, which may be issuable upon conversion of the Notes.
The
shares of Common Stock underlying the Warrants will not be registered and cannot
be sold for at least twelve months after the Warrants are
purchased.
The
ability to sell such shares of Common Stock will depend upon the availability of
an exemption to the requirements of Section 5 of the Securities
Act. The most commonly utilized exemption is Rule
144. Under Rule 144, since the warrants contain a cashless exercise
provision, the shares of Common Stock issuable upon exercise of the Warrants may
become eligible for resale 12 months after the date in which the Warrants are
issued, so long as the Company fulfills its current reporting requirements under
the Exchange Act. After a year, the current information requirement
no longer applies. Any purchasers which are affiliates of the Company
will be subject to certain other requirements such as volume
limitations.
The Notes and Warrants is being
offered on “reasonable efforts, no minimum” basis
.
The Notes and Warrants are being offered on a
“reasonable efforts, no minimum” basis. In this type of offering
where there is no minimum amount necessary to consummate the Offering, there is
no assurance that the
maximum
offering amount of $300,000 will be
sold. Accordingly, persons purchasing Notes and Warrants do so
without any assurance that sufficient funds can be raised to satisfy the “Use of
Proceeds” described herein and to otherwise allow the Company to effectuate its
business plan. The failure to raise the Offering Amount will also increase the
need of the Company to obtain additional financing sooner that the approximate
four month estimate that the anticipated proceeds would last in the event the
full $300,000 of securities offered herein are sold. Such additional
financing may or may not be available at such time on terms satisfactory to us,
if at all.
We
are a controlled company and our majority shareholder may take actions adverse
to the interests of other shareholders
As of
July 30, 2010, Frank Reynolds, our Chief Executive Officer, Robert S. Langer,
Director and Yang D. Teng, one of our founders, beneficially owned approximately
80% of our issued and outstanding common stock. Due to this stock ownership, we
are controlled by these persons. Due to this voting control of our
common stock, these persons have substantial control over us and have
substantial power to elect directors and to generally approve all actions
requiring the approval of the holders of our voting stock.
An investment in
the Notes and Warrants is speculative and there can be no assurance of any
return on any such investment.
An
investment in the Notes and Warrants is speculative and there is no assurance
that investors will obtain any return on their investment. Investors will be
subject to substantial risks involved in an investment in the Company, including
the risk of losing their entire investment.
We
have broad discretion on how we use any proceeds we receive from this
Offering.
Our
management has broad discretion on how to use and spend any proceeds we receive
from this Offering and may use the proceeds in ways that differ from the
proposed uses set forth in this Agreement. See Schedule 3.8 to this
Agreement. Our stockholders may not agree with our decision on how to
use such proceeds. If we fail to spend the proceeds effectively, our
business and financial condition could be harmed and we may need to seek
additional financing sooner than expected.
The Notes and Warrants may be
purchase
d by parties
that are related to the
Finder
and/or our Company
.
The
Finder
and its
respective officers, directors, employees and related parties, and our officers,
directors, employees and related parties (including current shareholders and
related parti
es of shareholders) may
purchase Notes and Warrants in this Offering.
Because there may be substantial purchases by affiliates
of the Company and the
Finder
(who receives fees and other compensation in connection
with the Offering), no potential investor s
hould place any reliance on the sale of any amount of
the Notes and Warrants as an indication of the merits of the
Offering. Each investor must make his own investment decision as to
the merits of the Offering.
The purchase price of the Notes and
Warrant
s and the
Warrant exercise price were determined by the Company and the
Finder
and may not be indicative of the
Company
’
s actual value or the fair market
value of the Notes and Warrants.
The
purchase price of the Notes and Warrants were determined following negotiations
with the Finder which took into account, among other things, previous prices of
our Common Stock, our business and growth plans, and other factors that we
deemed relevant. The purchase price of the Notes and Warrants is not
necessarily related to the asset value, net worth or any other established
criteria of value of the Company.
The Offering has not been reviewed
or approved by regulatory agencies
.
The sale
of the Notes and Warrants offered hereby has not been approved or disapproved by
the SEC or any state regulatory agencies, and no regulatory body has passed upon
or endorsed the accuracy, adequacy, or completeness of the information in this
Agreement. Accordingly, prospective investors must rely on their own
examination of the Agreement and the SEC Reports, including, without limitation,
the merits of, and risks involved in, acquiring the Notes and
Warrants.
Schedule
3.8
Use of
Proceeds
The net
proceeds of this Offering, estimated to be $290,000, after deducting expenses of
the Company of up to $10,000, will be used for working capital.
EXHIBIT
A
NOTE
[ATTACHED
SEPARATELY]
EXHIBIT
B
WARRANT
[ATTACHED
SEPARATELY]
EXHIBIT
C
SCHEDULE
OF EXCEPTIONS
None
REGISTRATION RIGHTS
AGREEMENT
This
Registration Rights Agreement (this “
Agreement
”) is made and
entered into effective as of October 26, 2010 (the “
Effective Date
”) between
InVivo Therapeutics Holdings Corp. (f/k/a Design Source, Inc.), a Nevada
corporation (the “
Company
”), and the persons who
have executed the signature page(s) hereto (each, a “
Purchaser
” and collectively,
the “
Purchasers
”).
RECITALS:
WHEREAS,
the Company has entered into an Agreement and Plan of Merger and Reorganization
with InVivo Therapeutics Corporation, a Delaware corporation (“
InVivo
”), pursuant to which a
newly organized, wholly-owned subsidiary of the Company has merged with and into
InVivo, with InVivo remaining as the surviving entity and a wholly-owned
subsidiary of the Company (the “
Merger
”);
WHEREAS,
prior to the Merger, InVivo issued (the “
Notes Offering
”) Convertible
Promissory Notes (the “
Bridge
Notes
”) and common stock purchase warrants (“
Bridge
Warrants
”). Upon the closing of the Merger and the PPO (as
defined below), the Bridge Notes automatically converted into Units (as defined
below) and the Bridge Warrants automatically converted into common stock
purchase warrants (the “
Exchange Warrants
”) to
purchase shares of Common Stock;
WHEREAS,
simultaneously with the Merger and to provide the capital required by the
Company for working capital and other purposes, the Company has offered in
compliance with Rule 506 of Regulation D and/or Regulation S of the Securities
Act (as defined herein), to investors in a private placement transaction (the
“
PPO
”), units (“
Units
”) of its securities,
each Unit consisting of one share of Common Stock (the “
Investor Shares
”) and a common
stock purchase warrant (the “
Investor Warrants
”) to
purchase one share of Common Stock;
WHEREAS,
the initial closing of the PPO and the closing of the Merger have taken place on
the Effective Date; and
WHEREAS,
in connection with the Merger, the Notes Offering and the PPO, the Company
agrees to provide certain registration rights related to the Investor Shares and
the shares of Common Stock issuable upon exercise of the Exchange Warrants and
the Investor Warrants, on the terms set forth herein;
NOW,
THEREFORE, in consideration of the mutual promises, representations, warranties,
covenants, and conditions set forth herein, the parties mutually agree as
follows:
1.
Certain
Definitions
. As used in this Agreement, the following terms
shall have the following respective meanings:
“
Approved Market
”
means the Over-the-Counter Bulletin Board, the Nasdaq Stock Market, the New York
Stock Exchange or the American Stock Exchange.
“
Blackout Period
”
means, with respect to a registration, a period, in each case commencing on the
day immediately after the Company notifies the Purchasers that they are
required, because of the occurrence of an event of the kind described in Section
4(f) hereof, to suspend offers and sales of Registrable Securities during which
the Company, in the good faith judgment of its board of directors, determines
(because of the existence of, or in anticipation of, any acquisition, financing
activity, or other transaction involving the Company, or the unavailability for
reasons beyond the Company’s control of any required financial statements,
disclosure of information which is in its best interest not to publicly
disclose, or any other event or condition of similar significance to the
Company) that the registration and distribution of the Registrable Securities to
be covered by such Registration Statement, if any, would be seriously
detrimental to the Company and its stockholders and ending on the earlier of (1)
the date upon which the material non-public information commencing the Blackout
Period is disclosed to the public or ceases to be material and (2) such time as
the Company notifies the selling Holders that the Company will no longer delay
such filing of the Registration Statement, recommence taking steps to make such
Registration Statement effective, or allow sales pursuant to such Registration
Statement to resume.
“
Bridge Notes
” has the
meaning given it in the recitals of this Agreement.
“
Bridge Warrants
” has
the meaning given it in the recitals of this Agreement.
“
Business Day
” means
any day of the year, other than a Saturday, Sunday, or other day on which the
Commission is required or authorized to close.
“
Commission
” means the
U. S. Securities and Exchange Commission or any other federal agency at the time
administering the Securities Act.
“
Common Stock
” means
the common stock, par value $0.00001 per share, of the Company and any and all
shares of capital stock or other equity securities of: (i) the Company which are
added to or exchanged or substituted for the Common Stock by reason of the
declaration of any stock dividend or stock split, the issuance of any
distribution or the reclassification, readjustment, recapitalization or other
such modification of the capital structure of the Company; and (ii) any other
corporation, now or hereafter organized under the laws of any state or other
governmental authority, with which the Company is merged, which results from any
consolidation or reorganization to which the Company is a party, or to which is
sold all or substantially all of the shares or assets of the Company, if
immediately after such merger, consolidation, reorganization or sale, the
Company or the stockholders of the Company own equity securities having in the
aggregate more than 50% of the total voting power of such other
corporation.
“
Effective Date
” means
the later of (i) the date set forth in the preamble to this Agreement and (ii)
the date of the final closing of the PPO.
“
Exchange Act
” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Commission promulgated thereunder.
“
Exchange Warrants
”
has the meaning given it in the recitals of this Agreement.
“
Family Member
” means
(a) with respect to any individual, such individual’s spouse, any descendants
(whether natural or adopted), any trust all of the beneficial interests of which
are owned by any of such individuals or by any of such individuals together with
any organization described in Section 501(c)(3) of the Internal Revenue Code of
1986, as amended, the estate of any such individual, and any corporation,
association, partnership or limited liability company all of the equity
interests of which are owned by those above described individuals, trusts or
organizations and (b) with respect to any trust, the owners of the beneficial
interests of such trust.
“
Holder
” means each
Purchaser or any of such Purchaser’s respective successors and Permitted
Assignees who acquire rights in accordance with this Agreement with respect to
any Registrable Securities directly or indirectly from a Purchaser or from any
Permitted Assignee.
“
Initial Registration
Statement
” means the initial Registration Statement filed pursuant to
this Agreement.
“
Investor Shares
” has
the meaning given it in the recitals of this Agreement.
“
Investor Warrants
”
has the meaning given it in the recitals of this Agreement.
“
Majority Holders
”
means at any time Holders representing a majority of the Registrable
Securities.
“
Permitted Assignee
”
means (a) with respect to a partnership, its partners or former partners in
accordance with their partnership interests, (b) with respect to a corporation,
its stockholders in accordance with their interest in the corporation, (c) with
respect to a limited liability company, its members or former members in
accordance with their interest in the limited liability company, (d) with
respect to an individual party, any Family Member of such party, (e) an entity
that is controlled by, controls, or is under common control with a transferor,
or (f) a party to this Agreement.
“
Piggyback
Registration
” means, in any registration of Common Stock as set forth in
Section 3(b), the ability of holders of Registrable Securities to include
Registrable Securities in such registration.
The terms
“
register
,”
“
registered
,”
and “
registration
” refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
“
Registrable
Securities
” means the Investor Shares and the Registrable Warrant Shares
but excluding (i) any Registrable Securities that have been publicly sold or may
be sold immediately without registration under the Securities Act either
pursuant to Rule 144(k) of the Securities Act or otherwise; (ii) any Registrable
Securities sold by a person in a transaction pursuant to a registration
statement filed under the Securities Act, or (iii) any Registrable Securities
that are at the time subject to an effective registration statement under the
Securities Act.
“
Registrable Warrant
Shares
” means the shares of Common Stock issued or issuable to each
Purchaser upon exercise of the Exchange Warrants and the Investor
Warrants.
“
Registration Default
Date
” means the date that is 180 days after the date the Registration
Statement is actually filed with the Commission.
“
Registration Default
Period
” means the period following the Registration Default Date during
which any Registration Event occurs and is continuing.
“
Registration Event
”
means the occurrence of any of the following events:
(a)
the
Company fails to file with the Commission the Registration Statement on or
before the Registration Filing Date;
(b)
the
Registration Statement is not declared effective by the Commission on or before
the Registration Default Date;
(c)
after
the SEC Effective Date, sales cannot be made pursuant to the Registration
Statement for any reason (including without limitation by reason of a stop
order, or the Company’s failure to update the Registration Statement) except as
excused pursuant to Section 3(e); or
(d)
the
Common Stock generally or the Registrable Securities specifically are not listed
or included for quotation on an Approved Market, or trading of the Common Stock
is suspended or halted on the Approved Market, which at the time constitutes the
principal market for the Common Stock, for more than two full, consecutive
Trading Days;
provided
,
however
, a
Registration Event shall not be deemed to occur if all or substantially all
trading in equity securities (including the Common Stock) is suspended or halted
on the Approved Market for any length of time.
“
Registration Filing
Date
” means the date that is 90 days after date of the final closing of
the PPO.
“
Registration
Statement
” means the registration statement that the Company is required
to file pursuant to this Agreement to register the Registrable
Securities.
“
Rule 144
” means Rule
144 promulgated by the Commission under the Securities Act.
“
Rule 145
” means Rule
145 promulgated by the Commission under the Securities Act.
“
Rule 415
” means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC having substantially the same purpose and effect as
such Rule.
“
Securities Act
” means
the Securities Act of 1933, as amended, or any similar federal statute
promulgated in replacement thereof, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the
time.
“
SEC Effective Date
”
means the date the Registration Statement is declared effective by the
Commission.
“
Trading Day
” means
(a) if the Common Stock is listed or quoted on an Approved Market, then any day
during which securities are generally eligible for trading on the Approved
Market, or (b) if the Common Stock is not then listed or quoted and traded on an
Approved Market, then any business day.
2.
Term
. This
Agreement shall continue in full force and effect for a period of one year from
the SEC Effective Date, unless terminated sooner hereunder.
3.
Registration
.
(a)
Registration on Form
S-1
. Not later than the Registration Filing Date, the Company
shall file with the Commission a Registration Statement on Form S-1, or other
applicable form, relating to the resale by the Holders of all of the Registrable
Securities, and the Company shall use its commercially reasonably efforts to
cause such Registration Statement to be declared effective prior to the
Registration Default Date.
(b)
Piggyback
Registration
. In addition to the Coampny agreement pursuant to
Section 3(a) above, if the Company shall determine to register for sale for cash
any of its Common Stock, for its own account or for the account of others (other
than the Holders), other than (i) a registration relating solely to employee
benefit plans or securities issued or issuable to employees, consultants (to the
extent the securities owned or to be owned by such consultants could be
registered on Form S-8) or any of their Family Members (including a registration
on Form S-8) or (ii) a registration relating solely to a Securities Act Rule 145
transaction or a registration on Form S-4 in connection with a merger,
acquisition, divestiture, reorganization or similar event, the Company shall
promptly give to the Holders written notice thereof (and in no event shall such
notice be given less than 20 calendar days prior to the filing of such
registration statement), and shall, subject to Section 3(c), include as a
Piggyback Registration all of the Registrable Securities specified in a written
request delivered by the Holder thereof within 10 calendar days after receipt of
such written notice from the Company. However, the Company may, without the
consent of the Holders, withdraw such registration statement prior to its
becoming effective if the Company or such other stockholders have elected to
abandon the proposal to register the securities proposed to be registered
thereby.
(c)
Underwriting
. If
a Piggyback Registration is for a registered public offering that is to be made
by an underwriting, the Company shall so advise the Holders of the Registrable
Securities eligible for inclusion in such Registration Statement pursuant to
Sections 3(b)(i) and (ii), respectively. In that event, the right of
any Holder to Piggyback Registration shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to sell any of their Registrable Securities through such
underwriting shall (together with the Company and any other stockholders of the
Company selling their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter selected for such
underwriting by the Company or the selling stockholders, as
applicable. Notwithstanding any other provision of this Section, if
the underwriter or the Company determines that marketing factors require a
limitation on the number of shares of Common Stock or the amount of other
securities to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The
Company shall so advise all Holders (except those Holders who failed to timely
elect to include their Registrable Securities through such underwriting or have
indicated to the Company their decision not to do so), and indicate to each such
Holder the number of shares of Registrable Securities that may be included in
the registration and underwriting, if any. The number of shares of Registrable
Securities to be included in such registration and underwriting shall be
allocated among such Holders as follows:
(i) If
the Piggyback Registration was initiated by the Company, the number of shares
that may be included in the registration and underwriting shall be allocated
first to the Company and then, subject to obligations and commitments existing
as of the date hereof, to all selling stockholders, including the Holders, who
have requested to sell in the registration on a pro rata basis according to the
number of shares requested to be included therein; and
(ii) If
the Piggyback Registration was initiated by the exercise of demand registration
rights by a stockholder or stockholders of the Company (other than the Holders),
then the number of shares that may be included in the registration and
underwriting shall be allocated first to such selling stockholders who exercised
such demand and then, subject to obligations and commitments existing as of the
date hereof, to all other selling stockholders, including the Holders, who have
requested to sell in the registration on a pro rata basis according to the
number of shares requested to be included therein.
No
Registrable Securities excluded from the underwriting by reason of the
underwriter’s marketing limitation shall be included in such registration. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw such Holder’s Registrable Securities therefrom by delivering a
written notice to the Company and the underwriter. The Registrable
Securities so withdrawn from such underwriting shall also be withdrawn from such
registration;
provided
,
however
, that, if by
the withdrawal of such Registrable Securities, a greater number of Registrable
Securities held by other Holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all Holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities pursuant to
the terms and limitations set forth herein in the same proportion used above in
determining the underwriter limitation.
(d)
Occurrence of Registration
Event
. If a Registration Event occurs, then the Company will
make payments to each Holder of Registrable Securities (a “
Qualified Purchaser
”), as
liquidated damages for the amount of damages to the Qualified Purchaser by
reason thereof, at a rate equal to 0.50% of the purchase price per Unit paid by
such Holder in the PPO (including, without limitation, Bridge Note conversion
amounts) for the Registrable Securities then held by each Qualified Purchaser
for each full period of 30 days of the Registration Default Period (which shall
be pro rated for any period less than 30 days);
provided
,
however
, if a
Registration Event occurs (or is continuing) on a date more than one-year after
the Company filed a Current Report on Form 8-K relating to the Merger and the
PPO and providing Form 10 information with respect thereto, liquidated damages
shall be paid only with respect to that portion of the Qualified Purchaser’s
Registrable Securities that cannot then be immediately resold in reliance on
Rule 144. Notwithstanding the foregoing, the maximum amount of
liquidated damages that may be paid to any Qualified Purchaser pursuant to this
Section 3(d) shall be an amount equal to 9% of the purchase price per Unit paid
by such Holder in the PPO for the Registrable Securities held by such Qualified
Purchaser at the time of the first occurrence of a Registration
Event. Each such payment shall be due and payable within five days
after the end of each full 30-day period of the Registration Default Period
until the termination of the Registration Default Period and within five days
after such termination. Such payments shall constitute the Qualified
Purchaser’s exclusive remedy for such events. If the Company fails to
pay any partial liquidated damages or refund pursuant to this Section in full
within seven days after the date payable, the Company will pay interest thereon
at a rate of 8% per annum (or such lesser maximum amount that is permitted to be
paid by applicable law) to the Holder, accruing daily from the date such partial
liquidated damages are due until such amounts, plus all such interest thereon,
are paid in full. The Registration Default Period shall terminate
upon (i) the filing of the Registration Statement in the case of clause (a) of
the definition of Registration Event, (ii) the SEC Effective Date in the case of
clause (b) of the definition of Registration Event, (iii) the ability of the
Qualified Purchaser to effect sales pursuant to the Registration Statement in
the case of clause (c) of the definition of Registration Event, (iv) the listing
or inclusion and/or trading of the Common Stock on an Approved Market, as the
case may be, in the case of clause (d) of the definition of Registration Event,
and (v) in the case of the events described in clauses (b) and (c) of the
definition of Registration Event, the earlier termination of the Registration
Default Period. The amounts payable as liquidated damages pursuant to
this Section 3(d) shall be payable in lawful money of the United
States.
(e)
Notwithstanding
the provisions of Section 3(d) above
,
(a) if the
Commission does not declare the Registration Statement effective on or before
the Registration Default Date, or (b) if the Commission allows the Registration
Statement to be declared effective at any time before or after the Registration
Default Date, subject to the withdrawal of certain Registrable Securities from
the Registration Statement, and the reason for (a) or (b) is the Commission’s
determination that (x) the offering of any of the Registrable Securities
constitutes a primary offering of securities by the Company, (y) Rule 415 may
not be relied upon for the registration of the resale of any or all of the
Registrable Securities, and/or (z) a Holder of any Registrable Securities must
be named as an underwriter, the Holders understand and agree that in the case of
(b) the Company may reduce, on a
pro rata
basis, the total
number of Registrable Securities to be registered on behalf of each such Holder,
and, in the case of (a) or (b), and that a Holder shall not be entitled to any
liquidated damages with respect to the Registrable Securities not registered for
the reason set forth in (a), or so reduced on a
pro rata
basis as set forth
in (b). In any such
pro
reduction, the number of
Registrable Securities to be registered on such Registration Statement will
first be reduced by the Registrable Securities represented by the Registrable
Warrant Shares (applied, in the case that some Registrable Warrant Shares may be
registered, to the Holders on a pro rata basis based on the total number of
unregistered Registrable Warrant Shares held by such Holders on a fully diluted
basis), and second by Registrable Securities represented by Investor Shares
(applied, in the case that some Investor Shares may be registered, to the
Holders on a pro rata basis based on the total number of unregistered Investor
Shares held by such Holders)
.
In addition, any
such affected Holder shall be entitled to Piggyback Registration rights after
the Registration Statement is declared effective by the Commission until such
time as: (AA) all Registrable Securities have been registered pursuant to an
effective Registration Statement, (BB) the Registrable Securities may be resold
without restriction pursuant to Rule 144 of the Securities Act, or (CC) the
Holder agrees to be named as an underwriter in any such registration statement.
The Holders acknowledge and agree the provisions of this paragraph may apply to
more than one Registration Statement.
4.
Registration Procedures for
Registrable Securities
. The Company will keep each Holder
reasonably advised as to the filing and effectiveness of the Registration
Statement. At its expense with respect to the Registration Statement, the
Company will:
(a)
prepare
and file with the Commission with respect to the Registrable Securities, a
Registration Statement on Form S-1, or any other form for which the Company then
qualifies or which counsel for the Company shall deem appropriate and which form
shall be available for the sale of the Registrable Securities in accordance with
the intended methods of distribution thereof, and use its commercially
reasonable efforts to cause such Registration Statement to become effective and
shall remain effective for a period of one year or for such shorter period
ending on the earlier to occur of (i) the date as of which all of the Holders as
selling stockholders thereunder may sell all of the Registrable Securities
registered for resale thereon without restriction pursuant to Rule 144 (or any
successor rule thereto) promulgated under the Securities Act or (ii) the date
when all of the Registrable Securities registered thereunder shall have been
sold (the
“
Effectiveness
Period
”). Thereafter, the Company shall be entitled to
withdraw such Registration Statement and the Investors shall have no further
right to offer or sell any of the Registrable Securities registered for resale
thereon pursuant to the respective Registration Statement (or any prospectus
relating thereto);
(b)
if
the Registration Statement is subject to review by the Commission, promptly
respond to all comments and diligently pursue resolution of any comments to the
satisfaction of the Commission;
(c)
prepare
and file with the Commission such amendments and supplements to such
Registration Statement as may be necessary to keep such Registration Statement
effective during the Effectiveness Period;
(d)
furnish,
without charge, to each Holder of Registrable Securities covered by such
Registration Statement (i) a reasonable number of copies of such Registration
Statement (including any exhibits thereto other than exhibits incorporated by
reference), each amendment and supplement thereto as such Holder may reasonably
request, (ii) such number of copies of the prospectus included in such
Registration Statement (including each preliminary prospectus and any other
prospectus filed under Rule 424 of the Securities Act) as such Holders may
reasonably request, in conformity with the requirements of the Securities Act,
and (iii) such other documents as such Holder may require to consummate the
disposition of the Registrable Securities owned by such Holder, but only during
the Effectiveness Period;
(e)
use
its commercially reasonable efforts to register or qualify such registration
under such other applicable securities laws of such jurisdictions as any Holder
of Registrable Securities covered by such Registration Statement reasonably
requests and as may be necessary for the marketability of the Registrable
Securities (such request to be made by the time the applicable Registration
Statement is deemed effective by the Commission) and do any and all other acts
and things necessary to enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holder;
provided
, that the
Company shall not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph, (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction.
(f)
notify
each Holder of Registrable Securities, the disposition of which requires
delivery of a prospectus relating thereto under the Securities Act, of the
happening of any event (as promptly as practicable after becoming aware of such
event), which comes to the Company’s attention, that will after the occurrence
of such event cause the prospectus included in such Registration Statement, if
not amended or supplemented, to contain an untrue statement of a material fact
or an omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and the Company shall
promptly thereafter prepare and furnish to such Holder a supplement or amendment
to such prospectus (or prepare and file appropriate reports under the Exchange
Act) so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, unless suspension of
the use of such prospectus otherwise is authorized herein or in the event of a
Blackout Period, in which case no supplement or amendment need be furnished (or
Exchange Act filing made) until the termination of such suspension or Blackout
Period;
(g)
comply,
and continue to comply during the Effectiveness Period, in all material respects
with the Securities Act and the Exchange Act and with all applicable rules and
regulations of the Commission with respect to the disposition of all securities
covered by such Registration Statement;
(h)
as
promptly as practicable after becoming aware of such event, notify each Holder
of Registrable Securities being offered or sold pursuant to the Registration
Statement of the issuance by the Commission of any stop order or other
suspension of effectiveness of the Registration Statement;
(i)
use
its commercially reasonable efforts to cause all the Registrable Securities
covered by the Registration Statement to be quoted on the OTC Bulletin Board or
such other principal securities market on which securities of the same class or
series issued by the Company are then listed or traded;
(j)
provide
a transfer agent and registrar, which may be a single entity, for the shares of
Common Stock at all times;
(k)
If
requested by the Holders, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be delivered to a transferee pursuant to the Registration Statement, which
certificates shall be free, to the extent permitted by applicable law, of all
restrictive legends, and to enable such Registrable Securities to be in such
denominations and registered in such names as any such Holders may
request;
(l)
during
the Effectiveness Period, refrain from bidding for or purchasing any Common
Stock or any right to purchase Common Stock or attempting to induce any person
to purchase any such security or right if such bid, purchase or attempt would in
any way limit the right of the Holders to sell Registrable Securities by reason
of the limitations set forth in Regulation M of the Exchange Act;
and
(m)
take
all other reasonable actions necessary to expedite and facilitate the
disposition by the Holders of the Registrable Securities pursuant to the
Registration Statement.
5.
Suspension of Offers and
Sales
. Each Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4(f) hereof or of the commencement of a Blackout Period, such Holder shall
discontinue the disposition of Registrable Securities included in the
Registration Statement until such Holder’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4(f) hereof or notice
of the end of the Blackout Period, and, if so directed by the Company, such
Holder shall deliver to the Company (at the Company’s expense) all copies
(including, without limitation, any and all drafts), other than permanent file
copies, then in such Holder’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such
notice.
6.
Registration
Expenses
. The Company shall pay all expenses in connection
with any registration obligation provided herein, including, without limitation,
all registration, filing, stock exchange fees, printing expenses, all fees and
expenses of complying with applicable securities laws, and the fees and
disbursements of counsel for the Company and of its independent accountants;
provided
, that,
in any registration, each party shall pay for its own underwriting discounts and
commissions and transfer taxes. Except as provided in this Section and Section
9, the Company shall not be responsible for the expenses of any attorney or
other advisor employed by a Holder.
7.
Assignment of
Rights
. No Holder may assign its rights under this Agreement
to any party without the prior written consent of the Company;
provided
,
however
, that any
Holder may assign its rights under this Agreement without such consent to a
Permitted Assignee as long as (a) such transfer or assignment is effected in
accordance with applicable securities laws; (b) such transferee or assignee
agrees in writing to become subject to the terms of this Agreement; and (c) such
Holder notifies the Company in writing of such transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
Registrable Securities with respect to which such rights are being transferred
or assigned.
8.
Information by
Holder
. A Holder with Registrable Securities included in any
registration shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required in order to comply with any applicable law
or regulation in connection with the registration of such Holder’s Registrable
Securities or any qualification or compliance with respect to such Holder’s
Registrable Securities and referred to in this Agreement.
9.
Indemnification
.
(a)
In
the event of the offer and sale of Registrable Securities under the Securities
Act, the Company shall, and hereby does, indemnify and hold harmless, to the
fullest extent permitted by law, each Holder, its directors, officers, partners,
each other person who participates as an underwriter in the offering or sale of
such securities, and each other person, if any, who controls or is under common
control with such Holder or any such underwriter within the meaning of Section
15 of the Securities Act, against any losses, claims, damages or liabilities,
joint or several, and expenses to which the Holder or any such director,
officer, partner or underwriter or controlling person may become subject under
the Securities Act, the Exchange Act, or any other federal or state law, insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement of any material fact contained in any
registration statement prepared and filed by the Company under which Registrable
Securities were registered under the Securities Act, any preliminary prospectus,
final prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission to state therein a material fact required to
be stated or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, or any violation or
alleged violation of the Securities Act, the Exchange Act, any state securities
law or any rule or regulation promulgated under the Securities Act, the Exchange
Act or any state securities law in connection with this Agreement; and the
Company shall reimburse the Holder, and each such director, officer, partner,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating, defending or
settling any such loss, claim, damage, liability, action or proceeding;
provided
, that such
indemnity agreement found in this Section 9(a) shall in no event exceed the net
proceeds from the Notes Offering or the PPO, as applicable, received by the
Company; and
provided
further
, that the Company shall not be liable in any such case (i) to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
in or omission from such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by the Holder specifically for use in the preparation thereof or (ii) if
the person asserting any such loss, claim, damage, liability (or action or
proceeding in respect thereof) who purchased the Registrable Securities that are
the subject thereof did not receive a copy of an amended preliminary prospectus
or the final prospectus (or the final prospectus as amended or supplemented) at
or prior to the written confirmation of the sale of such Registrable Securities
to such person because of the failure of such Holder or underwriter to so
provide such amended preliminary or final prospectus and the untrue statement or
omission of a material fact made in such preliminary prospectus was corrected in
the amended preliminary or final prospectus (or the final prospectus as amended
or supplemented). Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Holders, or any such
director, officer, partner, underwriter or controlling person and shall survive
the transfer of such shares by the Holder.
(b)
As
a condition to including Registrable Securities in any registration statement
filed pursuant to this Agreement, each Holder agrees to be bound by the terms of
this Section 9 and to indemnify and hold harmless, to the fullest extent
permitted by law, the Company, its directors and officers, and each other
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director or officer or controlling
person may become subject under the Securities Act, the Exchange Act, or any
other federal or state law, to the extent arising out of or based solely upon:
(x) such Holder’s failure to comply with the prospectus delivery requirements of
the Securities Act or (y) any untrue or alleged untrue statement of a material
fact contained in any registration statement, any prospectus, or any form of
prospectus, or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading (i) to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the registration statement or such prospectus or (ii) to the extent that (1)
such untrue statements or omissions are based solely upon information regarding
such Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such prospectus or such form of prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 4(f) hereof, the use by such Holder of an
outdated or defective prospectus after the Company has notified such Holder in
writing that the prospectus is outdated or defective and prior to the receipt by
such Holder of the advice contemplated in Section 4(f). In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification
obligation.
(c)
Promptly
after receipt by an indemnified party of notice of the commencement of any
action or proceeding involving a claim referred to in this Section (including
any governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
indemnifying party of the commencement of such action;
provided
, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Section, except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an
indemnified party, unless in the reasonable judgment of counsel to such
indemnified party a conflict of interest between such indemnified and
indemnifying parties may exist or the indemnified party may have defenses not
available to the indemnifying party in respect of such claim, the indemnifying
party shall be entitled to participate in and to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified
party’s reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of the
defenses thereof or the indemnifying party fails to defend such claim in a
diligent manner, other than reasonable costs of
investigation. Neither an indemnified nor an indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
consent. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement, which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. Notwithstanding
anything to the contrary set forth herein, and without limiting any of the
rights set forth above, in any event any party shall have the right to retain,
at its own expense, counsel with respect to the defense of a claim.
(d)
If
an indemnifying party does or is not permitted to assume the defense of an
action pursuant to Sections 9(c) or in the case of the expense reimbursement
obligation set forth in Sections 9(a) and (b), the indemnification required by
Sections 9(a) and 9(b) shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills received or
expenses, losses, damages, or liabilities are incurred.
(e)
If
the indemnification provided for in Section 9(a) or 9(b) is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect to
any loss, liability, claim, damage or expense referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall (i) contribute to the amount paid or payable by such indemnified party as
a result of such loss, liability, claim, damage or expense as is appropriate to
reflect the proportionate relative fault of the indemnifying party on the one
hand and the indemnified party on the other (determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission relates to information supplied by the indemnifying party or the
indemnified party and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission), or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified party
than the amount hereinafter calculated, not only the proportionate relative
fault of the indemnifying party and the indemnified party, but also the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other, as well as any other relevant equitable considerations. No
indemnified party guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
indemnifying party who was not guilty of such fraudulent
misrepresentation.
(f)
Other
Indemnification
. Indemnification similar to that specified in
this Section (with appropriate modifications) shall be given by the Company and
each Holder of Registrable Securities with respect to any required registration
or other qualification of securities under any federal or state law or
regulation or governmental authority other than the Securities Act.
10.
Rule
144
. With a view to making available to the Holders the
benefits of Rule 144 and any other rule or regulation of the Commission that may
at any time permit the Holders to sell the Registrable Securities to the public
without registration, the Company agrees: (i) to make and keep public
information available as those terms are understood in Rule 144, (ii) to file
with the Commission in a timely manner all reports and other documents required
to be filed by an issuer of securities registered under the Securities Act or
the Exchange Act pursuant to Rule 144, (iii) as long as any Holder owns any
Registrable Securities, to furnish in writing upon such Holder’s request a
written statement by the Company that it has complied with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange Act, and to
furnish to such Holder a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed by the Company as may
be reasonably requested in availing such Holder of any rule or regulation of the
Commission permitting the selling of any such Registrable Securities without
registration and (iv) undertake any additional actions commercially reasonably
necessary to maintain the availability of the use of Rule 144.
11.
Corporate
Existence
. So long as any Holder owns any Registrable
Securities, the Company shall not directly or indirectly consummate any merger,
reorganization, restructuring, reverse stock split, consolidation, sale of all
or substantially all of the Company’s assets or any similar transaction or
related transactions (each such transaction, an “
Organizational Change
”),
unless, prior to the consummation of an Organizational Change, the Company
obtains the written consent of the Majority Holders.
12.
Independent Nature of Each
Purchaser’s Obligations and Rights
. The obligations of each
Purchaser under this Agreement are several and not joint with the obligations of
any other Purchaser, and each Purchaser shall not be responsible in any way for
the performance of the obligations of any other Purchaser under this Agreement.
Nothing contained herein and no action taken by any Purchaser pursuant hereto,
shall be deemed to constitute such Purchasers as a partnership, an association,
a joint venture, or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by this Agreement. Each Purchaser
shall be entitled to independently protect and enforce its rights, including
without limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
13.
Other Registration
Rights
. The Company shall not grant any registration rights
without the Consent of the Majority Holders prior to the effectiveness of the
Registration Statement.
14.
Miscellaneous
.
(a)
Governing Law
. This
Agreement shall be governed by and construed in accordance with the laws of the
United States of America and the State of New York, both substantive and
remedial, without regard to New York conflicts of law principles. Any judicial
proceeding brought against either of the parties to this Agreement or any
dispute arising out of this Agreement or any matter related hereto shall be
brought in the courts of the State of New York, New York County, or in the
United States District Court for the Southern District of New York and, by its
execution and delivery of this Agreement, each party to this Agreement accepts
the jurisdiction of such courts. The foregoing consent to jurisdiction shall not
be deemed to confer rights on any person other than the parties to this
Agreement.
(b)
Remedies
. In
the event of a breach by the Company or by a Holder of any of their respective
obligations under this Agreement, each Holder or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, shall be entitled to
specific performance of its rights under this Agreement. The Company
and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall not assert
or shall waive the defense that a remedy at law would be adequate.
(c)
Successors and
Assigns
. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
Permitted Assignees, executors and administrators of the parties
hereto.
(d)
No Inconsistent
Agreements
. The Company has not entered, as of the date
hereof, and shall not enter, on or after the date of this Agreement, into any
agreement with respect to its securities that would have the effect of impairing
the rights granted to the Holders in this Agreement or otherwise conflicts with
the provisions hereof.
(e)
Entire
Agreement
. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof.
(f)
Notices, etc
. All
notices or other communications which are required or permitted under this
Agreement shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, by electronic
mail, or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered as of the date so delivered:
If to the
Company to:
InVivo
Therapeutics Holdings Corp.
One
Broadway, 14
th
Floor
Cambridge,
MA 02142
Attention: Frank
M. Reynolds, Chief Executive Officer
Facsimile: (617)
225-4430
with copy to:
Meister
Seelig & Fein LLP
Two Grand
Central Tower, 19
th
Floor
140 East
45
th
Street
New York,
NY 10017
Attention: Mitchell
L. Lampert, Esq.
Facsimile: (212)
655-3535
If to the
Purchasers:
To each
Purchaser at the address set forth on the signature page hereto
or at
such other address as any party shall have furnished to the other parties in
writing.
(g)
Delays or
Omissions
. No delay or omission to exercise any right, power
or remedy accruing to any Holder, upon any breach or default of the Company
under this Agreement, shall impair any such right, power or remedy of such
Holder nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement, or any waiver on the part
of any Holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
(h)
Counterparts
. This
Agreement may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument. In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid and binding obligation of the party executing (or on whose behalf such
signature is executed) with the same force and effect as if such facsimile
signature page were an original thereof.
(i)
Severability
. In the
case any provision of this Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
(j)
Amendments
. The
provisions of this Agreement may be amended at any time and from time to time,
and particular provisions of this Agreement may be waived, with and only with an
agreement or consent in writing signed by the Company and the Majority Holders.
The Purchasers acknowledge that by the operation of this Section, the Majority
Holders may have the right and power to diminish or eliminate all rights of the
Purchasers under this Agreement.
(k)
Limitation on Subsequent
Registration Rights
. After the date of this Agreement, the
Company shall not, without the prior written consent of the Majority Holders,
enter into any agreement with any holder or prospective holder of any securities
of the Company that would grant such holder registration rights senior or equal
to those granted to the Holders hereunder.
[SIGNATURE
PAGES FOLLOW]
This
Registration Rights Agreement is hereby executed as of the date first above
written.
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COMPANY:
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INVIVO
THERAPEUTICS HOLDINGS CORP.
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By:
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Name:
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Frank
M. Reynolds
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Title:
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Chief
Executive Officer
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THE
PURCHASER’S SIGNATURE TO THE SUBSCRIPTION AGREEMENT DATED OF EVEN DATE HEREWITH
SHALL CONSTITUTE THE PURCHASER’S SIGNATURE TO THIS REGISTRATION RIGHTS
AGREEMENT.
SPLIT-OFF
AGREEMENT
This
SPLIT-OFF AGREEMENT
, dated as
of October __, 2010 (this “Agreement”), is entered into by and among InVivo
Therapeutics Holding Corp. (f/k/a Design Source, Inc.), a Nevada corporation
(“Seller”), DSource Split Corp., a Delaware corporation (“Split-Off Subsidiary”)
and Peter Reichard, Peter Coker and Lawrence Reichard (“Buyers”).
RECITALS:
WHEREAS
,
Seller is the owner of
all of the issued and outstanding capital stock of Split-Off Subsidiary;
Split-Off Subsidiary is a wholly-owned subsidiary of Seller which will acquire
the business assets and liabilities previously held by Seller; and Seller has no
other businesses or operations prior to the Merger (as defined
herein);
WHEREAS
, contemporaneously
with the execution of this Agreement, Seller, InVivo Therapeutics Corporation, a
Delaware corporation (“InVivo”), and a newly-formed wholly-owned Nevada
subsidiary of Seller, InVivo Therapeutics Acquisition Corp. (“Acquisition
Subsidiary”), will enter into an Agreement and Plan of Merger and Reorganization
(the “Merger Agreement”) pursuant to which Acquisition Subsidiary will merge
with and into InVivo with InVivo remaining as the surviving entity (the
“Merger”); and the equity holders of InVivo will receive securities of Seller in
exchange for their equity interests in InVivo;
WHEREAS
, the execution and
delivery of this Agreement is required by InVivo as a condition to its execution
of the Merger Agreement and the consummation of the assignment, assumption,
purchase and sale transactions contemplated by this Agreement is also a
condition to the completion of the Merger pursuant to the Merger Agreement, and
Seller has represented to InVivo in the Merger Agreement that the transactions
contemplated by this Agreement will be consummated in conjunction with the
closing of the Merger, and InVivo relied on such representation in entering into
the Merger Agreement;
WHEREAS
, Buyers desire to
purchase the Shares (as defined in
Section 2.1
) from
Seller, and to assume, as between Seller and Buyers, all responsibility for any
debts, obligations and liabilities of Seller (prior to the Merger) and Split-Off
Subsidiary, on the terms and subject to the conditions specified in this
Agreement; and
WHEREAS
, Seller desires to
sell and transfer the Shares to Buyers, on the terms and subject to the
conditions specified in this Agreement;
NOW, THEREFORE
, in
consideration of the premises and the covenants, promises and agreements herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, agree as follows:
I.
ASSIGNMENT
AND ASSUMPTION OF SELLER’S ASSETS AND LIABILITIES
.
Subject
to the terms and conditions provided below:
1.1
Assignment
of Assets.
Seller hereby contributes, assigns, conveys and
transfers to Split-Off Subsidiary, and Split-Off Subsidiary hereby receives,
acquires and accepts, all assets and properties of Seller as of the Effective
Time, including but not limited to the following, but
excluding
in all
cases (i) the right, title and assets of Seller in, to and under the Transaction
Documentation and (ii) the capital stock of InVivo, Acquisition Subsidiary and
Split-Off Subsidiary:
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(a)
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all
cash and cash equivalents;
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(b)
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all
accounts receivable;
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(c)
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all
inventories of raw materials, work in process, parts, supplies and
finished products;
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(d)
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all
of Seller’s rights, title and interests in, to and under all contracts,
agreements, leases, licenses (including software licenses), supply
agreements, consulting agreements, commitments, purchase orders, customer
orders and work orders, and including all of Seller’s rights thereunder to
use and possess equipment provided by third parties, and all
representations, warranties, covenants and guarantees related to the
foregoing (provided that to the extent any of the foregoing or any claim
or right or benefit arising thereunder or resulting therefrom is not
assignable by its terms, or the assignment thereof shall require the
consent or approval of another party thereto, this Agreement shall not
constitute an assignment thereof if an attempted assignment would be in
violation of the terms thereof or if such consent is not obtained prior to
the Effective Time, and in lieu thereof Seller shall reasonably cooperate
with Split-Off Subsidiary in any reasonable arrangement designed to
provide Split-Off Subsidiary the benefits thereunder or any claim or right
arising thereunder);
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(e)
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all
intellectual property, including but not limited to issued patents, patent
applications (whether or not patents are issued thereon and whether
modified, withdrawn or resubmitted), unpatented inventions, product
designs, copyrights (whether registered or unregistered), know-how,
technology, trade secrets, technical information, notebooks, drawings,
software, computer coding (both object and source) and all documentation,
manuals and drawings related thereto, trademarks or service marks and
applications therefor, unregistered trademarks or service marks, trade
names, logos and icons and all rights to sue or recover for the
infringement or misappropriation
thereof;
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(f)
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all
fixed assets, including but not limited to the machinery, equipment,
furniture, vehicles, office equipment and other tangible personal property
owned or leased by Seller;
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(g)
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all
customer lists, business records, customer records and files, customer
financial records, and all other files and information related to
customers, all customer proposals, all open service agreements with
customers and all uncompleted customer contracts and agreements;
and
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(h)
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to
the extent legally assignable, all licenses, permits, certificates,
approvals and authorizations issued by Governmental Entities and necessary
to own, lease or operate the assets and properties of Seller and to
conduct Seller’s business as it is presently
conducted;
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all of
the foregoing being referred to herein as the “Assigned Assets.”
1.2
Assignment
and Assumption of Liabilities
.
Seller hereby assigns to
Split-Off Subsidiary, and Split-Off Subsidiary hereby assumes and agrees to pay,
honor and discharge all debts, adverse claims, liabilities, judgments and
obligations of Seller as of the Effective Time, whether accrued, contingent or
otherwise and whether known or unknown, including those arising under any law
(including the common law) or any rule or regulation of any Governmental Entity
or imposed by any court or any arbitrator in a binding arbitration resulting
from, arising out of or relating to the assets, activities, operations, actions
or omissions of Seller, or products manufactured or sold thereby or services
provided thereby, or under contracts, agreements (whether written or oral),
leases, commitments or undertakings thereof, but
excluding
in all
cases the obligations of Seller under the Transaction Documentation (all of the
foregoing being referred to herein as the “Assigned Liabilities”).
The
assignment and assumption of Seller’s assets and liabilities provided for in
this
Article I
is referred to as the “Assignment.”
II.
PURCHASE
AND SALE OF STOCK
.
2.1
Purchased
Shares
. Subject to the terms and conditions provided below,
Seller shall sell and transfer to Buyers and Buyers shall purchase from Seller,
on the Closing Date (as defined in
Section 3.1
), all of
the issued and outstanding shares of capital stock of Split-Off Subsidiary (the
“Shares”).
2.2
Purchase
Price
. The purchase price for the Shares shall be the transfer
and delivery by Buyers to Seller of the type and number of shares of common
stock and other securities of Seller that Buyers own (the “Purchase Price
Securities”), as set forth in Exhibit A attached hereto, deliverable as provided
in
Section
3.3
.
III.
CLOSING
.
3.1
Closing
. The
closing of the transactions contemplated in this Agreement (the “Closing”) shall
take place as soon as practicable following the execution of this Agreement;
provided, however,
that
the Closing must occur simultaneously with the closing of the
Merger. The date on which the Closing occurs shall be referred to
herein as the “Closing Date.”
3.2
Transfer
of Shares
. At the Closing, Seller shall deliver to Buyers
certificates representing the Shares purchased by Buyers, duly endorsed to
Buyers or as directed by Buyers, which delivery shall vest Buyers with good and
marketable title to such Shares, free and clear of all liens and
encumbrances.
3.3
Payment
of Purchase Price
. At the Closing, Buyers shall deliver to
Seller a certificate or certificates representing Buyers’ Purchase Price
Securities duly endorsed to Seller, which delivery shall vest Seller with good
and marketable title to the Purchase Price Securities, free and clear of all
liens and encumbrances.
3.4
Transfer
of Records
. On or before the Closing, Seller shall transfer to
Split-Off Subsidiary all existing corporate books and records in Seller’s
possession relating to Split-Off Subsidiary and its business, including but not
limited to all agreements, litigation files, real estate files, personnel files
and filings with governmental agencies;
provided
,
however
, when any such
documents relate to both Seller and Split-Off Subsidiary, only copies of such
documents need be furnished. On or before the Closing, Buyers and Split-Off
Subsidiary shall transfer to Seller all existing corporate books and records in
the possession of Buyers or Split-Off Subsidiary relating to Seller, including
but not limited to all corporate minute books, stock ledgers, certificates and
corporate seals of Seller and all agreements, litigation files, real property
files, personnel files and filings with governmental agencies;
provided
,
however
, when any such
documents relate to both Seller and Split-Off Subsidiary or its business, only
copies of such documents need be furnished.
3.5
Instruments
of Assignment
. At the Closing, Seller and Split-Off Subsidiary shall
deliver to each other such instruments providing for the Assignment as the other
may reasonably request (the “Instruments of Assignment”).
IV.
BUYERS’
REPRESENTATIONS AND WARRANTIES
. Buyers represent and warrant
that:
4.1
Capacity
and Enforceability
. Buyers have the legal capacity to execute
and deliver this Agreement and the documents to be executed and delivered by
Buyers at the Closing pursuant to the transactions contemplated hereby. This
Agreement and all such documents constitute valid and binding agreements of
Buyers, enforceable in accordance with their terms.
4.2
Compliance
. Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby by Buyers will result in the breach of any term
or provision of, or constitute a default under, or violate any agreement,
indenture, instrument, order, law or regulation to which Buyers are a party or
by which Buyers are bound.
4.3
Purchase
for Investment
. Buyers are financially able to bear the
economic risks of acquiring the Shares and the other transactions contemplated
hereby, and have no need for liquidity in their investment in the Shares. Buyers
have such knowledge and experience in financial and business matters in general,
and with respect to businesses of a nature similar to the business of Split-Off
Subsidiary (after giving effect to the Assignment), so as to be capable of
evaluating the merits and risks of, and making an informed business decision
with regard to, the acquisition of the Shares and the other transactions
contemplated hereby. Buyers are “accredited investors” within the meaning of
Rule 501 of Regulation D under the Securities Act. Buyers are acquiring the
Shares solely for their own account and not with a view to or for resale in
connection with any distribution or public offering thereof, within the meaning
of any applicable securities laws and regulations, unless such distribution or
offering is registered under the Securities Act of 1933, as amended (the
“Securities Act”), or an exemption from such registration is available. Buyers
have (i) received all the information they have deemed necessary to make an
informed decision with respect to the acquisition of the Shares and the other
transactions contemplated hereby; (ii) had an opportunity to make such
investigation as they have desired pertaining to Split-Off Subsidiary (after
giving effect to the Assignment) and the acquisition of an interest therein and
the other transactions contemplated hereby, and to verify the information which
is, and has been, made available to them; and (iii) had the opportunity to
ask questions of Seller concerning Split-Off Subsidiary (after giving effect to
the Assignment). Buyers acknowledge that due to their affiliation with Seller
and Split-Off Subsidiary that they have actual knowledge of the business,
operations and financial affairs of Split-Off Subsidiary (after giving effect to
the Assignment). Buyers have received no public solicitation or advertisement
with respect to the offer or sale of the Shares. Buyers realize that the Shares
are “restricted securities” as that term is defined in Rule 144 promulgated by
the Securities and Exchange Commission under the Securities Act, the resale of
the Shares is restricted by federal and state securities laws and, accordingly,
the Shares must be held indefinitely unless their resale is subsequently
registered under the Securities Act or an exemption from such registration is
available for their resale. Buyers understand that any resale of the Shares by
them must be registered under the Securities Act (and any applicable state
securities law) or be effected in circumstances that, in the opinion of counsel
for Split-Off Subsidiary at the time, create an exemption or otherwise do not
require registration under the Securities Act (or applicable state securities
laws). Buyers acknowledge and consent that certificates now or hereafter issued
for the Shares will bear a legend substantially as follows:
THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER
ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH
REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE CASE OF THE
SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT
AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF
THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE
AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH
OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT
VIOLATE THE SECURITIES LAWS.
Buyers
understand that the Shares are being sold to them pursuant to the exemption from
registration contained in Section 4(1) of the Securities Act and that Seller is
relying upon the representations made herein as one of the bases for claiming
the Section 4(1) exemption.
4.4
Liabilities
. Following
the Closing, Seller will have no liability for any debts, liabilities or
obligations of Split-Off Subsidiary or its business or activities, and there are
no outstanding guaranties, performance or payment bonds, letters of credit or
other contingent contractual obligations that have been undertaken by Seller
directly or indirectly in relation to Split-Off Subsidiary or its business and
that may survive the Closing.
4.5
Title to
Purchase Price Securities
. Buyers are the sole record and
beneficial owner of their respective Purchase Price Securities. At Closing,
Buyers will have good and marketable title to their respective Purchase Price
Securities, which Purchase Price Securities are, and at the Closing will be,
free and clear of all options, warrants, pledges, claims, liens and
encumbrances, and any restrictions or limitations prohibiting or restricting
transfer to Seller, except for restrictions on transfer as contemplated by
applicable securities laws.
V.
SELLER’S
AND SUBSIDIARY’S REPRESENTATIONS AND WARRANTIES
. Seller and
Split-Off Subsidiary, jointly and severally, represent and warrant to Buyers
that:
5.1
Organization
and Good Standing
. Each of Seller and Split-Off Subsidiary is
a corporation duly incorporated, validly existing, and in good standing under
the laws of their respective states of incorporation.
5.2
Authority
and Enforceability
. The execution and delivery of this
Agreement and the documents to be executed and delivered at the Closing pursuant
to the transactions contemplated hereby, and performance in accordance with the
terms hereof and thereof, have been duly authorized by Seller and all such
documents constitute valid and binding agreements of Seller enforceable in
accordance with their terms.
5.3
Title to
Shares
. Seller is the sole record and beneficial owner of the
Shares. At Closing, Seller will have good and marketable title to the
Shares, which Shares are, and at the Closing will be, free and clear of all
options, warrants, pledges, claims, liens and encumbrances, and any restrictions
or limitations prohibiting or restricting transfer to Buyers, except for
restrictions on transfer as contemplated by
Section 4.3
above. The Shares constitute all of the issued and outstanding shares
of capital stock of Split-Off Subsidiary.
5.4
WARN
Act
. Split-Off Subsidiary does not have a sufficient number of
employees to make it subject to the Worker Adjustment and Retraining
Notification Act.
5.5
Representations
in Merger Agreement
. Split-Off Subsidiary represents and
warrants that all of the representations and warranties by Seller, insofar as
they relate to Split-Off Subsidiary, contained in the Merger Agreement are true
and correct.
VI.
OBLIGATIONS
OF BUYERS PENDING CLOSING
. Buyers covenant and agree that
between the date hereof and the Closing:
6.1
Not
Impair Performance
. Buyers shall not take any intentional
action that would cause the conditions upon the obligations of the parties
hereto to effect the transactions contemplated hereby not to be fulfilled,
including, without limitation, taking or causing to be taken any action that
would cause the representations and warranties made by any party herein not to
be true, correct and accurate as of the Closing, or in any way impairing the
ability of Seller to satisfy its obligations as provided in
Article
VII
.
6.2
Assist
Performance
. Buyers shall exercise their reasonable best
efforts to cause to be fulfilled those conditions precedent to Seller’s
obligations to consummate the transactions contemplated hereby which are
dependent upon actions of Buyers and to make and/or obtain any necessary filings
and consents in order to consummate the sale transaction contemplated by this
Agreement.
VII.
OBLIGATIONS
OF SELLER PENDING CLOSING
. Seller covenants and agrees that
between the date hereof and the Closing:
7.1
Business
as Usual
. Split-Off Subsidiary shall operate and Seller shall
cause Split-Off Subsidiary to operate in accordance with past practices and
shall use best efforts to preserve its goodwill and the goodwill of its
employees, customers and others having business dealings with Split-Off
Subsidiary. Without limiting the generality of the foregoing, from the date of
this Agreement until the Closing Date, Split-Off Subsidiary shall preserve and
maintain Split-Off Subsidiary’s assets in their current operating condition and
repair, ordinary wear and tear excepted. From the date of this Agreement until
the Closing Date, Split-Off Subsidiary shall not (i) amend, terminate or
surrender any material franchise, license, contract or real property interest,
or (ii) sell or dispose of any of its assets except in the ordinary course
of business. Neither Split-Off Subsidiary nor Buyers shall take or omit to take
any action that results in Seller incurring any liability or obligation prior to
or in connection with the Closing.
7.2
Not
Impair Performance
. Seller shall not take any intentional
action that would cause the conditions upon the obligations of the parties
hereto to effect the transactions contemplated hereby not to be fulfilled,
including, without limitation, taking or causing to be taken any action which
would cause the representations and warranties made by any party herein not to
be materially true, correct and accurate as of the Closing, or in any way
impairing the ability of Buyers to satisfy her obligations as provided in
Article
VI
.
7.3
Assist
Performance
. Seller shall exercise its reasonable best efforts
to cause to be fulfilled those conditions precedent to Buyers’ obligations to
consummate the transactions contemplated hereby which are dependent upon the
actions of Seller and to work with Buyers to make and/or obtain any necessary
filings and consents. Seller shall cause Split-Off Subsidiary to comply with its
obligations under this Agreement.
VIII.
SELLER’S
AND SPLIT-OFF SUBSIDIARY’S CONDITIONS PRECEDENT TO
CLOSING
. The obligations of Seller and Split-Off Subsidiary to
close the transactions contemplated by this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions
precedent (any or all of which may be waived by Seller and InVivo in
writing):
8.1
Representations
and Warranties; Performance
. All representations and
warranties of Buyers contained in this Agreement shall have been true and
correct, in all material respects, when made and shall be true and correct, in
all material respects, at and as of the Closing, with the same effect as though
such representations and warranties were made at and as of the Closing. Buyers
shall have performed and complied with all covenants and agreements and
satisfied all conditions, in all material respects, required by this Agreement
to be performed or complied with or satisfied by Buyers at or prior to the
Closing.
8.2
Additional
Documents
. Buyers shall deliver or cause to be delivered such
additional documents as may be necessary in connection with the consummation of
the transactions contemplated by this Agreement and the performance of their
obligations hereunder.
8.3
Release
by Buyers and Split-Off Subsidiary
. At the Closing, Buyers and
Split-Off Subsidiary shall execute and deliver to Seller a general release which
in substance and effect releases Seller and InVivo from any and all liabilities
and obligations that Seller and InVivo may owe to Buyers or Split-Off Subsidiary
in any capacity, and from any and all claims that Buyers or Split-Off Subsidiary
may have against Seller, InVivo or their respective managers, members, officers,
directors, stockholders, employees and agents (other than those arising pursuant
to this Agreement or any document delivered in connection with this
Agreement).
IX.
BUYERS’
CONDITIONS PRECEDENT TO CLOSING
. The obligation of Buyers to
close the transactions contemplated by this Agreement is subject to the
satisfaction at or prior to the Closing of each of the following conditions
precedent (any and all of which may be waived by Buyers in
writing):
9.1
Representations
and Warranties; Performance
. All representations and
warranties of Seller and Split-Off Subsidiary contained in this Agreement shall
have been true and correct, in all material respects, when made and shall be
true and correct, in all material respects, at and as of the Closing with the
same effect as though such representations and warranties were made at and as of
the Closing. Seller and Split-Off Subsidiary shall have performed and complied
with all covenants and agreements and satisfied all conditions, in all material
respects, required by this Agreement to be performed or complied with or
satisfied by them at or prior to the Closing.
X.
OTHER
AGREEMENTS
.
10.1
Expenses
. Each
party hereto shall bear its expenses separately incurred in connection with this
Agreement and with the performance of its obligations
hereunder.
10.2
Confidentiality
. Buyers
shall not make any public announcements concerning this transaction without the
prior written agreement of InVivo, other than as may be required by applicable
law or judicial process. If for any reason the transactions contemplated hereby
are not consummated, then Buyers shall return any information received by Buyers
from Seller or Split-Off Subsidiary, and Buyers shall cause all confidential
information obtained by Buyers concerning Split-Off Subsidiary and its business
to be treated as such.
10.3
Brokers’
Fees
. In connection with the transaction specifically
contemplated by this Agreement, no party to this Agreement has employed the
services of a broker and each agrees to indemnify the other against all claims
of any third parties for fees and commissions of any brokers claiming a fee or
commission related to the transactions contemplated hereby.
10.4
Access
to Information Post-Closing; Cooperation
.
(a) Following
the Closing, Buyers and Split-Off Subsidiary shall afford to Seller and its
authorized accountants, counsel and other designated representatives, reasonable
access (and including using reasonable efforts to give access to persons or
firms possessing information) and duplicating rights during normal business
hours to allow records, books, contracts, instruments, computer data and other
data and information (collectively, “Information”) within the possession or
control of Buyers or Split-Off Subsidiary insofar as such access is reasonably
required by Seller. Information may be requested under this
Section 10.4(a)
for,
without limitation, audit, accounting, claims, litigation and tax purposes, as
well as for purposes of fulfilling disclosure and reporting obligations and
performing this Agreement and the transactions contemplated hereby. No files,
books or records of Split-Off Subsidiary existing at the Closing Date shall be
destroyed by Buyers or Split-Off Subsidiary after Closing but prior to the
expiration of any period during which such files, books or records are required
to be maintained and preserved by applicable law without giving Seller at least
30 days’ prior written notice, during which time Seller shall have the right to
examine and to remove any such files, books and records prior to their
destruction.
(b) Following
the Closing, Seller shall afford to Split-Off Subsidiary and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) duplicating rights during normal business hours to
Information within Seller’s possession or control relating to the business of
Split-Off Subsidiary. Information may be requested under this
Section 10.4(b)
for,
without limitation, audit, accounting, claims, litigation and tax purposes as
well as for purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby. No files,
books or records of Split-Off Subsidiary existing at the Closing Date shall be
destroyed by Seller after Closing but prior to the expiration of any period
during which such files, books or records are required to be maintained and
preserved by applicable law without giving Buyers at least 30 days prior written
notice, during which time Buyers shall have the right to examine and to remove
any such files, books and records prior to their destruction.
(c) At
all times following the Closing, Seller, Buyers and Split-Off Subsidiary shall
use their reasonable efforts to make available to the other party on written
request, the current and former officers, directors, employees and agents of
Seller or Split-Off Subsidiary for any of the purposes set forth in
Section 10.4(a) or
(b)
above or as witnesses to the extent that such persons may reasonably
be required in connection with any legal, administrative or other proceedings in
which Seller or Split-Off Subsidiary may from time to be involved.
(d) The
party to whom any Information or witnesses are provided under this
Section 10.4
shall
reimburse the provider thereof for all out-of-pocket expenses actually and
reasonably incurred in providing such Information or witnesses.
(e) Seller,
Buyers, Split-Off Subsidiary and their respective employees and agents shall
each hold in strict confidence all Information concerning the other party in
their possession or furnished by the other or the other’s representative
pursuant to this Agreement with the same degree of care as such party utilizes
as to such party’s own confidential information (except to the extent that such
Information is (i) in the public domain through no fault of such party or
(ii) later lawfully acquired from any other source by such party), and each
party shall not release or disclose such Information to any other person, except
such party’s auditors, attorneys, financial advisors, bankers, other consultants
and advisors or persons with whom such party has a valid obligation to disclose
such Information, unless compelled to disclose such Information by judicial or
administrative process or, as advised by its counsel, by other requirements of
law.
(f) Seller,
Buyers and Split-Off Subsidiary shall each use their best efforts to forward
promptly to the other party all notices, claims, correspondence and other
materials which are received and determined to pertain to the other
party.
10.5
Guarantees,
Surety Bonds and Letter of Credit Obligations
. In the event
that Seller is obligated for any debts, obligations or liabilities of Split-Off
Subsidiary by virtue of any outstanding guarantee, performance or surety bond or
letter of credit provided or arranged by Seller on or prior to the Closing Date,
Buyers and Split-Off Subsidiary shall use their best efforts to cause to be
issued replacements of such bonds, letters of credit and guarantees and to
obtain any amendments, novations, releases and approvals necessary to release
and discharge fully Seller from any liability thereunder following the Closing.
Buyers and Split-Off Subsidiary, jointly and severally, shall be responsible
for, and shall indemnify, hold harmless and defend Seller from and against, any
costs or losses incurred by Seller arising from such bonds, letters of credits
and guarantees and any liabilities arising therefrom and shall reimburse Seller
for any payments that Seller may be required to pay pursuant to enforcement of
its obligations relating to such bonds, letters of credit and
guarantees.
10.6
Filings
and Consents
. Buyers, at their risk, shall determine what, if
any, filings and consents must be made and/or obtained prior to Closing to
consummate the purchase and sale of the Shares. Buyers shall indemnify the
Seller Indemnified Parties (as defined in
Section 12.1
below)
against any Losses (as defined in
Section 12.1
below)
incurred by such Seller Indemnified Parties by virtue of the failure to make
and/or obtain any such filings or consents. Recognizing that the failure to make
and/or obtain any filings or consents may cause Seller to incur Losses or
otherwise adversely affect Seller, Buyers and Split-Off Subsidiary confirm that
the provisions of this
Section 10.6
will not
limit Seller’s right to treat such failure as the failure of a condition
precedent to Seller’s obligation to close pursuant to
Article VIII
above.
10.7
Insurance
. Buyers
acknowledge that on the Closing Date, effective as of the Closing, any insurance
coverage and bonds provided by Seller for Split-Off Subsidiary, and all
certificates of insurance evidencing that Split-Off Subsidiary maintains any
required insurance by virtue of insurance provided by Seller, will terminate
with respect to any insured damages resulting from matters occurring subsequent
to Closing.
10.8
Agreements
Regarding Taxes
.
(a)
Tax
Sharing Agreements
. Any tax sharing agreement between Seller
and Split-Off Subsidiary is terminated as of the Closing Date and will have no
further effect for any taxable year (whether the current year, a future year or
a past year).
(b)
Returns
for Periods Through the Closing Date
. Seller will include the
income and loss of Split-Off Subsidiary (including any deferred income triggered
into income by Reg. §1.1502-13 and any excess loss accounts taken into income
under Reg. §1.1502-19) on Seller’s consolidated federal income tax returns for
all periods through the Closing Date and pay any federal income taxes
attributable to such income. Seller and Split-Off Subsidiary agree to allocate
income, gain, loss, deductions and credits between the period up to Closing (the
“Pre-Closing Period”) and the period after Closing (the “Post-Closing Period”)
based on a closing of the books of Split-Off Subsidiary, and both Seller and
Split-Off Subsidiary agree not to make an election under Reg.
§1.1502-76(b)(2)(ii) to ratably allocate the year’s items of income, gain, loss,
deduction and credit. Seller, Split-Off Subsidiary and Buyers agree to report
all transactions not in the ordinary course of business occurring on the Closing
Date after Buyers’ purchase of the Shares on Split-Off Subsidiary’s tax returns
to the extent permitted by Reg. §1.1502-76(b)(1)(ii)(B). Buyers agrees to
indemnify Seller for any additional tax owed by Seller (including tax owned by
Seller due to this indemnification payment) resulting from any transaction
engaged in by Split-Off Subsidiary during the Pre-Closing Period or on the
Closing Date after Buyers’ purchase of the Shares. Split-Off Subsidiary will
furnish tax information to Seller for inclusion in Seller’s consolidated federal
income tax return for the period which includes the Closing Date in accordance
with Split-Off Subsidiary’s past custom and practice.
(c)
Audits
. Seller
will allow Split-Off Subsidiary and its counsel to participate at Split-Off
Subsidiary’s expense in any audits of Seller’s consolidated federal income tax
returns to the extent that such audit raises issues that relate to and increase
the tax liability of Split-Off Subsidiary. Seller shall have the absolute right,
in its sole discretion, to engage professionals and direct the representation of
Seller in connection with any such audit and the resolution thereof, without
receiving the consent of Buyers or Split-Off Subsidiary or any other party
acting on behalf of Buyers or Split-Off Subsidiary, provided that Seller will
not settle any such audit in a manner which would materially adversely affect
Split-Off Subsidiary after the Closing Date unless such settlement would be
reasonable in the case of a person that owned Split-Off Subsidiary both before
and after the Closing Date. In the event that after Closing any tax authority
informs Buyers or Split-Off Subsidiary of any notice of proposed audit, claim,
assessment or other dispute concerning an amount of taxes which pertain to
Seller, or to Split-Off Subsidiary during the period prior to Closing, Buyers or
Split-Off Subsidiary must promptly notify Seller of the same within 15 calendar
days of the date of the notice from the tax authority. In the event Buyers or
Split-Off Subsidiary does not notify Seller within such 15 day period, Buyers
and Split-Off Subsidiary, jointly and severally, will indemnify Seller for any
incremental interest, penalty or other assessments resulting from the delay in
giving notice. To the extent of any conflict or inconsistency, the provisions of
this Section 10.8 shall control over the provisions of Section 12.2
below.
(d)
Cooperation
on Tax Matters
. Buyers, Seller and Split-Off Subsidiary shall
cooperate fully, as and to the extent reasonably requested by any party, in
connection with the filing of tax returns pursuant to this Section and any
audit, litigation or other proceeding with respect to taxes. Such cooperation
shall include the retention and (upon the other party’s request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Split-Off Subsidiary shall (i) retain all
books and records with respect to tax matters pertinent to Split-Off Subsidiary
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Seller,
any extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and
(ii) give Seller reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if Seller so requests,
Buyers agree to cause Split-Off Subsidiary to allow Seller to take possession of
such books and records.
10.9
ERISA
. Effective
as of the Closing Date, Split-Off Subsidiary shall terminate its participation
in, and withdraw from, any employee benefit plans sponsored by Seller, and
Seller and Buyers shall cooperate fully in such termination and withdrawal.
Without limitation, Split-Off Subsidiary shall be solely responsible for
(i) all liabilities under those employee benefit plans notwithstanding any
status as an employee benefit plan sponsored by Seller, and (ii) all
liabilities for the payment of vacation pay, severance benefits, and similar
obligations, including, without limitation, amounts which are accrued but unpaid
as of the Closing Date with respect thereto. Buyers and Split-Off Subsidiary
acknowledge that Split-Off Subsidiary is solely responsible for providing
continuation health coverage, as required under the Consolidated Omnibus
Reconciliation Act of 1985, as amended (“COBRA”), to each person, if any,
participating in an employee benefit plan subject to COBRA with respect to such
employee benefit plan as of the Closing Date, including, without limitation, any
person whose employment with Split-Off Subsidiary is terminated after the
Closing Date.
XI.
TERMINATION
. This
Agreement may be terminated at, or at any time prior to, the Closing by mutual
written consent of Seller, Buyers and InVivo.
If this
Agreement is terminated as provided herein, it shall become wholly void and of
no further force and effect and there shall be no further liability or
obligation on the part of any party except to pay such expenses as are required
of such party.
XII.
INDEMNIFICATION
.
12.1
Indemnification
by Buyers
. Buyers covenant and agree to indemnify, defend,
protect and hold harmless Seller and InVivo, and their respective officers,
directors, employees, stockholders, agents, representatives and Affiliates
(collectively, the “Seller Indemnified Parties”) at all times from and after the
date of this Agreement from and against all losses, liabilities, damages,
claims, actions, suits, proceedings, demands, assessments, adjustments, costs
and expenses (including specifically, but without limitation, reasonable
attorneys’ fees and expenses of investigation), whether or not involving a third
party claim and regardless of any negligence of any Seller Indemnified Party
(collectively, “Losses”), incurred by any Seller Indemnified Party as a result
of or arising from (i) any breach of the representations and warranties of
Buyers set forth herein or in certificates delivered in connection herewith,
(ii) any breach or nonfulfillment of any covenant or agreement (including
any other agreement of Buyers to indemnify set forth in this Agreement) on the
part of Buyers under this Agreement, (iii) any Assigned Asset or Assigned
Liability or any other debt, liability or obligation of Split-Off Subsidiary,
(iv) the conduct and operations, whether before or after Closing, of (A)
the business of Seller pertaining to the Assigned Assets and Assigned
Liabilities or (B) the business of Split-Off Subsidiary, (v) claims
asserted, whether before or after Closing, (A) against Split-Off Subsidiary or
(B) pertaining to the Assigned Assets and Assigned Liabilities, or (vi) any
federal or state income tax payable by Seller or InVivo and attributable to the
transactions contemplated by this Agreement. The obligations of
Buyers under this Section, as between Buyers and the Seller Indemnified Parties,
are joint and several.
12.2
Third
Party Claims
.
(a)
Defense
. If
any claim or liability (a “Third-Party Claim”) should be asserted against any of
the Seller Indemnified Parties (the “Indemnitee”) by a third party after the
Closing for which Buyers have an indemnification obligation under the terms of
Section
12.1
, then the
Indemnitee shall notify Buyers (the “Indemnitors”) within 20 days after the
Third-Party Claim is asserted by a third party (said notification being referred
to as a “Claim Notice”) and give the Indemnitor a reasonable opportunity to take
part in any examination of the books and records of the Indemnitee relating to
such Third-Party Claim and to assume the defense of such Third-Party Claim and
in connection therewith and to conduct any proceedings or negotiations relating
thereto and necessary or appropriate to defend the Indemnitee and/or settle the
Third-Party Claim. The expenses (including reasonable attorneys’ fees) of all
negotiations, proceedings, contests, lawsuits or settlements with respect to any
Third-Party Claim shall be borne by the Indemnitors. If the Indemnitors agree to
assume the defense of any Third-Party Claim in writing within 20 days after the
Claim Notice of such Third-Party Claim has been delivered, through counsel
reasonably satisfactory to Indemnitee, then the Indemnitors shall be entitled to
control the conduct of such defense, and any decision to settle such Third-Party
Claim, and shall be responsible for any expenses of the Indemnitee in connection
with the defense of such Third-Party Claim so long as the Indemnitors continue
such defense until the final resolution of such Third-Party Claim. The
Indemnitors shall be responsible for paying all settlements made or judgments
entered with respect to any Third-Party Claim the defense of which has been
assumed by the Indemnitors. Except as provided on subsection (b)
below, both the Indemnitor and the Indemnitee must approve any settlement of a
Third-Party Claim. A failure by the Indemnitee to timely give the Claim Notice
shall not excuse Indemnitor from any indemnification liability except only to
the extent that the Indemnitors are materially and adversely prejudiced by such
failure.
(b)
Failure
to Defend
. If the Indemnitors shall not agree to assume the
defense of any Third-Party Claim in writing within 20 days after the Claim
Notice of such Third-Party Claim has been delivered, or shall fail to continue
such defense until the final resolution of such Third-Party Claim, then the
Indemnitee may defend against such Third-Party Claim in such manner as it may
deem appropriate and the Indemnitee may settle such Third-Party Claim, in its
sole discretion, on such terms as it may deem appropriate. The Indemnitors shall
promptly reimburse the Indemnitee for the amount of all settlement payments and
expenses, legal and otherwise, incurred by the Indemnitee in connection with the
defense or settlement of such Third-Party Claim. If no settlement of such
Third-Party Claim is made, then the Indemnitors shall satisfy any judgment
rendered with respect to such Third-Party Claim before the Indemnitee is
required to do so, and pay all expenses, legal or otherwise, incurred by the
Indemnitee in the defense against such Third-Party Claim.
12.3
Non-Third-Party
Claims
. Upon discovery of any claim for which Buyers has an
indemnification obligation under the terms of
Section
12.1
which does not
involve a claim by a third party against the Indemnitee, the Indemnitee shall
give prompt notice to Buyers of such claim and, in any case, shall give Buyers
such notice within 30 days of such discovery. A failure by Indemnitee to timely
give the foregoing notice to Buyers shall not excuse Buyers from any
indemnification liability except to the extent that Buyers is materially and
adversely prejudiced by such failure.
12.4
Survival
. Except
as otherwise provided in this
Section
12.4
, all
representations and warranties made by Buyers, Split-Off Subsidiary and Seller
in connection with this Agreement shall survive the Closing. Anything in this
Agreement to the contrary notwithstanding, the liability of all Indemnitors
under this
Article
XII
shall terminate on the fourth (4
th
)
anniversary of the Closing Date, except with respect to (a) liability for
any item as to which, prior to the fourth (4
th
)
anniversary of the Closing Date, any Indemnitee shall have asserted a Claim in
writing, which Claim shall identify its basis with reasonable specificity, in
which case the liability for such Claim shall continue until it shall have been
finally settled, decided or adjudicated, (b) liability of any party for
Losses for which such party has an indemnification obligation, incurred as a
result of such party’s breach of any covenant or agreement to be performed by
such party after the Closing, (c) liability of Buyers for Losses incurred
by a Seller Indemnified Party due to breaches of their representations and
warranties in
Article
IV
of
this Agreement, and (d) liability of Buyers for Losses arising out of
Third-Party Claims for which Buyers have an indemnification obligation, which
liability shall survive until the statute of limitation applicable to any third
party’s right to assert a Third-Party Claim bars assertion of such
claim.
XIII.
MISCELLANEOUS
.
13.1
Definitions
. Capitalized
terms used herein without definition have the meanings ascribed to them in the
Merger Agreement.
13.2
Notices
. All
notices and communications required or permitted hereunder shall be in writing
and deemed given when received by means of the United States mail, addressed to
the party to be notified, postage prepaid and registered or certified with
return receipt requested, or personal delivery, or overnight courier, as
follows:
(a) If
to Seller, addressed to:
InVivo
Therapeutics Holding Corp.
One
Broadway, 14
th
Floor
Cambridge,
MA 02142
Attention:
Frank M. Reynolds
Facsimile:
(617) 225-4430
With a
copy to (which shall not constitute notice hereunder):
Meister
Seelig & Fein, LLP
140 East
45
th
Street
New York,
NY 10017
Attention: Mitchell
Lampert, Esq.
Facsimile:
(646) 539-3675
(b) If
to Buyers or Split-Off Subsidiary, addressed to:
Peter
Reichard
100
Europa Drive, Suite 455
Chapel
Hill, NC 27515-4321
Facsimile: (919)
933-2730
or to
such other address as any party hereto shall specify pursuant to this
Section
13.2
from time to
time.
13.3
Exercise
of Rights and Remedies
. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
13.4
Time
. Time
is of the essence with respect to this Agreement.
13.5
Reformation
and Severability
. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as to most
nearly retain the intent of the parties, and if such modification is not
possible, such provision shall be severed from this Agreement, and in either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired
thereby.
13.6
Further
Acts and Assurances
. From and after the Closing, Seller,
Buyers and Split-Off Subsidiary agree that each will act in a manner supporting
compliance, including compliance by its Affiliates, with all of its obligations
under this Agreement and, from time to time, shall, at the request of another
party hereto, and without further consideration, cause the execution and
delivery of such other instruments of conveyance, transfer, assignment or
assumption and take such other action or execute such other documents as such
party may reasonably request in order more effectively to convey, transfer to
and vest in Buyers, and to put Split-Off Subsidiary in possession of, all
Assigned Assets and Assigned Liabilities, and to convey, transfer to and vest in
Seller and Buyers, and to them in possession of, the Purchase Price Securities
and the Shares (respectively), and, in the case of any contracts and rights that
cannot be effectively transferred without the consent or approval of other
Persons that is unobtainable, to use its best reasonable efforts to ensure that
Split-Off Subsidiary receives the benefits thereof to the maximum extent
permissible in accordance with applicable law or other applicable restrictions,
and shall perform such other acts which may be reasonably necessary to
effectuate the purposes of this Agreement.
13.7
Entire
Agreement; Amendments
. This Agreement contains the entire
understanding of the parties relating to the subject matter contained herein.
This Agreement cannot be amended or changed except through a written instrument
signed by all of the parties hereto and by InVivo. No provisions of this
Agreement or any rights hereunder may be waived by any party without the prior
written consent of InVivo.
13.8
Assignment
. No
party may assign his, her or its rights or obligations hereunder, in whole or in
part, without the prior written consent of the other parties.
13.9
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts or choice of laws thereof.
13.10
Counterparts
. This
Agreement may be executed in one or more counterparts, with the same effect as
if all parties had signed the same document. Each such counterpart shall be an
original, but all such counterparts taken together shall constitute a single
agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature page was an original
thereof.
13.11
Section
Headings and Gender
. The Section headings used herein are
inserted for reference purposes only and shall not in any way affect the meaning
or interpretation of this Agreement. All personal pronouns used in this
Agreement shall include the other genders, whether used in the masculine,
feminine or neuter, and the singular shall include the plural, and
vice versa
, whenever and as
often as may be appropriate.
13.12
Third-Party
Beneficiary
. Each of Seller, Buyers and Split-Off Subsidiary
acknowledges and agrees that this Agreement is entered into for the express
benefit of InVivo, and that InVivo is relying hereon and on the consummation of
the transactions contemplated by this Agreement in entering into and performing
its obligations under the Merger Agreement, and that InVivo shall be in all
respects entitled to the benefit hereof and to enforce this Agreement as a
result of any breach hereof.
13.13
Specific
Performance; Remedies
. Each of Seller, Buyers and Split-Off
Subsidiary acknowledge and agree that InVivo would be damaged irreparably if any
provision of this Agreement is not performed in accordance with its specific
terms or is otherwise breached. Accordingly, each of Seller, Buyers and
Split-Off Subsidiary agrees that InVivo will be entitled to seek an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and its terms and provisions in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, subject to
Section
13.9
, in addition to
any other remedy to which InVivo may be entitled, at law or in equity. Except as
expressly provided herein, the rights, obligations and remedies created by this
Agreement are cumulative and are in addition to any other rights, obligations or
remedies otherwise available at law or in equity, and nothing herein will be
considered an election of remedies.
13.14
Submission
to Jurisdiction; Process Agent; No Jury Trial
.
(a) Each
party to the Agreement hereby submits to the jurisdiction of any state or
federal court sitting in the State of New York in any action arising out of or
relating to this Agreement and agrees that all claims in respect of the action
may be heard and determined in any such court. Each party to the Agreement also
agrees not to bring any action arising out of or relating to this Agreement in
any other court. Each party to the Agreement agrees that a final judgment in any
action so brought will be conclusive and may be enforced by action on the
judgment or in any other manner provided at law or in equity. Each party to the
Agreement waives any defense of inconvenient forum to the maintenance of any
action so brought and waives any bond, surety or other security that might be
required of any other party with respect thereto.
(b) EACH
PARTY TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO JURY TRIAL OF ANY
DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY DEALINGS AMONG THEM
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. The scope of this waiver is
intended to be all encompassing of any and all actions that may be filed in any
court and that relate to the subject matter of the transactions, including
contract claims, tort claims, breach of duty claims and all other common law and
statutory claims. Each party to the Agreement hereby acknowledges that this
waiver is a material inducement to enter into a business relationship and that
they will continue to rely on the waiver in their related future dealings. Each
party to the Agreement further represents and warrants that it has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. NOTWITHSTANDING
ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED ORALLY OR IN WRITING, AND THE WAIVER WILL APPLY TO ANY
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of commencement of
any action, this Agreement may be filed as a written consent to trial by a
court.
13.15
Construction
. The
parties hereto have participated jointly in the negotiation and drafting of this
Agreement. If an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof will arise favoring or disfavoring any party
because of the authorship of any provision of this Agreement. Any reference to
any federal, state, local or foreign law will be deemed also to refer to law as
amended and all rules and regulations promulgated thereunder, unless the context
requires otherwise. The words “include,” “includes,” and “including” will be
deemed to be followed by “without limitation.” The words “this
Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. The parties hereto intend that each representation,
warranty and covenant contained herein will have independent significance. If
any party hereto has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which that party has not breached will not
detract from or mitigate the fact that such party is in breach of the first
representation, warranty or covenant.
[Signature
page follows this page.]
IN WITNESS WHEREOF
, the
parties hereto have duly executed this Split-Off Agreement as of the day and
year first above written.
INVIVO
THERAPEUTICS HOLDING CORP.
|
|
By:
|
|
|
Name:
|
Peter
Reichard
|
Title:
|
President
|
|
DSOURCE
SPLIT CORP.
|
|
By:
|
|
|
Name:
|
Peter
Reichard
|
Title:
|
President
|
|
BUYERS
|
|
|
|
Peter
Reichard
|
|
|
|
|
|
Lawrence
Reichard
|
|
|
|
|
|
Peter
Coker
|
|
EXHIBIT
A
Buyers
|
|
Purchase Price Security
|
|
Number
|
|
|
|
|
|
Peter
Reichard
|
|
Common
Stock
|
|
6,644,910
|
|
|
|
|
|
Lawrence
Reichard
|
|
Common
Stock
|
|
405,796
|
|
|
|
|
|
Peter
Coker
|
|
Common
Stock
|
|
7,696,848
|
* As
adjusted to reflect the 2.02898-for-1 forward stock split of the common stock of
Seller, in the form of a dividend.
GENERAL RELEASE
AGREEMENT
This
GENERAL RELEASE
AGREEMENT
(this “
Agreement
”), dated as
of October __, 2010, is entered into by and among InVivo Therapeutics Holding
Corp., a Nevada corporation (“Seller”), DSource Split Corp., a Delaware
corporation (“Split-Off Subsidiary”), and Peter Reichard, Peter Coker and
Lawrence Reichard (“Buyers”). In consideration of the mutual benefits to be
derived from this Agreement, the covenants and agreements set forth herein, and
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the execution and delivery hereof, the parties hereto hereby
agree as follows:
1.
Split-Off
Agreement
.
This Agreement is
executed and delivered by Split-Off Subsidiary pursuant to the requirements of
Section 8.3 of that certain Split-Off Agreement (the “Split-Off Agreement”) by
and among Seller, Split-Off Subsidiary and Buyers as a condition precedent to
the closing (the “Closing”) of the Split-Off Agreement.
2.
Release
and Waiver by Split-Off Subsidiary
.
For and in
consideration of the covenants and promises contained herein and in the
Split-Off Agreement, the receipt and sufficiency of which are hereby
acknowledged, Split-Off Subsidiary, on behalf of itself and its assigns,
representatives and agents, if any, hereby covenants not to sue and fully,
finally and forever completely releases Seller, along with its present, future
and former officers, directors, stockholders, members, employees, agents,
attorneys and representatives (collectively, the “Seller Released Parties”), of
and from any and all claims, actions, obligations, liabilities, demands and/or
causes of action, of whatever kind or character, whether now known or unknown,
which Split-Off Subsidiary has or might claim to have against the Seller
Released Parties for any and all injuries, harm, damages (actual and punitive),
costs, losses, expenses, attorneys’ fees and/or liability or other detriment, if
any, whenever incurred or suffered by Split-Off Subsidiary arising from,
relating to, or in any way connected with, any fact, event, transaction, action
or omission that occurred or failed to occur on or prior to the date of the
Closing.
3.
Release
and Waiver by Buyers
.
For and in
consideration of the covenants and promises contained herein and in the
Split-Off Agreement, the receipt and sufficiency of which are hereby
acknowledged, Buyers hereby covenant not to sue and fully, finally and forever
completely release the Seller Released Parties of and from any and all claims,
actions, obligations, liabilities, demands and/or causes of action, of whatever
kind or character, whether now known or unknown which Buyers have or might claim
to have against the Seller Released Parties for any and all injuries, harm,
damages (actual and punitive), costs, losses, expenses, attorneys’ fees and/or
liability or other detriment, if any, whenever incurred or suffered by Buyers
arising from, relating to, or in any way connected with, any fact, event,
transaction, action or omission that occurred or failed to occur on or prior to
the date of the Closing.
4.
Additional Covenants and
Agreements
.
(a) Each
of Split-Off Subsidiary and Buyers, on the one hand, and Seller, on the other
hand, waives and releases the other from any claims that this Agreement was
procured by fraud or signed under duress or coercion so as to make this
Agreement not binding.
(b) Each
of the parties hereto acknowledges and agrees that the releases set forth herein
do not include any claims the other party hereto may have against such party for
such party’s failure to comply with or breach of any provision in this Agreement
or the Split-Off Agreement.
(c) Notwithstanding
anything contained herein to the contrary, this Agreement shall not release or
waive, or in any manner affect or void, any party’s rights and obligations under
the Split-Off Agreement.
5.
Modification
.
This Agreement
cannot be modified orally and can only be modified through a written document
signed by both parties.
6.
Severability
.
If any provision
contained in this Agreement is determined to be void, illegal or unenforceable,
in whole or in part, then the other provisions contained herein shall remain in
full force and effect as if the provision that was determined to be void,
illegal or unenforceable had not been contained herein.
7.
Expenses
.
The parties
hereto agree that each party shall pay its respective costs, including
attorneys’ fees, if any, associated with this Agreement.
8.
Further
Acts and Assurances
. Split-Off Subsidiary and each Buyer
agrees that it will act in a manner supporting compliance, including compliance
by its Affiliates, with all of its obligations under this Agreement and, from
time to time, shall, at the request of Seller, and without further
consideration, cause the execution and delivery of such other instruments of
release or waiver and take such other action or execute such other documents as
such party may reasonably request in order to confirm or effect the releases,
waivers and covenants contained herein, and, in the case of any claims, actions,
obligations, liabilities, demands and/or causes of action that cannot be
effectively released or waived without the consent or approval of other persons
or entities that is unobtainable, to use its best reasonable efforts to ensure
that the Seller Released Parties receive the benefits thereof to the maximum
extent permissible in accordance with applicable law or other applicable
restrictions, and shall perform such other acts which may be reasonably
necessary to effectuate the purposes of this Agreement. For the
purposes of this Agreement, an “Affiliate” is a person or entity that directly,
or indirectly through one or more intermediaries, controls or is controlled by,
or is under common control with, another specified person or
entity.
9.
Governing
Law
.
This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to principles of conflicts or choice of laws
thereof.
10.
Entire
Agreement
.
This
Agreement constitutes the entire understanding and agreement of Seller,
Split-Off Subsidiary and Buyers and supersedes prior understandings and
agreements, if any, among or between Seller, Split-Off Subsidiary and Buyers
with respect to the subject matter of this Agreement, other than as specifically
referenced herein. This Agreement does not, however, operate to supersede or
extinguish any confidentiality, non-solicitation, non-disclosure or
non-competition obligations owed by Split-Off Subsidiary or Buyers to Seller
under any prior agreement.
[Signature
Page Follows]
IN WITNESS WHEREOF
, the
undersigned have executed this General Release Agreement as of the day and year
first above written.
|
INVIVO
THERAPEUTICS HOLDING CORP.
|
|
|
|
|
By:
|
|
|
Name: Peter
A. Reichard
|
|
Title: President
|
|
|
|
|
DSOURCE
SPLIT CORP.
|
|
|
|
|
By:
|
|
|
Name: Peter
A. Reichard
|
|
Title: President
|
|
|
|
|
BUYERS
:
|
|
|
|
|
|
|
Peter
Reichard
|
|
|
|
|
|
|
Peter
Coker
|
|
|
|
|
|
|
Lawrence
Reichard
|
InVivo
Therapeutics Corporation
One
Broadway, 14
th
Floor
Cambridge,
MA 02142
May 31,
2008
Frank
Reynolds
4116
Barberry Drive
Lafayette
Hill, PA 19444
Re:
Employment
Agreement
Dear
Frank
This
letter is to confirm our understanding with respect to (i) your future
employment by
InVivo
Therapeutics Corporation
or any present or future parent, subsidiary or
affiliate thereof (collectively, the “Company”), (ii) your agreement not to
compete with the Company, (iii) your agreement to protect and preserve
information and property which is confidential and proprietary to the Company
and (iv) your agreement with respect to the ownership of inventions, ideas,
copyrights and patents which may be used in the business of the Company (the
terms and conditions agreed to in this letter are hereinafter referred to as the
“Agreement”). In consideration of the mutual promises and covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, we have agreed as
follows:
1.
Employment
.
(a)
Subject to the terms and conditions of this
Agreement, the Company will employ you, and you will be employed by the Company,
as Chief Executive Officer and President reporting only to the Company’s Board
of Directors (the “Board”). You will have the responsibilities, duty
and authority commensurate with the position of Chief Executive Officer and
President. You will also perform such other services of an executive
nature for the Company as may be assigned to you from time to time by the Board
and agreed to by you. The principal location will be the Company’s facility
located at One Broadway, 14
th
Floor
Cambridge, MA 02142.
During the term of your
employment hereunder, the Company will ensure that you are nominated, and will
use its best efforts to cause you to be elected, to serve as a Director of the
Company and Chairman of the Company’s board of directors and as a member of the
board of directors of any affiliate or subsidiary of the Company and any
committee of the Company or any subsidiary or affiliate of the Company that you
request.
(b)
Devotion to
Duties
. For so long as you are employed hereunder, you will
devote substantially all of your business time and energies to the business and
affairs of the Company, provided that nothing contained in this Section 1(b)
will be deemed to prevent or limit your right to manage your personal
investments on your own personal time, including, without limitation, the right
to make passive investments in the securities of (i) any entity which you do not
control, directly or indirectly, and which does not compete with the Company, or
(ii) any publicly held entity so long as your aggregate direct and indirect
interest does not exceed five percent of the issued and outstanding securities
of any class of securities of such publicly held entity, and provided, further
that nothing contained in this Agreement will be deemed to prohibit you from any
involvement with any social and/or business organizations, and accepting any
directorships for companies or other organizations.
2.
Term of
Employment
.
(a)
Term;
Termination
. Subject to the terms hereof, your employment
hereunder will commence on June 1, 2008 (the “Commencement Date”) and will
continue for indefinitely (the “Term”) unless terminated as specified
herein.
Notwithstanding
the foregoing, your employment hereunder will terminate upon the first to occur
of the following:
(i) Immediately
upon your death;
(ii) By
the Company:
(A) By
written notice to you effective the date of such notice, following your failure,
due to illness, accident or any other physical or mental incapacity, to perform
the essential functions of your position for an aggregate of 90 business days
within any period of 180 consecutive business days during the term hereof as
determined by a physician selected by you (“Disability”), provided that if
applicable law provides any provision regarding disability that is more
favorable to you than that set forth herein, such more favorable provision will
govern; or
(B) By
written notice to you effective the date of such notice, for Cause (as defined
below).
(iii) By
you:
(A) At
any time by written notice to the Company effective 30 days after the date of
such notice; or
(B) By
written notice to the Company for Good Reason (as defined below) effective the
date of such notice.
(b)
Definition of
“Cause”
. For purposes of this Agreement, “Cause” means (i)
your conviction of a felony, either in connection with the performance of your
obligations to the Company or which otherwise materially and adversely affects
your ability to perform such obligations, (ii) your willful disloyalty or
deliberate dishonesty, (iii) the commission by you of an act of fraud or
embezzlement against the Company, or (iv) a willful material breach by you of
any material provision of this Agreement which breach is not cured within 60
days after delivery to you by the Company of written notice of such breach,
provided that if such breach is not capable of being cured within such 60 day
period, you will have a reasonable additional period to cure such breach but
only if you promptly commence and continue good faith efforts to cure such
breach. Any determination under this Section 2(b) will be made by two
thirds of the Board voting on such determination. With respect to any
such determination, the Board will act fairly and in utmost good faith and will
give you and your counsel an opportunity to appear and be heard at a meeting of
the Board or and present evidence on your behalf. No act or omission
on your part will be considered “willful” unless done, or admitted to be done,
by you in bad faith or without your reasonable belief that such act or omission
was in the best interest of the Company.
(c)
Definition of “Good
Reason”
. For purposes of this Agreement, a “Good Reason” means
any of the following:
(i) A
change in the principal location at which you provide services to the Company,
without your prior written consent;
(ii) Your
failure to be nominated for election to, or to be elected to, the Board, failure
of the Board to appoint you as President of the Company, or removal from the
Board or
as
President
of the
Company provided that such failure or removal is not in connection with a
termination of your employment hereunder by the Company;
(iii) A
material adverse change by the Company in your duties, authority or
responsibilities as President and Chief Executive Officer of the Company which
causes your position with the Company to become of less responsibility or
authority than your position as of immediately following the Commencement Date,
provided that such change is not in connection with a termination of your
employment hereunder by the Company;
(iv) The
assignment to you of duties not commensurate or consistent with your position as
President and Chief Executive Officer of the Company without your prior written
consent;
(v) A
reduction in your compensation or other benefits except such a reduction in
connection with a general reduction in compensation or other benefits of all
senior executives of the Company;
(vi) A
material breach of this Agreement by the Company that has not been cured within
30 days after written notice thereof by you to the Company;
(vii) The
Company ceasing to be engaged in the business of the treatment of Neurological
disease;
(ix) A
Change of Control (as defined in Section 2(d) below) of the Company;
or
(x) Failure
by the Company to obtain the assumption of this Agreement by any successor to
the Company;
(xi) The
decision by the Company not to renew employment agreement at the end of the term
or any extensions thereof.
(d)
Definition
of “Change of Control”
For purposes of this Agreement, a
Change of Control means that any of the following events has
occurred:
(i) Any
person (as such term is used in Section 13(d) of the Securities Exchange Act of
1934 (the “Exchange Act”)), other than the Company, any employee benefit plan of
the Company or any entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan, together with all “affiliates” and
“associates” (as such terms are defined in Rule 12b-2 under the Exchange Act)
becomes the beneficial owner or owners (as defined in Rule I 3d-3 and 13d-5
promulgated under the Exchange Act), directly or indirectly (the “Control
Group”), of more than 50% of the outstanding equity securities of the Company,
or otherwise becomes entitled, directly or indirectly, to vote more than 50% of
the voting power entitled to be cast at elections for directors (“Voting Power”)
of the Company
,
provided
that a Change of Control will not have occurred if such Control Group acquired
securities or Voting Power solely by purchasing securities from the Company,
including, without limitation, acquisition of securities by one or more third
party investors such as venture capital investor(s);
(ii) A
consolidation or merger (in one transaction or a series of related transactions)
of the Company pursuant to which the holders of the Company’s equity securities
immediately prior to such transaction or series of related transactions would
not be the holders, directly or indirectly, immediately after such transaction
or series of related transactions of more than 50% of the Voting Power of the
entity surviving such transaction or series of related
transactions;
(iii) The
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company;
or
(iv) The
liquidation or dissolution of the Company or the Company ceasing to do
business.
3.
Compensation
.
(a)
Base
Salary
. While you are employed hereunder, the Company will pay
you a base salary at the annual rate of $275,000 (the “Base
Salary”). The Base Salary will be reviewed and will be adjusted
upward, (but not
downward) no less frequently than annually. The Base Salary will be
payable in substantially equal installments in accordance with the Company’s
payroll practices as in effect from time to time. The Company will
deduct from each such installment any amounts required to be deducted or
withheld under applicable law or under any employee benefit plan in which you
participate.
(b)
Annual
Bonus
. The Company will pay you a bonus of up to thirty (30%)
of your base salary on each year anniversary of the Commencement Date the
“Annual Bonus” based on your performance in accordance with criteria established
by you and the Board, provided that in no event will the Annual Bonus be less
than $30,000.
(c)
Equity
Compensation
. You will be granted options to purchase shares
of the Common Stock (the “Performance Option”). The exercise price for the
Performance Option will be the fair market value per share of the Common Stock
on the date the Performance Option is granted. The Performance Option (i) will
be an incentive stock option to the extent permissible under applicable law,
(ii) will become vested and exercisable based upon the achievement as determined
by the Board, (iii) will otherwise be on terms and conditions substantially
similar to the Option and (iv) will be evidenced by a stock option agreement
substantially similar to the Option Agreement.
(d)
Vacation
. You
will be entitled to paid vacation in each calendar year and paid holidays and
personal days in accordance with the Company’s policies for its senior
executives as in effect from time to time, but not less than 15 days paid
vacation, 7 paid sick days, and 5 paid personal days in each calendar
year. Accrued unused vacation may be carried over from year to
year.
(e)
Fringe
Benefits
. You will be entitled to participate in the same
manner as other senior executives of the Company in any employee benefit plans
which the Company provides or may establish for the benefit of its senior
executives generally (including, without limitation, group life, disability,
medical, dental and other insurance, tax benefit and planning services, 401(k),
flexible spending account, retirement, pension, profit-sharing and similar
plans) (collectively, the “Fringe Benefits”), provided that the Fringe Benefits
will not include any stock option or similar plans relating to the grant of
equity securities of the Company. The company will pay annual
membership fees for you to maintain membership at the Union League of
Philadelphia or another private club of your choice. The Company will
furnish for your use a late model automobile/Truck, or provide a $825.00 monthly
payment to cover the cost of a late model. In addition all gasoline
for the vehicle will be paid for by the company. InVivo Therapeutics
will also provide up to $3,200 per month for living expenses.
(f)
Life Insurance; Disability
Insurance
. The Company, at its expense, will purchase life
insurance on your life in the face amount of not less than $1 million with a
beneficiary designated by you.
The Company will also
arrange disability insurance on your behalf [and at your expense] with annual
benefits in an amount equal to 60% of your Base Salary. The Company
will take such steps as are reasonable, including a tax gross up, to ensure that
you or your beneficiaries do not incur any tax liability with regard to either
the amount of the premium payment or the benefits payable from such
insurance.
(g)
Reimbursement of
Expenses
. The Company will reimburse you for all ordinary and
reasonable out-of-pocket business expenses that are incurred by you in
furtherance of the Company’s business in accordance with the Company’s policies
with respect thereto as in effect from time to time.
(h)
Indemnification
. The
Company will indemnify you to the extent permitted by its charter and by-laws
and by applicable law against all costs, charges and expenses, including,
without limitation, attorneys’ fees, incurred or sustained by you in connection
with any action, suit or proceeding to which you may be made a party by reason
of being an officer, director or employee of the Company. In
connection with the foregoing, you will be covered under any liability insurance
policy that protects other officers of the Company.
4.
Severance
Compensation
.
(a)
Definition of Accrued
Obligations
. For purposes of this Agreement, “Accrued
Obligations” means (i) the portion of your Base Salary as has accrued prior to
any termination of your employment with the Company and has not yet been paid,
(ii) an amount equal to the value of your accrued unused vacation days, (iii)
the amount of any Annual Bonus earned and accrued but not yet paid and (iv) the
amount of any expenses properly incurred by you on behalf of the Company prior
to any such termination and not yet reimbursed.
(b)
Death or
Disability
. If your employment hereunder is terminated as a
result of your death or Disability:
(i) The
Company will pay the Accrued Obligations to you (or your estate) promptly
following such termination.
(ii) The
Company will continue to pay you (or your estate) an amount equal to the Base
Salary at the rate in effect at the date of such termination in accordance with
Section 3(a) of this Agreement for the period commencing on the date of such
termination and ending eighteen (18) months thereafter.
(iii) The
Company will continue to provide you or your covered beneficiaries with the
Fringe Benefits for so long as it is obligated to continue payments equal to the
Base Salary pursuant to Section 4(b)(ii) above, subject to applicable law and
the terms of the respective policies.
(c)
Termination for Cause or in
the Absence of a Good Reason
. If your employment hereunder is
terminated either by the Company for Cause or by you in the absence of a Good
Reason (either pursuant to Section 2(a)(iii)(A) above or by delivery by you of a
Non-Renewal Notice), the Company will pay the Accrued Obligations to you
promptly following such termination.
(d)
Termination Without Cause or
for a Good Reason
. If your employment hereunder is terminated
either by the Company without Cause (either pursuant to Section 2(a)(ii)(c)
above or by delivery of a Non-Renewal Notice by the Company) or by you for a
Good Reason:
(i) The
Company will pay the Accrued Obligations to you promptly following such
termination.
(ii) The
Company will continue to pay you an amount equal to the Base Salary at the rate
in effect at such termination in accordance with Section 3(a) of this Agreement
for the period commencing on the date of such termination and for a period of
eighteen (18) months.
(iii) The
Company will continue to provide you with the Fringe Benefits for so long as it
is obligated to continue payments equal to the Base Salary pursuant to Section
4(d)(ii) above, subject to applicable law and the terms of the respective
policies.
(iv)
The Company will continue to pay you the Annual Bonus in
accordance with Section 3(b)(ii) of this Agreement during the period commencing
on the date of such termination and ending on the date of the end of the then
current Term. The amount of such bonus after the date of such
termination will equal the greater of (A) the last such bonus paid before the
date of such termination, or (B) the average of three most recent such bonuses
paid before the date of such termination (and all such prior bonuses if less
than three).
(e)
No Duty to
Mitigate
. Notwithstanding any other provision of this
Agreement, (i) you will have no obligation to mitigate your damages for any
breach of this Agreement by the Company or for any termination of this
Agreement, whether by seeking employment or otherwise and (ii) the amount of any
benefit due to you after the date of such termination pursuant to this Agreement
will not be reduced or offset by any payment or benefit that you may receive
from any other source.
5.
Prohibited
Competition
.
(a)
Certain Acknowledgements and
Agreements
.
(i) We
have discussed, and you recognize and acknowledge the competitive and
proprietary aspects of the business of the Company.
(ii) You
acknowledge that a business will be deemed competitive with the Company if it
performs any of the services or manufactures or sells any of the products
provided or offered by the Company or if it performs any other services and/or
engages in the production, manufacture, distribution or sale of any product
similar to services or products, which services or products were performed,
produced, manufactured, distributed or sold by the Company during the period
while you are employed hereunder.
(iii) You
further acknowledge that, while you are employed hereunder, the Company will
furnish, disclose or make available to you Confidential Information (as defined
below) related to the Company’s business and that the Company may provide you
with unique and specialized training. You also acknowledge that such
Confidential Information and such training have been developed and will be
developed by the Company through the expenditure by the Company of substantial
time, effort and money and that all such Confidential Information and training
could be used by you to compete with the Company.
(iv) For
purposes of this Agreement, “Confidential Information” means confidential and
proprietary information of the Company, whether in written, oral, electronic or
other form, including but not limited to, information and facts concerning
business plans, customers, future customers, suppliers, licensors, licensees,
partners, investors, affiliates or others, training methods and materials,
financial information, sales prospects, client lists, inventions, or any other
scientific, technical or trade secrets of the Company or of any third party
provided to you or the Company under a condition of confidentiality, provided
that Confidential Information will not include information that is (1) in the
public domain other than through any fault or act by you, (2) known to you prior
to its disclosure to you in the course of your employment hereunder, or (3)
lawfully disclosed to you by a source other than the Company which source has a
legal right to disclose such information.
(b)
Non-Competition;
Non-Solicitation
. During the period while you are employed
hereunder and for a period of one year following the termination of your
employment hereunder for any reason or for no reason you will not, without the
prior written consent of the Company:
(i) For
yourself or on behalf of any other person or entity, directly or indirectly,
either as principal, partner, stockholder, officer, director, member, employee,
consultant, agent, representative or in any other capacity, own, manage, operate
or control, or be concerned, connected or employed by, or otherwise associate in
any manner with, engage in, or have a financial interest in, any business which
is directly or indirectly competitive with the business of the Company (each, a
“Restricted Activity”) within a 75 mile radius of the Company’s facility located
at One Broadway 14
th
Floor,
Cambridge, MA 02142 (the “Restricted Territory”), except that (A)
nothing contained herein will preclude you from purchasing or owning securities
of any such business if such securities are publicly traded, and provided that
your holdings do not exceed [three] percent of the issued and outstanding
securities of any class of securities of such business, and (B) nothing
contained herein will prevent you from engaging in a Restricted Activity for or
with respect to any subsidiary, division or affiliate or unit (each, a “Unit”)
of an entity if that Unit is not engaged in any business which is competitive
with the business of the Company, irrespective of whether some other Unit of
such entity engages in such competition (as long as you do not engage in a
Restricted Activity for such other Unit); or
(ii) Either
individually or on behalf of or through any third party, directly or indirectly,
solicit, divert or appropriate or attempt to solicit, divert or appropriate, for
the purpose of competing with the Company, any customers or patrons of the
Company, or any prospective customers or patrons with respect to which the
Company has developed or made a sales presentation (or similar offering of
services); or
(iii) Either
individually or on behalf of or through any third party, solicit, entice or
persuade or attempt to solicit, entice or persuade any employee of or consultant
to the Company to leave the service of the Company.
Notwithstanding
the above, the Company acknowledges that this Agreement is not intended to
interfere with your future job opportunities.
(c)
Survival of Acknowledgements
and Agreements
. Your acknowledgements and agreements set forth
in this Section 5 will survive the termination of your employment hereunder for
any reason or for no reason.
6.
Protected
Information
. You will at all times, both during the period
while you are employed hereunder and after the termination of your employment
hereunder for any reason or for no reason, maintain in confidence and will not,
without the prior written consent of the Company, use, except in the course of
performance of your duties for the Company or by court order, disclose or give
to others any Confidential Information. Upon the termination of your
employment hereunder for any reason or for no reason, you will return to the
Company all tangible Confidential Information and copies thereof (regardless how
such Confidential Information or copies are maintained).
7.
Ownership of Ideas,
Copyrights and Patents
.
(a)
Property of the
Company
. All ideas, discoveries, creations, manuscripts and
properties, innovations, improvements, know-how, inventions, designs,
developments, apparatus, techniques, methods, biological processes, cell lines,
laboratory notebooks and formulae (collectively the “Inventions”) which may be
used in the business of the Company, whether patentable, copyrightable or not,
which you may conceive, reduce to practice or develop while you are employed
hereunder, alone or in conjunction with another or others, and whether at the
request or upon the suggestion of the Company or otherwise, will be the sole and
exclusive property of the Company, and that you will not publish any of the
Inventions without the prior written consent of the Company. You
hereby assign to the Company all of your right, title and interest in and to all
of the foregoing.
(b)
Cooperation
. At
any time during your employment hereunder or after the termination of your
employment hereunder for any reason or for no reason, you will fully cooperate
with the Company and its attorneys and agents in the preparation and filing of
all papers and other documents as may be required to perfect the Company’s
rights in and to any of such Inventions, including, but not limited to, joining
in any proceeding to obtain letters patent, copyrights, trademarks or other
legal rights with respect to any such Inventions in the United States and in any
and all other countries, provided that the Company will bear the expense of such
proceedings, and that any patent or other legal right so issued to you
personally will be assigned by you to the Company or its designee without charge
by you. The Company will reimburse you for reasonable expenses
incurred by you in connection with the performance of your obligations under
this Section 7.
8.
Records
. Upon
termination of your employment hereunder for any reason or for no reason, you
will deliver to the Company any property of the Company which may be in your
possession, including products, materials, memoranda, notes, records, reports or
other documents or photocopies of the same.
9.
Insurance
. The
Company, in its sole discretion, may apply for and purchase key person life
insurance on your life in an amount determined by the Company with the Company
as beneficiary. You will submit to any medical or other examinations
and to execute and deliver any applications or other instruments in writing that
are reasonably necessary to effectuate such insurance.
10.
General
.
(a)
Notices
. All
notices, requests, consents and other communications hereunder will be in
writing, will be addressed to the receiving party’s address set forth above or
to such other address as a party may designate by notice hereunder, and will be
either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by
registered or certified mail, return receipt requested, postage prepaid. All
notices, requests, consents and other communications hereunder will be deemed to
have been given either (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, or (iii) if sent by registered or certified
mail, on the fifth business day following the day such mailing is
made.
(b)
Entire
Agreement
. This Agreement and the other agreements
specifically referred to herein, embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement will affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
(c)
Modifications and
Amendments
. The terms and provisions of this Agreement may be
modified or amended only by written agreement executed by the parties
hereto.
(d)
Waivers and
Consents
. The terms and provisions of this Agreement may be
waived, or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent will be deemed to be or will constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent will be effective only in the
specific instance and for the purpose for which it was given, and will not
constitute a continuing waiver or consent.
(e)
Assignment
.
\
You may not assign your
rights and obligations under this Agreement without the prior written consent of
the Company.
(f)
Benefit
. All
statements, representations, warranties, covenants and agreements in this
Agreement will be binding on the parties hereto and will inure to the benefit of
the respective successors and permitted assigns of each party hereto. Nothing in
this Agreement will be construed to create any rights or obligations except
among the parties hereto, and no person or entity will be regarded as a
third-party beneficiary of this Agreement.
(g)
Governing
Law
. This Agreement and the rights and obligations of the
parties hereunder will be construed in accordance with and governed by the law
of
the State of
Delaware, without giving effect to the conflict of law principles
thereof.
(h)
Severability
. The
parties intend this Agreement to be enforced as written. However, (i) if any
portion or provision of this Agreement is to any extent be declared illegal or
unenforceable by a duly authorized court having jurisdiction, then the remainder
of this Agreement, or the application of such portion or provision in
circumstances other than those as to which it is so declared illegal or
unenforceable, will not be affected thereby, and each portion and provision of
this Agreement will be valid arid enforceable to the fullest extent permitted by
law and (ii) if any provision, or part thereof, is held to be unenforceable
because of the duration of such provision, the geographic area covered thereby,
or other aspect of the scope of such provision, the court making such
determination will have the power to reduce the duration, geographic area of
such provision, or other aspect of the scope of such provision, and/or to delete
specific words and phrases (“blue-penciling”), and in its reduced or
blue-penciled form, such provision will then be enforceable and will be
enforced.
(i)
Headings and
Captions
. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and will in
no way modify or affect the meaning or construction of any of the terms or
provisions hereof
(j)
No Waiver of Rights, Powers
and Remedies
. No failure or delay by a party hereto in
exercising any right, power or remedy under this Agreement, and no course of
dealing between the parties hereto, will operate as a waiver of any such right,
power or remedy of the party. No single or partial exercise of any right, power
or remedy under this Agreement by a party hereto, nor any abandonment or
discontinuance of steps to enforce any such right, power or remedy, will
preclude such party from any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. The election of any remedy by a
party hereto will not constitute a waiver of the right of such party to pursue
other available remedies. No notice to or demand on a party not
expressly required under this Agreement will entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(k)
Counterparts
. This
Agreement may be executed in two or more counterparts, and by different parties
hereto on separate counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same
instrument.
REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
If the
foregoing accurately sets forth our agreement, please so indicate by signing and
returning to us the enclosed copy of this letter.
|
Very
truly yours,
|
|
|
|
InVivo
Therapeutics Corporation
|
|
|
|
|
By:
|
|
|
|
Frank
Reynolds, President & CEO
|
|
|
:
|
Accepted
and Approved
|
|
|
|
Print
Name: Frank Reynolds
|
|
Date
|
AMENDMENT
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT (the “Amendment”) to the
Employment Agreement (as such term is defined below) is entered into as of the
1st day of November, 2009 (the “Amendment Effective Date”) by and between InVivo
Therapeutics Corporation, a Delaware corporation (the “Company”), and Frank
Reynolds (“you” or “Executive”).
The Company and Executive are
occasionally referred to collectively herein as the
“Parties.”
WHEREAS, the Company and Executive are
parties to that certain Employment Agreement dated as of
May 31, 2008 (the
“Employment Agreement”); and
WHEREAS,
the Company and Executive desire to modify the terms of the Employment Agreement
effective as of the Amendment Effective Date as more particularly described
herein.
NOW, THEREFORE, in consideration of the
mutual covenants made herein, and other consideration, the receipt and
sufficiency of which are hereby acknowledged and agreed, the Employment
Agreement be and hereby is amended as set forth below.
1.
Defined Terms
. All
terms used in this Amendment and not otherwise defined herein, shall have the
meanings ascribed to such terms in the Employment Agreement.
2.
Base
Salary
. Effective as of the Amendment Effective Date, the Base
Salary shall be $375,000 (the “2010 Base Salary”).
3.
Annual
Bonus
.
|
(a)
|
2009
Bonus
. The Parties agree and acknowledge that
notwithstanding Section 3(b) of the Employment Agreement, the Annual Bonus
of the Executive for the 2009 Term (as such term is defined below) shall
be payable upon the completion of the following milestones and payable in
the following amounts:
|
Milestone
|
|
Percentage of the 2009 Base Salary
(as such term is defined below)
|
|
Company
conducts Large Primate Study (16 Animals)
|
|
|
10
|
%
|
Company
applies to FDA for Human Studies
|
|
|
10
|
%
|
Company
raises at least $4,000,000 in connection with the issuance of Equity
Securities (as such term is defined below) from the Company’s inception to
the end of the 2009 Term
|
|
|
10
|
%
|
TOTAL
|
|
|
30
|
%
|
The Board
of Directors of the Company shall in good faith determine whether a milestone
has been achieved. Upon achievement by Executive of a milestone
specified above, the Company shall promptly pay the portion of the Annual Bonus
attributable to such milestone.
|
(b)
|
2010
Bonus
. The Parties agree and acknowledge that
notwithstanding Section 3(b) of the Employment Agreement, the Annual Bonus
of the Executive for the 2010 Term shall be payable upon the completion of
the following milestones and payable in the following
amounts:
|
Milestone
|
|
Percentage of the 2009 Base Salary
(as such term is defined below)
|
|
Company
completes Large Primate Study (Final Report)
|
|
|
10
|
%
|
Company
raises at least $4,000,000 in connection with the issuance of Equity
Securities (as such term is defined below) during the 2010
Term
|
|
|
10
|
%
|
Company
continues the FDA Process for Human Studies
|
|
|
10
|
%
|
Company
obtains FDA approval to begin a human study
|
|
|
100
|
%
|
TOTAL
|
|
|
130
|
%
|
The Board
of Directors of the Company shall in good faith determine whether a milestone
has been achieved. Upon achievement by Executive of a milestone
specified above, the Company shall promptly pay the portion of the Annual Bonus
attributable to such milestone.
|
(c)
|
Definitions
. The
following terms shall have the meanings ascribed to such terms as defined
herein:
|
“2009
Term” shall mean the 12 month period commencing on November 1,
2008.
“2009
Base Salary” is $275,000.
“2010
Term” shall mean the 12 month period commencing on November 1,
2009.
“Equity
Securities” shall mean equity securities of the Company or any evidences of
indebtedness, shares or other securities which directly or indirectly convert
into or are exchangeable for equity securities of the Company.
4.
Option
Grant
. Subject to approval by the Company’s Board of Directors
and you and the Company entering into the Company’s standard form of
Non-Qualified Stock Option Agreement (the “Option Agreement”), effective as of
the Amendment Effective Date the Company will grant to you an option
to purchase up to Fifty Seven Thousand (57,000) shares of the Company’s common
stock, $0.001 par value per share (“Common Stock”), at a per
share exercise price equal to the per share fair market value of the
Common Stock (the “Option”). The Option will vest in 4 equal yearly
installments pursuant to the terms of the Option Agreement.
5.
Counterparts; Full
Authority
. This Amendment may be executed in counterparts,
each of which shall be an original, but, when taken together, constitute but one
and the same Amendment. The signatories represent and warrant that
they have full authority to enter into this Amendment on behalf of the entity
for which they have signed. Except as specifically amended hereby,
the terms of the Employment Agreement shall remain in full force and
effect.
IN
WITNESS WHEREOF, the parties have executed this Amendment effective as of the
Amendment Effective Date.
INVIVO
THERAPEUTICS CORPORATION
By:
|
|
|
|
Richard
Roberts, member of Board of
Directors
|
InVivo
Therapeutics Corporation
One
Broadway, 14
th
Floor
Cambridge,
MA 02142
September
10, 2010
Christopher
D. Pritchard
71
Fulkerson St. Unit 112
Cambridge,
MA 02141
Dear
Christopher,
This
letter is to confirm our understanding with respect to (i) your future
employment by
InVivo
Therapeutics Corporation
or any present or future parent, subsidiary or
affiliate thereof (collectively, the “Company”), (ii) your agreement not to
compete with the Company, (iii) your agreement to protect and preserve
information and property which is confidential and proprietary to the Company
and (iv) your agreement with respect to the ownership of inventions, ideas,
copyrights and patents which may be used in the business of the Company (the
terms and conditions agreed to in this letter are hereinafter referred to as the
“Agreement”). In consideration of the mutual promises and covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby mutually acknowledged, we have agreed as
follows:
(a)
Subject to the terms and conditions of this
Agreement, the Company will employ you, and you will be employed by the Company,
as Chief Science Officer reporting to the CEO. You will have the
responsibilities, duty and authority commensurate with the position of Chief
Science Officer. You will also perform such other services of an
executive nature for the Company as may be assigned to you from time to time by
the CEO and Board of Directors. The principal location will be the
Company’s facility located at One Broadway, 14
th
Floor
Cambridge, MA 02142.
(b)
Devotion to
Duties
. For so long as you are employed hereunder, you will
devote substantially all of your business time and energies to the business,
science and affairs of the Company, provided that nothing contained in this
Section 1(b) will be deemed to prevent or limit your right to manage your
personal investments on your own personal time, including, without limitation,
the right to make passive investments in the securities of (i) any entity which
you do not control, directly or indirectly, and which does not compete with the
Company, or (ii) any publicly held entity so long as your aggregate direct and
indirect interest does not exceed five percent of the issued and outstanding
securities of any class of securities of such publicly held entity, and
provided, further that nothing contained in this Agreement will be deemed to
prohibit you from any involvement with any social and/or business organizations,
and accepting any directorships for companies or other
organizations.
2.
Term of
Employment
.
(a)
Term;
Termination
. Subject to the terms hereof, your employment
hereunder will commence on September 13 2010 (the “Commencement Date”) and will
continue for indefinitely (the “Term”) unless terminated as specified
herein.
Notwithstanding
the foregoing, your employment hereunder will terminate upon the first to occur
of the following:
(i) Immediately
upon your death;
(ii) By
the Company:
(A) By
written notice to you effective the date of such notice, following your failure,
due to illness, accident or any other physical or mental incapacity, to perform
the essential functions of your position for an aggregate of 90 business days
within any period of 180 consecutive business days during the term hereof as
determined by a physician selected by you (“Disability”), provided that if
applicable law provides any provision regarding disability that is more
favorable to you than that set forth herein, such more favorable provision will
govern; or
(B) By
written notice to you effective the date of such notice, for Cause (as defined
below).
(iii) By
you:
(A) At
any time by written notice to the Company effective 30 days after the date of
such notice; or
(B) By
written notice to the Company for Good Reason (as defined below) effective the
date of such notice.
(b)
Definition of
“Cause”
. For purposes of this Agreement, “Cause” means (i)
your conviction of a felony, either in connection with the performance of your
obligations to the Company or which otherwise materially and adversely affects
your ability to perform such obligations, (ii) your willful disloyalty or
deliberate dishonesty, (iii) the commission by you of an act of fraud or
embezzlement against the Company, or (iv) a willful material breach by you of
any material provision of this Agreement which breach is not cured within 60
days after delivery to you by the Company of written notice of such breach,
provided that if such breach is not capable of being cured within such 60 day
period, you will have a reasonable additional period to cure such breach but
only if you promptly commence and continue good faith efforts to cure such
breach. Any determination under this Section 2(b) will be made by two
thirds of the Board voting on such determination. With respect to any
such determination, the Board will act fairly and in utmost good faith and will
give you and your counsel an opportunity to appear and be heard at a meeting of
the Board or and present evidence on your behalf. No act or omission
on your part will be considered “willful” unless done, or admitted to be done,
by you in bad faith or without your reasonable belief that such act or omission
was in the best interest of the Company.
(c)
Definition of “Good
Reason”
. For purposes of this Agreement, a “Good Reason” means
any of the following:
(i)
A change in the principal location at which you provide services to
the Company, without your prior written consent;
(ii) A
material adverse change by the Company in your duties, authority or
responsibilities as Chief Science Officer of the Company which causes your
position with the Company to become of less responsibility or authority than
your position as of immediately following the Commencement Date, provided that
such change is not in connection with a termination of your employment hereunder
by the Company;
(iii)
The assignment to you of duties not commensurate or consistent with your
position as Chief Science Officer of the Company without your prior written
consent;
(iv)
A reduction in your compensation or other benefits except such a reduction
in connection with a general reduction in compensation or other benefits of all
senior executives of the Company;
(v)
A material breach of this Agreement by the Company that has not been cured
within 30 days after written notice thereof by you to the Company;
(vi)
The Company ceasing to be engaged in the business of the treatment of
Neurological disease;
(vii)
A Change of Control (as defined in Section 2(d) below) of the
Company;
or
(viii)
Failure by the Company to obtain the assumption of this Agreement by
any successor to the Company;
(ix)
The decision by the Company not to renew employment agreement at the end of the
term or any extensions thereof.
(d)
Definition of “Change of
Control”
For purposes of this Agreement, a Change of Control
means that any of the following events has occurred:
(i)
Any person (as such term is used in Section 13(d) of the Securities Exchange Act
of 1934 (the “Exchange Act”)), other than the Company, any employee benefit plan
of the Company or any entity organized, appointed or established by the Company
for or pursuant to the terms of any such plan, together with all “affiliates”
and “associates” (as such terms are defined in Rule 12b-2 under the Exchange
Act) becomes the beneficial owner or owners (as defined in Rule I 3d-3 and 13d-5
promulgated under the Exchange Act), directly or indirectly (the “Control
Group”), of more than 50% of the outstanding equity securities of the Company,
or otherwise becomes entitled, directly or indirectly, to vote more than 50% of
the voting power entitled to be cast at elections for directors (“Voting Power”)
of the Company
,
provided
that a Change of Control will not have occurred if such Control Group acquired
securities or Voting Power solely by purchasing securities from the Company,
including, without limitation, acquisition of securities by one or more third
party investors such as venture capital investor(s);
(ii)
A consolidation or merger (in one transaction or a series of related
transactions) of the Company pursuant to which the holders of the Company’s
equity securities immediately prior to such transaction or series of related
transactions would not be the holders, directly or indirectly, immediately after
such transaction or series of related transactions of more than 50% of the
Voting Power of the entity surviving such transaction or series of related
transactions;
(iii) The
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company;
or
(iv)
The liquidation or dissolution of the Company or the Company ceasing
to do business.
3.
Compensation
.
(a)
Base
Salary
. While you are employed hereunder, the Company will pay
you a base salary at the annual rate of $225,000 (the “Base
Salary”). The Base Salary will be reviewed and will be adjusted
upward, (but not
downward) no less frequently than annually. The Base Salary will be
payable in substantially equal installments in accordance with the Company’s
payroll practices as in effect from time to time. The Company will
deduct from each such installment any amounts required to be deducted or
withheld under applicable law or under any employee benefit plan in which you
participate.
(b)
Annual
Bonus
. The Company will pay you a bonus of up to thirty (30%)
of your base salary on each year anniversary of the Commencement Date the
“Annual Bonus” based on your performance in accordance with criteria established
by you and the Board, provided that in no event will the Annual Bonus be less
than $22,500.
(c)
Equity
Compensation
. You will be granted options to purchase shares
of the Common Stock (the “Performance Option”). The exercise price for the
Performance Option will be the fair market value per share of the Common Stock
on the date the Performance Option is granted. The Performance Option (i) will
be an incentive stock option to the extent permissible under applicable law,
(ii) will become vested and exercisable based upon the achievement as determined
by the Board, (iii) will otherwise be on terms and conditions substantially
similar to the Option and (iv) will be evidenced by a stock option agreement
substantially similar to the Option Agreement.
(d)
Vacation
. You
will be entitled to paid vacation in each calendar year and paid holidays and
personal days in accordance with the Company’s policies for its senior
executives as in effect from time to time, but not less than 10 days paid
vacation, 5 paid sick days, and 3 paid personal days in each calendar
year. Accrued unused vacation may not be carried over from year to
year.
(e)
Fringe
Benefits
. You will be entitled to participate in the same
manner as other senior executives of the Company in any employee benefit plans
which the Company provides or may establish for the benefit of its senior
executives generally (including, without limitation, group life, disability,
medical, dental and other insurance, tax benefit and planning services, 401(k),
flexible spending account, retirement, pension, profit-sharing and similar
plans) (collectively, the “Fringe Benefits”), provided that the Fringe Benefits
will not include any stock option or similar plans relating to the grant of
equity securities of the Company. The company will pay annual
membership fees for you to maintain membership at the Union League of
Philadelphia. The Company will furnish for your use a late model
automobile/Truck, or provide a $750.00 monthly payment to cover the cost of a
late model. In addition all gasoline for the vehicle will be paid for
by the company.
(f)
Life Insurance; Disability
Insurance
. The Company, at its expense, will purchase life
insurance on your life in the face amount of not less than $500,000.00 on with a
beneficiary designated by you.
The Company will also
arrange disability insurance on your behalf [and at your expense] with annual
benefits in an amount equal to 60% of your Base Salary. The Company
will take such steps as are reasonable, including a tax gross up, to ensure that
you or your beneficiaries do not incur any tax liability with regard to either
the amount of the premium payment or the benefits payable from such
insurance.
(g)
Reimbursement of
Expenses
. The Company will reimburse you for all ordinary and
reasonable out-of-pocket business expenses that are incurred by you in
furtherance of the Company’s business in accordance with the Company’s policies
with respect thereto as in effect from time to time.
(h)
Indemnification
. The
Company will indemnify you to the extent permitted by its charter and by-laws
and by applicable law against all costs, charges and expenses, including,
without limitation, attorneys’ fees, incurred or sustained by you in connection
with any action, suit or proceeding to which you may be made a party by reason
of being an officer, director or employee of the Company. In
connection with the foregoing, you will be covered under any liability insurance
policy that protects other officers of the Company.
4.
Severance
Compensation
.
(a)
Definition of Accrued
Obligations
. For purposes of this Agreement, “Accrued
Obligations” means (i) the portion of your Base Salary as has accrued prior to
any termination of your employment with the Company and has not yet been paid,
(ii) an amount equal to the value of your accrued unused vacation days, (iii)
the amount of any Annual Bonus earned and accrued but not yet paid and (iv) the
amount of any expenses properly incurred by you on behalf of the Company prior
to any such termination and not yet reimbursed.
(b)
Death or
Disability
. If your employment hereunder is terminated as a
result of your death or Disability:
(i)
The Company will pay the Accrued Obligations to you (or your estate)
promptly following such termination.
(ii)
The Company will continue to pay you (or your estate) an
amount equal to the Base Salary at the rate in effect at the date of such
termination in accordance with Section 3(a) of this Agreement for the period
commencing on the date of such termination and ending six (6) months
thereafter.
(iii)
The Company will continue to provide you or your covered
beneficiaries with the Fringe Benefits for so long as it is obligated to
continue payments equal to the Base Salary pursuant to Section 4(b)(ii) above,
subject to applicable law and the terms of the respective policies.
(c)
Termination for Cause or in
the Absence of a Good Reason
. If your employment hereunder is
terminated either by the Company for Cause or by you in the absence of a Good
Reason (either pursuant to Section 2(a)(iii)(A) above or by delivery by you of a
Non-Renewal Notice), the Company will pay the Accrued Obligations to you
promptly following such termination.
(d)
Termination Without Cause or
for a Good Reason
. If your employment hereunder is terminated
either by the Company without Cause (either pursuant to Section 2(a)(ii)(c)
above or by delivery of a Non-Renewal Notice by the Company) or by you for a
Good Reason:
(i)
The Company will pay the Accrued Obligations
to you promptly following such termination.
(ii)
The Company will continue to pay you an amount equal to the Base Salary at
the rate in effect at such termination in accordance with Section 3(a) of this
Agreement for the period commencing on the date of such termination and for a
period of eighteen (18) months.
(iii)
The Company will continue to provide you with the Fringe Benefits
for so long as it is obligated to continue payments equal to the Base Salary
pursuant to Section 4(d)(ii) above, subject to applicable law and the terms of
the respective policies.
(iv)
The Company will continue to pay you the Annual Bonus in
accordance with Section 3(b)(ii) of this Agreement during the period commencing
on the date of such termination and ending on the date of the end of the then
current Term. The amount of such bonus after the date of such
termination will equal the greater of (A) the last such bonus paid before the
date of such termination, or (B) the average of three most recent such bonuses
paid before the date of such termination (and all such prior bonuses if less
than three).
(e)
No Duty to
Mitigate
. Notwithstanding any other provision of this
Agreement, (i) you will have no obligation to mitigate your damages for any
breach of this Agreement by the Company or for any termination of this
Agreement, whether by seeking employment or otherwise and (ii) the amount of any
benefit due to you after the date of such termination pursuant to this Agreement
will not be reduced or offset by any payment or benefit that you may receive
from any other source.
5.
Prohibited
Competition
.
(a)
Certain Acknowledgements and
Agreements
.
(i)
We have discussed, and you recognize and acknowledge the
competitive and proprietary aspects of the business of the Company.
(ii)
You acknowledge that a business will be deemed competitive with the
Company if it performs any of the services or manufactures or sells any of the
products provided or offered by the Company or if it performs any other services
and/or engages in the production, manufacture, distribution or sale of any
product similar to services or products, which services or products were
performed, produced, manufactured, distributed or sold by the Company during the
period while you are employed hereunder.
(iii)
You further acknowledge that, while you are employed
hereunder, the Company will furnish, disclose or make available to you
Confidential Information (as defined below) related to the Company’s business
and that the Company may provide you with unique and specialized
training. You also acknowledge that such Confidential Information and
such training have been developed and will be developed by the Company through
the expenditure by the Company of substantial time, effort and money and that
all such Confidential Information and training could be used by you to compete
with the Company.
(iv)
For purposes of this Agreement, “Confidential Information” means
confidential and proprietary information of the Company, whether in written,
oral, electronic or other form, including but not limited to, information and
facts concerning business plans, customers, future customers, suppliers,
licensors, licensees, partners, investors, affiliates or others, training
methods and materials, financial information, sales prospects, client lists,
inventions, or any other scientific, technical or trade secrets of the Company
or of any third party provided to you or the Company under a condition of
confidentiality, provided that Confidential Information will not include
information that is (1) in the public domain other than through any fault or act
by you, (2) known to you prior to its disclosure to you in the course of your
employment hereunder, or (3) lawfully disclosed to you by a source other than
the Company which source has a legal right to disclose such
information.
(b)
Non-Competition;
Non-Solicitation
. During the period while you are employed
hereunder and for a period of two years following the termination of your
employment hereunder for any reason or for no reason you will not, without the
prior written consent of the Company:
(i)
For yourself or on behalf of any other person or entity,
directly or indirectly, either as principal, partner, stockholder, officer,
director, member, employee, consultant, agent, representative or in any other
capacity, own, manage, operate or control, or be concerned, connected or
employed by, or otherwise associate in any manner with, engage in, or have a
financial interest in, any business which is directly or indirectly competitive
with the business of the Company (each, a “Restricted Activity”) within a 75
mile radius of the Company’s facility located at One Broadway 14
th
Floor,
Cambridge, MA 02142 (the “Restricted Territory”), except that (A)
nothing contained herein will preclude you from purchasing or owning securities
of any such business if such securities are publicly traded, and provided that
your holdings do not exceed [three] percent of the issued and outstanding
securities of any class of securities of such business, and (B) nothing
contained herein will prevent you from engaging in a Restricted Activity for or
with respect to any subsidiary, division or affiliate or unit (each, a “Unit”)
of an entity if that Unit is not engaged in any business which is competitive
with the business of the Company, irrespective of whether some other Unit of
such entity engages in such competition (as long as you do not engage in a
Restricted Activity for such other Unit); or
(ii)
Either individually or on behalf of or through any third party,
directly or indirectly, solicit, divert or appropriate or attempt to solicit,
divert or appropriate, for the purpose of competing with the Company, any
customers or patrons of the Company, or any prospective customers or patrons
with respect to which the Company has developed or made a sales presentation (or
similar offering of services); or
(iii)
Either individually or on behalf of or through any third party,
solicit, entice or persuade or attempt to solicit, entice or persuade any
employee of or consultant to the Company to leave the service of the
Company.
Notwithstanding
the above, the Company acknowledges that this Agreement is not intended to
interfere with your future job opportunities.
(c)
Survival of Acknowledgements
and Agreements
. Your acknowledgements and agreements set forth
in this Section 5 will survive the termination of your employment hereunder for
any reason or for no reason.
6.
Protected
Information
. You will at all times, both during the period
while you are employed hereunder and after the termination of your employment
hereunder for any reason or for no reason, maintain in confidence and will not,
without the prior written consent of the Company, use, except in the course of
performance of your duties for the Company or by court order, disclose or give
to others any Confidential Information. Upon the termination of your
employment hereunder for any reason or for no reason, you will return to the
Company all tangible Confidential Information and copies thereof (regardless how
such Confidential Information or copies are maintained).
7.
Ownership of Ideas,
Copyrights and Patents
.
(a)
Property of the
Company
. All ideas, discoveries, creations, manuscripts and
properties, innovations, improvements, know-how, inventions, designs,
developments, apparatus, techniques, methods, biological processes, cell lines,
laboratory notebooks and formulae (collectively the “Inventions”) which may be
used in the business of the Company, whether patentable, copyrightable or not,
which you may conceive, reduce to practice or develop while you are employed
hereunder, alone or in conjunction with another or others, and whether at the
request or upon the suggestion of the Company or otherwise, will be the sole and
exclusive property of the Company, and that you will not publish any of the
Inventions without the prior written consent of the Company. You
hereby assign to the Company all of your right, title and interest in and to all
of the foregoing.
(b)
Cooperation
. At
any time during your employment hereunder or after the termination of your
employment hereunder for any reason or for no reason, you will fully cooperate
with the Company and its attorneys and agents in the preparation and filing of
all papers and other documents as may be required to perfect the Company’s
rights in and to any of such Inventions, including, but not limited to, joining
in any proceeding to obtain letters patent, copyrights, trademarks or other
legal rights with respect to any such Inventions in the United States and in any
and all other countries, provided that the Company will bear the expense of such
proceedings, and that any patent or other legal right so issued to you
personally will be assigned by you to the Company or its designee without charge
by you. The Company will reimburse you for reasonable expenses
incurred by you in connection with the performance of your obligations under
this Section 7.
8.
Records
. Upon
termination of your employment hereunder for any reason or for no reason, you
will deliver to the Company any property of the Company which may be in your
possession, including products, materials, memoranda, notes, records, reports or
other documents or photocopies of the same.
9.
Insurance
. The
Company, in its sole discretion, may apply for and purchase key person life
insurance on your life in an amount determined by the Company with the Company
as beneficiary. You will submit to any medical or other examinations
and to execute and deliver any applications or other instruments in writing that
are reasonably necessary to effectuate such insurance.
10.
General
.
(a)
Notices
. All
notices, requests, consents and other communications hereunder will be in
writing, will be addressed to the receiving party’s address set forth above or
to such other address as a party may designate by notice hereunder, and will be
either (i) delivered by hand, (ii) sent by overnight courier, or (iii) sent by
registered or certified mail, return receipt requested, postage prepaid. All
notices, requests, consents and other communications hereunder will be deemed to
have been given either (i) if by hand, at the time of the delivery thereof to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice is
delivered to the courier service, or (iii) if sent by registered or certified
mail, on the fifth business day following the day such mailing is
made.
(b)
Entire
Agreement
. This Agreement and the other agreements
specifically referred to herein, embodies the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement will affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
(c)
Modifications and
Amendments
. The terms and provisions of this Agreement may be
modified or amended only by written agreement executed by the parties
hereto.
(d)
Waivers and
Consents
. The terms and provisions of this Agreement may be
waived, or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or provisions. No
such waiver or consent will be deemed to be or will constitute a waiver or
consent with respect to any other terms or provisions of this Agreement, whether
or not similar. Each such waiver or consent will be effective only in the
specific instance and for the purpose for which it was given, and will not
constitute a continuing waiver or consent.
(e)
Assignment
.
\
You may not assign your
rights and obligations under this Agreement without the prior written consent of
the Company.
(f)
Benefit
. All
statements, representations, warranties, covenants and agreements in this
Agreement will be binding on the parties hereto and will inure to the benefit of
the respective successors and permitted assigns of each party hereto. Nothing in
this Agreement will be construed to create any rights or obligations except
among the parties hereto, and no person or entity will be regarded as a
third-party beneficiary of this Agreement.
(g)
Governing
Law
. This Agreement and the rights and obligations of the
parties hereunder will be construed in accordance with and governed by the law
of
the State of
Delaware, without giving effect to the conflict of law principles
thereof.
(h)
Severability
. The
parties intend this Agreement to be enforced as written. However, (i) if any
portion or provision of this Agreement is to any extent be declared illegal or
unenforceable by a duly authorized court having jurisdiction, then the remainder
of this Agreement, or the application of such portion or provision in
circumstances other than those as to which it is so declared illegal or
unenforceable, will not be affected thereby, and each portion and provision of
this Agreement will be valid arid enforceable to the fullest extent permitted by
law and (ii) if any provision, or part thereof, is held to be unenforceable
because of the duration of such provision, the geographic area covered thereby,
or other aspect of the scope of such provision, the court making such
determination will have the power to reduce the duration, geographic area of
such provision, or other aspect of the scope of such provision, and/or to delete
specific words and phrases (“blue-penciling”), and in its reduced or
blue-penciled form, such provision will then be enforceable and will be
enforced.
(i)
Headings and
Captions
. The headings and captions of the various
subdivisions of this Agreement are for convenience of reference only and will in
no way modify or affect the meaning or construction of any of the terms or
provisions hereof
(j)
No Waiver of Rights, Powers
and Remedies
. No failure or delay by a party hereto in
exercising any right, power or remedy under this Agreement, and no course of
dealing between the parties hereto, will operate as a waiver of any such right,
power or remedy of the party. No single or partial exercise of any right, power
or remedy under this Agreement by a party hereto, nor any abandonment or
discontinuance of steps to enforce any such right, power or remedy, will
preclude such party from any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. The election of any remedy by a
party hereto will not constitute a waiver of the right of such party to pursue
other available remedies. No notice to or demand on a party not
expressly required under this Agreement will entitle the party receiving such
notice or demand to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the party giving such
notice or demand to any other or further action in any circumstances without
such notice or demand.
(k)
Counterparts
. This
Agreement may be executed in two or more counterparts, and by different parties
hereto on separate counterparts, each of which will be deemed an original, but
all of which together will constitute one and the same
instrument.
REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK
If the
foregoing accurately sets forth our agreement, please so indicate by signing and
returning to us the enclosed copy of this letter.
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Very
truly yours,
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InVivo
Therapeutics Corporation
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By:
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Frank
Reynolds, President & CEO
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:
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Accepted
and Approved
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Print
Name: Christopher D. Pritchard
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Date
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INVIVO
THERAPEUTICS CORPORATION
2007
EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
1.
DEFINITIONS
.
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Unless
otherwise specified or unless the context otherwise requires, the
following terms, as used in this InVivo Therapeutics Corporation 2007
Employee, Director and Consultant Stock Plan, have the following
meanings:
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Administrator
means the Board of Directors, unless it has delegated power to act on its
behalf to the Committee, in which case the Administrator means the
Committee.
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Affiliate
means
a corporation which, for purposes of Section 424 of the Code, is a parent
or subsidiary of the Company, direct or
indirect.
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Board of
Directors
means the Board of Directors of the
Company.
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Change of Control
means the occurrence of any of the following events:
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(i)
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Ownership. Any
“Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “1934 Act”)) becomes the
“Beneficial Owner” (as defined in Rule 13d-3 under said 1934 Act),
directly or indirectly, of securities of the Company representing 50% or
more of the total voting power represented by the Company’s then
outstanding voting securities (excluding for this purpose the Company or
its Affiliates or any employee benefit plan of the Company) pursuant to a
transaction or a series of related transactions which the Board of
Directors does not approve; or
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(ii)
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Merger/Sale
of Assets. A merger or consolidation of the Company whether or
not approved by the Board of Directors, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or the parent of such corporation) at least 50% of the
total voting power represented by the voting securities of the Company or
such surviving entity or parent of such corporation outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s
assets.
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Code
means the
United States Internal Revenue Code of 1986, as
amended.
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Committee
means
the committee of the Board of Directors to which the Board of Directors
has delegated power to act under or pursuant to the provisions of the
Plan.
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Common Stock
means shares of the Company’s common stock, $0.001 par value per
share.
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Company
means
InVivo Therapeutics Corporation, a Delaware
corporation.
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Disability
or
Disabled
means permanent and total disability as defined in Section 22(e)(3) of the
Code.
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Employee
means
any employee of the Company or of an Affiliate (including, without
limitation, an employee who is also serving as an officer or director of
the Company or of an Affiliate), designated by the Administrator to be
eligible to be granted one or more Stock Rights under the
Plan.
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Fair Market
Value
of a Share of Common Stock
means:
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(1)
If the
Common Stock is listed on a national securities exchange or traded in the
over-the-counter market and sales prices are regularly reported for the Common
Stock, the closing or last price of the Common Stock on the Composite Tape or
other comparable reporting system for the trading day immediately preceding the
applicable date;
(2)
If the
Common Stock is not traded on a national securities exchange but is traded on
the over-the-counter market, if sales prices are not regularly reported for the
Common Stock for the trading day referred to in clause (1), and if bid and
asked prices for the Common Stock are regularly reported, the mean between the
bid and the asked price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which Common Stock was traded
immediately preceding the applicable date; and
(3)
If the
Common Stock is neither listed on a national securities exchange nor traded in
the over-the-counter market, such value as the Administrator, in good faith,
shall determine.
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ISO
means an
option meant to qualify as an incentive stock option under
Section 422 of the Code.
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Non-Qualified
Option
means an option which is not intended to qualify as an
ISO.
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Option
means an
ISO or Non-Qualified Option granted under the
Plan.
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Option
Agreement
means an agreement between the Company and a Participant
delivered pursuant to the Plan, in such form as the Administrator shall
approve.
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Participant
means an Employee, director or consultant of the Company or an Affiliate
to whom one or more Stock Rights are granted under the Plan. As
used herein, “Participant” shall include “Participant’s Survivors” where
the context requires.
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Plan
means this
InVivo Therapeutics Corporation 2007 Employee, Director and Consultant
Stock Plan.
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Shares
means
shares of the Common Stock as to which Stock Rights have been or may be
granted under the Plan or any shares of capital stock into which the
Shares are changed or for which they are exchanged within the provisions
of Paragraph 3 of the Plan. The Shares issued under the
Plan may be authorized and unissued shares or shares held by the Company
in its treasury, or both.
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Stock
Grant
means a grant by the Company of Shares under the
Plan.
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Stock Grant
Agreement
means an agreement between the Company and a Participant
delivered pursuant to the Plan, in such form as the Administrator shall
approve.
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Stock Right
means a right to Shares of the Company granted pursuant to the Plan — an
ISO, a Non-Qualified Option or a Stock
Grant.
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Survivor
means
a deceased Participant’s legal representatives and/or any person or
persons who acquired the Participant’s rights to a Stock Right by will or
by the laws of descent and
distribution.
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2.
PURPOSES OF THE
PLAN
.
The Plan is intended to encourage
ownership of Shares by Employees and directors of and certain consultants to the
Company in order to attract such people, to induce them to work for the benefit
of the Company or of an Affiliate and to provide additional incentive for them
to promote the success of the Company or of an Affiliate. The Plan
provides for the granting of ISOs, Non-Qualified Options and Stock
Grants.
3.
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SHARES SUBJECT TO THE
PLAN
.
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(a) The
number of Shares which may be issued from time to time pursuant to this Plan
shall be One Million (1,000,000) or the equivalent of such number of Shares
after the Administrator, in its sole discretion, has interpreted the effect of
any stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Paragraph 23 of the Plan.
If an Option ceases to be
“outstanding”, in whole or in part, or if the Company shall reacquire any Shares
issued pursuant to a Stock Grant, the Shares which were subject to such Option
and any Shares so reacquired by the Company shall be available for the granting
of other Stock Rights under the Plan. Any Option shall be treated as
“outstanding” until such Option is exercised in full, or terminates or expires
under the provisions of the Plan, or by agreement of the parties to the
pertinent Option Agreement.
4.
|
ADMINISTRATION OF THE
PLAN
.
|
The Administrator of the Plan will be
the Board of Directors, except to the extent the Board of Directors delegates
its authority to the Committee, in which case the Committee shall be the
Administrator. Subject to the provisions of the Plan, the
Administrator is authorized to:
|
a.
|
Interpret
the provisions of the Plan or of any Option or Stock Grant and to make all
rules and determinations which it deems necessary or advisable for the
administration of the Plan;
|
|
b.
|
Determine
which Employees, directors and consultants shall be granted Stock
Rights;
|
|
c.
|
Determine
the number of Shares for which a Stock Right or Stock Rights shall be
granted;
|
|
d.
|
Specify
the terms and conditions upon which a Stock Right or Stock Rights may be
granted; and
|
|
e.
|
Adopt
any sub-plans applicable to residents of any specified jurisdiction as it
deems necessary or appropriate in order to comply with or take advantage
of any tax laws applicable to the Company or to Plan Participants or to
otherwise facilitate the administration of the Plan, which sub-plans may
include additional restrictions or conditions applicable to Options or
Shares acquired upon exercise of
Options.
|
provided,
however, that all such interpretations, rules, determinations, terms and
conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code of those Options which are designated as
ISOs. Subject to the foregoing, the interpretation and construction
by the Administrator of any provisions of the Plan or of any Stock Right granted
under it shall be final, unless otherwise determined by the Board of Directors,
if the Administrator is the Committee. In addition, if the
Administrator is the Committee, the Board of Directors may take any action under
the Plan that would otherwise be the responsibility of the
Committee.
If permissible under applicable law,
the Board of Directors or the Committee may allocate all or any portion of its
responsibilities and powers to any one or more of its members and may delegate
all or any portion of its responsibilities and powers to any other person
selected by it. Any such allocation or delegation may be revoked by
the Board of Directors or the Committee at any time.
5.
ELIGIBILITY FOR
PARTICIPATION
.
The Administrator will, in its sole
discretion, name the Participants in the Plan, provided, however, that each
Participant must be an Employee, director or consultant of the Company or of an
Affiliate at the time a Stock Right is granted. Notwithstanding the
foregoing, the Administrator may authorize the grant of a Stock Right to a
person not then an Employee, director or consultant of the Company or of an
Affiliate; provided, however, that the actual grant of such Stock Right shall be
conditioned upon such person becoming eligible to become a Participant at or
prior to the time of the execution of the Agreement evidencing such Stock
Right. ISOs may be granted only to
Employees. Non-Qualified Options and Stock Grants may be granted to
any Employee, director or consultant of the Company or an
Affiliate. The granting of any Stock Right to any individual shall
neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Stock Rights.
6.
TERMS AND CONDITIONS OF
OPTIONS
.
Each Option shall be set forth in
writing in an Option Agreement, duly executed by the Company and, to the extent
required by law or requested by the Company, by the Participant. The
Administrator may provide that Options be granted subject to such terms and
conditions, consistent with the terms and conditions specifically required under
this Plan, as the Administrator may deem appropriate including, without
limitation, subsequent approval by the shareholders of the Company of this Plan
or any amendments thereto. The Option Agreements shall be subject to
at least the following terms and conditions:
|
A.
|
Non-Qualified
Options
: Each Option intended to be a Non-Qualified
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest of the
Company, subject to the following minimum standards for any such
Non-Qualified Option:
|
|
a.
|
Option
Price: Each Option Agreement shall state the option price (per share) of
the Shares covered by each Option, which option price shall be determined
by the Administrator but shall not be less than the par value per share of
Common Stock.
|
|
b.
|
Each
Option Agreement shall state the number of Shares to which it
pertains;
|
|
c.
|
Each
Option Agreement shall state the date or dates on which it first is
exercisable and the date after which it may no longer be exercised, and
may provide that the Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of
certain conditions or the attainment of stated goals or events;
and
|
|
d.
|
Exercise
of any Option may be conditioned upon the Participant’s execution of a
Share purchase agreement in form satisfactory to the Administrator
providing for certain protections for the Company and its other
shareholders, including requirements
that:
|
|
i.
|
The
Participant’s or the Participant’s Survivors’ right to sell or transfer
the Shares may be restricted; and
|
|
ii.
|
The
Participant or the Participant’s Survivors may be required to execute
letters of investment intent and must also acknowledge that the Shares
will bear legends noting any applicable
restrictions.
|
|
B.
|
ISOs
: Each
Option intended to be an ISO shall be issued only to an Employee and be
subject to the following terms and conditions, with such additional
restrictions or changes as the Administrator determines are appropriate
but not in conflict with Section 422 of the Code and relevant regulations
and rulings of the Internal Revenue
Service:
|
|
a.
|
Minimum
standards: The ISO shall meet the minimum standards required of
Non-Qualified Options, as described in Paragraph 6(A) above, except clause
(a) thereunder.
|
|
b.
|
Option
Price: Immediately before the ISO is granted, if the
Participant owns, directly or by reason of the applicable attribution
rules in Section 424(d) of the
Code:
|
|
i.
|
10%
or less
of the total combined voting power of all classes of stock of the Company
or an Affiliate, the Option price per share of the Shares covered by each
ISO shall not be less than 100% of the Fair Market Value per share of the
Shares on the date of the grant of the Option;
or
|
|
ii.
|
More
than 10% of the total combined voting power of all classes of stock of the
Company or an Affiliate, the Option price per share of the Shares covered
by each ISO shall not be less than 110% of the said Fair Market Value on
the date of grant.
|
|
c.
|
Term
of Option: For Participants who
own:
|
|
i.
|
10%
or less
of the total combined voting power of all classes of stock of the Company
or an Affiliate, each ISO shall terminate not more than ten years from the
date of the grant or at such earlier time as the Option Agreement may
provide; or
|
|
ii.
|
More
than 10% of the total combined voting power of all classes of stock of the
Company or an Affiliate, each ISO shall terminate not more than five years
from the date of the grant or at such earlier time as the Option Agreement
may provide.
|
|
d.
|
Limitation
on Yearly Exercise: The Option Agreements shall restrict the
amount of ISOs which may become exercisable in any calendar year (under
this or any other ISO plan of the Company or an Affiliate) so that the
aggregate Fair Market Value (determined at the time each ISO is granted)
of the stock with respect to which ISOs are exercisable for the first time
by the Participant in any calendar year does not exceed
$100,000.
|
7.
|
TERMS AND CONDITIONS
OF STOCK GRANTS
.
|
Each offer of a Stock Grant to a
Participant shall state the date prior to which the Stock Grant must be accepted
by the Participant, and the principal terms of each Stock Grant shall be set
forth in a Stock Grant Agreement, duly executed by the Company and, to the
extent required by law or requested by the Company, by the
Participant. The Stock Grant Agreement shall be in a form approved by
the Administrator and shall contain terms and conditions which the Administrator
determines to be appropriate and in the best interest of the Company, subject to
the following minimum standards:
|
(a)
|
Each
Stock Grant Agreement shall state the purchase price (per share), if any,
of the Shares covered by each Stock Grant, which purchase price shall be
determined by the Administrator but shall not be less than the minimum
consideration required by the Delaware General Corporation Law on the date
of the grant of the Stock Grant;
|
|
(b)
|
Each
Stock Grant Agreement shall state the number of Shares to which the Stock
Grant pertains; and
|
|
(c)
|
Each
Stock Grant Agreement shall include the terms of any right of the Company
to restrict or reacquire the Shares subject to the Stock Grant, including
the time and events upon which such reacquisition rights shall accrue and
the purchase price therefor, if
any.
|
8.
EXERCISE OF OPTIONS AND
ISSUE OF SHARES
.
An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company or its
designee, together with provision for payment of the full purchase price in
accordance with this Paragraph for the Shares as to which the Option is being
exercised, and upon compliance with any other condition(s) set forth in the
Option Agreement. Such notice shall be signed by the person
exercising the Option, shall state the number of Shares with respect to which
the Option is being exercised and shall contain any representation required by
the Plan or the Option Agreement. Payment of the purchase price for
the Shares as to which such Option is being exercised shall be made (a) in
United States dollars in cash or by check, or (b) at the discretion of the
Administrator, through delivery of shares of Common Stock having a Fair Market
Value equal as of the date of the exercise to the cash exercise price of the
Option, or (c) at the discretion of the Administrator, by delivery of the
grantee’s personal note, for full, partial or no recourse, bearing interest
payable not less than annually at market rate on the date of exercise and at no
less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, with or without the pledge of such Shares as
collateral, or (d) at the discretion of the Administrator, in accordance
with a cashless exercise program established with a securities brokerage firm,
and approved by the Administrator, or (e) at the discretion of the
Administrator, by any combination of (a), (b), (c) and (d) above.
Notwithstanding the foregoing, the Administrator shall accept only such payment
on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably
promptly deliver the Shares as to which such Option was exercised to the
Participant (or to the Participant’s Survivors, as the case may
be). In determining what constitutes “reasonably promptly,” it is
expressly understood that the issuance and delivery of the Shares may be delayed
by the Company in order to comply with any law or regulation (including, without
limitation, state securities or “blue sky” laws) which requires the Company to
take any action with respect to the Shares prior to their
issuance. The Shares shall, upon delivery, be fully paid,
non-assessable Shares.
The Administrator shall have the right
to accelerate the date of exercise of any installment of any Option; provided
that the Administrator shall not accelerate the exercise date of any installment
of any Option granted to an Employee as an ISO (and not previously converted
into a Non-Qualified Option pursuant to Paragraph 26) if such acceleration would
violate the annual vesting limitation contained in Section 422(d) of the Code,
as described in Paragraph 6.B.d.
The Administrator may, in its
discretion, amend any term or condition of an outstanding Option provided (i)
such term or condition as amended is permitted by the Plan, (ii) any such
amendment shall be made only with the consent of the Participant to whom the
Option was granted, or in the event of the death of the Participant, the
Participant’s Survivors, if the amendment is adverse to the Participant, and
(iii) any such amendment of any ISO shall be made only after the Administrator
determines whether such amendment would constitute a “modification” of any
Option which is an ISO (as that term is defined in Section 424(h) of the Code)
or would cause any adverse tax consequences for the holder of such
ISO.
9.
|
ACCEPTANCE OF STOCK
GRANT AND ISSUE OF SHARES
.
|
A Stock Grant (or any part or
installment thereof) shall be accepted by executing the Stock Grant Agreement
and delivering it to the Company or its designee, together with provision for
payment of the full purchase price, if any, in accordance with this Paragraph
for the Shares as to which such Stock Grant is being accepted, and upon
compliance with any other conditions set forth in the Stock Grant
Agreement. Payment of the purchase price for the Shares as to which
such Stock Grant is being accepted shall be made (a) in United States dollars in
cash or by check, or (b) at the discretion of the Administrator, through
delivery of shares of Common Stock held for at least six months and having a
Fair Market Value equal as of the date of acceptance of the Stock Grant to the
purchase price of the Stock Grant, or (c) at the discretion of the
Administrator, by delivery of the grantee’s personal note, for full or partial
recourse as determined by the Administrator, bearing interest payable not less
than annually at no less than 100% of the applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by
any combination of (a), (b) and (c) above.
The Company shall then reasonably
promptly deliver the Shares as to which such Stock Grant was accepted to the
Participant (or to the Participant’s Survivors, as the case may be), subject to
any escrow provision set forth in the Stock Grant Agreement. In
determining what constitutes “reasonably promptly,” it is expressly understood
that the issuance and delivery of the Shares may be delayed by the Company in
order to comply with any law or regulation (including, without limitation, state
securities or “blue sky” laws) which requires the Company to take any action
with respect to the Shares prior to their issuance.
The Administrator may, in its
discretion, amend any term or condition of an outstanding Stock Grant or Stock
Grant Agreement provided (i) such term or condition as amended is permitted by
the Plan, and (ii) any such amendment shall be made only with the consent of the
Participant to whom the Stock Grant was made, if the amendment is adverse to the
Participant.
10.
|
RIGHTS AS A
SHAREHOLDER
.
|
No Participant to whom a Stock Right
has been granted shall have rights as a shareholder with respect to any Shares
covered by such Stock Right, except after due exercise of the Option or
acceptance of the Stock Grant and tender of the full purchase price, if any, for
the Shares being purchased pursuant to such exercise or acceptance and
registration of the Shares in the Company’s share register in the name of the
Participant.
11.
|
ASSIGNABILITY AND
TRANSFERABILITY OF STOCK
RIGHTS
.
|
By its terms, a Stock Right granted to
a Participant shall not be transferable by the Participant other than (i) by
will or by the laws of descent and distribution, or (ii) as approved by the
Administrator in its discretion and set forth in the applicable Option Agreement
or Stock Grant Agreement. Notwithstanding the foregoing, an ISO
transferred except in compliance with clause (i) above shall no longer qualify
as an ISO. The designation of a beneficiary of a Stock Right by a
Participant, with the prior approval of the Administrator and in such form as
the Administrator shall prescribe, shall not be deemed a transfer prohibited by
this Paragraph. Except as provided above, a Stock Right shall only be
exercisable or may only be accepted, during the Participant’s lifetime, only by
such Participant (or by his or her legal representative) and shall not be
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar
process. Any attempted transfer, assignment, pledge, hypothecation or
other disposition of any Stock Right or of any rights granted thereunder
contrary to the provisions of this Plan, or the levy of any attachment or
similar process upon a Stock Right, shall be null and void.
12.
|
EFFECT ON OPTIONS OF
TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR
DISABILITY
.
|
Except as otherwise provided in a
Participant’s Option Agreement, in the event of a termination of service
(whether as an employee, director or consultant) with the Company or an
Affiliate before the Participant has exercised an Option, the following rules
apply:
|
a.
|
A
Participant who ceases to be an employee, director or consultant of the
Company or of an Affiliate (for any reason other than termination “for
cause”, Disability, or death for which events there are special rules in
Paragraphs 13, 14, and 15, respectively) may exercise any Option granted
to him or her to the extent that the Option is exercisable on the date of
such termination of service, but only within such term as the
Administrator has designated in a Participant’s Option
Agreement.
|
|
b.
|
Except
as provided in Subparagraph (c) below, or Paragraph 14 or 15, in no event
may an Option intended to be an ISO, be exercised later than three months
after the Participant’s termination of
employment.
|
|
c.
|
The
provisions of this Paragraph, and not the provisions of Paragraph 14 or
15, shall apply to a Participant who subsequently becomes Disabled or dies
after the termination of employment, director status or consultancy,
provided, however, in the case of a Participant’s Disability or death
within three months after the termination of employment, director status
or consultancy, the Participant or the Participant’s Survivors may
exercise the Option within one year after the date of the Participant’s
termination of service, but in no event after the date of expiration of
the term of the Option.
|
|
d.
|
Notwithstanding
anything herein to the contrary, if subsequent to a Participant’s
termination of employment, termination of director status or termination
of consultancy, but prior to the exercise of an Option, the Board of
Directors determines that, either prior or subsequent to the Participant’s
termination, the Participant engaged in conduct which would constitute
“cause”, then such Participant shall forthwith cease to have any right to
exercise any Option.
|
|
e.
|
A
Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such absence,
be deemed, by virtue of such absence alone, to have terminated such
Participant’s employment, director status or consultancy with the Company
or with an Affiliate, except as the Administrator may otherwise expressly
provide.
|
|
f.
|
Except
as required by law or as set forth in a Participant’s Option Agreement,
Options granted under the Plan shall not be affected by any change of a
Participant’s status within or among the Company and any Affiliates, so
long as the Participant continues to be an employee, director or
consultant of the Company or any
Affiliate.
|
13.
|
EFFECT ON OPTIONS OF
TERMINATION OF SERVICE “FOR
CAUSE”
.
|
Except as otherwise provided in a
Participant’s Option Agreement, the following rules apply if the Participant’s
service (whether as an employee, director or consultant) with the Company or an
Affiliate is terminated “for cause” prior to the time that all his or her
outstanding Options have been exercised:
|
a.
|
All
outstanding and unexercised Options as of the time the Participant is
notified his or her service is terminated “for cause” will immediately be
forfeited.
|
|
b.
|
For
purposes of this Plan, “cause” shall include (and is not limited to)
dishonesty with respect to the Company or any Affiliate, insubordination,
substantial malfeasance or non-feasance of duty, unauthorized disclosure
of confidential information, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or
similar agreement between the Participant and the Company, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of “cause” will be conclusive on the Participant and the
Company.
|
|
c.
|
“Cause”
is not limited to events which have occurred prior to a Participant’s
termination of service, nor is it necessary that the Administrator’s
finding of “cause” occur prior to termination. If the
Administrator determines, subsequent to a Participant’s termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant’s termination the Participant engaged in
conduct which would constitute “cause”, then the right to exercise any
Option is forfeited.
|
|
d.
|
Any
definition in an agreement between the Participant and the Company or an
Affiliate, which contains a conflicting definition of “cause” for
termination and which is in effect at the time of such termination, shall
supersede the definition in this Plan with respect to that
Participant.
|
14.
|
EFFECT ON OPTIONS OF
TERMINATION OF SERVICE FOR
DISABILITY
.
|
Except as otherwise provided in a
Participant’s Option Agreement, a Participant who ceases to be an employee,
director or consultant of the Company or of an Affiliate by reason of Disability
may exercise any Option granted to such Participant:
|
a.
|
To
the extent that the Option has become exercisable but has not been
exercised on the date of Disability;
and
|
|
b.
|
In
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of Disability of any additional
vesting rights that would have accrued on the next vesting date had the
Participant not become Disabled. The proration shall be based
upon the number of days accrued in the current vesting period prior to the
date of Disability.
|
A Disabled Participant may exercise
such rights only within the period ending one year after the date of the
Participant’s termination of employment, directorship or consultancy, as the
case may be, notwithstanding that the Participant might have been able to
exercise the Option as to some or all of the Shares on a later date if the
Participant had not become Disabled and had continued to be an employee,
director or consultant or, if earlier, within the originally prescribed term of
the Option.
The Administrator shall make the
determination both of whether Disability has occurred and the date of its
occurrence (unless a procedure for such determination is set forth in another
agreement between the Company and such Participant, in which case such procedure
shall be used for such determination). If requested, the Participant
shall be examined by a physician selected or approved by the Administrator, the
cost of which examination shall be paid for by the Company.
15.
|
EFFECT ON OPTIONS OF
DEATH WHILE AN EMPLOYEE, DIRECTOR OR
CONSULTANT
.
|
Except as otherwise provided in a
Participant’s Option Agreement, in the event of the death of a Participant while
the Participant is an employee, director or consultant of the Company or of an
Affiliate, such Option may be exercised by the Participant’s
Survivors:
|
a.
|
To
the extent that the Option has become exercisable but has not been
exercised on the date of death; and
|
|
b.
|
In
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of death of any additional vesting
rights that would have accrued on the next vesting date had the
Participant not died. The proration shall be based upon the
number of days accrued in the current vesting period prior to the
Participant’s date of death.
|
If the Participant’s Survivors wish to
exercise the Option, they must take all necessary steps to exercise the Option
within one year after the date of death of such Participant, notwithstanding
that the decedent might have been able to exercise the Option as to some or all
of the Shares on a later date if he or she had not died and had continued to be
an employee, director or consultant or, if earlier, within the originally
prescribed term of the Option.
16.
|
EFFECT OF TERMINATION
OF SERVICE ON STOCK GRANTS
.
|
In the event of a termination of
service (whether as an employee, director or consultant) with the Company or an
Affiliate for any reason before the Participant has accepted a Stock Grant, such
offer shall terminate.
For purposes of this Paragraph 16 and
Paragraph 17 below, a Participant to whom a Stock Grant has been offered and
accepted under the Plan who is absent from work with the Company or with an
Affiliate because of temporary disability (any disability other than a permanent
and total Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such absence, be
deemed, by virtue of such absence alone, to have terminated such Participant’s
employment, director status or consultancy with the Company or with an
Affiliate, except as the Administrator may otherwise expressly
provide.
In addition, for purposes of this
Paragraph 16 and Paragraph 17 below, any change of employment or other service
within or among the Company and any Affiliates shall not be treated as a
termination of employment, director status or consultancy so long as the
Participant continues to be an employee, director or consultant of the Company
or any Affiliate.
17.
|
EFFECT ON STOCK GRANTS
OF TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR
DISABILITY
.
|
Except as otherwise provided in a
Participant’s Stock Grant Agreement, in the event of a termination of service
(whether as an employee, director or consultant), other than termination “for
cause,” Disability, or death for which events there are special rules in
Paragraphs 18, 19, and 20, respectively, before all Company rights of repurchase
shall have lapsed, then the Company shall have the right to repurchase that
number of Shares subject to a Stock Grant as to which the Company’s repurchase
rights have not lapsed.
18.
|
EFFECT ON STOCK GRANTS
OF TERMINATION OF SERVICE “FOR
CAUSE”
.
|
Except as otherwise provided in a
Participant’s Stock Grant Agreement, the following rules apply if the
Participant’s service (whether as an employee, director or consultant) with the
Company or an Affiliate is terminated “for cause”:
|
a.
|
All
Shares subject to any Stock Grant shall be immediately subject to
repurchase by the Company at $.01, if any,
thereof.
|
|
b.
|
For
purposes of this Plan, “cause” shall include (and is not limited to)
dishonesty with respect to the employer, insubordination, substantial
malfeasance or non-feasance of duty, unauthorized disclosure of
confidential information, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or
similar agreement between the Participant and the Company, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the
existence of “cause” will be conclusive on the Participant and the
Company.
|
|
c.
|
“Cause”
is not limited to events which have occurred prior to a Participant’s
termination of service, nor is it necessary that the Administrator’s
finding of “cause” occur prior to termination. If the
Administrator determines, subsequent to a Participant’s termination of
service, that either prior or subsequent to the Participant’s termination
the Participant engaged in conduct which would constitute “cause,” then
the Company’s right to repurchase all of such Participant’s Shares shall
apply.
|
|
d.
|
Any
definition in an agreement between the Participant and the Company or an
Affiliate, which contains a conflicting definition of “cause” for
termination and which is in effect at the time of such termination, shall
supersede the definition in this Plan with respect to that
Participant.
|
19.
|
EFFECT ON STOCK GRANTS
OF TERMINATION OF SERVICE FOR
DISABILITY
.
|
Except as otherwise provided in a
Participant’s Stock Grant Agreement, the following rules apply if a Participant
ceases to be an employee, director or consultant of the Company or of an
Affiliate by reason of Disability: to the extent the Company’s rights
of repurchase have not lapsed on the date of Disability, they shall be
exercisable; provided, however, that in the event such rights of repurchase
lapse periodically, such rights shall lapse to the extent of a pro rata portion
of the Shares subject to such Stock Grant through the date of Disability as
would have lapsed had the Participant not become Disabled. The
proration shall be based upon the number of days accrued prior to the date of
Disability.
The Administrator shall make the
determination both of whether Disability has occurred and the date of its
occurrence (unless a procedure for such determination is set forth in another
agreement between the Company and such Participant, in which case such procedure
shall be used for such determination). If requested, the Participant
shall be examined by a physician selected or approved by the Administrator, the
cost of which examination shall be paid for by the Company.
20.
|
EFFECT ON STOCK GRANTS
OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR
CONSULTANT
.
|
Except as otherwise provided in a
Participant’s Stock Grant Agreement, the following rules apply in the event of
the death of a Participant while the Participant is an employee, director or
consultant of the Company or of an Affiliate: to the extent the
Company’s rights of repurchase have not lapsed on the date of death, they shall
be exercisable; provided, however, that in the event such rights of repurchase
lapse periodically, such rights shall lapse to the extent of a pro rata portion
of the Shares subject to such Stock Grant through the date of death as would
have lapsed had the Participant not died. The proration shall be
based upon the number of days accrued prior to the Participant’s
death.
21.
|
PURCHASE FOR
INVESTMENT
.
|
Unless the offering and sale of the
Shares to be issued upon the particular exercise or acceptance of a Stock Right
shall have been effectively registered under the Securities Act of 1933, as now
in force or hereafter amended (the “1933 Act”), the Company shall be under no
obligation to issue the Shares covered by such exercise unless and until the
following conditions have been fulfilled:
|
a.
|
The
person(s) who exercise(s) or accept(s) such Stock Right shall warrant to
the Company, prior to the receipt of such Shares, that such person(s) are
acquiring such Shares for their own respective accounts, for investment,
and not with a view to, or for sale in connection with, the distribution
of any such Shares, in which event the person(s) acquiring such Shares
shall be bound by the provisions of the following legend which shall be
endorsed upon the certificate(s) evidencing their Shares issued pursuant
to such exercise or such grant:
|
|
“The
shares represented by this certificate have been taken for investment and
they may not be sold or otherwise transferred by any person, including a
pledgee, unless (1) either (a) a Registration Statement with respect to
such shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of counsel
satisfactory to it that an exemption from registration under such Act is
then available, and (2) there shall have been compliance with all
applicable state securities laws.”
|
|
b.
|
At
the discretion of the Administrator, the Company shall have received an
opinion of its counsel that the Shares may be issued upon such particular
exercise or acceptance in compliance with the 1933 Act without
registration thereunder.
|
22.
|
DISSOLUTION OR
LIQUIDATION OF THE COMPANY
.
|
Upon the dissolution or liquidation of
the Company, all Options granted under this Plan which as of such date shall not
have been exercised and all Stock Grants which have not been accepted will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant’s Survivors have not otherwise terminated and
expired, the Participant or the Participant’s Survivors will have the right
immediately prior to such dissolution or liquidation to exercise or accept any
Stock Right to the extent that the Stock Right is exercisable or subject to
acceptance as of the date immediately prior to such dissolution or
liquidation.
Upon the occurrence of any of the
following events, a Participant’s rights with respect to any Stock Right granted
to him or her hereunder shall be adjusted as hereinafter provided, unless
otherwise specifically provided in a Participant’s Option Agreement or Stock
Grant Agreement:
A.
Stock Dividends and Stock
Splits
. If (i) the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different
shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock, the number of shares of
Common Stock deliverable upon the exercise or acceptance of such Stock Right may
be appropriately increased or decreased proportionately, and appropriate
adjustments may be made including, in the purchase price per share, to reflect
such events.
B.
Corporate
Transactions
. If the Company is to be consolidated with or
acquired by another entity in a merger, sale of all or substantially all of the
Company’s assets other than a transaction to merely change the state of
incorporation (a “Corporate Transaction”), the Administrator or the board of
directors of any entity assuming the obligations of the Company hereunder (the
“Successor Board”), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Corporate Transaction or securities of any successor or
acquiring entity; or (ii) upon written notice to the Participants, provide that
all Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, or, upon a change of control of the Company,
all Options being made fully exercisable for purposes of this Subparagraph),
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the Fair Market Value of the
Shares subject to such Options (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph) over the exercise price thereof.
Notwithstanding
the foregoing, in the event the Corporate Transaction also constitutes a Change
of Control, then all Options outstanding on the date of the Corporate
Transaction shall accelerate and automatically be vested and
exercisable.
With respect to outstanding Stock
Grants, the Administrator or the Successor Board, shall either (i) make
appropriate provisions for the continuation of such Stock Grants by substituting
on an equitable basis for the Shares then subject to such Stock Grants either
the consideration payable with respect to the outstanding Shares of Common Stock
in connection with the Corporate Transaction or securities of any successor or
acquiring entity; or (ii) upon written notice to the Participants, provide that
all Stock Grants must be accepted (to the extent then subject to acceptance)
within a specified number of days of the date of such notice, at the end of
which period the offer of the Stock Grants shall terminate; or (iii) terminate
all Stock Grants in exchange for a cash payment equal to the excess of the Fair
Market Value of the Shares subject to such Stock Grants over the purchase price
thereof, if any. In addition, in the event of a Corporate
Transaction, the Administrator may waive any or all Company repurchase rights
with respect to outstanding Stock Grants.
C.
Recapitalization or
Reorganization
. In the event of a recapitalization or
reorganization of the Company other than a Corporate Transaction pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, a Participant upon exercising
or accepting a Stock Right after the recapitalization or reorganization shall be
entitled to receive for the purchase price paid upon such exercise or acceptance
the number of replacement securities which would have been received if such
Stock Right had been exercised or accepted prior to such recapitalization or
reorganization.
D.
Modification of
ISOs
. Notwithstanding the foregoing, any adjustments made
pursuant to Subparagraph A, B or C above with respect to ISOs shall be made only
after the Administrator determines whether such adjustments would constitute a
“modification” of such ISOs (as that term is defined in Section 424(h) of
the Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Administrator determines that such adjustments made with
respect to ISOs would constitute a modification of such ISOs, it may refrain
from making such adjustments, unless the holder of an ISO specifically requests
in writing that such adjustment be made and such writing indicates that the
holder has full knowledge of the consequences of such “modification” on his or
her income tax treatment with respect to the ISO.
24.
|
ISSUANCES OF
SECURITIES
.
|
Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Stock Rights. Except as expressly provided herein, no
adjustments shall be made for dividends paid in cash or in property (including
without limitation, securities) of the Company prior to any issuance of Shares
pursuant to a Stock Right.
No fractional shares shall be issued
under the Plan and the person exercising a Stock Right shall receive from the
Company cash in lieu of such fractional shares equal to the Fair Market Value
thereof.
26.
|
CONVERSION OF ISOs
INTO NON-QUALIFIED OPTIONS; TERMINATION OF
ISOs
.
|
The Administrator, at the written
request of any Participant, may in its discretion take such actions as may be
necessary to convert such Participant’s ISOs (or any portions thereof) that have
not been exercised on the date of conversion into Non-Qualified Options at any
time prior to the expiration of such ISOs, regardless of whether the Participant
is an employee of the Company or an Affiliate at the time of such
conversion. At the time of such conversion, the Administrator (with
the consent of the Participant) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the Administrator in its discretion may
determine, provided that such conditions shall not be inconsistent with this
Plan. Nothing in the Plan shall be deemed to give any Participant the
right to have such Participant’s ISOs converted into Non-Qualified Options, and
no such conversion shall occur until and unless the Administrator takes
appropriate action. The Administrator, with the consent of the
Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
In the event that any federal, state,
or local income taxes, employment taxes, Federal Insurance Contributions Act
(“F.I.C.A.”) withholdings or other amounts are required by applicable law or
governmental regulation to be withheld from the Participant’s salary, wages or
other remuneration in connection with the exercise or acceptance of a Stock
Right or in connection with a Disqualifying Disposition (as defined in Paragraph
28) or upon the lapsing of any right of repurchase, the Company may withhold
from the Participant’s compensation, if any, or may require that the Participant
advance in cash to the Company, or to any Affiliate of the Company which employs
or employed the Participant, the statutory minimum amount of such withholdings
unless a different withholding arrangement, including the use of shares of the
Company’s Common Stock or a promissory note, is authorized by the Administrator
(and permitted by law). For purposes hereof, the fair market value of
the shares withheld for purposes of payroll withholding shall be determined in
the manner provided in Paragraph 1 above, as of the most recent practicable date
prior to the date of exercise. If the fair market value of the shares
withheld is less than the amount of payroll withholdings required, the
Participant may be required to advance the difference in cash to the Company or
the Affiliate employer. The Administrator in its discretion may
condition the exercise of an Option for less than the then Fair Market Value on
the Participant’s payment of such additional withholding.
28.
|
NOTICE TO COMPANY OF
DISQUALIFYING DISPOSITION
.
|
Each Employee who receives an ISO must
agree to notify the Company in writing immediately after the Employee makes a
Disqualifying Disposition of any shares acquired pursuant to the exercise of an
ISO. A Disqualifying Disposition is defined in Section 424(c) of the
Code and includes any disposition (including any sale or gift) of such shares
before the later of (a) two years after the date the Employee was granted the
ISO, or (b) one year after the date the Employee acquired Shares by exercising
the ISO, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before such stock is sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
29.
|
TERMINATION OF THE
PLAN
.
|
The Plan will terminate on the date
which is ten years from the
earlier
of the date
of its adoption by the Board of Directors and the date of its approval by the
shareholders. The Plan may be terminated at an earlier date by vote
of the shareholders or the Board of Directors of the Company; provided, however,
that any such earlier termination shall not affect any Option Agreements or
Stock Grant Agreements executed prior to the effective date of such
termination.
30.
|
AMENDMENT OF THE PLAN
AND AGREEMENTS
.
|
The Plan may be amended by the
shareholders of the Company. The Plan may also be amended by the
Administrator, including, without limitation, to the extent necessary to qualify
any or all outstanding Stock Rights granted under the Plan or Stock Rights to be
granted under the Plan for favorable federal income tax treatment (including
deferral of taxation upon exercise) as may be afforded incentive stock options
under Section 422 of the Code, and to the extent necessary to qualify the shares
issuable upon exercise or acceptance of any outstanding Stock Rights granted, or
Stock Rights to be granted, under the Plan for listing on any national
securities exchange or quotation in any national automated quotation system of
securities dealers. Any amendment approved by the Administrator which
the Administrator determines is of a scope that requires shareholder approval
shall be subject to obtaining such shareholder approval. Any
modification or amendment of the Plan shall not, without the consent of a
Participant, adversely affect his or her rights under a Stock Right previously
granted to him or her. With the consent of the Participant affected,
the Administrator may amend outstanding Option Agreements and Stock Grant
Agreements in a manner which may be adverse to the Participant but which is not
inconsistent with the Plan. In the discretion of the Administrator,
outstanding Option Agreements and Stock Grant Agreements may be amended by the
Administrator in a manner which is not adverse to the Participant.
31.
|
EMPLOYMENT OR OTHER
RELATIONSHIP
.
|
Nothing in this Plan or any Option
Agreement or Stock Grant Agreement shall be deemed to prevent the Company or an
Affiliate from terminating the employment, consultancy or director status of a
Participant, nor to prevent a Participant from terminating his or her own
employment, consultancy or director status or to give any Participant a right to
be retained in employment or other service by the Company or any Affiliate for
any period of time.
This Plan shall be construed and
enforced in accordance with the law of The State of Delaware.
INVIVO
THERAPEUTICS HOLDINGS CORP.
2010
EQUITY INCENTIVE PLAN
1.
|
Purposes of the
Plan
. The purposes of this Plan
are:
|
|
·
|
to
attract and retain the best available personnel for positions of
substantial responsibility,
|
|
·
|
to
provide incentives to individuals who perform services for the Company,
and
|
|
·
|
to
promote the success of the Company’s
business.
|
The Plan
permits the grant of Incentive Stock Options, Nonstatutory Stock Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Units, Performance Shares and other stock or cash awards as the Administrator
may determine.
2.
|
Definitions
. As
used herein, the following definitions will
apply:
|
(a) “
Administrator
” means
the Board or any of its Committees as will be administering the Plan, in
accordance with Section 4 hereof.
(b) “
Affiliate
” means any
corporation or any other entity (including, but not limited to, partnerships and
joint ventures) controlling, controlled by, or under common control with the
Company.
(c) “
Applicable Laws
”
means the requirements relating to the administration of equity-based awards
under U.S. federal and state corporate laws, U.S. federal and state securities
laws, the Code, any stock exchange or quotation system on which the Common Stock
is listed or quoted and the applicable laws of any foreign country or
jurisdiction where Awards are, or will be, granted under the Plan.
(d) “
Award
” means,
individually or collectively, a grant under the Plan of Options, Stock
Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance
Units, Performance Shares and other stock or cash awards as the Administrator
may determine.
(e) “
Award Agreement
”
means the written or electronic agreement setting forth the terms and provisions
applicable to each Award granted under the Plan. The Award Agreement
is subject to the terms and conditions of the Plan.
(f) “
Board
” means the
Board of Directors of the Company.
(g) “
Change in Control
”
means the occurrence of any of the following events:
|
(i)
|
A
change in the ownership of the Company
which occurs on
the date that any one person, or more than one person acting as a group
(“
Person
”),
acquires ownership of stock in the Company that, together with the stock
already held by such Person, constitutes more than 50% of the total voting
power of the stock of the Company; provided, however, that for purposes of
this subsection (i), the acquisition of additional stock by any Person who
is considered to own more than 50% of the total voting power of the stock
of the Company before the acquisition will not be considered a Change in
Control; or
|
|
(ii)
|
A
change in the effective control of the Company, which occurs on the date
that a majority of the members of the Board are replaced during any twelve
(12) month period by Directors whose appointment or election is not
endorsed by a majority of the members of the Board prior to the date of
the appointment or election. For purposes of this
subsection (ii), if any Person is considered to effectively control
the Company, the acquisition of additional control of the Company by the
same Person will not be considered a Change in Control;
or
|
|
(iii)
|
A
change in the ownership of a substantial portion of the Company’s assets,
which occurs on the date that any Person acquires (or has acquired during
the twelve (12) month period ending on the date of the most recent
acquisition by such Person) assets from the Company that have a total
gross fair market value equal to or more than 50% of the total gross fair
market value of all of the assets of the Company immediately prior to such
acquisition or acquisitions; provided, however, that for purposes of this
subsection (iii), the following will not constitute a change in the
ownership of a substantial portion of the Company’s assets or a Change in
Control: (A) a transfer to an entity that is controlled by the Company’s
stockholders immediately after the transfer, or (B) a transfer of assets
by the Company to: (1) a stockholder of the Company (immediately before
the asset transfer) in exchange for or with respect to the Company’s
stock, (2) an entity, 50% or more of the total value or voting power of
which is owned, directly or indirectly, by the Company, (3) a Person that
owns, directly or indirectly, 50% or more of the total value or voting
power of all the outstanding stock of the Company, or (4) an entity, at
least 50% of the total equity or voting power of which is owned, directly
or indirectly, by a Person described in subsection (iii)(B)(3)
above. For purposes of this subsection (iii), gross fair market
value means the value of the assets of the Company, or the value of the
assets being disposed of, determined without regard to any liabilities
associated with such assets.
|
Notwithstanding
the foregoing, as to any Award under the Plan that consists of deferred
compensation subject to Section 409A of the Code, the definition of “Change in
Control” shall be deemed modified to the extent necessary to comply with Section
409A of the Code.
For
purposes of this Section 2(g), persons will be considered to be acting as a
group if they are owners of a corporation or other entity that enters into a
merger, consolidation, purchase or acquisition of stock, or similar business
transaction with the Company.
(h) “
Code
” means the
Internal Revenue Code of 1986, as amended. Any reference to a section
of the Code herein will be a reference to any successor or amended section of
the Code.
(i)
“
Committee
” means a
committee of Directors or of other individuals satisfying Applicable Laws
appointed by the Board in accordance with Section 4 hereof.
(j)
“
Common Stock
” means
the common stock, par value $0.00001 per share, of the Company.
(k) “
Company
” means InVivo
Therapeutics Holdings Corp., a Nevada corporation, or any successor
thereto.
(l)
“
Consultant
” means any
person, including an advisor, engaged by the Company or a Parent, Subsidiary or
Affiliate to render services to such entity.
(m) “
Determination Date
”
means the latest possible date that will not jeopardize the qualification of an
Award granted under the Plan as “performance-based compensation” under Section
162(m) of the Code.
(n) “
Director
” means a
member of the Board.
(o) “
Disability
” means
permanent and total disability as defined in Section 22(e)(3) of the Code,
provided that in the case of Awards other than Incentive Stock Options, the
Administrator in its discretion may determine whether a permanent and total
disability exists in accordance with uniform and non-discriminatory standards
adopted by the Administrator from time to time.
(p) “
Employee
” means any
person, including Officers and Directors, employed by the Company or any Parent,
Subsidiary or Affiliate of the Company. Neither service as a Director
nor payment of a director’s fee by the Company will be sufficient to constitute
“employment” by the Company.
(q) “
Exchange Act
” means
the Securities Exchange Act of 1934, as amended.
(r) “
Exchange Program
”
means a program under which (i) outstanding Awards are surrendered or cancelled
in exchange for Awards of the same type (which may have lower exercise prices
and different terms), Awards of a different type, and/or cash, (ii) Participants
would have the opportunity to transfer any outstanding Awards to a financial
institution or other person or entity selected by the Administrator, and/or
(iii) the exercise price of an outstanding Award is reduced. The
Administrator will determine the terms and conditions of any Exchange Program in
its sole discretion.
(s) “
Fair Market Value
”
means, as of any date, the value of the Common Stock as the Administrator may
determine in good faith, by reference to the closing price of such stock on any
established stock exchange or on a national market system on the day of
determination, if the Common Stock is so listed on any established stock
exchange or on a national market system. If the Common Stock is not
listed on any established stock exchange or on a national market system, the
value of the Common Stock will be determined as the Administrator may determine
in good faith.
(t) “
Fiscal Year
” means
the fiscal year of the Company.
(u) “
Incentive Stock
Option
” means an Option that by its terms qualifies and is otherwise
intended to qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated
thereunder.
(v) “
Nonstatutory Stock
Option
” means an Option that by its terms does not qualify or is not
intended to qualify as an Incentive Stock Option.
(w) “
Officer
” means a
person who is an officer of the Company within the meaning of Section 16 of
the Exchange Act and the rules and regulations promulgated
thereunder.
(x) “
Option
” means a stock
option granted pursuant to Section 6 hereof.
(y) “
Parent
” means a
“parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.
(z) “
Participant
” means
the holder of an outstanding Award.
(aa) “
Performance Goals
”
will have the meaning set forth in Section 11 hereof.
(bb) “
Performance Period
”
means any Fiscal Year of the Company or such other period as determined by the
Administrator in its sole discretion.
(cc) “
Performance Share
”
means an Award denominated in Shares which may be earned in whole or in part
upon attainment of Performance Goals or other vesting criteria as the
Administrator may determine pursuant to Section 10 hereof.
(dd) “
Performance Unit
”
means an Award which may be earned in whole or in part upon attainment of
Performance Goals or other vesting criteria as the Administrator may determine
and which may be settled for cash, Shares or other securities or a combination
of the foregoing pursuant to Section 10 hereof.
(ee) “
Period of
Restriction
” means the period during which transfers of Shares of
Restricted Stock are subject to restrictions and, therefore, the Shares are
subject to a substantial risk of forfeiture. Such restrictions may be
based on the passage of time, the achievement of target levels of performance,
or the occurrence of other events as determined by the
Administrator.
(ff) “
Plan
” means this 2010
Equity Incentive Plan.
(gg) “
Restricted Stock
”
means Shares issued pursuant to an Award of Restricted Stock under
Section 8 hereof, or issued pursuant to the early exercise of an
Option.
(hh) “
Restricted Stock
Unit
” means a bookkeeping entry representing an amount equal to the Fair
Market Value of one Share, granted pursuant to Section 9
hereof. Each Restricted Stock Unit represents an unfunded and
unsecured obligation of the Company.
(ii) “
Rule 16b-3
” means
Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when
discretion is being exercised with respect to the Plan.
(jj) “
Section 16(b)
”
means Section 16(b) of the Exchange Act.
(kk) “
Service Provider
”
means an Employee, Director, or Consultant.
(ll) “
Share
” means a share
of the Common Stock, as adjusted in accordance with Section 14
hereof.
(mm) “
Stock Appreciation
Right
” means an Award, granted alone or in connection with an Option,
that pursuant to Section 7 is designated as a Stock Appreciation
Right.
(nn) “
Subsidiary
” means a
“subsidiary corporation,” whether now or hereafter existing, as defined in
Section 424(f) of the Code.
3.
|
Stock Subject to the Plan
.
|
(a) Subject
to the provisions of Section 14 hereof, the maximum aggregate number of
Shares that may be awarded and sold under the Plan is 3,500,000 Shares. The
Shares may be authorized, but unissued, or reacquired Common Stock.
(b)
Lapsed
Awards
. If an Award expires or becomes unexercisable without
having been exercised in full, or, with respect to Restricted Stock, Restricted
Stock Units, Performance Shares or Performance Units, is forfeited to or
repurchased by the Company, the unpurchased Shares (or for Awards other than
Options and Stock Appreciation Rights, the forfeited or repurchased Shares)
which were subject thereto will become available for future grant or sale under
the Plan (unless the Plan has terminated). Upon exercise of a Stock
Appreciation Right settled in Shares, the gross number of Shares covered by the
portion of the Award so exercised will cease to be available under the
Plan. Shares that have actually been issued under the Plan under any
Award will not be returned to the Plan and will not become available for future
distribution under the Plan; provided, however, that if unvested Shares of
Restricted Stock, Restricted Stock Units, Performance Shares or Performance
Units are repurchased by the Company or are forfeited to the Company, such
Shares will become available for future grant under the Plan. Shares
used to pay the tax and/or exercise price of an Award will become available for
future grant or sale under the Plan. To the extent an Award under the
Plan is paid out in cash rather than Shares, such cash payment will not result
in reducing the number of Shares available for issuance under the
Plan. Notwithstanding the foregoing provisions of this Section 3(b),
subject to adjustment provided in Section 14 hereof, the maximum number of
Shares that may be issued upon the exercise of Incentive Stock Options will
equal the aggregate Share number stated in Section 3(a) above, plus, to the
extent allowable under Section 422 of the Code, any Shares that become
available for issuance under the Plan under this Section 3(b).
(c)
Share
Reserve
. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as will be sufficient
to satisfy the requirements of the Plan.
4.
|
Administration of the
Plan
.
|
(a)
Procedure
.
|
(i)
|
Multiple
Administrative Bodies
. Different Committees with respect
to different groups of Service Providers may administer the
Plan.
|
|
(ii)
|
Section 162(m)
. To
the extent that the Administrator determines it to be desirable to qualify
Awards granted hereunder as “performance-based compensation” within the
meaning of Section 162(m) of the Code, the Plan will be administered
by a Committee of two (2) or more “outside directors” within the meaning
of Section 162(m) of the Code.
|
|
(iii)
|
Rule
16b-3
. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder will be structured to satisfy the requirements for exemption
under Rule 16b-3.
|
|
(iv)
|
Other
Administration
. Other than as provided above, the Plan
will be administered by (A) the Board or (B) a Committee, which
committee will be constituted to satisfy Applicable
Laws.
|
(b)
Powers of the
Administrator
. Subject to the provisions of the Plan, and in
the case of a Committee, subject to the specific duties delegated by the Board
to such Committee, the Administrator will have the authority, in its
discretion:
|
(i)
|
to
determine the Fair Market Value;
|
|
(ii)
|
to
select the Service Providers to whom Awards may be granted
hereunder;
|
|
(iii)
|
to
determine the terms and condition, not inconsistent with the terms of the
Plan, of any Award granted
hereunder;
|
|
(iv)
|
to
institute an Exchange Program and to determine the terms and conditions,
not inconsistent with the terms of the Plan, for (1) the surrender or
cancellation of outstanding Awards in exchange for Awards of the same
type, Awards of a different type, and/or cash, (2) the transfer of
outstanding Awards to a financial institution or other person or entity,
or (3) the reduction of the exercise price of outstanding
Awards;
|
|
(v)
|
to
construe and interpret the terms of the Plan and Awards granted pursuant
to the Plan;
|
|
(vi)
|
to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for the
purpose of satisfying applicable foreign
laws;
|
|
(vii)
|
to
modify or amend each Award (subject to Section 19(c)
hereof);
|
|
(viii)
|
to
authorize any person to execute on behalf of the Company any instrument
required to effect the grant of an Award previously granted by the
Administrator;
|
|
(ix)
|
to
allow a Participant to defer the receipt of the payment of cash or the
delivery of Shares that would otherwise be due to such Participant under
an Award pursuant to such procedures as the Administrator may determine;
and
|
|
(x)
|
to
make all other determinations deemed necessary or advisable for
administering the Plan.
|
(c)
Effect of
Administrator’s Decision
. The Administrator’s decisions,
determinations, and interpretations will be final and binding on all
Participants and any other holders of Awards.
5.
Eligibility
. Nonstatutory
Stock Options, Restricted Stock, Restricted Stock Units, Stock Appreciation
Rights, Performance Units, Performance Shares, and such other cash or stock
awards as the Administrator determines may be granted to Service
Providers. Incentive Stock Options may be granted only to
Employees.
6.
Stock Options
.
(a)
Limitations
.
|
(i)
|
Each
Option will be designated in the Award Agreement as either an Incentive
Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Participant during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000 (U.S.), such Options will be treated as Nonstatutory Stock
Options. For purposes of this Section 6(a), Incentive
Stock Options will be taken into account in the order in which they were
granted. The Fair Market Value of the Shares will be determined
as of the time the Option with respect to such Shares is
granted.
|
|
(ii)
|
The
Administrator will have complete discretion to determine the number of
Shares subject to an Option granted to any
Participant.
|
(b)
Term of
Option
. The Administrator will determine the term of each
Option in its sole discretion; provided, however, that the term will be no more
than ten (10) years from the date of grant thereof. Moreover, in the
case of an Incentive Stock Option granted to a Participant who, at the time the
Incentive Stock Option is granted, owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Incentive Stock Option will be five (5) years
from the date of grant or such shorter term as may be provided in the Award
Agreement.
(c)
Option Exercise Price and
Consideration
.
|
(i)
|
Exercise
Price
. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option will be determined by the
Administrator, but will be no less than 100% of the Fair Market Value per
Share on the date of grant. In addition, in the case of an
Incentive Stock Option granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than 10%
of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price will be no less than 110% of
the Fair Market Value per Share on the date of
grant. Notwithstanding the foregoing provisions of this Section
6(c), Options may be granted with a per Share exercise price of less than
100% of the Fair Market Value per Share on the date of grant pursuant to a
transaction described in, and in a manner consistent with,
Section 424(a) of the Code.
|
|
(ii)
|
Waiting Period and
Exercise Dates
. At the time an Option is granted, the
Administrator will fix the period within which the Option may be exercised
and will determine any conditions that must be satisfied before the Option
may be exercised.
|
|
(iii)
|
Form of
Consideration
. The Administrator will determine the
acceptable form(s) of consideration for exercising an Option, including
the method of payment, to the extent permitted by Applicable
Laws.
|
(d)
Exercise of
Option
.
|
(i)
|
Procedure for
Exercise; Rights as a Stockholder
. Any Option granted
hereunder will be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator
and set forth in the Award Agreement. An Option may not be
exercised for a fraction of a
Share.
|
An Option
will be deemed exercised when the Company receives: (i) notice of exercise
(in such form as the Administrator specifies from time to time) from the person
entitled to exercise the Option, and (ii) full payment for the Shares with
respect to which the Option is exercised (together with any applicable
withholding taxes). No adjustment will be made for a dividend or
other right for which the record date is prior to the date the Shares are
issued, except as provided in Section 14 hereof.
|
(ii)
|
Termination of
Relationship as a Service Provider
. If a Participant
ceases to be a Service Provider, other than upon the Participant’s
termination as the result of the Participant’s death or Disability, the
Participant may exercise his or her Option within such period of time as
is specified in the Award Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Award
Agreement). In the absence of a specified time in the Award
Agreement, the Option will remain exercisable for three (3) months
following the Participant’s termination. Unless otherwise
provided by the Administrator, if on the date of termination the
Participant is not vested as to his or her entire Option, the Shares
covered by the unvested portion of the Option will revert to the
Plan. If after termination the Participant does not exercise
his or her Option within the time specified by the Administrator, the
Option will terminate, and the Shares covered by such Option will revert
to the Plan.
|
|
(iii)
|
Disability of
Participant
. If a Participant ceases to be a Service
Provider as a result of the Participant’s Disability, the Participant may
exercise his or her Option within such period of time as is specified in
the Award Agreement to the extent the Option is vested on the date of
termination (but in no event later than the expiration of the term of such
Option as set forth in the Award Agreement). In the absence of
a specified time in the Award Agreement, the Option will remain
exercisable for six (6) months following the Participant’s
termination. Unless otherwise provided by the Administrator, if
on the date of termination the Participant is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option
will revert to the Plan. If after termination the Participant
does not exercise his or her Option within the time specified herein, the
Option will terminate, and the Shares covered by such Option will revert
to the Plan.
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|
(iv)
|
Death of
Participant
. If a Participant dies while a Service
Provider, the Option may be exercised within such period of time as is
specified in the Award Agreement to the extent that the Option is vested
on the date of death (but in no event may the option be exercised later
than the expiration of the term of such Option as set forth in the Award
Agreement), by the Participant’s designated beneficiary, provided such
beneficiary has been designated prior to Participant’s death in a form
acceptable to the Administrator. If no such beneficiary has
been designated by the Participant, then such Option may be exercised by
the personal representative of the Participant’s estate or by the
person(s) to whom the Option is transferred pursuant to the Participant’s
will or in accordance with the laws of descent and
distribution. In the absence of a specified time in the Award
Agreement, the Option will remain exercisable for six (6) months following
Participant’s death. Unless otherwise provided by the
Administrator, if at the time of death Participant is not vested as to his
or her entire Option, the Shares covered by the unvested portion of the
Option will continue to vest in accordance with the Award
Agreement. If the Option is not so exercised within the time
specified herein, the Option will terminate, and the Shares covered by
such Option will revert to the
Plan.
|
7.
|
Stock Appreciation
Rights
.
|
(a)
Grant of Stock Appreciation
Rights
. Subject to the terms and conditions of the Plan, a
Stock Appreciation Right may be granted to Service Providers at any time and
from time to time as will be determined by the Administrator, in its sole
discretion.
(b)
Number of
Shares
. The Administrator will have complete discretion to
determine the number of Stock Appreciation Rights granted to any
Participant.
(c)
Exercise Price and Other
Terms
. The Administrator, subject to the provisions of the
Plan, will have complete discretion to determine the terms and conditions of
Stock Appreciation Rights granted under the Plan; provided, however, that the
exercise price will be not less than 100% of the Fair Market Value of a Share on
the date of grant.
(d)
Stock Appreciation Rights
Agreement
. Each Stock Appreciation Right grant will be
evidenced by an Award Agreement that will specify the exercise price, the term
of the Stock Appreciation Right, the conditions of exercise, and such other
terms and conditions as the Administrator, in its sole discretion, will
determine.
(e)
Expiration of Stock
Appreciation Rights
. A Stock Appreciation Right granted under
the Plan will expire upon the date determined by the Administrator, in its sole
discretion, and set forth in the Award Agreement; provided, however, that the
term will be no more than ten (10) years from the date of grant
thereof. Notwithstanding the foregoing, the rules of
Section 6(d) above also will apply to Stock Appreciation
Rights.
(f)
Payment of Stock
Appreciation Right Amount
. Upon exercise of a Stock
Appreciation Right, a Participant will be entitled to receive payment from the
Company in an amount determined by multiplying:
|
(i)
|
The
difference between the Fair Market Value of a Share on the date of
exercise over the exercise price;
times
|
|
(ii)
|
The
number of Shares with respect to which the Stock Appreciation Right is
exercised.
|
At the
discretion of the Administrator, the payment upon Stock Appreciation Right
exercise may be in cash, in Shares of equivalent value, or in some combination
thereof.
(a)
Grant of Restricted
Stock
. Subject to the terms and provisions of the Plan, the
Administrator, at any time and from time to time, may grant Shares of Restricted
Stock to Service Providers in such amounts as the Administrator, in its sole
discretion, will determine.
(b)
Restricted Stock
Agreement
. Each Award of Restricted Stock will be evidenced by
an Award Agreement that will specify the Period of Restriction, the number of
Shares granted, and such other terms and conditions as the Administrator, in its
sole discretion, will determine.
(c)
Transferability
. Except
as provided in this Section 8, Shares of Restricted Stock may not be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.
(d)
Other
Restrictions
. The Administrator, in its sole discretion, may
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate.
(e)
Removal of
Restrictions
. Except as otherwise provided in this Section 8,
Shares of Restricted Stock covered by each Restricted Stock grant made under the
Plan will be released from escrow as soon as practicable after the last day of
the Period of Restriction. The Administrator, in its discretion, may
accelerate the time at which any restrictions will lapse or be
removed.
(f)
Voting
Rights
. During the Period of Restriction, Service Providers
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless the Administrator determines
otherwise.
(g)
Dividends and Other
Distributions
. During the Period of Restriction, Service
Providers holding Shares of Restricted Stock will be entitled to receive all
dividends and other distributions paid with respect to such Shares unless
otherwise provided in the Award Agreement. If any such dividends or
distributions are paid in Shares, the Shares will be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.
(h)
Return of Restricted Stock
to Company
. On the date set forth in the Award Agreement, the
Restricted Stock for which restrictions have not lapsed will revert to the
Company and again will become available for grant under the Plan.
(i)
Section 162(m) Performance
Restrictions
. For purposes of qualifying grants of Restricted
Stock as “performance-based compensation” under Section 162(m) of the Code,
the Administrator, in its discretion, may set restrictions based upon the
achievement of Performance Goals. The Performance Goals will be set
by the Administrator on or before the Determination Date. In granting
Restricted Stock which is intended to qualify under Section 162(m) of the
Code, the Administrator will follow any procedures determined by it from time to
time to be necessary or appropriate to ensure qualification of the Award under
Section 162(m) of the Code (e.g., in determining the Performance
Goals).
9.
|
Restricted Stock
Units
.
|
(a)
Grant
. Restricted
Stock Units may be granted at any time and from time to time as determined by
the Administrator. Each Restricted Stock Unit grant will be evidenced
by an Award Agreement that will specify such other terms and conditions as the
Administrator, in its sole discretion, will determine, including all terms,
conditions, and restrictions related to the grant, the number of Restricted
Stock Units and the form of payout, which, subject to Section 9(d) hereof,
may be left to the discretion of the Administrator.
(b)
Vesting Criteria and Other
Terms
. The Administrator will set vesting criteria in its
discretion, which, depending on the extent to which the criteria are met, will
determine the number of Restricted Stock Units that will be paid out to the
Participant. After the grant of Restricted Stock Units, the
Administrator, in its sole discretion, may reduce or waive any restrictions for
such Restricted Stock Units. Each Award of Restricted Stock Units
will be evidenced by an Award Agreement that will specify the vesting criteria,
and such other terms and conditions as the Administrator, in its sole discretion
will determine. The Administrator, in its discretion, may accelerate
the time at which any restrictions will lapse or be removed.
(c)
Earning Restricted Stock
Units
. Upon meeting the applicable vesting criteria, the
Participant will be entitled to receive a payout as specified in the Award
Agreement.
(d)
Form and Timing of
Payment
. Payment of earned Restricted Stock Units will be made
as soon as practicable after the date(s) set forth in the Award
Agreement. The Administrator, in its sole discretion, may pay earned
Restricted Stock Units in cash, Shares, or a combination
thereof. Shares represented by Restricted Stock Units that are fully
paid in cash again will be available for grant under the Plan.
(e)
Cancellation
. On
the date set forth in the Award Agreement, all unearned Restricted Stock Units
will be forfeited to the Company.
(f)
Section 162(m) Performance
Restrictions
. For purposes of qualifying grants of Restricted
Stock Units as “performance-based compensation” under Section 162(m) of the
Code, the Administrator, in its discretion, may set restrictions based upon the
achievement of Performance Goals. The Performance Goals will be set
by the Administrator on or before the Determination Date. In granting
Restricted Stock Units which are intended to qualify under Section 162(m)
of the Code, the Administrator will follow any procedures determined by it from
time to time to be necessary or appropriate to ensure qualification of the Award
under Section 162(m) of the Code (e.g., in determining the Performance
Goals).
10.
|
Performance Units and
Performance Shares
.
|
(a)
Grant of Performance
Units/Shares
. Performance Units and Performance Shares may be
granted to Service Providers at any time and from time to time, as will be
determined by the Administrator, in its sole discretion. The
Administrator will have complete discretion in determining the number of
Performance Units/Shares granted to each Participant.
(b)
Value of Performance
Units/Shares
. Each Performance Unit will have an initial value
that is established by the Administrator on or before the date of
grant. Each Performance Share will have an initial value equal to the
Fair Market Value of a Share on the date of grant.
(c)
Performance Objectives and
Other Terms
. The Administrator will set performance objectives
or other vesting provisions. The Administrator may set vesting
criteria based upon the achievement of Company-wide, business unit, or
individual goals (including, but not limited to, continued employment), or any
other basis determined by the Administrator in its discretion. Each
Award of Performance Units/Shares will be evidenced by an Award Agreement that
will specify the Performance Period, and such other terms and conditions as the
Administrator, in its sole discretion, will determine.
(d)
Earning of Performance
Units/Shares
. After the applicable Performance Period has
ended, the holder of Performance Units/Shares will be entitled to receive a
payout of the number of Performance Units/Shares earned by the Participant over
the Performance Period, to be determined as a function of the extent to which
the corresponding performance objectives or other vesting provisions have been
achieved. After the grant of a Performance Unit/Share, the
Administrator, in its sole discretion, may reduce or waive any performance
objectives or other vesting provisions for such Performance
Unit/Share.
(e)
Form and Timing of Payment
of Performance Units/Shares
. Payment of earned Performance
Units/Shares will be made as soon as practicable after the expiration of the
applicable Performance Period. The Administrator, in its sole
discretion, may pay earned Performance Units/Shares in the form of cash, in
Shares (which have an aggregate Fair Market Value equal to the value of the
earned Performance Units/Shares at the close of the applicable Performance
Period) or in a combination thereof.
(f)
Cancellation of Performance
Units/Shares
. On the date set forth in the Award Agreement,
all unearned or unvested Performance Units/Shares will be forfeited to the
Company, and again will be available for grant under the Plan.
(g)
Section 162(m) Performance
Restrictions
. For purposes of qualifying grants of Performance
Units/Shares as “performance-based compensation” under Section 162(m) of
the Code, the Administrator, in its discretion, may set restrictions based upon
the achievement of Performance Goals. The Performance Goals will be
set by the Administrator on or before the Determination Date. In
granting Performance Units/Shares which are intended to qualify under
Section 162(m) of the Code, the Administrator will follow any procedures
determined by it from time to time to be necessary or appropriate to ensure
qualification of the Award under Section 162(m) of the Code (e.g., in
determining the Performance Goals).
11.
|
Performance-Based Compensation
Under Code Section 162(m)
.
|
(a)
General
. If
the Administrator, in its discretion, decides to grant an Award intended to
qualify as “performance-based compensation” under Code Section 162(m), the
provisions of this Section 11 will control over any contrary provision in the
Plan; provided, however, that the Administrator may in its discretion grant
Awards that are not intended to qualify as “performance-based compensation”
under Section 162(m) of the Code to such Participants that are based on
Performance Goals or other specific criteria or goals but that do not satisfy
the requirements of this Section 11.
(b)
Performance
Goals
. The granting and/or vesting of Awards of Restricted
Stock, Restricted Stock Units, Performance Shares and Performance Units and
other incentives under the Plan may be made subject to the attainment of
performance goals relating to one or more business criteria within the meaning
of Code Section 162(m) and may provide for a targeted level or levels of
achievement (“
Performance Goals
”)
including (i) earnings per Share, (ii) operating cash flow,
(iii) operating income, (iv) profit after-tax, (v) profit
before-tax, (vi) return on assets, (vii) return on equity,
(viii) return on sales, (ix) revenue, and (x) total shareholder
return. Any Performance Goals may be used to measure the performance
of the Company as a whole or a business unit of the Company and may be measured
relative to a peer group or index. The Performance Goals may differ
from Participant to Participant and from Award to Award. Prior to the
Determination Date, the Administrator will determine whether any significant
element(s) will be included in or excluded from the calculation of any
Performance Goal with respect to any Participant.
(c)
Procedures
. To
the extent necessary to comply with the performance-based compensation
provisions of Code Section 162(m), with respect to any Award granted subject to
Performance Goals, within the first twenty-five percent (25%) of the Performance
Period, but in no event more than ninety (90) days following the commencement of
any Performance Period (or such other time as may be required or permitted by
Code Section 162(m)), the Administrator will, in writing, (i) designate one or
more Participants to whom an Award will be made, (ii) select the Performance
Goals applicable to the Performance Period, (iii) establish the Performance
Goals, and amounts of such Awards, as applicable, which may be earned for such
Performance Period, and (iv) specify the relationship between Performance
Goals and the amounts of such Awards, as applicable, to be earned by each
Participant for such Performance Period. Following the completion of
each Performance Period, the Administrator will certify in writing whether the
applicable Performance Goals have been achieved for such Performance
Period. In determining the amounts earned by a Participant, the
Administrator will have the right to reduce or eliminate (but not to increase)
the amount payable at a given level of performance to take into account
additional factors that the Administrator may deem relevant to the assessment of
individual or corporate performance for the Performance Period. A
Participant will be eligible to receive payment pursuant to an Award for a
Performance Period only if the Performance Goals for such period are
achieved.
(d)
Additional
Limitations
. Notwithstanding any other provision of the Plan,
any Award which is granted to a Participant and is intended to constitute
qualified performance based compensation under Code Section 162(m) will be
subject to any additional limitations set forth in the Code (including any
amendment to Section 162(m)) or any regulations and ruling issued thereunder
that are requirements for qualification as qualified performance-based
compensation as described in Section 162(m) of the Code, and the Plan will be
deemed amended to the extent necessary to conform to such
requirements.
12.
Leaves of
Absence
. Unless the Administrator provides otherwise, vesting
of Awards granted hereunder will be suspended during any unpaid leave of
absence. A Service Provider will not cease to be an Employee in the
case of (i) any leave of absence approved by the Company, or
(ii) transfers between locations of the Company or between the Company, its
Parent, or any Subsidiary. For purposes of Incentive Stock Options,
no such leave may exceed three (3) months, unless reemployment upon expiration
of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, then six (6) months and one day following the commencement of such
leave any Incentive Stock Option held by the Participant will cease to be
treated as an Incentive Stock Option and will be treated for tax purposes as a
Nonstatutory Stock Option.
13.
Transferability of
Awards
. Unless determined otherwise by the Administrator, an
Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or by the laws of descent or distribution
and may be exercised, during the lifetime of the Participant, only by the
Participant. If the Administrator makes an Award transferable, such
Award may only be transferred (i) by will, (ii) by the laws of descent and
distribution, (iii) to a revocable trust, or (iii) as permitted by Rule 701 of
the Securities Act of 1933, as amended.
14.
Adjustments; Dissolution or
Liquidation; Merger or Change in Control
.
(a)
Adjustments
. In
the event that any dividend or other distribution (whether in the form of cash,
Shares, other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Shares or other securities of the
Company, or other change in the corporate structure of the Company affecting the
Shares occurs, the Administrator, in order to prevent diminution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan, will adjust the number and class of Shares that may be delivered under the
Plan and/or the number, class, and price of Shares covered by each outstanding
Award, and the numerical Share limits set forth in Sections 3, 6, 7, 8, 9
and 10 hereof.
(b)
Dissolution or
Liquidation
. In the event of the proposed dissolution or
liquidation of the Company, the Administrator will notify each Participant as
soon as practicable prior to the effective date of such proposed
transaction. To the extent it has not been previously exercised, an
Award will terminate immediately prior to the consummation of such proposed
action.
(c)
Change in
Control
. In the event of a merger or Change in Control, each
outstanding Award will be treated as the Administrator determines, including,
without limitation, that each Award will be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation (the “
Successor
Corporation
”). The Administrator will not be required to treat
all Awards similarly in the transaction.
In the
event that the Successor Corporation does not assume or substitute for the
Award, the Participant will fully vest in and have the right to exercise all of
his or her outstanding Options and Stock Appreciation Rights, including Shares
as to which such Awards would not otherwise be vested or exercisable, all
restrictions on Restricted Stock will lapse, and, with respect to Restricted
Stock Units, Performance Shares and Performance Units, all Performance Goals or
other vesting criteria will be deemed achieved at target levels and all other
terms and conditions met. In addition, if an Option or Stock
Appreciation Right is not assumed or substituted for in the event of a Change in
Control, the Administrator will notify the Participant in writing or
electronically that the Option or Stock Appreciation Right will be fully vested
and exercisable for a period of time determined by the Administrator in its sole
discretion, and the Option or Stock Appreciation Right will terminate upon the
expiration of such period.
For the
purposes of this subsection (c), an Award will be considered assumed if,
following the Change in Control, the Award confers the right to purchase or
receive, for each Share subject to the Award immediately prior to the Change in
Control, the consideration (whether stock, cash, or other securities or
property) or, in the case of a Stock Appreciation Right upon the exercise of
which the Administrator determines to pay cash or a Performance Share or
Performance Unit which the Administrator can determine to pay in cash, the fair
market value of the consideration received in the merger or Change in Control by
holders of Common Stock for each Share held on the effective date of the
transaction (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the Change in Control
is not solely common stock of the Successor Corporation, the Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon the exercise of an Option or Stock Appreciation Right or upon
the payout of a Performance Share or Performance Unit, for each Share subject to
such Award (or in the case of Performance Units, the number of implied shares
determined by dividing the value of the Performance Units by the per share
consideration received by holders of Common Stock in the Change in Control), to
be solely common stock of the Successor Corporation equal in fair market value
to the per share consideration received by holders of Common Stock in the Change
in Control.
Notwithstanding
anything in this Section 14(c) to the contrary, an Award that vests, is earned
or paid-out upon the satisfaction of one or more Performance Goals will not be
considered assumed if the Company or its successor modifies any of such
Performance Goals without the Participant’s consent; provided, however, a
modification to such Performance Goals only to reflect the Successor
Corporation’s post-Change in Control corporate structure will not be deemed to
invalidate an otherwise valid Award assumption. In the case of an Award
providing for the payment of deferred compensation subject to Section 409A of
the Code, any payment of such deferred compensation by reason of a Change in
Control shall be made only if the Change in Control is one described in
subsection (a)(2)(A)(v) of Section 409A and the guidance thereunder and shall be
paid consistent with the requirements of Section 409A. If any deferred
compensation that would otherwise be payable by reason of a Change in Control
cannot be paid by reason of the immediately preceding sentence, it shall be paid
as soon as practicable thereafter consistent with the requirements of Section
409A, as determined by the Administrator.
(a)
Withholding
Requirements
. Prior to the delivery of any Shares or cash
pursuant to an Award (or exercise thereof), the Company will have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, local, foreign or other
taxes (including the Participant’s FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).
(b)
Withholding
Arrangements
. The Administrator, in its sole discretion and
pursuant to such procedures as it may specify from time to time, may permit a
Participant to satisfy such tax withholding obligation, in whole or in part by
(without limitation) (i) paying cash, (ii) electing to have the Company
withhold otherwise deliverable cash or Shares having a Fair Market Value equal
to the minimum amount required to be withheld, (iii) delivering to the Company
already-owned Shares having a Fair Market Value equal to the amount required to
be withheld, or (iv) selling a sufficient number of Shares otherwise
deliverable to the Participant through such means as the Administrator may
determine in its sole discretion (whether through a broker or otherwise) equal
to the amount required to be withheld. The amount of the withholding
requirement will be deemed to include any amount which the Administrator agrees
may be withheld at the time the election is made, not to exceed the amount
determined by using the maximum federal, state or local marginal income tax
rates applicable to the Participant with respect to the Award on the date that
the amount of tax to be withheld is to be determined. The Fair Market
Value of the Shares to be withheld or delivered will be determined as of the
date that the taxes are required to be withheld.
16.
No Effect on Employment or
Service
. Neither the Plan nor any Award will confer upon a
Participant any right with respect to continuing the Participant’s relationship
as a Service Provider with the Company, nor will they interfere in any way with
the Participant’s right or the Company’s right to terminate such relationship at
any time, with or without cause, to the extent permitted by Applicable
Laws.
17.
Date of Grant
. The
date of grant of an Award will be, for all purposes, the date on which the
Administrator makes the determination granting such Award, or such other later
date as is determined by the Administrator. Notice of the
determination will be provided to each Participant within a reasonable time
after the date of such grant.
18.
Term of
Plan
. Subject to Section 22
hereof, the Plan will
become effective upon its adoption by the Board. It will continue in
effect for a term of ten (10) years unless terminated earlier under
Section 19
hereof.
19.
Amendment and Termination of the
Plan
.
(a)
Amendment and
Termination
. The Administrator may at any time amend, alter,
suspend or terminate the Plan.
(b)
Stockholder
Approval
. The Company will obtain stockholder approval of any
Plan amendment to the extent necessary and desirable to comply with Applicable
Laws.
(c)
Effect of Amendment or
Termination
. No amendment, alteration, suspension, or
termination of the Plan will impair the rights of any Participant, unless
mutually agreed otherwise between the Participant and the Administrator, which
agreement must be in writing and signed by the Participant and the
Company. Termination of the Plan will not affect the Administrator’s
ability to exercise the powers granted to it hereunder with respect to Awards
granted under the Plan prior to the date of such termination.
20.
Conditions Upon Issuance of
Shares
.
(a)
Legal
Compliance
. Shares will not be issued pursuant to the exercise
of an Award unless the exercise of such Award and the issuance and delivery of
such Shares will comply with Applicable Laws and will be further subject to the
approval of counsel for the Company with respect to such
compliance.
(b)
Investment
Representations
. As a condition to the exercise of an Award,
the Company may require the person exercising such Award to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
(c)
Restrictive
Legends
. All Award Agreements and all securities of the
Company issued pursuant thereto shall bear such legends regarding restrictions
on transfer and such other legends as the appropriate officer of the Corporation
shall determine to be necessary or advisable to comply with applicable
securities and other laws.
21.
Inability to Obtain
Authority
. The inability of the Company to obtain authority
from any regulatory body having jurisdiction, which authority is deemed by the
Company’s counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, will relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority will not have
been obtained.
22.
Stockholder
Approval
. The Plan will be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted by the Board. Such stockholder approval will be obtained in
the manner and to the degree required under Applicable Laws. In the event that
stockholder approval is not obtained within twelve (12) months after the date
the Plan is adopted by the Board, the Plan and all Awards granted hereunder
shall be void ab initio and of no effect. Notwithstanding any other provisions
of the Plan, no Awards shall be exercisable until the date of such stockholder
approval.
23.
Notification of Election Under
Section 83(b) of the Code.
If any Service Provider shall, in
connection with the acquisition of Shares under the Plan, make the election
permitted under Section 83(b) of the Code, such Service Provider shall notify
the Company of such election within ten (10) days of filing notice of the
election with the Internal Revenue Service and provide the Company with a copy
thereof, in addition to any filing and a notification required pursuant to
regulations issued under the authority of Section 83(b) of the Code. A Service
Provider shall not be permitted to make a Section 83(b) election with respect to
an Award of a Restricted Stock Unit.
24.
Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code.
Each Service
Provider shall notify the Company of any disposition of Shares issued pursuant
to the exercise of an Incentive Stock Option under the circumstances described
in Section 421(b) of the Code (relating to certain disqualifying dispositions),
within ten (10) days of such disposition.
INCENTIVE
STOCK OPTION AGREEMENT
INVIVO
THERAPEUTICS CORPORATION
AGREEMENT
made as of the ___ day of __________, between InVivo Therapeutics Corporation
(the “Company”), a Delaware corporation having a principal place of business at
7 Fort Washington Place, Cambridge, MA 02139, and ________________
of___________, an employee of the Company (the “Employee”).
WHEREAS,
the Company desires to grant to the Employee an Option to purchase shares of its
common stock, $0.001 par value per share (the “Shares”), under and for the
purposes set forth in the Company’s 2007 Employee, Director and Consultant Stock
Plan (the “Plan”);
WHEREAS,
the Company and the Employee understand and agree that any terms used and not
defined herein have the same meanings as in the Plan; and
WHEREAS,
the Company and the Employee each intend that the Option granted herein qualify
as an ISO.
NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto agree as
follows:
1.
GRANT OF
OPTION
.
The
Company hereby grants to the Employee the right and option to purchase all or
any part of an aggregate of
_______
Shares, on the
terms and conditions and subject to all the limitations set forth herein, under
United States securities and tax laws, and in the Plan, which is incorporated
herein by reference. The Employee acknowledges receipt of a copy of
the Plan.
2.
PURCHASE
PRICE
.
The
purchase price of the Shares covered by the Option shall be
______
per Share,
subject to adjustment, as provided in the Plan, in the event of a stock split,
reverse stock split or other events affecting the holders of Shares after the
date hereof (the “Purchase Price”). Payment shall be made in
accordance with Paragraph 8 of the Plan.
3.
EXERCISABILITY OF
OPTION
.
Subject
to the terms and conditions set forth in this Agreement and the Plan, the Option
granted hereby shall become exercisable over 4 years as follows: 25% of the
Shares shall vest on the first anniversary of the date of this Agreement and
then the remaining shares shall vest in equal monthly installments over the next
36 months.
The
foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
Notwithstanding the foregoing, in
the event of a Change of Control (as defined below), the Shares which would have
vested in each vesting installment remaining under this Option will be vested
for purposes of Section 23(B) of the Plan unless this Option has otherwise
expired or been terminated pursuant to its terms or the terms of the
Plan.
Change of Control
means the occurrence of any of the following events:
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(i)
|
Ownership. Any
“Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becomes the “Beneficial
Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of the Company representing 50% or more of the total voting
power represented by the Company’s then outstanding voting securities
(excluding for this purpose the Company or its Affiliates or any employee
benefit plan of the Company) pursuant to a transaction or a series of
related transactions which the Board of Directors does not approve;
or
|
|
(ii)
|
Merger/Sale
of Assets. A merger or consolidation of the Company whether or
not approved by the Board of Directors, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or the parent of such corporation) at least 50% of the
total voting power represented by the voting securities of the Company or
such surviving entity or parent of such corporation outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets;
or
|
The
Option shall terminate ten years from the date of this Agreement, but shall be
subject to earlier termination as provided herein or in the Plan.
If the
Employee ceases to be an employee of the Company or of an Affiliate (for any
reason other than the death or Disability of the Employee or termination of the
Employee’s employment for “cause” (as defined in the Plan)), the Option may be
exercised, if it has not previously terminated, within three months after the
date the Employee ceases to be an employee of the Company or an Affiliate, or
within the originally prescribed term of the Option, whichever is earlier, but
may not be exercised thereafter. In such event, the Option shall be
exercisable only to the extent that the Option has become exercisable and is in
effect at the date of such cessation of employment.
Notwithstanding
the foregoing, in the event of the Employee’s Disability or death within three
months after the termination of employment, the Employee or the Employee’s
Survivors may exercise the Option within one year after the date of the
Employee’s termination of employment, but in no event after the date of
expiration of the term of the Option.
In the
event the Employee’s employment is terminated by the Employee’s employer for
“cause” (as defined in the Plan), the Employee’s right to exercise any
unexercised portion of this Option shall cease immediately as of the time the
Employee is notified his or her employment is terminated for “cause,” and this
Option shall thereupon terminate. Notwithstanding anything herein to
the contrary, if subsequent to the Employee’s termination as an employee, but
prior to the exercise of the Option, the Board of Directors of the Company
determines that, either prior or subsequent to the Employee’s termination, the
Employee engaged in conduct which would constitute “cause,” then the Employee
shall immediately cease to have any right to exercise the Option and this Option
shall thereupon terminate.
In the
event of the Disability of the Employee, as determined in accordance with the
Plan, the Option shall be exercisable within one year after the Employee’s
termination of employment or, if earlier, within the term originally prescribed
by the Option. In such event, the Option shall be
exercisable:
|
(a)
|
to
the extent that the Option has become exercisable but has not been
exercised as of the date of Disability;
and
|
|
(b)
|
in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of Disability of any additional
vesting rights that would have accrued on the next vesting date had the
Employee not become Disabled. The proration shall be based upon
the number of days accrued in the current vesting period prior to the date
of Disability.
|
In the
event of the death of the Employee while an employee of the Company or of an
Affiliate, the Option shall be exercisable by the Employee’s Survivors within
one year after the date of death of the Employee or, if earlier, within the
originally prescribed term of the Option. In such event, the Option
shall be exercisable:
|
(x)
|
to
the extent that the Option has become exercisable but has not been
exercised as of the date of death;
and
|
|
(y)
|
in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of death of any additional vesting
rights that would have accrued on the next vesting date had the Employee
not died. The proration shall be based upon the number of days
accrued in the current vesting period prior to the Employee’s date of
death.
|
|
5.
|
METHOD OF EXERCISING
OPTION
.
|
Subject
to the terms and conditions of this Agreement, the Option may be exercised by
written notice to the Company or its designee, in substantially the form of
Exhibit A
attached hereto. Such notice shall state the number of Shares with
respect to which the Option is being exercised and shall be signed by the person
exercising the Option. Payment of the purchase price for such Shares
shall be made in accordance with Paragraph 8 of the Plan. The Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or “blue sky”
laws). The certificate or certificates for the Shares as to which the
Option shall have been so exercised shall be registered in the Company’s share
register in the name of the person so exercising the Option (or, if the Option
shall be exercised by the Employee and if the Employee shall so request in the
notice exercising the Option, shall be registered in the name of the Employee
and another person jointly, with right of survivorship) and shall be delivered
as provided above to or upon the written order of the person exercising the
Option. In the event the Option shall be exercised, pursuant to
Section 4 hereof, by any person other than the Employee, such notice shall be
accompanied by appropriate proof of the right of such person to exercise the
Option. All Shares that shall be purchased upon the exercise of the
Option as provided herein shall be fully paid and nonassessable.
Exercise
of this Option to the extent above stated may be made in part at any time and
from time to time within the above limits, except that no fractional share shall
be issued pursuant to this Option.
The
Option shall not be transferable by the Employee otherwise than by will or by
the laws of descent and distribution. The Option shall be
exercisable, during the Employee’s lifetime, only by the Employee (or, in the
event of legal incapacity or incompetency, by the Employee’s guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of the Option or of any
rights granted hereunder contrary to the provisions of this Section 7, or the
levy of any attachment or similar process upon the Option shall be null and
void.
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8.
|
NO RIGHTS AS
STOCKHOLDER UNTIL EXERCISE
.
|
The
Employee shall have no rights as a stockholder with respect to Shares subject to
this Agreement until registration of the Shares in the Company’s share register
in the name of the Employee. Except as is expressly provided in the
Plan with respect to certain changes in the capitalization of the Company, no
adjustment shall be made for dividends or similar rights for which the record
date is prior to the date of such registration.
The Plan
contains provisions covering the treatment of Options in a number of
contingencies such as stock splits and mergers. Provisions in the
Plan for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
The
Employee acknowledges that any income or other taxes due from him or her with
respect to this Option or the Shares issuable pursuant to this Option shall be
the Employee’s responsibility.
In the
event of a Disqualifying Disposition (as defined in Section 15 below) or if the
Option is converted into a Non-Qualified Option and such Non-Qualified Option is
exercised, the Company may withhold from the Employee’s remuneration, if any,
the minimum statutory amount of federal, state and local withholding taxes
attributable to such amount that is considered compensation includable in such
person’s gross income. At the Company’s discretion, the amount
required to be withheld may be withheld in cash from such remuneration, or in
kind from the Shares otherwise deliverable to the Employee on exercise of the
Option. The Employee further agrees that, if the Company does not
withhold an amount from the Employee’s remuneration sufficient to satisfy the
Company’s income tax withholding obligation, the Employee will reimburse the
Company on demand, in cash, for the amount under-withheld.
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11.
|
PURCHASE FOR
INVESTMENT
.
|
Unless
the offering and sale of the Shares to be issued upon the particular exercise of
the Option shall have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended (the “1933 Act”), the Company shall
be under no obligation to issue the Shares covered by such exercise unless and
until the following conditions have been fulfilled:
|
(a)
|
The
person(s) who exercise the Option shall warrant to the Company, at the
time of such exercise, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a view to, or
for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the certificate(s)
evidencing the Shares issued pursuant to such
exercise:
|
“The
shares represented by this certificate have been taken for investment and they
may not be sold or otherwise transferred by any person, including a pledgee,
unless (1) either (a) a Registration Statement with respect to such shares shall
be effective under the Securities Act of 1933, as amended, or (b) the Company
shall have received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws;” and
|
(b)
|
If
the Company so requires, the Company shall have received an opinion of its
counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration
thereunder. Without limiting the generality of the foregoing,
the Company may delay issuance of the Shares until completion of any
action or obtaining of any consent, which the Company deems necessary
under any applicable law (including without limitation state securities or
“blue sky” laws).
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|
12.
|
RESTRICTIONS ON
TRANSFER OF SHARES
.
|
12.1 The
Shares acquired by the Employee pursuant to the exercise of the Option granted
hereby shall not be transferred by the Employee except as permitted
herein.
12.2 In
the event of the Employee’s termination of employment for any reason, the
Company shall have the option, but not the obligation, to repurchase all or any
part of the Shares issued pursuant to this Agreement (including, without
limitation, Shares purchased after termination of employment, Disability or
death in accordance with Section 4 hereof). In the event the Company
does not, upon the termination of employment of the Employee (as described
above), exercise its option pursuant to this Section 12.2, the restrictions set
forth in the balance of this Agreement shall not thereby lapse, and the Employee
for himself or herself, his or her heirs, legatees, executors, administrators
and other successors in interest, agrees that the Shares shall remain subject to
such restrictions. The following provisions shall apply to a
repurchase under this Section 12.2:
|
(i)
|
The
per share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to the Fair
Market Value of each such Share determined in accordance with the Plan as
of the date of termination of employment provided, however, in the event
of a termination by the Company for “cause” (as defined in the Plan), the
per share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to the
$.01.
|
|
(ii)
|
The
Company’s option to repurchase the Employee’s Shares in the event of
termination of employment shall be valid for a period of 18 months
commencing with the date of such termination of
employment.
|
|
(iii)
|
In
the event the Company shall be entitled to and shall elect to exercise its
option to repurchase the Employee’s Shares under this Section 12.2, the
Company shall notify the Employee, or in case of death, his or her
Survivor, in writing of its intent to repurchase the
Shares. Such written notice may be mailed by the Company up to
and including the last day of the time period provided for in Section
12.2(ii) for exercise of the Company’s option to
repurchase.
|
|
(iv)
|
The
written notice to the Employee shall specify the address at, and the time
and date on, which payment of the repurchase price is to be made (the
“Closing”). The date specified shall not be less than ten days
nor more than 60 days from the date of the mailing of the notice, and the
Employee or his or her successor in interest with respect to
the Shares shall have no further rights as the owner thereof from and
after the date specified in the notice. At the Closing, the
repurchase price shall be delivered to the Employee or his or her
successor in interest and the Shares being purchased, duly endorsed for
transfer, shall, to the extent that they are not then in the possession of
the Company, be delivered to the Company by the Employee or his or her
successor in interest.
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12.3 It
shall be a condition precedent to the validity of any sale or other transfer of
any Shares by the Employee that the following restrictions be complied with
(except as hereinafter otherwise provided):
|
(i)
|
No
Shares owned by the Employee may be sold, pledged or otherwise transferred
(including by gift or devise) to any person or entity, voluntarily, or by
operation of law, except in accordance with the terms and conditions
hereinafter set forth.
|
|
(ii)
|
Before
selling or otherwise transferring all or part of the Shares, the Employee
shall give written notice of such intention to the Company, which notice
shall include the name of the proposed transferee, the proposed purchase
price per share, the terms of payment of such purchase price and all other
matters relating to such sale or transfer and shall be accompanied by a
copy of the binding written agreement of the proposed transferee to
purchase the Shares of the Employee. Such notice shall
constitute a binding offer by the Employee to sell to the Company such
number of the Shares then held by the Employee as are proposed to be sold
in the notice at the monetary price per share designated in such notice,
payable on the terms offered to the Employee by the proposed transferee
(provided, however, that the Company shall not be required to meet any
non-monetary terms of the proposed transfer, including, without
limitation, delivery of other securities in exchange for the Shares
proposed to be sold). The Company shall give written notice to
the Employee as to whether such offer has been accepted in whole by the
Company within 60 days after its receipt of written notice from the
Employee. The Company may only accept such offer in whole and
may not accept such offer in part. Such acceptance notice shall
fix a time, location and date for the closing on such purchase (“Closing
Date”) which shall not be less than ten nor more than 60 days after the
giving of the acceptance notice, provided, however, if any of the Shares
to be sold pursuant to this Section 12.3 have been held by the Employee
for less than six months, then the Closing Date may be extended by the
Company until no more than ten days after such Shares have been held by
the Employee for six months if required under applicable accounting rules
in effect at the time. The place for such closing shall be at
the Company’s principal office. At such closing, the Employee
shall accept payment as set forth herein and shall deliver to the Company
in exchange therefor certificates for the number of Shares stated in the
notice accompanied by duly executed instruments of
transfer.
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|
(iii)
|
If
the Company shall fail to accept any such offer, the Employee shall be
free to sell all, but not less than all, of the Shares set forth in his or
her notice to the designated transferee at the price and terms designated
in the Employee’s notice, provided that (i) such sale is consummated
within six months after the giving of notice by the Employee to the
Company as aforesaid, and (ii) the transferee first agrees in writing to
be bound by the provisions of this Section 12 so that such transferee (and
all subsequent transferees) shall thereafter only be permitted to sell or
transfer the Shares in accordance with the terms hereof. After
the expiration of such six months, the provisions of this Section 12.3
shall again apply with respect to any proposed voluntary transfer of the
Employee’s Shares.
|
|
(iv)
|
The
provisions of this Section 12.3 may be waived by the
Company. Any such waiver may be unconditional or based upon
such conditions as the Company may
impose.
|
12.4 In
the event that the Employee or his or her successor in interest fails to deliver
the Shares to be repurchased by the Company under this Agreement, the Company
may elect (a) to establish a segregated account in the amount of the
repurchase price, such account to be turned over to the Employee or his or her
successor in interest upon delivery of such Shares, and (b) immediately to
take such action as is appropriate to transfer record title of such Shares from
the Employee to the Company and to treat the Employee and such Shares in all
respects as if delivery of such Shares had been made as required by this
Agreement. The Employee hereby irrevocably grants the Company a power
of attorney which shall be coupled with an interest for the purpose of
effectuating the preceding sentence.
12.5 If
the Company shall pay a stock dividend or declare a stock split on or with
respect to any of its Common Stock, or otherwise distribute securities of the
Company to the holders of its Common Stock, the number of shares of stock or
other securities of Company issued with respect to the shares then subject to
the restrictions contained in this Agreement shall be added to the Shares
subject to the Company’s rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares
of stock of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company’s rights to repurchase pursuant to this Agreement.
12.6 If
the outstanding shares of Common Stock of the Company shall be subdivided into a
greater number of shares or combined into a smaller number of shares, or in the
event of a reclassification of the outstanding shares of Common Stock of the
Company, or if the Company shall be a party to a merger, consolidation or
capital reorganization, there shall be substituted for the Shares then subject
to the restrictions contained in this Agreement such amount and kind of
securities as are issued in such subdivision, combination, reclassification,
merger, consolidation or capital reorganization in respect of the Shares subject
immediately prior thereto to the Company’s rights to repurchase pursuant to this
Agreement.
12.7 The
Company shall not be required to transfer any Shares on its books which shall
have been sold, assigned or otherwise transferred in violation of this
Agreement, or to treat as owner of such Shares, or to accord the right to vote
as such owner or to pay dividends to, any person or organization to which any
such Shares shall have been so sold, assigned or otherwise transferred, in
violation of this Agreement.
12.8 The
provisions of Sections 12.1, 12.2 and 12.3 shall terminate upon the consummation
of a public offering of any of the Company’s securities pursuant to a
registration statement filed with the Securities and Exchange Commission
pursuant to the 1933 Act, in which offering the aggregate gross proceeds to the
Company exceed $10,000,000 and in which the price per share of such securities
equals or exceeds $5.00 (such price subject to equitable adjustment in the event
of any stock split, stock dividend, combination, reorganization,
reclassification or other similar event).
12.9 The
Employee agrees that in the event the Company proposes to offer for sale to the
public any of its equity securities and such Employee is requested by the
Company and any underwriter engaged by the Company in connection with such
offering to sign an agreement restricting the sale or other transfer of Shares,
then it will promptly sign such agreement and will not transfer, whether in
privately negotiated transactions or to the public in open market transactions
or otherwise, any Shares or other securities of the Company held by him or her
during such period as is determined by the Company and the underwriters, not to
exceed 180 days following the closing of the offering, plus such additional
period of time as may be required to comply with Marketplace Rule 2711 of the
National Association of Securities Dealers, Inc. or similar rules thereto (such
period, the “Lock-Up Period”). Such agreement shall be in writing and
in form and substance reasonably satisfactory to the Company and such
underwriter and pursuant to customary and prevailing terms and
conditions. Notwithstanding whether the Employee has signed such an
agreement, the Company may impose stop-transfer instructions with respect to the
Shares or other securities of the Company subject to the foregoing restrictions
until the end of the Lock-Up Period.
12.10 The
Employee acknowledges and agrees that neither the Company, its shareholders nor
its directors and officers, has any duty or obligation to disclose to the
Employee any material information regarding the business of the Company or
affecting the value of the Shares before, at the time of, or following a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
12.11 All
certificates representing the Shares to be issued to the Employee pursuant to
this Agreement shall have endorsed thereon a legend substantially as
follows: “The shares represented by this certificate are subject to
restrictions set forth in an Incentive Stock Option Agreement dated _________,
2007 with this Company, a copy of which Agreement is available for inspection at
the offices of the Company or will be made available upon request.”
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13.
|
NO OBLIGATION TO
EMPLOY
.
|
The
Company is not by the Plan or this Option obligated to continue the Employee as
an employee of the Company or an Affiliate. The Employee
acknowledges: (i) that the Plan is discretionary in nature and may be
suspended or terminated by the Company at any time; (ii) that the grant of the
Option is a one-time benefit which does not create any contractual or other
right to receive future grants of options, or benefits in lieu of options; (iii)
that all determinations with respect to any such future grants, including, but
not limited to, the times when options shall be granted, the number of shares
subject to each option, the option price, and the time or times when each option
shall be exercisable, will be at the sole discretion of the Company; (iv) that
the Employee’s participation in the Plan is voluntary; (v) that the value of the
Option is an extraordinary item of compensation which is outside the scope of
the Employee’s employment contract, if any; and (vi) that the Option is not part
of normal or expected compensation for purposes of calculating any severance,
resignation, redundancy, end of service payments, bonuses, long-service awards,
pension or retirement benefits or similar payments.
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14.
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OPTION IS INTENDED TO
BE AN ISO
.
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The
parties each intend that the Option be an ISO so that the Employee (or the
Employee’s Survivors) may qualify for the favorable tax treatment provided to
holders of Options that meet the standards of Section 422 of the
Code. Any provision of this Agreement or the Plan which conflicts
with the Code so that this Option would not be deemed an ISO is null and void
and any ambiguities shall be resolved so that the Option qualifies as an
ISO. Nonetheless, if the Option is determined not to be an ISO, the
Employee understands that neither the Company nor any Affiliate is responsible
to compensate him or her or otherwise make up for the treatment of the Option as
a Non-qualified Option and not as an ISO. The Employee should consult
with the Employee’s own tax advisors regarding the tax effects of the Option and
the requirements necessary to obtain favorable tax treatment under Section 422
of the Code, including, but not limited to, holding period
requirements.
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15.
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NOTICE TO COMPANY OF
DISQUALIFYING DISPOSITION
.
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The
Employee agrees to notify the Company in writing immediately after the Employee
makes a Disqualifying Disposition of any of the Shares acquired pursuant to the
exercise of the Option. A Disqualifying Disposition is defined in
Section 424(c) of the Code and includes any disposition (including any sale) of
such Shares before the later of (a) two years after the date the Employee was
granted the Option or (b) one year after the date the Employee acquired Shares
by exercising the Option, except as otherwise provided in Section 424(c) of the
Code. If the Employee has died before the Shares are sold, these
holding period requirements do not apply and no Disqualifying Disposition can
occur thereafter.
Any
notices required or permitted by the terms of this Agreement or the Plan shall
be given by recognized courier service, facsimile, registered or certified mail,
return receipt requested, addressed as follows:
If to the
Company:
InVivo Therapeutics
Corporation
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7 Fort Washington Place
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Cambridge, MA 02139
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Attn:
President
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If to the
Employee:
or to
such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been
given upon the earlier of receipt, one business day following delivery to a
recognized courier service or three business days following mailing by
registered or certified mail.
This
Agreement shall be construed and enforced in accordance with the law of the
State of Delaware
,
without giving effect to the conflict of law principles thereof. For the purpose
of litigating any dispute that arises under this Agreement, the parties hereby
consent to exclusive jurisdiction in Massachusetts and agree that such
litigation shall be conducted in the courts of Middlesex County, Massachusetts
or the federal courts of the United States for the District of
Massachusetts.
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18.
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BENEFIT OF
AGREEMENT
.
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Subject
to the provisions of the Plan and the other provisions hereof, this Agreement
shall be for the benefit of and shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties hereto.
This
Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement not expressly set forth in this Agreement shall
affect or be used to interpret, change or restrict, the express terms and
provisions of this Agreement, provided, however, in any event, this Agreement
shall be subject to and governed by the Plan.
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20.
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MODIFICATIONS AND
AMENDMENTS
.
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The terms
and provisions of this Agreement may be modified or amended as provided in the
Plan.
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21.
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WAIVERS AND
CONSENTS
.
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Except as
provided in the Plan, the terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or provisions of
this Agreement, whether or not similar. Each such waiver or consent
shall be effective only in the specific instance and for the purpose for which
it was given, and shall not constitute a continuing waiver or
consent.
22.
DATA
PRIVACY
.
By
entering into this Agreement, the Employee: (i) authorizes the
Company and each Affiliate, and any agent of the Company or any Affiliate
administering the Plan or providing Plan recordkeeping services, to disclose to
the Company or any of its Affiliates such information and data as the Company or
any such Affiliate shall request in order to facilitate the grant of options and
the administration of the Plan; (ii) waives any data privacy rights he or she
may have with respect to such information; and (iii) authorizes the Company and
each Affiliate to store and transmit such information in electronic
form.
23.
CONSENT OF
SPOUSE
.
If the
Employee is married as of the date of this Agreement, the Employee’s spouse
shall execute a Consent of Spouse in the form of
Exhibit B
hereto,
effective as of the date hereof. Such consent shall not be deemed to
confer or convey to the spouse any rights in the Shares that do not otherwise
exist by operation of law or the agreement of the parties. If the
Employee marries or remarries subsequent to the date hereof, the Employee shall,
not later than 60 days thereafter, obtain his or her new spouse’s
acknowledgement of and consent to the existence and binding effect of Section
12.2 of this Agreement by such spouse’s executing and delivering a Consent of
Spouse in the form of Exhibit B.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Employee has hereunto set his or her hand, all
as of the day and year first above written.
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InVivo
Therapeutics Corporation
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By:
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Name:
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Title:
President
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Employee
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Exhibit
A
NOTICE OF
EXERCISE OF INCENTIVE STOCK OPTION
[Form
for Unregistered Shares]
To: InVivo
Therapeutics Corporation
Ladies
and Gentlemen:
I hereby
exercise my Incentive Stock Option to purchase ___________ shares (the “Shares”)
of the common stock, $0.001 par value, of InVivo Therapeutics Corporation (the
“Company”), at the exercise price of $____ per share, pursuant to and subject to
the terms of that certain Incentive Stock Option Agreement between the
undersigned and the Company dated _________, 200_.
I am
aware that the Shares have not been registered under the Securities Act of 1933,
as amended (the “1933 Act”), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.
I hereby
represent and warrant that (1) I have been furnished with all information which
I deem necessary to evaluate the merits and risks of the purchase of the Shares;
(2) I have had the opportunity to ask questions concerning the Shares and
the Company and all questions posed have been answered to my satisfaction; (3) I
have been given the opportunity to obtain any additional information I deem
necessary to verify the accuracy of any information obtained concerning the
Shares and the Company; and (4) I have such knowledge and experience in
financial and business matters that I am able to evaluate the merits and risks
of purchasing the Shares and to make an informed investment decision relating
thereto.
I hereby
represent and warrant that I am purchasing the Shares for my own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares.
I
understand that because the Shares have not been registered under the 1933 Act,
I must continue to bear the economic risk of the investment for an indefinite
time and the Shares cannot be sold unless the Shares are subsequently registered
under applicable federal and state securities laws or an exemption from such
registration requirements is available.
I agree
that I will in no event sell or distribute or otherwise dispose of all or any
part of the Shares unless (1) there is an effective registration statement under
the 1933 Act and applicable state securities laws covering any such transaction
involving the Shares or (2) the Company receives an opinion of my legal counsel
(concurred in by legal counsel for the Company) stating that such transaction is
exempt from registration or the Company otherwise satisfies itself that such
transaction is exempt from registration.
I consent
to the placing of a legend on my certificate for the Shares stating that the
Shares have not been registered and setting forth the restriction on transfer
contemplated hereby and to the placing of a stop transfer order on the books of
the Company and with any transfer agents against the Shares until the Shares may
be legally resold or distributed without restriction.
I
understand that at the present time Rule 144 of the Securities and Exchange
Commission (the “SEC”) may not be relied on for the resale or distribution of
the Shares by me. I understand that the Company has no obligation to
me to register the sale of the Shares with the SEC and has not represented to me
that it will register the sale of the Shares.
I
understand the terms and restrictions on the right to dispose of the Shares set
forth in the 2007 Employee, Director and Consultant Stock Plan and the Incentive
Stock Option Agreement, both of which I have carefully reviewed. I
consent to the placing of a legend on my certificate for the Shares referring to
such restriction and the placing of stop transfer orders until the Shares may be
transferred in accordance with the terms of such restrictions.
I have
considered the Federal, state and local income tax implications of the exercise
of my Option and the purchase and subsequent sale of the Shares.
I am
paying the option exercise price for the Shares as follows:
Please
issue the stock certificate for the Shares (check one):
¨
to me;
or
¨
to me
and ________________, as joint tenants with right of survivorship
and mail
the certificate to me at the following address:
My
mailing address for shareholder communications, if different from the address
listed above is:
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Very
truly yours,
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Employee
(signature)
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Print
Name
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Date
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Social
Security
Number
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Exhibit
B
CONSENT OF
SPOUSE
I,
____________________________, spouse of _____________________________,
acknowledge that I have read the Incentive Stock Option Agreement dated as of
_______________, 200__ (the “Agreement”) to which this Consent is attached as
Exhibit B and that I know its contents. Capitalized terms used and
not defined herein shall have the meanings assigned to such terms in the
Agreement. I am aware that by its provisions the Shares granted to my
spouse pursuant to the Agreement are subject to a right of repurchase in favor
of InVivo Therapeutics Corporation (the “Company”) and that, accordingly, the
Company has the right to repurchase up to all of the Shares of which I may
become possessed as a result of a gift from my spouse or a court decree and/or
any property settlement in any domestic litigation.
I hereby
agree that my interest, if any, in the Shares subject to the Agreement shall be
irrevocably bound by the Agreement and further understand and agree that any
community property interest I may have in the Shares shall be similarly bound by
the Agreement.
I agree
to the repurchase right described in Section 12.2 of the Agreement and I hereby
consent to the repurchase of the Shares by the Company and the sale of the
Shares by my spouse or my spouse’s legal representative in accordance with the
provisions of the Agreement. Further, as part of the consideration
for the Agreement, I agree that at my death, if I have not disposed of any
interest of mine in the Shares by an outright bequest of the Shares to my
spouse, then the Company shall have the same rights against my legal
representative to exercise its rights of repurchase with respect to any interest
of mine in the Shares as it would have had pursuant to the Agreement if I had
acquired the Shares pursuant to a court decree in domestic
litigation.
I
AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE
AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER
SOUGHT SUCH GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT
CAREFULLY THAT I WILL WAIVE SUCH RIGHT.
Dated as
of the _______ day of ________________, 200__.
NON-QUALIFIED
STOCK OPTION AGREEMENT
INVIVO
THERAPEUTICS CORPORATION
AGREEMENT
made as of the __ day of _________ 200_, between InVivo Therapeutics Corporation
(the “Company”), a Delaware corporation having a principal place of business at
7 Fort Washington Place, Cambridge, MA 02139, and _______________ of ___________
(the “Participant”).
WHEREAS,
the Company desires to grant to the Participant an Option to purchase shares of
its common stock, $0.001 par value per share (the “Shares”), under and for the
purposes set forth in the Company’s 2007 Employee, Director and Consultant Stock
Plan (the “Plan”);
WHEREAS,
the Company and the Participant understand and agree that any terms used and not
defined herein have the same meanings as in the Plan; and
WHEREAS,
the Company and the Participant each intend that the Option granted herein shall
be a Non-Qualified Option.
NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto agree as
follows:
The
Company hereby grants to the Participant the right and option to purchase all or
any part of an aggregate of
_______________
Shares, on the terms and conditions and subject to all the limitations set forth
herein, under United States securities and tax laws, and in the Plan, which is
incorporated herein by reference. The Participant acknowledges
receipt of a copy of the Plan.
The
purchase price of the Shares covered by the Option shall be
$_____
per Share,
subject to adjustment, as provided in the Plan, in the event of a stock split,
reverse stock split or other events affecting the holders of Shares after the
date hereof (the “Purchase Price”). Payment shall be made in
accordance with Paragraph 8
of the
Plan.
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3.
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EXERCISABILITY OF
OPTION
.
|
Subject
to the terms and conditions set forth in this Agreement and the Plan, the Option
granted hereby shall become exercisable as follows: 25% of the Shares
shall vest on the first anniversary of the date of this Agreement and then the
remaining shares shall vest in equal monthly installments over the next 36
months.
The
foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
Notwithstanding the foregoing, in the
event of a Change of Control (as defined below), 100% of the Shares which would
have vested in each vesting installment remaining under this Option will be
vested for purposes of Section 23(B) of the Plan unless this Option has
otherwise expired or been terminated pursuant to its terms or the terms of the
Plan.
Change of Control
means the occurrence of any of the following events:
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(i)
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Ownership. Any
“Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becomes the “Beneficial
Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of the Company representing 50% or more of the total voting
power represented by the Company’s then outstanding voting securities
(excluding for this purpose the Company or its Affiliates or any employee
benefit plan of the Company) pursuant to a transaction or a series of
related transactions which the Board of Directors does not
approve;
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(ii)
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Merger/Sale
of Assets. A merger or consolidation of the Company whether or
not approved by the Board of Directors, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or the parent of such corporation) at least 50% of the
total voting power represented by the voting securities of the Company or
such surviving entity or parent of such corporation outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s
assets.
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The
Option shall terminate ten years from the date of this Agreement, but shall be
subject to earlier termination as provided herein or in the Plan.
If the
Participant ceases to be an employee, director or consultant of the Company or
of an Affiliate (for any reason other than the death or Disability of the
Participant or termination of the Participant for “cause” (as defined in the
Plan), the Option may be exercised, if it has not previously terminated, within
three months after the date the Participant ceases to be an employee, director
or consultant of the Company or an Affiliate, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to
the extent that the Option has become exercisable and is in effect at the date
of such cessation of employment, directorship or consultancy.
Notwithstanding
the foregoing, in the event of the Participant’s Disability or death within
three months after the termination of employment, directorship or consultancy,
the Participant or the Participant’s Survivors may exercise the Option within
one year after the date of the Participant’s termination of employment,
directorship or consultancy, but in no event after the date of expiration of the
term of the Option.
In the
event the Participant’s employment, directorship or consultancy is terminated by
the Company or an Affiliate for “cause” (as defined in the Plan), the
Participant’s right to exercise any unexercised portion of this Option shall
cease immediately as of the time the Participant is notified his or her
employment, directorship or consultancy is terminated for “cause”, and this
Option shall thereupon terminate. Notwithstanding anything herein to
the contrary, if subsequent to the Participant’s termination, but prior to the
exercise of the Option, the Board of Directors of the Company determines that,
either prior or subsequent to the Participant’s termination, the Participant
engaged in conduct which would constitute “cause,” then the Participant shall
immediately cease to have any right to exercise the Option and this Option shall
thereupon terminate.
In the
event of the Disability of the Participant, as determined in accordance with the
Plan, the Option shall be exercisable within one year after the Participant’s
termination of service or, if earlier, within the term originally prescribed by
the Option. In such event, the Option shall be
exercisable:
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(a)
|
to
the extent that the Option has become exercisable but has not been
exercised as of the date of Disability;
and
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(b)
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in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of Disability of any additional
vesting rights that would have accrued on the next vesting date had the
Participant not become Disabled. The proration shall be based
upon the number of days accrued in the current vesting period prior to the
date of Disability.
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In the
event of the death of the Participant while an employee, director or consultant
of the Company or of an Affiliate, the Option shall be exercisable by the
Participant’s Survivors within one year after the date of death of the
Participant or, if earlier, within the originally prescribed term of the
Option. In such event, the Option shall be exercisable:
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(x)
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to
the extent that the Option has become exercisable but has not been
exercised as of the date of death;
and
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(y)
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in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of death of any additional vesting
rights that would have accrued on the next vesting date had the
Participant not died. The proration shall be based upon the
number of days accrued in the current vesting period prior to the
Participant’s date of death.
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5.
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METHOD OF EXERCISING
OPTION
.
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Subject
to the terms and conditions of this Agreement, the Option may be exercised by
written notice to the Company or its designee, in substantially the form of
Exhibit A
attached hereto. Such notice shall state the number of Shares with
respect to which the Option is being exercised and shall be signed by the person
exercising the Option. Payment of the purchase price for such Shares
shall be made in accordance with Paragraph 8 of the Plan. The Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or “blue sky”
laws). The certificate or certificates for the Shares as to which the
Option shall have been so exercised shall be registered in the Company’s share
register in the name of the person so exercising the Option (or, if the Option
shall be exercised by the Participant and if the Participant shall so request in
the notice exercising the Option, shall be registered in the name of the
Participant and another person jointly, with right of survivorship) and shall be
delivered as provided above to or upon the written order of the person
exercising the Option. In the event the Option shall be exercised,
pursuant to Section 4 hereof, by any person other than the Participant, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise the Option. All Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and
nonassessable.
Exercise
of this Option to the extent above stated may be made in part at any time and
from time to time within the above limits, except that no fractional share shall
be issued pursuant to this Option.
The
Option shall not be transferable by the Employee otherwise than by will or by
the laws of descent and distribution. The Option shall be
exercisable, during the Employee’s lifetime, only by the Employee (or, in the
event of legal incapacity or incompetency, by the Employee’s guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of the Option or of any
rights granted hereunder contrary to the provisions of this Section 7, or the
levy of any attachment or similar process upon the Option shall be null and
void.
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8.
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NO RIGHTS AS
STOCKHOLDER UNTIL EXERCISE
.
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The
Participant shall have no rights as a stockholder with respect to Shares subject
to this Agreement until registration of the Shares in the Company’s share
register in the name of the Participant. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such
registration.
The Plan
contains provisions covering the treatment of Options in a number of
contingencies such as stock splits and mergers. Provisions in the
Plan for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
The
Participant acknowledges that upon exercise of the Option the Participant will
be deemed to have taxable income measured by the difference between the then
fair market value of the Shares received upon exercise and the price paid for
such Shares pursuant to this Agreement. The Participant acknowledges
that any income or other taxes due from him or her with respect to this Option
or the Shares issuable pursuant to this Option shall be the Participant’s
responsibility.
The
Participant agrees that the Company may withhold from the Participant’s
remuneration, if any, the minimum statutory amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includable in such person’s gross income. At the Company’s
discretion, the amount required to be withheld may be withheld in cash from such
remuneration, or in kind from the Shares otherwise deliverable to the
Participant on exercise of the Option. The Participant further agrees
that, if the Company does not withhold an amount from the Participant’s
remuneration sufficient to satisfy the Company’s income tax withholding
obligation, the Participant will reimburse the Company on demand, in cash, for
the amount under-withheld.
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11.
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PURCHASE FOR
INVESTMENT
.
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Unless
the offering and sale of the Shares to be issued upon the particular exercise of
the Option shall have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended (the “1933 Act”), the Company shall
be under no obligation to issue the Shares covered by such exercise unless and
until the following conditions have been fulfilled:
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(a)
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The
person(s) who exercise the Option shall warrant to the Company, at the
time of such exercise, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a view to, or
for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the certificate(s)
evidencing the Shares issued pursuant to such
exercise:
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“The
shares represented by this certificate have been taken for investment and they
may not be sold or otherwise transferred by any person, including a pledgee,
unless (1) either (a) a Registration Statement with respect to such shares shall
be effective under the Securities Act of 1933, as amended, or (b) the Company
shall have received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws;” and
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(b)
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If
the Company so requires, the Company shall have received an opinion of its
counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration
thereunder. Without limiting the generality of the foregoing,
the Company may delay issuance of the Shares until completion of any
action or obtaining of any consent, which the Company deems necessary
under any applicable law (including without limitation state securities or
“blue sky” laws).
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12.
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RESTRICTIONS ON
TRANSFER OF SHARES
.
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12.1 The
Shares acquired by the Participant pursuant to the exercise of the Option
granted hereby shall not be transferred by the Participant except as permitted
herein
12.2 In
the event of the Participant’s termination of service for any reason, the
Company shall have the option, but not the obligation, to repurchase all or any
part of the Shares issued pursuant to this Agreement (including, without
limitation, Shares purchased after termination of employment, Disability or
death in accordance with Section 4 hereof). In the event the Company
does not, upon the termination of service of the Participant (as described
above), exercise its option pursuant to this Section 12.2, the restrictions set
forth in the balance of this Agreement shall not thereby lapse, and the
Participant for himself or herself, his or her heirs, legatees, executors,
administrators and other successors in interest, agrees that the Shares shall
remain subject to such restrictions. The following provisions shall
apply to a repurchase under this Section 12.2:
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(i)
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The
per share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to the Fair
Market Value of each such Share determined in accordance with the Plan as
of the date of termination of service provided, however, in the event of a
termination by the Company for “cause” (as defined in the Plan), the per
share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to the
$.01.
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(ii)
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The
Company’s option to repurchase the Participant’s Shares in the event of
termination of service shall be valid for a period of 18 months commencing
with the date of such termination of
service.
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(iii)
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In
the event the Company shall be entitled to and shall elect to exercise its
option to repurchase the Participant’s Shares under this Section 12.2, the
Company shall notify the Participant, or in case of death, his or her
Survivor, in writing of its intent to repurchase the
Shares. Such written notice may be mailed by the Company up to
and including the last day of the time period provided for in Section
12.2(ii) for exercise of the Company’s option to
repurchase.
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(iv)
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The
written notice to the Participant shall specify the address at, and the
time and date on, which payment of the repurchase price is to be made (the
“Closing”). The date specified shall not be less than ten days
nor more than 60 days from the date of the mailing of the notice, and the
Participant or his or her successor in interest with respect to the Shares
shall have no further rights as the owner thereof from and after the date
specified in the notice. At the Closing, the repurchase price
shall be delivered to the Participant or his or her successor in interest
and the Shares being purchased, duly endorsed for transfer, shall, to the
extent that they are not then in the possession of the Company, be
delivered to the Company by the Participant or his or her successor in
interest.
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12.3 It
shall be a condition precedent to the validity of any sale or other transfer of
any Shares by the Participant that the following restrictions be complied with
(except as hereinafter otherwise provided):
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(i)
|
No
Shares owned by the Participant may be sold, pledged or otherwise
transferred (including by gift or devise) to any person or entity,
voluntarily, or by operation of law, except in accordance with the terms
and conditions hereinafter set
forth.
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(ii)
|
Before
selling or otherwise transferring all or part of the Shares, the
Participant shall give written notice of such intention to the Company,
which notice shall include the name of the proposed transferee, the
proposed purchase price per share, the terms of payment of such purchase
price and all other matters relating to such sale or transfer and shall be
accompanied by a copy of the binding written agreement of the proposed
transferee to purchase the Shares of the Participant. Such
notice shall constitute a binding offer by the Participant to sell to the
Company such number of the Shares then held by the Participant as are
proposed to be sold in the notice at the monetary price per share
designated in such notice, payable on the terms offered to the Participant
by the proposed transferee (provided, however, that the Company shall not
be required to meet any non-monetary terms of the proposed transfer,
including, without limitation, delivery of other securities in exchange
for the Shares proposed to be sold). The Company shall give
written notice to the Participant as to whether such offer has been
accepted in whole by the Company within sixty days after its receipt of
written notice from the Participant. The Company may only
accept such offer in whole and may not accept such offer in
part. Such acceptance notice shall fix a time, location and
date for the closing on such purchase (“Closing Date”) which shall not be
less than ten nor more than sixty days after the giving of the acceptance
notice. The place for such closing shall be at the Company’s
principal office. At such closing, the Participant shall accept
payment as set forth herein and shall deliver to the Company in exchange
therefor certificates for the number of Shares stated in the notice
accompanied by duly executed instruments of
transfer.
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(iii)
|
If
the Company shall fail to accept any such offer, the Participant shall be
free to sell all, but not less than all, of the Shares set forth in his or
her notice to the designated transferee at the price and terms designated
in the Participant’s notice, provided that (i) such sale is consummated
within six months after the giving of notice by the Participant to the
Company as aforesaid, and (ii) the transferee first agrees in writing to
be bound by the provisions of this Section 12 so that such transferee (and
all subsequent transferees) shall thereafter only be permitted to sell or
transfer the Shares in accordance with the terms hereof. After
the expiration of such six months, the provisions of this Section 12.3
shall again apply with respect to any proposed voluntary transfer of the
Participant’s Shares.
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(iv)
|
The
provisions of this Section 12.3 may be waived by the
Company. Any such waiver may be unconditional or based upon
such conditions as the Company may
impose.
|
12.4 In
the event that the Participant or his or her successor in interest fails to
deliver the Shares to be repurchased by the Company under this Agreement, the
Company may elect (a) to establish a segregated account in the amount of
the repurchase price, such account to be turned over to the Participant or his
or her successor in interest upon delivery of such Shares, and
(b) immediately to take such action as is appropriate to transfer record
title of such Shares from the Participant to the Company and to treat the
Participant and such Shares in all respects as if delivery of such Shares had
been made as required by this Agreement. The Participant hereby
irrevocably grants the Company a power of attorney which shall be coupled with
an interest for the purpose of effectuating the preceding sentence.
12.5 If
the Company shall pay a stock dividend or declare a stock split on or with
respect to any of its Common Stock, or otherwise distribute securities of the
Company to the holders of its Common Stock, the number of shares of stock or
other securities of Company issued with respect to the shares then subject to
the restrictions contained in this Agreement shall be added to the Shares
subject to the Company’s rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares
of stock of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company’s rights to repurchase pursuant to this Agreement.
12.6 If
the outstanding shares of Common Stock of the Company shall be subdivided into a
greater number of shares or combined into a smaller number of shares, or in the
event of a reclassification of the outstanding shares of Common Stock of the
Company, or if the Company shall be a party to a merger, consolidation or
capital reorganization, there shall be substituted for the Shares then subject
to the restrictions contained in this Agreement such amount and kind of
securities as are issued in such subdivision, combination, reclassification,
merger, consolidation or capital reorganization in respect of the Shares subject
immediately prior thereto to the Company’s rights to repurchase pursuant to this
Agreement.
12.7 The
Company shall not be required to transfer any Shares on its books which shall
have been sold, assigned or otherwise transferred in violation of this
Agreement, or to treat as owner of such Shares, or to accord the right to vote
as such owner or to pay dividends to, any person or organization to which any
such Shares shall have been so sold, assigned or otherwise transferred, in
violation of this Agreement.
12.8 The
provisions of Sections 12.1, 12.2 and 12.3 shall terminate upon the consummation
of a public offering of any of the Company’s securities pursuant to a
registration statement filed with the Securities and Exchange Commission
pursuant to the 1933 Act, in which offering the aggregate gross proceeds to the
Company exceed $10,000,000 and in which the price per share of such securities
equals or exceeds $5.00 (such price subject to equitable adjustment in the event
of any stock split, stock dividend, combination, reorganization,
reclassification or other similar event).
12.9 If,
in connection with a registration statement filed by the Company pursuant to the
1933 Act, the Company or its underwriter so requests, the Participant will agree
not to sell any Shares for a period not to exceed 180 days following the
effectiveness of such registration.
12.10 The
Participant acknowledges and agrees that neither the Company, its shareholders
nor its directors and officers, has any duty or obligation to disclose to the
Participant any material information regarding the business of the Company or
affecting the value of the Shares before, at the time of, or following a
termination of the employment of the Participant by the Company, including,
without limitation, any information concerning plans for the Company to make a
public offering of its securities or to be acquired by or merged with or into
another firm or entity.
12.11 All
certificates representing the Shares to be issued to the Participant pursuant to
this Agreement shall have endorsed thereon a legend substantially as
follows: “The shares represented by this certificate are subject to
restrictions set forth in a Non-Qualified Stock Option Agreement dated ________,
200__ with this Company, a copy of which Agreement is available for inspection
at the offices of the Company or will be made available upon
request.”
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13.
|
NO OBLIGATION TO
MAINTAIN RELATIONSHIP
.
|
The
Company is not by the Plan or this Option obligated to continue the Participant
as an employee, director or consultant of the Company or an
Affiliate. The Participant acknowledges: (i) that the Plan
is discretionary in nature and may be suspended or terminated by the Company at
any time; (ii) that the grant of the Option is a one-time benefit which does not
create any contractual or other right to receive future grants of options, or
benefits in lieu of options; (iii) that all determinations with respect to any
such future grants, including, but not limited to, the times when options shall
be granted, the number of shares subject to each option, the option price, and
the time or times when each option shall be exercisable, will be at the sole
discretion of the Company; (iv) that the Participant’s participation in the Plan
is voluntary; (v) that the value of the Option is an extraordinary item of
compensation which is outside the scope of the Participant’s employment
contract, if any; and (vi) that the Option is not part of normal or expected
compensation for purposes of calculating any severance, resignation, redundancy,
end of service payments, bonuses, long-service awards, pension or retirement
benefits or similar payments.
Any
notices required or permitted by the terms of this Agreement or the Plan shall
be given by recognized courier service, facsimile, registered or certified mail,
return receipt requested, addressed as follows:
If to the
Company:
InVivo
Therapeutics Corporation
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7
Fort Washington Place
|
Cambridge,
MA 02139
|
Attn:
President
|
If to the
Participant:
or to
such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been
given upon the earlier of receipt, one business day following delivery to a
recognized courier service or three business days following mailing by
registered or certified mail.
This
Agreement shall be construed and enforced in accordance with the law of the
State of Delaware, without giving effect to the conflict of law principles
thereof. For the purpose of litigating any dispute that arises under
this Agreement, the parties hereby consent to exclusive jurisdiction in the
Commonwealth of Massachusetts and agree that such litigation shall be conducted
in the courts of Middlesex County, Commonwealth of Massachusetts
or the federal courts of
the United States for the District of Massachusetts.
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16.
|
BENEFIT OF
AGREEMENT
.
|
Subject
to the provisions of the Plan and the other provisions hereof, this Agreement
shall be for the benefit of and shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties hereto.
This
Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement not expressly set forth in this Agreement shall
affect or be used to interpret, change or restrict, the express terms and
provisions of this Agreement, provided, however, in any event, this Agreement
shall be subject to and governed by the Plan.
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18.
|
MODIFICATIONS AND
AMENDMENTS
.
|
The terms
and provisions of this Agreement may be modified or amended as provided in the
Plan.
|
19.
|
WAIVERS AND
CONSENTS
.
|
Except as
provided in the Plan, the terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or provisions of
this Agreement, whether or not similar. Each such waiver or consent
shall be effective only in the specific instance and for the purpose for which
it was given, and shall not constitute a continuing waiver or
consent.
20.
DATA
PRIVACY
.
By
entering into this Agreement, the Participant: (i) authorizes the
Company and each Affiliate, and any agent of the Company or any Affiliate
administering the Plan or providing Plan record keeping services, to disclose to
the Company or any of its Affiliates such information and data as the Company or
any such Affiliate shall request in order to facilitate the grant of options and
the administration of the Plan; (ii) waives any data privacy rights he or she
may have with respect to such information; and (iii) authorizes the Company and
each Affiliate to store and transmit such information in electronic
form.
If the
Participant is married as of the date of this Agreement, the Participant’s
spouse shall execute a Consent of Spouse in the form of
Exhibit B
hereto,
effective as of the date hereof. Such consent shall not be deemed to
confer or convey to the spouse any rights in the Shares that do not otherwise
exist by operation of law or the agreement of the parties. If the
Participant marries or remarries subsequent to the date hereof, the Participant
shall, not later than 60 days thereafter, obtain his or her new spouse’s
acknowledgement of and consent to the existence and binding effect of Section
12.2 of this Agreement by such spouse’s executing and delivering a Consent of
Spouse in the form of Exhibit B.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Participant has hereunto set his or her hand,
all as of the day and year first above written.
InVivo
Therapeutics Corporation
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By:
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Name
|
|
Title
|
|
|
Participant
|
Exhibit
A
NOTICE OF
EXERCISE OF NON-QUALIFIED STOCK OPTION
[Form
for Unregistered Shares]
To: InVivo
Therapeutics Corporation
Ladies
and Gentlemen:
I hereby
exercise my Non-Qualified Stock Option to purchase __________ shares (the
“Shares”) of the common stock, $0.001 par value, of InVivo Therapeutics
Corporation (the “Company”), at the exercise price of $_____ per share, pursuant
to and subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated ________, 200_.
I am
aware that the Shares have not been registered under the Securities Act of 1933,
as amended (the “1933 Act”), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.
I hereby
represent and warrant that (1) I have been furnished with all information which
I deem necessary to evaluate the merits and risks of the purchase of the Shares;
(2) I have had the opportunity to ask questions concerning the Shares and
the Company and all questions posed have been answered to my satisfaction; (3) I
have been given the opportunity to obtain any additional information I deem
necessary to verify the accuracy of any information obtained concerning the
Shares and the Company; and (4) I have such knowledge and experience in
financial and business matters that I am able to evaluate the merits and risks
of purchasing the Shares and to make an informed investment decision relating
thereto.
I hereby
represent and warrant that I am purchasing the Shares for my own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares.
I
understand that because the Shares have not been registered under the 1933 Act,
I must continue to bear the economic risk of the investment for an indefinite
time and the Shares cannot be sold unless the Shares are subsequently registered
under applicable federal and state securities laws or an exemption from such
registration requirements is available.
I agree
that I will in no event sell or distribute or otherwise dispose of all or any
part of the Shares unless (1) there is an effective registration statement under
the 1933 Act and applicable state securities laws covering any such transaction
involving the Shares or (2) the Company receives an opinion of my legal counsel
(concurred in by legal counsel for the Company) stating that such transaction is
exempt from registration or the Company otherwise satisfies itself that such
transaction is exempt from registration.
I consent
to the placing of a legend on my certificate for the Shares stating that the
Shares have not been registered and setting forth the restriction on transfer
contemplated hereby and to the placing of a stop transfer order on the books of
the Company and with any transfer agents against the Shares until the Shares may
be legally resold or distributed without restriction.
I
understand that at the present time Rule 144 of the Securities and Exchange
Commission (the “SEC”) may not be relied on for the resale or distribution of
the Shares by me. I understand that the Company has no obligation to
me to register the sale of the Shares with the SEC and has not represented to me
that it will register the sale of the Shares.
I
understand the terms and restrictions on the right to dispose of the Shares set
forth in the 2007 Employee, Director and Consultant Stock Plan and the
Non-Qualified Stock Option Agreement, both of which I have carefully
reviewed. I consent to the placing of a legend on my certificate for
the Shares referring to such restriction and the placing of stop transfer orders
until the Shares may be transferred in accordance with the terms of such
restrictions.
I have
considered the Federal, state and local income tax implications of the exercise
of my Option and the purchase and subsequent sale of the Shares.
I am
paying the option exercise price for the Shares as follows:
Please
issue the stock certificate for the Shares (check one):
¨
to me;
or
¨
to me
and ________________, as joint tenants with right of
survivorship
and mail
the certificate to me at the following address:
My mailing address for shareholder
communications, if different from the address listed above is:
Very
truly yours,
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|
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Participant
(signature)
|
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Print
Name
|
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Date
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Social
Security
Number
|
Exhibit
B
CONSENT OF
SPOUSE
I,
____________________________, spouse of _____________________________,
acknowledge that I have read the Non-Qualified Stock Option Agreement dated as
of _______________, 200__ (the “Agreement”) to which this Consent is attached as
Exhibit B and that I know its contents. Capitalized terms used and
not defined herein shall have the meanings assigned to such terms in the
Agreement. I am aware that by its provisions the Shares granted to my
spouse pursuant to the Agreement are subject to a right of repurchase in favor
of InVivo Therapeutics Corporation (the “Company”) and that, accordingly, the
Company has the right to repurchase up to all of the Shares of which I may
become possessed as a result of a gift from my spouse or a court decree and/or
any property settlement in any domestic litigation.
I hereby
agree that my interest, if any, in the Shares subject to the Agreement shall be
irrevocably bound by the Agreement and further understand and agree that any
community property interest I may have in the Shares shall be similarly bound by
the Agreement.
I agree
to the repurchase right described in Section 12.2 of the Agreement and I hereby
consent to the repurchase of the Shares by the Company and the sale of the
Shares by my spouse or my spouse’s legal representative in accordance with the
provisions of the Agreement. Further, as part of the consideration
for the Agreement, I agree that at my death, if I have not disposed of any
interest of mine in the Shares by an outright bequest of the Shares to my
spouse, then the Company shall have the same rights against my legal
representative to exercise its rights of repurchase with respect to any interest
of mine in the Shares as it would have had pursuant to the Agreement if I had
acquired the Shares pursuant to a court decree in domestic
litigation.
I
AM AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE
AGREEMENT ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL
GUIDANCE OR COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER
SOUGHT SUCH GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT
CAREFULLY THAT I WILL WAIVE SUCH RIGHT.
Dated as
of the _______ day of ________________, 200__.
INVIVO
THERAPEUTICS CORPORATION
SCIENTIFIC
ADVISORY BOARD AGREEMENT
This Scientific Advisory Board
Agreement (this “Agreement”) between [insert name], having an address at [insert
address] (the “Member”), and InVivo Therapeutics Corporation, (the “Company”), a
Delaware corporation having a principal place of business at One Broadway
14
th
Floor, Cambridge, MA 02142, is made effective as of September 25, 2008 (the
“Effective Date”). In connection with the appointment of the Member
to the Advisory Board (the “SAB”) of the Company and the mutual promises of the
parties hereunder, it is agreed as follows:
1.
General
. The
Company hereby retains the Member, and the Member hereby agrees, to serve as a
member of the SAB and to consult with the Company in its Field of Interest (such
services and consultation being herein referred to as the
“Services”). The term “Field of Interest” currently means
neurological disease.
The Company may modify
the definition of Field of Interest by written notice to the Member based on the
activities in which the Company is then engaged or in which the Company then
proposes to be engaged.
2.
Performance
of Services
. As of the Effective Date, the Member agrees to
make himself or herself available to render the Services, from time to time at
the request of the Company, at such time or times and location or locations as
may be mutually agreed. The Member agrees to devote his or her best
efforts to the performance of the Services. The Member agrees that,
at the request of the Company, he or she shall devote at least 10 hour per month
to the performance of the Services (including attendance at meetings of the
SAB). In connection therewith, the Company shall have the right to
publicize the Member’s affiliation with the Company.
3.
Compensation
. For
the full, prompt and faithful performance of the Services, the Company shall
grant the Member an option to purchase up to [insert]
([insert]) shares of the Company’s common stock, $0.001 par value per
share, at a purchase price of $1.00 per share (the “Option”). The Option shall
be subject to and governed by the Non-Qualified Stock Option Agreement attached
hereto as
Exhibit
A
(the “Option Agreement”). Subject to the terms and
conditions set forth in this Option Agreement, including Member’s continued
services as a member of the SAB, the Option granted hereby shall become
exercisable as follows: 25% of the Shares shall vest on the first
anniversary of the date of the Option Agreement, 25% of the Shares shall vest on
the second anniversary of the date of the Option Agreement, 25% of the Shares
shall vest on the third anniversary of the date of the Option Agreement and the
remaining 25% of the Shares shall vest on the fourth anniversary of the date of
the Option Agreement
.
4.
Principal
Institution
. The Company recognizes that the activities of the
Member are or will be subject to the rules and regulations of [insert] (the
“Principal Institution”), now or in the future, and the Company agrees that
Member shall be under no obligation to perform Services if such performance
would conflict with such rules and regulations. In the event such
rules and regulations shall, in the Company’s opinion, substantially interfere
with the performance of Services by the Member, the Company may terminate this
Agreement upon thirty (30) days notice to the Member.
5.
Term
. The
Member’s performance of Services shall commence on the Effective Date of this
Agreement and, unless terminated earlier, this Agreement shall continue for a
period of four (4) years thereafter, and shall automatically be extended for an
additional period or periods of one year (such period, including any extension
of such period, the “Term”), unless either the Member or the Company terminates
this Agreement pursuant to Sections 4 or 6 hereof.
6.
Termination;
Effect of Termination
. This Agreement may be terminated by
either party at any time upon sixty (60) days prior written notice. If either
party breaches any of its material obligations under this Agreement in any
material respect, the non-breaching party may terminate this Agreement (in
addition to any other available remedy), in the event that such breach is not
cured within ten (10) days after receipt by such party of written notice
thereof.
Such
termination shall not relieve the Member or the Company of any obligations
hereunder which by their terms are intended to survive the termination of the
Member’s association with the Company, including, but not limited to, the
obligations of Sections 7, 9, 10, 11, 12, 17 and 18.
Upon
termination of this Agreement for any reason, the Member shall promptly deliver
to the Company any and all property of the Company or its customers, licensees,
licensors, or affiliates which may be in his or her possession or control
including, without limitation, products, cell lines, materials, memoranda,
notes, diskettes, records, reports, laboratory notebooks, or other documents or
photocopies of the same.
7.
Non-competition
. So
long as this Agreement continues in effect and for a period of two (2) years
following termination of this Agreement, the Member shall not, without the prior
written approval of the Company, alone or as a partner, officer, director,
consultant, employee, stockholder or otherwise, engage in any commercial
employment, consulting or business activity, occupation or other activity that
is or is intended to be competitive with the business of the Company in its
Field of Interest;
provided
,
however
, that the
Member’s academic research and teaching activities at the Principal Institution
shall in no event be deemed a violation of this provision and that the holding
by the Member of any investment in any security shall not be deemed to be a
violation of this Section 7 if such investment does not constitute over five
percent (5%) of the outstanding issue of such security.
8.
Independent
Contractor
. It is understood and agreed, that the Member is an
independent contractor and that neither this Agreement nor the rendering of the
Services shall for any purpose whatsoever or in any way or manner create any
employer-employee relationship between the parties. The Member shall
not be entitled to any fringe benefits generally provided to employees of the
Company and the Company shall not be required to maintain workers’ compensation
coverage for the Member.
9.
Inventions
. The
Member shall promptly disclose to the Company, and hereby assigns and agrees to
assign to the Company (or as otherwise directed by the Company), his or her full
right, title and interest to all Inventions (as defined below). The
Member agrees, without charge, to cooperate fully with the Company, its
attorneys and agents, in the preparation and filing of all papers and other
documents as may be required to perfect the Company’s rights in and to any of
such Inventions, including, but not limited to, execution of any and all
applications for domestic and foreign patents, copyrights or other proprietary
rights and the performance of such other acts (including, among others, the
execution and delivery of instruments of further assurance or confirmation)
requested by the Company to assign the Inventions to the Company and to permit
the Company to file, obtain and enforce any patents, copyrights or other
proprietary rights in the Inventions. The Member hereby designates
the Company as his or her agent, and grants to the Company a power of attorney
with full power of substitution, which power of attorney shall be deemed coupled
with an interest, for the purpose of effecting any such assignment hereunder
from the Member to the Company. “Inventions” shall mean, for purposes
of this paragraph, ideas, discoveries, creations, manuscripts and properties,
innovations, improvements, know-how, inventions, trade secrets, apparatus,
developments, techniques, methods, biological processes, cell lines, laboratory
notebooks and formulas (whether or not patentable or copyrightable or
constituting trade secrets) conceived, made or discovered by the Member (whether
alone or with others) within the Company’s Field of Interest as a direct result
of consulting with the Company under this Agreement and/or a direct result of
Confidential Information (as defined in Section 10 hereof) received from the
Company. In no event, however, shall the Member’s obligations
hereunder relate to any right, title or interest that the Member may have in
inventions, discoveries, developments, methods and processes (whether or not
patentable or copyrightable or constituting trade secrets) conceived, made or
discovered by the Member (whether alone or with others) with the use of
facilities or fundings of the Principal Institution and that the Member is
required to assign to his or her Principal Institution pursuant to the rules and
regulations of such Principal Institution. Upon termination of this
Agreement with the Company, the Member shall provide to the Company in writing a
full, signed statement of all Inventions in which the Member participated prior
to termination of this Agreement.
10.
Confidentiality
.
During the period of this Agreement, the Member will be exposed to certain
information concerning the Company’s research, business, Inventions, products,
proposed new products, designs, clinical testing programs, manufacturing
processes and techniques, customers, and other information and materials that
embody trade secrets or technical or business information that is confidential
and proprietary to the Company and is not generally known to the public
(collectively, “Confidential Information”). The Member hereby agrees
not to disclose, except to Company employees and representatives, or otherwise
make use of, or allow others to use, any Confidential Information without the
Company’s prior written consent, unless such information becomes publicly
available, through no fault of the Member. The Member further agrees
not to make any notes or memoranda relating to the business of the Company other
than for the benefit of the Company and not to use or permit to be used at any
time any such notes or memoranda other than for the benefit of the Company. In
addition, the Member agrees, promptly upon the Company’s request, whether during
or after the Term, to return to the Company or destroy any and all documentary,
machine-readable or other elements or evidence of Confidential Information and
any copies that may be in the Member’s possession or under the Member’s
control.
11.
Injunctive
Relief
. The Member agrees that any breach of this Agreement by
him or her could cause irreparable damage to the Company and that in the event
of such breach the Company shall have the right to obtain injunctive relief,
including, without limitation, specific performance or other equitable relief to
prevent the violation of his or her obligations hereunder. It is
expressly understood and agreed that nothing herein contained shall be construed
as prohibiting the Company from pursuing any other remedies available for such
breach or threatened breach, including, without limitation, the recovery of
damages by the Company.
12.
Publications
. The
Member agrees that he or she will not at any time publish any Confidential
Information that becomes known to him or her as a result of his or her
relationship with the Company which is, or pursuant to the terms hereof becomes,
the property of the Company or any of its clients, customers, consultants,
licensors, licensees, or affiliates except to such extent as may be necessary in
the ordinary course of performing in good faith his or her duties as a member of
the SAB of the Company and with the prior written consent of the
Company.
During
the Term and for a period of two (2) years thereafter, the Member agrees to
submit to the Company for a period not to exceed sixty (60) days (the “Review
Period”) a copy of any proposed manuscript or other materials to be published or
otherwise publicly disclosed by the Member (each a “Proposed Publication”) which
contains information relating to the Field of Interest or any other area in
which the Member has performed Services, in sufficient time to enable the
Company to determine if patentable Inventions or Confidential Information of the
Company would be disclosed.
During
the Review Period, the Company will notify the Member whether the Company
desires to file a patent application on any Invention disclosed in the Proposed
Publication. In the event the Company desires that such a patent
application be filed, the Member will delay publication or disclosure of the
Proposed Publication until the first to occur of the following: (a) the filing
of a patent application covering such Invention, (b) the agreement by the
Company and the Member that no Invention is disclosed in such materials, or (c)
ninety (90) days after the date that the Proposed Publication was received by
the Company from the Member. Further, if the Company reports to the
Member that the Proposed Publication contains Confidential Information of the
Company, the Member will remove such Confidential Information therein prior to
any publication or disclosure thereof.
13.
No
Conflicting Agreements
. The Member represents and warrants
that, other than those set forth on
Schedule A
attached
hereto, he or she is not a party to any commitments or obligations inconsistent
with this Agreement and hereby agrees to indemnify and hold the Company harmless
against any claim based upon circumstances alleged to be inconsistent with such
representation and warranty. During the Term, the Member will not
enter into any agreement either written or oral in conflict with this Agreement
and will arrange to provide the Services in such a manner and at times that the
Services will not conflict with his or her responsibilities under any other
agreement, arrangement or understanding or pursuant to any employment
relationship he or she has at any time with any third party.
14.
Notices
. All
notices and other communications hereunder shall be delivered or sent by
facsimile transmission, recognized courier service, registered or certified
mail, return receipt requested, addressed to the party at the address set forth
on the signature page hereof, or to such other address as such party may
designate in writing to the other. Such notice or communication shall
be deemed to have been given as of the date sent by the facsimile or delivered
to a recognized courier service, or three days following the date deposited with
the United States Postal Service.
15.
Successors
and Assigns
. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective legal representatives,
successors and permitted assigns. The Member agrees that the Company
may assign this Agreement, in whole or in part, to any person or entity
controlled by, in control of, or under common control with, the Company, and to
any purchaser of all or substantially all of its assets or such portion of its
assets to which this Agreement relates, or to any successor corporation
resulting from any merger or consolidation of the Company with or into such
corporation. The Member may not assign or transfer this Agreement or any of his
or her rights or obligations hereunder. In no event shall the Member
assign or delegate responsibility for actual performance of the Services to any
other person or entity without the prior written consent of the
Company.
16.
Entire
Agreement
. This Agreement constitutes the entire agreement
between the parties as to the subject matter hereof. No provision of
this Agreement shall be waived, altered or cancelled except in writing signed by
the party against whom such waiver, alteration or cancellation is
asserted. Any such waiver shall be limited to the particular instance
and the particular time when and for which it is given.
17.
Governing
Law
. This Agreement shall be governed by and construed in
accordance with the internal laws of the Commonwealth of
Massachusetts.
18.
Acknowledgement
of no other Capital Stock
. Member hereby acknowledges and
agrees that except as specified herein, as of the date hereof the Member has not
been issued nor does he have a claim for nor is entitled to any capital stock or
other equity interest in the Company, for any reason whatsoever.
19.
Enforceability
. The
invalidity or unenforceability of any provision hereof as to an obligation of a
party shall in no way affect the validity or enforceability of any other
provision of this Agreement, provided that if such invalidity or
unenforceability materially adversely affects the benefits the other party
reasonably expected to receive hereunder, that party shall have the right to
terminate this Agreement. Moreover, if one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to scope, activity or subject so as to be unenforceable at law, such
provision or provisions shall be construed by limiting or reducing it or them,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear.
20.
Construction
. This
Agreement has been prepared jointly and shall not be strictly construed against
either Party.
21.
Counterparts
. This
Agreement may be executed in counterparts, each of which will be deemed an
original, but all of which together will constitute one
agreement.
IN
WITNESS WHEREOF, the parties hereto have duly executed Agreement as a sealed
instrument as of the day and year first above written.
INVIVO
THERAPEUTICS CORPORATION
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By:
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Frank
Reynolds, CEO & President
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Schedule
A
Conflicting
Agreements
Exhibit
A
NON-QUALIFIED
STOCK OPTION AGREEMENT
INVIVO
THERAPEUTICS CORPORATION
AGREEMENT
made as of the 25th day of September 2008, between InVivo Therapeutics
Corporation (the “Company”), a Delaware corporation having a principal place of
business at One Broadway 14th Floor, Cambridge, MA 02142, and [insert], having
an address at [insert] (the “Participant”).
WHEREAS,
the Company desires to grant to the Participant an Option to purchase shares of
its common stock, $0.001 par value per share (the “Shares”), under and for the
purposes set forth in the Company’s 2007 Employee, Director and Consultant Stock
Plan (the “Plan”);
WHEREAS,
the Company and the Participant understand and agree that any terms used and not
defined herein have the same meanings as in the Plan; and
WHEREAS,
the Company and the Participant each intend that the Option granted herein shall
be a Non-Qualified Option.
NOW,
THEREFORE, in consideration of the mutual covenants hereinafter set forth and
for other good and valuable consideration, the parties hereto agree as
follows:
The
Company hereby grants to the Participant the right and option to purchase all or
any part of an aggregate of [insert] ([insert]) Shares, on the terms and
conditions and subject to all the limitations set forth herein, under United
States securities and tax laws, and in the Plan, which is incorporated herein by
reference. The Participant acknowledges receipt of a copy of the
Plan.
The
purchase price of the Shares covered by the Option shall be $1.00 per Share,
subject to adjustment, as provided in the Plan, in the event of a stock split,
reverse stock split or other events affecting the holders of Shares after the
date hereof (the “Purchase Price”). Payment shall be made in
accordance with Paragraph 8
of the
Plan.
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3.
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EXERCISABILITY OF
OPTION
.
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Subject
to the terms and conditions set forth in this Agreement and the Plan, the Option
granted hereby shall become exercisable as follows: 25% of the Shares
shall vest on the first anniversary of the date of this
agreement, 25% of the Shares shall vest on the second anniversary of
the date of this Agreement, 25% of the Shares shall vest on the third
anniversary of the date of this Agreement and the remaining 25% of the Shares
shall vest on the fourth anniversary of the date of this
Agreement.
The
foregoing rights are cumulative and are subject to the other terms and
conditions of this Agreement and the Plan.
Notwithstanding the
foregoing, in the event of a Change of Control (as defined below), 100% of the
Shares which would have vested in each vesting installment remaining under this
Option will be vested for purposes of Section 23(B) of the Plan unless this
Option has otherwise expired or been terminated pursuant to its terms or the
terms of the Plan.
Change of Control
means the occurrence of any of the following events:
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(i)
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Ownership. Any
“Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becomes the “Beneficial
Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly,
of securities of the Company representing 50% or more of the total voting
power represented by the Company’s then outstanding voting securities
(excluding for this purpose the Company or its Affiliates or any employee
benefit plan of the Company) pursuant to a transaction or a series of
related transactions which the Board of Directors does not
approve;
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(ii)
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Merger/Sale
of Assets. A merger or consolidation of the Company whether or
not approved by the Board of Directors, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity or the parent of such corporation) at least 50% of the
total voting power represented by the voting securities of the Company or
such surviving entity or parent of such corporation outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s
assets.
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The
Option shall terminate ten years from the date of this Agreement, but shall be
subject to earlier termination as provided herein or in the Plan.
If the
Participant ceases to be an employee, director or consultant of the Company or
of an Affiliate (for any reason other than the death or Disability of the
Participant or termination of the Participant for “cause” (as defined in the
Plan)), the Option may be exercised, if it has not previously terminated, within
three months after the date the Participant ceases to be an employee, director
or consultant of the Company or an Affiliate, or within the originally
prescribed term of the Option, whichever is earlier, but may not be exercised
thereafter. In such event, the Option shall be exercisable only to
the extent that the Option has become exercisable and is in effect at the date
of such cessation of employment, directorship or consultancy.
Notwithstanding
the foregoing, in the event of the Participant’s Disability or death within
three months after the termination of employment, directorship or consultancy,
the Participant or the Participant’s Survivors may exercise the Option within
one year after the date of the Participant’s termination of employment,
directorship or consultancy, but in no event after the date of expiration of the
term of the Option.
In the
event the Participant’s employment, directorship or consultancy is terminated by
the Company or an Affiliate for “cause” (as defined in the Plan), the
Participant’s right to exercise any unexercised portion of this Option shall
cease immediately as of the time the Participant is notified his or her
employment, directorship or consultancy is terminated for “cause”, and this
Option shall thereupon terminate. Notwithstanding anything herein to
the contrary, if subsequent to the Participant’s termination, but prior to the
exercise of the Option, the Board of Directors of the Company determines that,
either prior or subsequent to the Participant’s termination, the Participant
engaged in conduct which would constitute “cause,” then the Participant shall
immediately cease to have any right to exercise the Option and this Option shall
thereupon terminate.
In the
event of the Disability of the Participant, as determined in accordance with the
Plan, the Option shall be exercisable within one year after the Participant’s
termination of service or, if earlier, within the term originally prescribed by
the Option. In such event, the Option shall be
exercisable:
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(a)
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to
the extent that the Option has become exercisable but has not been
exercised as of the date of Disability;
and
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(b)
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in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of Disability of any additional
vesting rights that would have accrued on the next vesting date had the
Participant not become Disabled. The proration shall be based
upon the number of days accrued in the current vesting period prior to the
date of Disability.
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In the
event of the death of the Participant while an employee, director or consultant
of the Company or of an Affiliate, the Option shall be exercisable by the
Participant’s Survivors within one year after the date of death of the
Participant or, if earlier, within the originally prescribed term of the
Option. In such event, the Option shall be exercisable:
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(x)
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to
the extent that the Option has become exercisable but has not been
exercised as of the date of death;
and
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(y)
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in
the event rights to exercise the Option accrue periodically, to the extent
of a pro rata portion through the date of death of any additional vesting
rights that would have accrued on the next vesting date had the
Participant not died. The proration shall be based upon the
number of days accrued in the current vesting period prior to the
Participant’s date of death.
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5.
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METHOD OF EXERCISING
OPTION
.
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Subject
to the terms and conditions of this Agreement, the Option may be exercised by
written notice to the Company or its designee, in substantially the form of
Exhibit A
attached hereto. Such notice shall state the number of Shares with
respect to which the Option is being exercised and shall be signed by the person
exercising the Option. Payment of the purchase price for such Shares
shall be made in accordance with Paragraph 8 of the Plan. The Company
shall deliver a certificate or certificates representing such Shares as soon as
practicable after the notice shall be received, provided, however, that the
Company may delay issuance of such Shares until completion of any action or
obtaining of any consent, which the Company deems necessary under any applicable
law (including, without limitation, state securities or “blue sky”
laws). The certificate or certificates for the Shares as to which the
Option shall have been so exercised shall be registered in the Company’s share
register in the name of the person so exercising the Option (or, if the Option
shall be exercised by the Participant and if the Participant shall so request in
the notice exercising the Option, shall be registered in the name of the
Participant and another person jointly, with right of survivorship) and shall be
delivered as provided above to or upon the written order of the person
exercising the Option. In the event the Option shall be exercised,
pursuant to Section 4 hereof, by any person other than the Participant, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise the Option. All Shares that shall be purchased upon the
exercise of the Option as provided herein shall be fully paid and
nonassessable.
Exercise
of this Option to the extent above stated may be made in part at any time and
from time to time within the above limits, except that no fractional share shall
be issued pursuant to this Option.
The
Option shall not be transferable by the Employee otherwise than by will or by
the laws of descent and distribution. The Option shall be
exercisable, during the Employee’s lifetime, only by the Employee (or, in the
event of legal incapacity or incompetency, by the Employee’s guardian or
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation or other disposition of the Option or of any
rights granted hereunder contrary to the provisions of this Section 7, or the
levy of any attachment or similar process upon the Option shall be null and
void.
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8.
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NO RIGHTS AS
STOCKHOLDER UNTIL EXERCISE
.
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The
Participant shall have no rights as a stockholder with respect to Shares subject
to this Agreement until registration of the Shares in the Company’s share
register in the name of the Participant. Except as is expressly
provided in the Plan with respect to certain changes in the capitalization of
the Company, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date of such
registration.
The Plan
contains provisions covering the treatment of Options in a number of
contingencies such as stock splits and mergers. Provisions in the
Plan for adjustment with respect to stock subject to Options and the related
provisions with respect to successors to the business of the Company are hereby
made applicable hereunder and are incorporated herein by reference.
The
Participant acknowledges that upon exercise of the Option the Participant will
be deemed to have taxable income measured by the difference between the then
fair market value of the Shares received upon exercise and the price paid for
such Shares pursuant to this Agreement. The Participant acknowledges
that any income or other taxes due from him or her with respect to this Option
or the Shares issuable pursuant to this Option shall be the Participant’s
responsibility.
The
Participant agrees that the Company may withhold from the Participant’s
remuneration, if any, the minimum statutory amount of federal, state and local
withholding taxes attributable to such amount that is considered compensation
includable in such person’s gross income. At the Company’s
discretion, the amount required to be withheld may be withheld in cash from such
remuneration, or in kind from the Shares otherwise deliverable to the
Participant on exercise of the Option. The Participant further agrees
that, if the Company does not withhold an amount from the Participant’s
remuneration sufficient to satisfy the Company’s income tax withholding
obligation, the Participant will reimburse the Company on demand, in cash, for
the amount under-withheld.
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11.
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PURCHASE FOR
INVESTMENT
.
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Unless
the offering and sale of the Shares to be issued upon the particular exercise of
the Option shall have been effectively registered under the Securities Act of
1933, as now in force or hereafter amended (the “1933 Act”), the Company shall
be under no obligation to issue the Shares covered by such exercise unless and
until the following conditions have been fulfilled:
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(a)
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The
person(s) who exercise the Option shall warrant to the Company, at the
time of such exercise, that such person(s) are acquiring such Shares for
their own respective accounts, for investment, and not with a view to, or
for sale in connection with, the distribution of any such Shares, in which
event the person(s) acquiring such Shares shall be bound by the provisions
of the following legend which shall be endorsed upon the certificate(s)
evidencing the Shares issued pursuant to such
exercise:
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“The
shares represented by this certificate have been taken for investment and they
may not be sold or otherwise transferred by any person, including a pledgee,
unless (1) either (a) a Registration Statement with respect to such shares shall
be effective under the Securities Act of 1933, as amended, or (b) the Company
shall have received an opinion of counsel satisfactory to it that an exemption
from registration under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws;” and
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(b)
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If
the Company so requires, the Company shall have received an opinion of its
counsel that the Shares may be issued upon such particular exercise in
compliance with the 1933 Act without registration
thereunder. Without limiting the generality of the foregoing,
the Company may delay issuance of the Shares until completion of any
action or obtaining of any consent, which the Company deems necessary
under any applicable law (including without limitation state securities or
“blue sky” laws).
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12.
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RESTRICTIONS ON
TRANSFER OF SHARES
.
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12.1 The
Shares acquired by the Participant pursuant to the exercise of the Option
granted hereby shall not be transferred by the Participant except as permitted
herein
12.2 In
the event of the Participant’s termination of service for any reason, the
Company shall have the option, but not the obligation, to repurchase all or any
part of the Shares issued pursuant to this Agreement (including, without
limitation, Shares purchased after termination of employment, Disability or
death in accordance with Section 4 hereof). In the event the Company
does not, upon the termination of service of the Participant (as described
above), exercise its option pursuant to this Section 12.2, the restrictions set
forth in the balance of this Agreement shall not thereby lapse, and the
Participant for himself or herself, his or her heirs, legatees, executors,
administrators and other successors in interest, agrees that the Shares shall
remain subject to such restrictions. The following provisions shall
apply to a repurchase under this Section 12.2:
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(i)
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The
per share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to the Fair
Market Value of each such Share determined in accordance with the Plan as
of the date of termination of service provided, however, in the event of a
termination by the Company for “cause” (as defined in the Plan), the per
share repurchase price of the Shares to be sold to the Company upon
exercise of its option under this Section 12.2 shall be equal to
$.01.
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(ii)
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The
Company’s option to repurchase the Participant’s Shares in the event of
termination of service shall be valid for a period of 18 months commencing
with the date of such termination of
service.
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(iii)
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In
the event the Company shall be entitled to and shall elect to exercise its
option to repurchase the Participant’s Shares under this Section 12.2, the
Company shall notify the Participant, or in case of death, his or her
Survivor, in writing of its intent to repurchase the
Shares. Such written notice may be mailed by the Company up to
and including the last day of the time period provided for in Section
12.2(ii) for exercise of the Company’s option to
repurchase.
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(iv)
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The
written notice to the Participant shall specify the address at, and the
time and date on, which payment of the repurchase price is to be made (the
“Closing”). The date specified shall not be less than ten days
nor more than 60 days from the date of the mailing of the notice, and the
Participant or his or her successor in interest with respect to the Shares
shall have no further rights as the owner thereof from and after the date
specified in the notice. At the Closing, the repurchase price
shall be delivered to the Participant or his or her successor in interest
and the Shares being purchased, duly endorsed for transfer, shall, to the
extent that they are not then in the possession of the Company, be
delivered to the Company by the Participant or his or her successor in
interest.
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12.3 It
shall be a condition precedent to the validity of any sale or other transfer of
any Shares by the Participant that the following restrictions be complied with
(except as hereinafter otherwise provided):
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(i)
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No
Shares owned by the Participant may be sold, pledged or otherwise
transferred (including by gift or devise) to any person or entity,
voluntarily, or by operation of law, except in accordance with the terms
and conditions hereinafter set
forth.
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(ii)
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Before
selling or otherwise transferring all or part of the Shares, the
Participant shall give written notice of such intention to the Company,
which notice shall include the name of the proposed transferee, the
proposed purchase price per share, the terms of payment of such purchase
price and all other matters relating to such sale or transfer and shall be
accompanied by a copy of the binding written agreement of the proposed
transferee to purchase the Shares of the Participant. Such
notice shall constitute a binding offer by the Participant to sell to the
Company such number of the Shares then held by the Participant as are
proposed to be sold in the notice at the monetary price per share
designated in such notice, payable on the terms offered to the Participant
by the proposed transferee (provided, however, that the Company shall not
be required to meet any non-monetary terms of the proposed transfer,
including, without limitation, delivery of other securities in exchange
for the Shares proposed to be sold). The Company shall give
written notice to the Participant as to whether such offer has been
accepted in whole by the Company within sixty days after its receipt of
written notice from the Participant. The Company may only
accept such offer in whole and may not accept such offer in
part. Such acceptance notice shall fix a time, location and
date for the closing on such purchase (“Closing Date”) which shall not be
less than ten nor more than sixty days after the giving of the acceptance
notice. The place for such closing shall be at the Company’s
principal office. At such closing, the Participant shall accept
payment as set forth herein and shall deliver to the Company in exchange
therefor certificates for the number of Shares stated in the notice
accompanied by duly executed instruments of
transfer.
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(iii)
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If
the Company shall fail to accept any such offer, the Participant shall be
free to sell all, but not less than all, of the Shares set forth in his or
her notice to the designated transferee at the price and terms designated
in the Participant’s notice, provided that (i) such sale is consummated
within six months after the giving of notice by the Participant to the
Company as aforesaid, and (ii) the transferee first agrees in writing to
be bound by the provisions of this Section 12 so that such transferee (and
all subsequent transferees) shall thereafter only be permitted to sell or
transfer the Shares in accordance with the terms hereof. After
the expiration of such six months, the provisions of this Section 12.3
shall again apply with respect to any proposed voluntary transfer of the
Participant’s Shares.
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(iv)
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The
provisions of this Section 12.3 may be waived by the
Company. Any such waiver may be unconditional or based upon
such conditions as the Company may
impose.
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12.4 In
the event that the Participant or his or her successor in interest fails to
deliver the Shares to be repurchased by the Company under this Agreement, the
Company may elect (a) to establish a segregated account in the amount of
the repurchase price, such account to be turned over to the Participant or his
or her successor in interest upon delivery of such Shares, and
(b) immediately to take such action as is appropriate to transfer record
title of such Shares from the Participant to the Company and to treat the
Participant and such Shares in all respects as if delivery of such Shares had
been made as required by this Agreement. The Participant hereby
irrevocably grants the Company a power of attorney which shall be coupled with
an interest for the purpose of effectuating the preceding sentence.
12.5 If
the Company shall pay a stock dividend or declare a stock split on or with
respect to any of its Common Stock, or otherwise distribute securities of the
Company to the holders of its Common Stock, the number of shares of stock or
other securities of Company issued with respect to the shares then subject to
the restrictions contained in this Agreement shall be added to the Shares
subject to the Company’s rights to repurchase pursuant to this
Agreement. If the Company shall distribute to its stockholders shares
of stock of another corporation, the shares of stock of such other corporation,
distributed with respect to the Shares then subject to the restrictions
contained in this Agreement, shall be added to the Shares subject to the
Company’s rights to repurchase pursuant to this Agreement.
12.6 If
the outstanding shares of Common Stock of the Company shall be subdivided into a
greater number of shares or combined into a smaller number of shares, or in the
event of a reclassification of the outstanding shares of Common Stock of the
Company, or if the Company shall be a party to a merger, consolidation or
capital reorganization, there shall be substituted for the Shares then subject
to the restrictions contained in this Agreement such amount and kind of
securities as are issued in such subdivision, combination, reclassification,
merger, consolidation or capital reorganization in respect of the Shares subject
immediately prior thereto to the Company’s rights to repurchase pursuant to this
Agreement.
12.7 The
Company shall not be required to transfer any Shares on its books which shall
have been sold, assigned or otherwise transferred in violation of this
Agreement, or to treat as owner of such Shares, or to accord the right to vote
as such owner or to pay dividends to, any person or organization to which any
such Shares shall have been so sold, assigned or otherwise transferred, in
violation of this Agreement.
12.8 The
provisions of Sections 12.1, 12.2 and 12.3 shall terminate upon the consummation
of a public offering of any of the Company’s securities pursuant to a
registration statement filed with the Securities and Exchange Commission
pursuant to the 1933 Act, in which offering the aggregate gross proceeds to the
Company exceed $10,000,000 and in which the price per share of such securities
equals or exceeds $5.00 (such price subject to equitable adjustment in the event
of any stock split, stock dividend, combination, reorganization,
reclassification or other similar event).
12.9 If,
in connection with a registration statement filed by the Company pursuant to the
1933 Act, the Company or its underwriter so requests, the Participant will agree
not to sell any Shares for a period not to exceed 180 days following the
effectiveness of such registration.
12.10 The
Participant acknowledges and agrees that neither the Company, its shareholders
nor its directors and officers, has any duty or obligation to disclose to the
Participant any material information regarding the business of the Company or
affecting the value of the Shares before, at the time of, or following a
termination of the employment of the Participant by the Company, including,
without limitation, any information concerning plans for the Company to make a
public offering of its securities or to be acquired by or merged with or into
another firm or entity.
12.11 All
certificates representing the Shares to be issued to the Participant pursuant to
this Agreement shall have endorsed thereon a legend substantially as
follows: “The shares represented by this certificate are subject to
restrictions set forth in a Non-Qualified Stock Option Agreement dated April 19,
2007 with this Company, a copy of which Agreement is available for inspection at
the offices of the Company or will be made available upon request.”
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13.
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NO OBLIGATION TO
MAINTAIN RELATIONSHIP
.
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The
Company is not by the Plan or this Option obligated to continue the Participant
as an employee, director or consultant of the Company or an
Affiliate. The Participant acknowledges: (i) that the Plan
is discretionary in nature and may be suspended or terminated by the Company at
any time; (ii) that the grant of the Option is a one-time benefit which does not
create any contractual or other right to receive future grants of options, or
benefits in lieu of options; (iii) that all determinations with respect to any
such future grants, including, but not limited to, the times when options shall
be granted, the number of shares subject to each option, the option price, and
the time or times when each option shall be exercisable, will be at the sole
discretion of the Company; (iv) that the Participant’s participation in the Plan
is voluntary; (v) that the value of the Option is an extraordinary item of
compensation which is outside the scope of the Participant’s employment
contract, if any; and (vi) that the Option is not part of normal or expected
compensation for purposes of calculating any severance, resignation, redundancy,
end of service payments, bonuses, long-service awards, pension or retirement
benefits or similar payments.
Any
notices required or permitted by the terms of this Agreement or the Plan shall
be given by recognized courier service, facsimile, registered or certified mail,
return receipt requested, addressed as follows:
If to the
Company:
InVivo Therapeutics
Corporation
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One Broadway, 14
th
Floor
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Cambridge, MA 02142
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Attn:
CEO
|
If to the
Participant:
or to
such other address or addresses of which notice in the same manner has
previously been given. Any such notice shall be deemed to have been
given upon the earlier of receipt, one business day following delivery to a
recognized courier service or three business days following mailing by
registered or certified mail.
This
Agreement shall be construed and enforced in accordance with the law of the
State of Delaware, without giving effect to the conflict of law principles
thereof. For the purpose of litigating any dispute that arises under
this Agreement, the parties hereby consent to exclusive jurisdiction in the
Commonwealth of Massachusetts and agree that such litigation shall be conducted
in the courts of Middlesex County, Commonwealth of Massachusetts
or the federal courts of
the United States for the District of Massachusetts.
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16.
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BENEFIT OF
AGREEMENT
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Subject
to the provisions of the Plan and the other provisions hereof, this Agreement
shall be for the benefit of and shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties
hereto.
This
Agreement, together with the Plan, embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior oral or written agreements and understandings
relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement not expressly set forth in this Agreement shall
affect or be used to interpret, change or restrict, the express terms and
provisions of this Agreement, provided, however, in any event, this Agreement
shall be subject to and governed by the Plan.
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18.
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MODIFICATIONS AND
AMENDMENTS
.
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The terms
and provisions of this Agreement may be modified or amended as provided in the
Plan.
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19.
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WAIVERS AND
CONSENTS
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Except as
provided in the Plan, the terms and provisions of this Agreement may be waived,
or consent for the departure therefrom granted, only by written document
executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or provisions of
this Agreement, whether or not similar. Each such waiver or consent
shall be effective only in the specific instance and for the purpose for which
it was given, and shall not constitute a continuing waiver or
consent.
By
entering into this Agreement, the Participant: (i) authorizes the
Company and each Affiliate, and any agent of the Company or any Affiliate
administering the Plan or providing Plan record keeping services, to disclose to
the Company or any of its Affiliates such information and data as the Company or
any such Affiliate shall request in order to facilitate the grant of options and
the administration of the Plan; (ii) waives any data privacy rights he or she
may have with respect to such information; and (iii) authorizes the Company and
each Affiliate to store and transmit such information in electronic
form.
If the
Participant is married as of the date of this Agreement, the Participant’s
spouse shall execute a Consent of Spouse in the form of
Exhibit B
hereto,
effective as of the date hereof. Such consent shall not be deemed to
confer or convey to the spouse any rights in the Shares that do not otherwise
exist by operation of law or the agreement of the parties. If the
Participant marries or remarries subsequent to the date hereof, the Participant
shall, not later than 60 days thereafter, obtain his or her new spouse’s
acknowledgement of and consent to the existence and binding effect of Section
12.2 of this Agreement by such spouse’s executing and delivering a Consent of
Spouse in the form of Exhibit B.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer, and the Participant has hereunto set his or her hand,
all as of the day and year first above written.
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InVivo
Therapeutics Corporation
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By:
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Name
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Title
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[insert]
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Exhibit
A
NOTICE OF
EXERCISE OF NON-QUALIFIED STOCK OPTION
[Form
for Unregistered Shares]
To: InVivo
Therapeutics Corporation
Ladies
and Gentlemen:
I hereby
exercise my Non-Qualified Stock Option to purchase __________ shares (the
“Shares”) of the common stock, $0.001 par value, of InVivo Therapeutics
Corporation (the “Company”), at the exercise price of $_____ per share, pursuant
to and subject to the terms of that certain Non-Qualified Stock Option Agreement
between the undersigned and the Company dated ________, 200_.
I am
aware that the Shares have not been registered under the Securities Act of 1933,
as amended (the “1933 Act”), or any state securities laws. I
understand that the reliance by the Company on exemptions under the 1933 Act is
predicated in part upon the truth and accuracy of the statements by me in this
Notice of Exercise.
I hereby
represent and warrant that (1) I have been furnished with all information which
I deem necessary to evaluate the merits and risks of the purchase of the Shares;
(2) I have had the opportunity to ask questions concerning the Shares and
the Company and all questions posed have been answered to my satisfaction; (3) I
have been given the opportunity to obtain any additional information I deem
necessary to verify the accuracy of any information obtained concerning the
Shares and the Company; and (4) I have such knowledge and experience in
financial and business matters that I am able to evaluate the merits and risks
of purchasing the Shares and to make an informed investment decision relating
thereto.
I hereby
represent and warrant that I am purchasing the Shares for my own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares.
I
understand that because the Shares have not been registered under the 1933 Act,
I must continue to bear the economic risk of the investment for an indefinite
time and the Shares cannot be sold unless the Shares are subsequently registered
under applicable federal and state securities laws or an exemption from such
registration requirements is available.
I agree
that I will in no event sell or distribute or otherwise dispose of all or any
part of the Shares unless (1) there is an effective registration statement under
the 1933 Act and applicable state securities laws covering any such transaction
involving the Shares or (2) the Company receives an opinion of my legal counsel
(concurred in by legal counsel for the Company) stating that such transaction is
exempt from registration or the Company otherwise satisfies itself that such
transaction is exempt from registration.
I consent
to the placing of a legend on my certificate for the Shares stating that the
Shares have not been registered and setting forth the restriction on transfer
contemplated hereby and to the placing of a stop transfer order on the books of
the Company and with any transfer agents against the Shares until the Shares may
be legally resold or distributed without restriction.
I
understand that at the present time Rule 144 of the Securities and Exchange
Commission (the “SEC”) may not be relied on for the resale or distribution of
the Shares by me. I understand that the Company has no obligation to
me to register the sale of the Shares with the SEC and has not represented to me
that it will register the sale of the Shares.
I
understand the terms and restrictions on the right to dispose of the Shares set
forth in the 2007 Employee, Director and Consultant Stock Plan and the
Non-Qualified Stock Option Agreement, both of which I have carefully
reviewed. I consent to the placing of a legend on my certificate for
the Shares referring to such restriction and the placing of stop transfer orders
until the Shares may be transferred in accordance with the terms of such
restrictions.
I have
considered the Federal, state and local income tax implications of the exercise
of my Option and the purchase and subsequent sale of the Shares.
I am
paying the option exercise price for the Shares as follows:
Please
issue the stock certificate for the Shares (check one):
¨
to me;
or
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¨
to me and ________________, as joint tenants with right of
survivorship
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and mail
the certificate to me at the following address:
My mailing address for shareholder
communications, if different from the address listed above is:
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Very
truly yours,
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Participant
(signature)
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Print
Name
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Date
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Social
Security Number
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Exhibit
B
CONSENT OF
SPOUSE
I,
____________________________, spouse of _____________________________,
acknowledge that I have read the Non-Qualified Stock Option Agreement dated as
of April 19, 2007 (the “Agreement”) to which this Consent is attached as Exhibit
B and that I know its contents. Capitalized terms used and not
defined herein shall have the meanings assigned to such terms in the
Agreement. I am aware that by its provisions the Shares granted to my
spouse pursuant to the Agreement are subject to a right of repurchase in favor
of InVivo Therapeutics Corporation (the “Company”) and that, accordingly, the
Company has the right to repurchase up to all of the Shares of which I may
become possessed as a result of a gift from my spouse or a court decree and/or
any property settlement in any domestic litigation.
I hereby
agree that my interest, if any, in the Shares subject to the Agreement shall be
irrevocably bound by the Agreement and further understand and agree that any
community property interest I may have in the Shares shall be similarly bound by
the Agreement.
I agree
to the repurchase right described in Section 12.2 of the Agreement and I hereby
consent to the repurchase of the Shares by the Company and the sale of the
Shares by my spouse or my spouse’s legal representative in accordance with the
provisions of the Agreement. Further, as part of the consideration
for the Agreement, I agree that at my death, if I have not disposed of any
interest of mine in the Shares by an outright bequest of the Shares to my
spouse, then the Company shall have the same rights against my legal
representative to exercise its rights of repurchase with respect to any interest
of mine in the Shares as it would have had pursuant to the Agreement if I had
acquired the Shares pursuant to a court decree in domestic
litigation.
I AM
AWARE THAT THE LEGAL, FINANCIAL AND RELATED MATTERS CONTAINED IN THE AGREEMENT
ARE COMPLEX AND THAT I AM FREE TO SEEK INDEPENDENT PROFESSIONAL GUIDANCE OR
COUNSEL WITH RESPECT TO THIS CONSENT. I HAVE EITHER SOUGHT SUCH
GUIDANCE OR COUNSEL OR DETERMINED AFTER REVIEWING THE AGREEMENT CAREFULLY THAT I
WILL WAIVE SUCH RIGHT.
Dated as
of the _______ day of ________________, 200__.
RESTRICTED
STOCK
AGREEMENT
This
RESTRICTED STOCK AGREEMENT (the ”Agreement”), made as of this 1st day of
November, 2006, by and among and InVivo Therapeutics Corporation, a
Delaware corporation (the
“Company”
), among Francis M.
Reynolds (“Reynolds”), Yang D. Teng (“Teng”) and Robert S. Langer
(“Langer”, together with Reynolds and Teng, the “Stockholders”, and singularly
the “Stockholder”).
W
I T N E S S E T H:
WHEREAS
, The Company and the
Stockholders have entered into an Stockholders Agreement of even date herewith
(the “Stockholders Agreement”); and
WHEREAS
, The Company has
issued in the aggregate 600,000 shares Common Stock, $.001 par value per share
of the Company (“Common Stock”), to each Stockholder and the Stockholders
intends that a certain number of shares of Common Stock owned by each of them
should revert back to the Company upon the occurrence of certain events as
specified herein.
NOW, THEREFORE
, the parties
hereto hereby agree as follows:
1.
Shares Subject to this
Agreement
. The Stockholders expressly agree that the terms and
restrictions of this Agreement shall apply to 450,000 shares of the Common Stock
(the “Restricted Shares”) owned by each of them (such number representing
three-fourths (3/4) of the 600,000 shares of Common Stock owned by each
Stockholder as of the date hereof).
2.
Restricted
Share
. Until a Restricted Share of an Stockholder shall
have vested in accordance with Section 3 below, such Restricted Share may be
purchased by the other Stockholders under Section 4 below. Upon the expiration
of the applicable Restriction Period (defined in Section 3 below), such
Restricted Shares may revert to the Company under Section 4 below. Upon the
expiration of the applicable Restriction Period (defined in Section 3 below), a
Restricted Share shall be deemed to be a fully vested shares of Common Stock
(each, a "Vested Share") and shall cease to be a Restricted Share.
3.
Restriction Period;
Vesting
. The Restricted Shares of an Stockholder shall remain
Restricted Shares during the period (the "Restriction Period") from the date
hereof through the date on which such Restricted Shares shall have been vested
in accordance with the schedule below. The Restricted Shares of an
Stockholder shall have vested on the following dates in accordance with the
following vesting schedule:
(i) thirty
three and one third percent (33 and 1/3%) of the Restricted Shares
shall vest on the date that is the one year anniversary of the date
hereof;
(ii) an
additional thirty three and one third percent (33 and 1/3%) of the
Restricted Shares shall vest on the date that is the two year anniversary of the
date hereof; and
(iii) the
final thirty three and one third percent (33 and 1/3%) of the Restricted
Shares shall vest on the date that is the three year anniversary of the
date hereof.
4.
Termination of Service
Relationship
;
Purchase Option
. Subject to Section 9 below, in the event that an
Stockholder ceases to have, for any reason, a Service Relationship with the
Company during the Restriction Period (the “Terminating Stockholder”), all
Restricted Shares that have not previously vested shall immediately revert
back to the Company. For purposes of this Agreement, the term
“Service Relationship” shall mean any relationship as a full-time or part-time
employee, independent contractor, director, consultant or other key service
provider of the Company or any affiliate of the Company such that, for example,
a Service Relationship shall be deemed to continue without interruption in the
event the Stockholders status changes from full-time to part-time.
5.
Securities
Regulation
. Each Stockholder understands that the Restricted Shares are
not registered under the Securities Act of 1933, as amended, or any applicable
state securities or “blue sky” laws and may not be sold or otherwise transferred
or disposed of in the absence of an effective registration statement under the
Securities Act and under any applicable state securities or “blue sky” laws (or
exemptions from the registration requirements thereof).
6.
Adjustments
. In the
event of any change in the shares of Common Stock by reason of a stock split,
stock distribution, combination or reclassification of capital stock,
recapitalization, merger, or similar event, the Company shall adjust
proportionately the number of Restricted or Vested Shares.
7.
Invalid
Transfers
.
a.
Restricted
Shares
. An Stockholder may not transfer, assign, pledge,
hypothecate or otherwise dispose of any Restricted Shares or of any right
hereunder.
b.
Vested
Shares
. The
Vested Shares are subject to restrictions on transfer as set forth in the
Stockholders Agreement.
8.
Notices
. Any notice
to an Stockholder shall be addressed to at his home address or to such other
address as either may last have designated to the other by notice as provided
herein. Any notice so addressed shall be deemed to be given on the second
business day after mailing, by registered or certified mail, at a post office or
branch post office within the United States.
9.
Vesting Upon the Occurrence
of Certain Events
. If a plan of complete dissolution of the Company is
adopted or the Stockholders of the Company approve an agreement for the sale or
disposition by the Company (in one transaction or a series of transactions) of
all or substantially all of the Company's assets or capitol stock, then upon
such adoption or approval all Restricted Shares shall vest immediately and
become Vested Shares.
10.
Miscellaneous
. The
validity, construction and effect of this Agreement shall be determined in
accordance with the laws of the Commonwealth of Massachusetts. This Agreement
may be changed, modified or terminated only by an agreement in writing signed by
the Company and the Stockholders. If any provision(s) of this
Agreement shall be determined to be illegal or unenforceable, such determination
shall in no manner affect the legality or enforceability of any other provision
hereof. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their respective successors, assigns, and legal
representatives. For the convenience of the parties and to facilitate
execution, this Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same document.
Remainder
of Page Intentionally Left Blank
IN
WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first above set forth.
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THE
COMPANY:
INVIVO THERAPEUTICS
CORPORATION
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By:
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Frank
Reynolds, President & CEO
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ACCEPTED
AND AGREED
STOCKHOLDERS
____________________________________
Francis
M. Reynolds
____________________________________
Robert S.
Langer
____________________________________
Yang D.
Teng
EXHIBIT
16.1
October
29, 2010
Securities
and Exchange Commission
450 Fifth
Street, N.W.
Washington,
D.C. 20549
Commissioners:
We have
read the statements made by InVivo Therapeutics Holdings Corp. (f/k/a Design
Source, Inc.) (the “Company”) pursuant to Item 4.01 of Form 8-K to be filed with
the Commission on October 29, 2010, as part of the Company's Form 8-K report
dated October 29, 2010. We agree with the statements concerning our Firm in such
Form 8-K. We have no basis to agree or disagree with any other
statements made in the filing.
Very
truly yours,
/s/
Sherb & Co., LLP
Sherb & Co., LLP
Subsidiaries of InVivo
Therapeutics Holdings Corp.
InVivo
Therapeutics Corporation, a Delaware corporation