Exhibit 10.1 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of March 24,
2015 (the “Effective Date”), among Kips Bay Medical, Inc., a Delaware
corporation (the “Company”), Kips Bay Investments, LLC, a Delaware limited
liability company (“LLC”), Manny Villafaña (“Villafaña”), and each other person
identified on the signature pages hereto (each, including its successors and
assigns, an “Investor” and collectively the “Investors”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the
Company desires to issue and sell to each Investor, and each Investor, severally
and not jointly, desires to purchase from the Company in four tranche closings,
up to an aggregate of $3,250,000 in shares (the “Shares”) of the Company’s
common stock, par value $0.01 per share (the “Common Stock”), at a price per
share equal to the lesser of: (a) $0.14 per share or (b) the current market
value per share;

 

WHEREAS, as consideration for the Investors’ commitment to purchase the Shares,
the Company desires to issue to each Investor who purchases Shares at a Closing
(as defined below), as of the date of such Closing, a five-year Warrant to
purchase one share of Common Stock for every two Shares purchased by the
Investor at such Closing at an exercise price of 125% of the lesser of: (a)
$0.14 per Share or (b) the current market value per share as of the applicable
Closing, in substantially the form attached hereto as Exhibit A (the “Warrant”,
and collectively with the Shares, the “Securities”); and

 

WHEREAS, the Company’s issuance and sale of the Securities hereunder is being
done in reliance upon the exemption from securities registration afforded by
Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506(b) of Regulation D (“Regulation D”) as promulgated by the
Securities and Exchange Commission (the “SEC”) under the Securities Act.

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Investor agree
as follows:

 

ARTICLE I
PURCHASE COMMITMENT FOR SHARES; ISSUANCE OF WARRANTS

 

1.1     Purchase Commitment. Subject to the terms and conditions of this
Agreement, including, without limitation, Section 2.8, at each Closing (as
defined below), the Company shall issue and sell to each Investor, and each
Investor shall purchase from the Company, that U.S. dollar amount in Shares as
set forth opposite such Investor’s name for the applicable Closing on Schedule I
attached hereto (the “Investor Commitment(s)”) for the per Share purchase price
equal to the lesser of: (a) $0.14 per Share or (b) the Current Market Value Per
Share as of the applicable Closing (the “Purchase Price”). The “Current Market
Value Per Share” means the closing sale price per Share on the trading day
immediately prior to the applicable Closing, as reported by the principal
trading exchange or market on which the Common Stock is then listed or quoted.
The parties hereto acknowledge and agree that the obligations of the Investors
to purchase their respective Investor Commitments at any Closing shall not be
excused by any failure of the Company to achieve any Milestone described in
Section 6.1 as of the date of such Closing.

 

1.2     Consideration for Purchase Commitment; Issuance of Warrants. As
consideration for the Investor Commitments, the Company agrees to issue to each
Investor who purchases Shares at a Closing, as of the date of such Closing, a
five-year Warrant to purchase one share of Common Stock for every two Shares
purchased by the Investor at such Closing at an exercise price of 125% of the
lesser of: (a) $0.14 per Share or (b) the Current Market Value Per Share as of
the applicable Closing, which Warrant shall be in substantially the form
attached hereto as Exhibit A. The Warrant shall be exercisable commencing on the
six-month anniversary of the date of the applicable Closing and shall remain
exercisable for five years thereafter.

 

 
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ARTICLE II
TRANCHE CLOSINGS; CLOSING AND OTHER DELIVERIES

 

2.1     Tranche A Closing. Provided that the conditions to Closing, as set forth
in Article V have been satisfied or waived, the initial closing hereunder
pursuant to which the Company shall issue and sell and the Investors shall
purchase the U.S. dollar amount in Shares set forth opposite the Investors’
respective names on Schedule I attached hereto under the heading “Tranche A
Investor Commitments” (the “Tranche A Closing”), shall take place as soon as
reasonably practicable, but in no case later than three Business Days (as
defined below) following: (i) the Company’s delivery of written notice to the
Investors of the Company’s receipt of the first 10 angiograms of patients
enrolled in the Company’s eMesh I clinical feasibility trial (the “Feasibility
Trial”) using the Company’s surgical implant technique approved by the United
States Food and Drug Administration (“FDA”) in March 2014 (the “New Technique”),
and (ii) the agreement of the Company and Investors that have committed to
purchase a majority of the Shares to be sold at the Tranche A Closing (the
“Majority Investors”) that the condition set forth in Section 5.1(a) has been
satisfied or waived. Notwithstanding the foregoing, the obligation of the
Investors to purchase Shares at the Tranche A Closing shall terminate if the
Tranche A Closing has not occurred by November 30, 2015.

 

2.2     Tranche B Closing. Provided that the conditions to Closing, as set forth
in Article V have been satisfied or waived as of such date, the second closing
hereunder pursuant to which the Company shall issue and sell and the Investors
shall purchase that U.S. dollar amount in Shares as set forth opposite the
Investors’ respective names on Schedule I attached hereto under the heading
“Tranche B Investor Commitments” (the “Tranche B Closing”), shall take place on
the 90th day following the date of the Tranche A Closing or on such other date
as the Company, Villafaña and the LLC may agree.

 

2.3     Tranche C Closing. Provided that the conditions to Closing, as set forth
in Article V have been satisfied or waived as of such date, the third closing
hereunder pursuant to which the Company shall issue and sell and the Investors
shall purchase that U.S. dollar amount in Shares as set forth opposite the
Investors’ respective names on Schedule I attached hereto under the heading
“Tranche C Investor Commitments” (the “Tranche C Closing”), shall take place on
the 180th day following the date of the Tranche A Closing or on such other date
as the Company, Villafaña and the LLC may agree.

 

2.4     Tranche D Closing. Provided that the conditions to Closing, as set forth
in Article V have been satisfied or waived as of such date, the fourth closing
hereunder pursuant to which the Company shall issue and sell and the Investors
shall purchase that U.S. dollar amount in Shares as set forth opposite the
Investors’ respective names on Schedule I attached hereto under the heading
“Tranche D Investor Commitments” (the “Tranche D Closing”), shall take place on
the 270th day following the date of the Tranche A Closing or on such other date
as the Company, Villafaña and the LLC may agree.

 

2.5     Closing Place and Other Closing Mechanics. Each of the Tranche A
Closing, the Tranche B Closing, the Tranche C Closing and the Tranche D Closing
(each, a “Closing”) shall take place remotely via the exchange of documents and
signatures.

 

 
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2.6     Closing Deliveries.

 

(a)     Investors’ Deliveries. In addition to any materials required to satisfy
conditions to Closing set forth in Section 5.3, at each Closing each of the
Investors shall deliver or cause to be delivered to the Company the Purchase
Price for the Shares to be purchased by such Investors at such Closing as set
forth opposite each such Investor’s name on Schedule I for the applicable
Closing by wire transfer of immediately available funds to the Company’s bank
account pursuant to the wire instructions attached at Exhibit B.

 

(b)     Company’s Deliveries. In addition to any materials required to satisfy
conditions to Closing set forth in Section 5.2, at each Closing the Company
shall deliver or cause to be delivered to each of the Investors evidence of the
issuance of the Shares being issued and sold to each Investor at such Closing,
such as a book-entry notation at the transfer agent of the Company, and a duly
executed Warrant, in substantially the form attached hereto as Exhibit A, to
purchase one share of Common Stock for every two Shares purchased by the
Investor at such Closing.

 

2.7     Effective Date Deliveries. On the Effective Date, the Company and the
Investors shall each execute and deliver, or cause to be executed and delivered,
a Registration Rights Agreement, in substantially the form attached hereto as
Exhibit C (the “Registration Rights Agreement” and together with this Agreement
and the Warrants, the “Transaction Documents”).

 

2.8     Failure to Purchase Investor Commitment. Notwithstanding anything else
to the contrary in this Article II, in the event that, at any Closing, any
Investor (a “Nonparticipating Investor”) other than LLC fails for any reason
(including the failure of such Investor to agree that the condition set forth in
Section 5.1(a) has been satisfied) to purchase the Investor Commitment of such
Investor that Schedule I indicates such Investor shall purchase at such Closing,
then the LLC shall have the option, but not the obligation, to purchase up to
the number of Shares included in the Investment Commitment of such
Nonparticipating Investor at such Closing, and up to the number of Shares
included in the Investment Commitment of the Nonparticipating Investor at all
subsequent Closings, and the Nonparticipating Investor shall be excluded from
any further participation in the purchase of Shares under this Agreement. For
the avoidance of doubt, the LLC shall be issued a Warrant in accordance with
Section 1.2 to purchase one share of Common Stock for every two Shares purchased
by LLC at such Closing in accordance with this Section 2.8, and the
Nonparticipating Investor shall not be entitled to any Warrant with respect to
the Shares it has not purchased.

 

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY

 

The Company hereby represents and warrants to each Investor that, as of the
Effective Date and as of the date of each Closing, except as set forth in the
SEC Reports (as defined in Section 3.6) and on a Disclosure Schedule provided to
each Investor, as may be updated at each Closing (the “Disclosure Schedule”) or
in which exceptions shall be deemed to be part of the representations and
warranties made hereunder, the following representations are true and complete
(except as otherwise indicated):

 

3.1     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 full corporate power and authority to own and
use its properties and its assets and conduct its business as currently
conducted. The Company has no subsidiaries. The Company is not in violation of
its Certificate of Incorporation, as amended, the Company’s Amended and Restated
Bylaws (the “Charter Documents”). The Company is duly qualified to conduct
business and is in good standing as a foreign corporation in each jurisdiction
in which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not result in (a) a material adverse effect
on the legality, validity or enforceability of any of the Securities and/or the
Transaction Documents, or (b) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial and other) of
the Company (any of (a) or (b), a “Material Adverse Event”). The Company is not
in violation of any provision of federal or state statute, rule or regulation
applicable to the Company, the violation of which would have a Material Adverse
Effect.

 

 
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3.2     Capitalization and Voting Rights. As of the Effective Date, the Company
is authorized to issue 90,000,000 shares of Common Stock, of which 33,014,079
shares were issued and outstanding, and 10,000,000 shares of “blank check”
preferred stock, of which no shares are issued or outstanding, nor have any of
the terms or preferences thereof been designated. All issued and outstanding
shares of Common Stock of the Company are validly issued, fully paid and
nonassessable. Except as set forth in the Disclosure Schedule, (a) there are no
outstanding securities of the Company which contain any preemptive, redemption
or similar provisions, nor is any holder of securities of the Company entitled
to preemptive or similar rights arising out of any agreement or understanding
with the Company by virtue of any of the Transaction Documents, and there are no
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to redeem a security of the Company; (b) the Company has no
stock appreciation rights or “phantom stock” plans or agreements or any similar
plan or agreement; and (c) there are no outstanding options, warrants,
agreements, convertible securities, preemptive rights or other rights to
subscribe for or to purchase or acquire, any shares of capital stock of the
Company or contracts, commitments, understandings, or arrangements by which the
Company is or may become bound to issue any shares of capital stock of the
Company, or securities or rights convertible or exchangeable into shares of
capital stock of the Company. Except as set forth in the Disclosure Schedule and
as otherwise required by law, there are no restrictions upon the voting or
transfer of any of the shares of capital stock of the Company pursuant to the
Charter Documents or other governing documents or any agreement or other
instruments to which the Company is a party or by which the Company is bound.
All of the issued and outstanding shares of capital stock of the Company are
validly issued, fully paid and nonassessable. All of such outstanding Common
Stock has been issued in compliance in all material respects with applicable
federal and state securities laws. The issuance and sale of the Securities and
the shares of Common Stock of the Company issuable upon exercise of the Warrants
(the “Warrant Shares”) as contemplated hereby, will not obligate the Company to
issue shares of Common Stock or other securities to any other person (other than
the Investors) and will not result in the adjustment of the exercise,
conversion, exchange or reset price of any outstanding security. The Company
does not have outstanding stockholder purchase rights or “poison pill” or any
similar arrangement in effect giving any person the right to purchase any equity
interest in the Company upon the occurrence of certain events.

 

3.3     Authorization; Enforceability. The Company has all corporate right,
power and authority to enter into, execute and deliver this Agreement and each
other agreement, document, instrument and certificate to be executed by the
Company in connection with the consummation of the transactions contemplated
hereby, including, but not limited to the Transaction Documents, and to perform
fully its obligations hereunder and thereunder. All corporate action on the part
of the Company, its directors and stockholders necessary for the
(a) authorization, execution, delivery and performance of this Agreement and the
Transaction Documents by the Company; and (b) authorization, sale, issuance and
delivery of the Securities and upon issuance, the Warrant Shares contemplated
hereby, and the performance of the Company’s obligations under this Agreement
and the Transaction Documents, has been taken. This Agreement and the
Transaction Documents have been duly executed and delivered by the Company and
each constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, and to limitations of public policy. The Securities
are duly authorized and, when issued and paid for in accordance with the
applicable Transaction Documents, will be duly and validly issued, fully paid
and nonassessable, free and clear of all mortgages, pledges, liens, claims,
charges, encumbrances or other restrictions (collectively, “Encumbrances”),
other than restrictions on transfer provided for in the Transaction Documents.
The Warrant Shares, when issued in accordance with the terms of the Warrants,
will be validly issued, fully paid and nonassessable, free and clear of all
Encumbrances imposed by the Company other than restrictions on transfer provided
for in the Transaction Documents. The Company has reserved a sufficient number
of shares of Common Stock for issuance upon the exercise of the Warrants, free
and clear of all Encumbrances, except for restrictions on transfer set forth in
the Transaction Documents or imposed by applicable securities laws. Except as
set forth in the Disclosure Schedule, the issuance and sale of the Securities
(including the Warrant Shares) contemplated hereby will not give rise to any
preemptive rights or rights of first refusal on behalf of any person.

 

 
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3.4     No Conflict; Governmental Consents.

 

(a)     The execution and delivery by the Company of this Agreement and the
Transaction Documents, the issuance and sale of the Securities (including, when
issued, the Warrant Shares) and the consummation of the other transactions
contemplated hereby or thereby do not and will not (i) result in the violation
of any law, statute, rule, regulation, order, writ, injunction, judgment or
decree of any court or governmental authority to or by which the Company is
bound including, without limitation, all foreign, federal, state and local laws
applicable to its business and all such laws that affect the environment, except
in each case as could not have or reasonably be expected to result in a Material
Adverse Event, (ii) conflict with or violate any provision of the Charter
Documents, and (iii) conflict with, or result in a material breach or violation
of, any of the terms or provisions of, or constitute (with or without due notice
or lapse of time or both) a default or give to others any rights of termination,
amendment, acceleration or cancellation (with or without due notice, lapse of
time or both) under any agreement, credit facility, lease, loan agreement,
mortgage, security agreement, trust indenture or other agreement or instrument
to which the Company is a party or is bound or to which its properties or assets
is subject, nor result in the creation or imposition of any Encumbrances upon
any of its properties or assets.

 

(b)     No approval by the holders of Common Stock, or other equity securities
of the Company, is required to be obtained by the Company in connection with the
authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents or in connection with the authorization, issue and
sale of the Securities and, upon issuance, the Warrant Shares, except as has
been previously obtained.

 

(c)     No consent, approval, authorization or other order of any governmental
authority or any other person is required to be obtained by the Company in
connection with the authorization, execution, delivery and performance of this
Agreement and the other Transaction Documents or in connection with the
authorization, issue and sale of the Securities and, upon issuance, the Warrant
Shares, except such post-sale filings as may be required to be made with the
SEC, Financial Industry Regulatory Authority (“FINRA”) and with any state or
foreign blue sky or securities regulatory authority, all of which shall be made
when required.

 

3.5     Consents of Third Parties. No vote, approval or consent of any holder of
capital stock of the Company or any other third parties is required or necessary
to be obtained by the Company in connection with the authorization, execution,
deliver and performance of this Agreement and the other Transaction Documents or
in connection with the authorization, issue and sale of the Securities and, upon
issuance, the Warrant Shares, except as previously obtained, each of which is in
full force and effect.

 

 
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3.6     SEC Reports; Financial Statements. The Company has filed all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), including pursuant to Section
13(a) or 15(d) thereof, for the 12 months preceding the date hereof (or such
shorter period as the Company was required by law to file such reports) (the
foregoing materials being collectively referred to herein as the “SEC Reports”)
on a timely basis or has timely filed a valid extension of such time of filing
and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC promulgated thereunder, and none of the SEC Reports, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the SEC with respect thereto as in effect at
the time of filing. Such financial statements have been prepared in accordance
with U.S. generally accepted accounting principles (“GAAP”) applied on a
consistent basis during the periods involved, except as may be otherwise
specified in such financial statements or the footnotes thereto, and fairly
present in all material respects the financial position of the Company as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.

 

3.7     Internal Controls. The Company maintains a systems of internal
accounting controls sufficient to provide reasonable assurance that (a)
transactions are executed in accordance with management’s general or specific
authorizations; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain asset
accountability; (c) access to assets is permitted only in accordance with
management’s general or specific authorization; and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.

 

3.8     Licenses; Permits. Except as set forth in the SEC Reports or Disclosure
Schedule, the Company has sufficient licenses, permits and other governmental
authorizations required for the conduct of its business or ownership of
properties and is in compliance therewith, except to the extent the failure to
comply would not result in a Material Adverse Effect. The Company possesses all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct its business
as described in the SEC Reports, except where the failure to possess such
permits could not reasonably be expected to result in a Material Adverse Event
(“Material Permits”), and the Company has not received any notice of proceedings
relating to the revocation or modification of any Material Permit.

 

3.9     Litigation. Except as set forth in the Disclosure Schedule, there is no
pending or to the Company’s knowledge threatened legal or governmental
proceedings against the Company. 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 which could adversely affect the business,
property, financial condition, prospects or operations of the Company. There is
no action, suit, proceeding or investigation by the Company currently pending in
any court or before any arbitrator or that the Company intends to initiate.
Neither the Company, nor any director or officer of the Company, is the subject
of any action involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has not
been, and to the Company’s knowledge, there is not pending or contemplated, any
investigation by the SEC involving the Company or any current or former director
or officer of the Company.

 

 
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3.10     Material Contracts. The Disclosure Schedule contains all a list of all
material contracts, agreements, commitments, arrangements, leases, policies or
other instruments to which the Company is a party or by which it is bound (the
“Material Contracts”). Except as set forth in the Disclosure Schedule, the
Material Contracts are valid and in full force and effect as to the Company,
and, to the Company’s knowledge, to the other parties thereto. Except as set
forth in the Disclosure Schedule, the Company is not in violation of, or default
under (and there does not exist any event or condition which, after notice or
lapse of time or both, would constitute such a default under), the Material
Contracts, except to the extent that such violations or defaults, individually
or in the aggregate, could not reasonably be expected to (a) affect the validity
of this Agreement or the other Transaction Documents, (b) result in a Material
Adverse Event, or (c) impair the ability of the Company to perform fully on a
timely basis any material obligation which the Company has or will have under
this Agreement or any other Transaction Documents. To the Company’s knowledge,
none of the other parties to any Material Contract are in violation of or
default under any Material Contract in any material respect. The Company has not
received any notice of cancellation or any written communication threatening
cancellation of any Material Contract by any other party thereto.

 

3.11     Intellectual Property. Except as set forth in the Disclosure Schedule,
the Company owns or possesses sufficient legal rights to all patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes necessary for its
business as now conducted and as presently proposed to be conducted, without any
known infringement of the rights of others (collectively, the “Intellectual
Property Rights”). Except as set forth in the Disclosure Schedule, there are no
material outstanding options, licenses or agreements of any kind relating to the
Intellectual Property Rights, nor is the Company bound by or a party to any
material options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information and other proprietary rights and processes of any other
person or entity other commercially available software products under standard
end-user object code license agreements. To the Company’s knowledge, no product
or proposed product of the Company violates or will violate any license, or
infringes or will infringe any Intellectual Property Rights, of any other party,
and the Company has not received any communications alleging that the Company
has violated or, by conducting its business as presently proposed to be
conducted, would violate any Intellectual Property Rights of any other person or
entity. The Company has obtained and possesses valid licenses to use all of the
software programs present on the computers and other software-enabled electronic
devices that it owns or leases or that it has otherwise provided to its
employees for their use in connection with the Company’s business. Each employee
and consultant has assigned to the Company all Intellectual Property Rights he
or she owns that are related to the Company’s business as now conducted and as
presently proposed to be conducted. The Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of its intellectual
properties, including, but not limited to, the execution by all employees,
consultants or agents involved in the development of its products of an
appropriate confidentiality and invention assignment agreement.

 

3.12     Employees. Except as set forth in the Disclosure Schedule, the Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or that would
conflict with the Company’s business as presently conducted. To the Company’s
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company; and
to the Company’s knowledge, the continued employment by the Company of its
present employees, and the performance of the Company’s contracts with its
independent contractors, will not result in any such violation. The Company has
not received any written notice alleging that any such violation has occurred.
The Company is not delinquent in payments to any of its employees, consultants,
or independent contractors for any wages, salaries, commissions, bonuses, or
other direct compensation for any service performed for it to the date hereof or
amounts required to be reimbursed to such employees, consultants or independent
contractors. The Company has complied in all material respects with all
applicable state and federal equal employment laws, including those related to
wages, hours, worker classification and collective bargaining. The Company has
withheld and paid to the appropriate governmental entity or is holding for
payment not yet due to such governmental entity all amounts required to be
withheld from employees of the Company and is not liable for any arrears of
wages, taxes, penalties or other sums for failure to comply with any of the
foregoing. No key employee or group of employees have notified the Company of an
intention to terminate their employment with the Company. Except as set forth in
the SEC Reports, Material Contracts or Disclosure Schedule, the employment of
each employee of the Company is terminable at the will of the Company, and upon
termination of the employment of any such employees, no severance or other
payments will become due.

 

 
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3.13     Title to Properties and Assets; Liens. Except as set forth in the SEC
Reports or Disclosure Schedule, the Company has good and marketable title to its
properties and assets, including the properties and assets reflected in the most
recent balance sheet included in the Company’s financial statements, and good
title to its leasehold estates, in each case subject to no Encumbrances, other
than (a) those resulting from taxes which have not yet become delinquent; and
(b) Encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company; and (c)
those that have otherwise arisen in the ordinary course of business, none of
which are material. The Company is in compliance with all material terms of each
lease to which it is a party or is otherwise bound.

 

3.14     Obligations to Related Parties. Except as disclosed in the Disclosure
Schedule, there are no obligations of the Company to officers, directors,
stockholders, or employees of the Company other than (a) for payment of salary
or other compensation for services rendered, (b) reimbursement for reasonable
expenses incurred on behalf of the Company and (c) for other standard employee
benefits made generally available to all employees (including stock-based award
agreements outstanding under any stock-based award plan approved by the Board of
Directors of the Company). Except as disclosed in the SEC Reports or Disclosure
Schedule, none of the officers or directors of the Company and, to the Company’s
knowledge, none of the employees of the Company is presently a party to any
transaction with the Company (other than as holders of stock-based awards,
options and/or warrants, and for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the Company’s knowledge, any entity in which
any officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

 

3.15     Material Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
the SEC Reports or Disclosure Schedule, (a) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a
Material Adverse Event; (b) the Company has not incurred any liabilities
(contingent or otherwise) other than trade payables, accrued expenses and other
liabilities incurred in the ordinary course of business consistent with past
practice; (c) the Company has not altered its method of accounting or the
identity of its auditors; (d) the Company has not declared or made any dividend
or distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock; and (e) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company stock-based plans.

 

 
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3.16     Disclosure Controls. The Company maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act)
that are effective in ensuring that information required to be disclosed by the
Company 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 rules and forms of the SEC, including, without limitation, controls and
procedures designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its
principal executive officer or officers and its principal financial officer or
officers, as appropriate, to allow timely decisions regarding required
disclosure.

 

3.17     No General Solicitation or Advertising. None of the Company, any of its
affiliates, and any person acting on their behalf, has engaged in any form of
general solicitation or general advertising (within the meaning of Regulation D
under the Securities Act) in connection with the offer or sale of the
Securities.

 

3.18     No Integrated Offering. Assuming the accuracy of the Investors
representations and warranties set forth in Article IV hereunder, none of the
Company, any of its affiliates, and any person acting on its behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause this
offering of the Securities to be integrated with prior offerings by the Company
for purposes of the Securities Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
any exchange or automated quotation system on which any of the securities of the
Company are listed or designated. Except as disclosed in Disclosure Schedule,
none of the Company, its affiliates and any person acting on its behalf, has
taken any action or steps referred to in the preceding sentence that would
require registration of any of the Securities under the Securities Act or cause
the offering of the Securities to be integrated with other offerings.

 

3.19     Application of Takeover Protections. The Company has taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Charter
Documents or the laws of its state of incorporation that is or could become
applicable to an Investor as a result of an Investor and the Company fulfilling
their obligations or exercising their rights under this Agreement, including,
without limitation, the Company’s issuance of the Securities and any Investor’s
ownership of the Securities.

 

3.20     Registration Rights. Except as set forth in the Disclosure Schedule,
and the Registration Rights Agreement, no person has any right to cause the
Company to effect the registration under the Securities Act of any securities of
the Company.

 

3.21     Listing and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act and quoted on the OTCQB,
and the Company has taken no action designed to, or which to its knowledge is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the
SEC is contemplating terminating such registration. Except as set forth in the
SEC Reports or Disclosure Schedule, the Company has not, in the 12 months
preceding the date hereof, received notice from any trading market on which the
Common Stock is or has been listed or quoted to the effect that the Company is
not in compliance with the listing or maintenance requirements of such trading
market. Except as set forth in the SEC Reports or Disclosure Schedule, the
Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

 

 
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3.22     Investment Company. The Company is not an “investment company” within
the meaning of such term under the Investment Company Act of 1940, as amended,
and the rules and regulations of the SEC thereunder.

 

3.23     Brokers. Neither the Company nor any of the Company’s officers,
directors, employees or stockholders has employed or engaged any broker or
finder in connection with the transactions contemplated by this Agreement and no
fee or other compensation is or will be due and owing to any broker, finder,
underwriter, placement agent or similar person in connection with the
transactions contemplated by this Agreement.

 

ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INVESTORS

 

Each Investor, for itself and for no other Investor, hereby represents, warrants
and covenants to the Company as follows as of the date of each Closing:

 

4.1     Organization; Authority. Such Investor is either an individual or an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with full right, corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
performance by such Investor of the transactions contemplated by this Agreement
have been duly authorized by all necessary corporate, partnership, limited
liability company or similar action, as applicable, on the part of such
Investor. Each Transaction Document to which it is a party has been duly
executed by such Investor, and when delivered by such Investor in accordance
with the terms hereof, will constitute the valid and legally binding obligation
of such Investor, enforceable against it in accordance with its terms, except:
(a) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (b) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (c) insofar as indemnification and contribution
provisions may be limited by applicable law.

 

4.2     Investor Status. At the time such Investor was offered the Securities,
it was, and as of the date of the Effective Date and each Closing is, and on
each date on which it exercises any Warrants, it will be either: (a) an
“accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or
(a)(8) under the Securities Act or (b) a “qualified institutional buyer” as
defined in Rule 144A(a) under the Securities Act. Such Investor is not required
to be registered as a broker-dealer under Section 15 of the Exchange Act.

 

4.3     Experience of Such Investor. Such Investor, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities.

 

4.4     Access to Information. Such Investor has had an opportunity to discuss
the Company’s business, management, financial affairs and the terms and
conditions of the offering of the Shares with the Company’s management and has
had an opportunity to review the Company’s facilities. The foregoing, however,
does not limit or modify the representations and warranties of the Company in
ARTICLE III of this Agreement or the right of the Investors to rely thereon.

 

 
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4.5     Prior Pre-Existing Relationship; No General Solicitation or Advertising.
Such Investor hereby represents that (a) such Investor was contacted regarding
the sale of the Securities by the Company (or another person whom such Investor
believed to be an authorized agent or representative thereof) with whom such
Investor had a prior substantial pre-existing relationship and (b) such Investor
did not learn of the offering of the Securities by means of any form of general
solicitation or general advertising, and in connection therewith, such Investor
did not (i) receive or review any advertisement, article, notice or other
communication published in a newspaper or magazine or similar media or broadcast
over television or radio, whether closed circuit, or generally available; or
(ii) attend any seminar meeting or industry investor conference whose attendees
were invited by any general solicitation or general advertising.

 

4.6     Exemption from Registration; Restrictions on Transfer. Such Investor
hereby acknowledges that the sale of the Securities hereunder have not been
reviewed by the SEC nor any state regulatory authority since the transactions
contemplated hereunder are intended to be exempt from the registration
requirements of Section 5 of the Securities Act, pursuant to Section 4(a)(2) of
the Securities Act and Rule 506(b) of Regulation D. Such Investor understands
that the Securities are “restricted securities” as such term is defined in Rule
144 under the Securities Act and have not been registered under the Securities
Act or under any state securities or “blue sky” laws and agrees not to sell,
pledge, assign or otherwise transfer or dispose of the Securities unless they
are registered under the Securities Act and under any applicable state
securities or “blue sky” laws or unless an exemption from such registration is
available.

 

4.7     Investment Intent. Such Investor hereby represents that such Investor is
purchasing the Securities for such Investor’s own account for investment and not
with a view toward the resale or distribution to others; provided, however, that
nothing contained herein shall constitute an agreement by such Investor to hold
the Securities for any particular length of time and the Company acknowledges
that such Investor shall at all times retain the right to dispose of its
property as it may determine in its sole discretion, subject to any restrictions
imposed by applicable law. Such Investor, if an entity, further represents that
it was not formed for the purpose of purchasing the Securities.

 

4.8     Restrictive Legend. Such Investor hereby consents to the placement of a
legend on any certificate or other document evidencing the Securities and, when
issued, the Warrant Shares, that such securities have not been registered under
the Securities Act or any state securities or “blue sky” laws and setting forth
or referring to the restrictions on transferability and sale thereof contained
in this Agreement. Such Investor is aware that the Company will make a notation
in its appropriate records with respect to the restrictions on the
transferability of such Securities. The legend to be placed on each certificate
shall be in form substantially similar to the following:

 

“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY
RECEIVES AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.”

 

4.9     Residence. Such Investor hereby represents that the address of such
Investor set forth on such Investor’s signature page to this Agreement is such
Investor’s principal residence if Investor is an individual or its principal
business address if it is a corporation or other entity.

 

4.10     No Public Disclosures. Such Investor hereby agrees not to issue any
public statement with respect to the transactions contemplated by this
Agreement, such Investor’s investment or proposed investment in the Company or
the terms of any agreement or covenant between them and the Company, without the
Company’s prior written consent, except such disclosures as may be required
under applicable law.

 

 
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4.11     Confidentiality; Non-Public Information. Such Investor hereby
acknowledges that certain of the information contained in the Offering Materials
or otherwise made available to such Investor may be confidential and non-public
and agrees that the portion of such information that is confidential shall be
kept in confidence by such Investor and neither used by such Investor for such
Investor’s personal benefit (other than in connection with the terms of this
Agreement) nor disclosed to any third party for any reason; provided, however,
that (a) such Investor may disclose such information to its affiliates and
advisors who may have a need for such information in connection with providing
advice to such Investor with respect to its investment in the Company so long as
such affiliates and advisors have an obligation of confidentiality, and (b) this
obligation shall not apply to any such information that (i) is part of the
public knowledge or literature and readily accessible at the date hereof, (ii)
becomes part of the public knowledge or literature and readily accessible by
publication (except as a result of a breach of this provision) or (iii) is
received from third parties without an obligation of confidentiality (except
third parties who disclose such information in violation of any confidentiality
agreements or obligations, including, without limitation, any subscription or
other similar agreement entered into with the Company). Such Investor hereby
acknowledges that certain information concerning the matters that are the
subject matter of this Agreement may constitute material non-public information
under U.S. federal securities laws, and that U.S. federal securities laws
prohibit any person who has received material non-public information relating to
the Company from purchasing or selling securities of the Company, or from
communicating such information to any person under circumstances in which it is
reasonably foreseeable that such person is likely to purchase or sell securities
of the Company. Accordingly, until such time as any material non-public
information that has been received by the Investor has been adequately
disseminated to the public, such Investor agrees that such Investor will not
purchase or sell any securities of the Company on any trading market or
otherwise, or communicate such information to any other person.

 

4.12     Short Sales and Confidentiality Prior to Date Hereof. Other than the
transaction contemplated hereunder, such Investor hereby represents that such
Investor has not, directly or indirectly, nor has any person acting on behalf of
or pursuant to any understanding with such Investor, executed any disposition,
including Short Sales (as such term is defined in Rule 200 of Regulation SHO
under the Exchange Act), in the securities of the Company during the period
commencing from the time that such Investor first received written or oral
notice of the transactions contemplated by this Agreement from the Company or
any other person setting forth the material terms of the transactions
contemplated hereunder or this Agreement until the date hereof. Such Investor
shall not, and shall cause its affiliates not to, engage, directly or
indirectly, in any transactions in the securities of the Company (including,
without limitation, any Short Sales (as such term is defined in Rule 200 of
Regulation SHO under the Exchange Act) during the period from the date hereof
until such time as (a) the transactions contemplated by this Agreement are first
publicly announced or (b) this Agreement is terminated. Notwithstanding the
foregoing, in the case of an Investor that is a multi-managed investment vehicle
whereby separate portfolio managers manage separate portions of such Investor’s
assets and the portfolio managers have no direct knowledge of the investment
decisions made by the portfolio managers managing other portions of such
Investor’s assets, the representations and covenants set forth in this Section
4.12 shall only apply with respect to the portion of assets managed by the
portfolio manager that made the investment decision to purchase the Securities
covered by this Agreement. Other than to other persons party to this Agreement,
such Investor has maintained the confidentiality of all disclosures made to it
in connection with this transaction (including the existence and terms of this
transaction).

 

 
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ARTICLE V
CLOSING CONDITIONS

 

5.1     Conditions of the Investors’ and the Company’s Obligations at each
Closing. The obligations of the Investors to the Company and the Company to each
Investor under this Agreement at any Closing are subject to the fulfillment on
or before such Closing of each of the following conditions:

 

(a)     Quality of Clinical Data. The clinical data received by the Company and
transmitted to the Investors with respect to the Feasibility Trial, together
with communications with or from the FDA since the date of this Agreement,
reasonably demonstrates to the satisfaction of the Company and each Investor
participating in such Closing, that it is advisable to continue with the
Feasibility Trial and to continue to pursue marketing approval by the FDA for
the eSVS Mesh. For the avoidance of doubt, if the Company and the Majority
Investors determine to proceed with a Closing, the condition set forth in this
Section 5.1(a) may excuse the performance of an Investor, but the concurrence of
all Investors shall not be a condition to such Closing.

 

(b)     Qualifications. All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the Shares
pursuant to this Agreement shall be duly obtained and effective as of each
Closing.

 

5.2     Conditions of the Investors’ Obligations at each Closing. The
obligations of each Investor under Article I of this Agreement are subject to
the fulfillment on or before each Closing of each of the following conditions,
the waiver of which shall not be effective against any Investor who does not
consent thereto.

 

(a)     Absence of Material Adverse Effect. A Material Adverse Effect shall not
have occurred and be continuing.

 

(b)     Representations and Warranties. The representations and warranties of
the Company contained in Article III shall be true and correct in all material
respects on and as of such Closing.

 

(c)     Performance. The Company shall have performed and complied in all
material respects with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before each Closing.

 

(d)     Compliance Certificate. The Chief Executive Officer and Chief Financial
Officer of the Company shall deliver to each Investor at each Closing a
certificate stating that the conditions specified in Sections 5.2(a), 5.2(b) and
5.2(c) have been fulfilled, and setting forth any updates to the Disclosure
Schedule.

 

(e)     Secretary Certificate. At the Tranche A Closing, the Secretary of the
Company shall have delivered to the Investors a certificate certifying (i) the
Certificate of Incorporation of the Company, (i) the Bylaws of the Company, and
(ii) resolutions of the Board of Directors of the Company approving the
Transaction Agreements and the transactions contemplated under the Transaction
Agreements; and at each other Closing, the Secretary shall have delivered a
certificate confirming that none of the same shall have been rescinded, amended
or otherwise revised.

 

 
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(f)     Registration Rights Agreement. The Company and each Investor (other than
an Investor relying upon this condition to excuse such Investor’s performance
hereunder) shall have executed and delivered the Registration Rights Agreement.

 

(g)     Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at each Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
counsel for the Investors, and they shall have received all such counterpart
original and certified or other copies of such documents as they may reasonably
request.

 

5.3     Conditions of the Company’s Obligations at each Closing. The obligations
of the Company to each Investor under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
such Investor:

 

(a)     Representations and Warranties. The representations and warranties of
such Investor contained in Article IV shall be true and correct on and as of
each Closing.

 

(b)     Payment of Purchase Price. Such Investor shall have delivered the
applicable Purchase Price to be paid by such Investor at such Closing.

 

ARTICLE VI
COVENANTS

 

6.1     Milestones. The Company shall use its reasonable best efforts to achieve
the following milestones (the “Milestones”) as soon as reasonably practicable:
(a) receipt by the Company of 40 angiograms from patients enrolled in the
Feasibility Trial and who have had an eSVS Mesh implanted using the New
Technique; (b) submission by the Company of the results of the Feasibility Trial
as part of an application for an investigational device exemption (“IDE”) for a
pivotal trial of the eSVS Mesh; and (c) receipt by the Company of an IDE
approval from the FDA to commence a pivotal trial of the eSVS Mesh in the United
States (the “Pivotal Trial”).

 

6.2     Limit on Non-Trial Operating Expenses. Except as otherwise approved in
writing by the LLC, until the Company receives financing from sources other than
sale of the Shares of at least $3 million, the Company’s Non-Trial Operating
Expenses (as defined below) shall not exceed $208,000 per month. For such
purposes, “Non-Trial Operating Expenses” shall mean all operating expenses of
the Company other than non-cash expenses (e.g., depreciation and stock-based
compensation) and expenses directly attributable to, and reasonably necessary
for: (a) the Feasibility Trial; (b) the Pivotal Trial; (c) the preparation,
filing and effectiveness of the registration statement if requested by LLC to be
prepared and filed by the Company pursuant to the terms of the Registration
Rights Agreement; and (d) bringing onto the Board of Directors of the Company
and compensating the two director designees of LLC in accordance with Section
6.5, all as measured with respect to any month by averaging the Non-Trial
Operating Expenses of such month and the previous two months, with the first
measurement period being at the end of April 2015.

 

6.3     Use of Proceeds. The Company shall use the net proceeds from the sale of
the Shares hereunder for working capital and general corporate purposes,
including, without limitation, for the funding of regulatory approval (including
the requisite Feasibility Trial, Pivotal Trial and any other clinical trials) of
the Company’s eSVS Mesh in the United States and abroad; provided, however, that
until the completion of the Pivotal Trial, the Company shall not use any of the
net proceeds from the sale of the Shares hereunder to hire any sales personnel
unless a decision is made by the Board of Directors to do so and the LLC
consents thereto, which consent shall not be unreasonably withheld.

 

 
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6.4     Villafaña Employment Agreement. The Company and Villafaña will agree
upon a proposed amendment to Villafaña’s current employment agreement or a
proposed new agreement, which will contemplate the implementation of a CEO
succession plan and be in a form and substance reasonably satisfactory to the
LLC. If the proposed amendment or new agreement is not reasonably satisfactory
to the LLC, Villafaña will meet with the LLC to discuss the LLC’s concerns and
potential changes to the proposed amendment or agreement. If the LLC and
Villafaña are unable to come to agreeable terms, Villafaña will not be required
to purchase Shares under this Agreement and the LLC will not be required to
purchase more than $1,500,000 in Shares under this Agreement. If Villafaña
decides not to purchase Shares under this Agreement pursuant to this Section
6.4, then the definition of “Investors” as used in this Agreement will exclude
Villafaña.

 

6.5     Increase in Authorized Common Stock. The Company shall, at all times,
reserve for issuance out of its authorized and unissued shares of Common Stock,
such number of shares of Common Stock as can reasonably be anticipated to be
required for issuance under this Agreement. If, at the time of notice of its
annual meeting of stockholders, it is reasonably foreseeable that additional
shares of authorized and unissued Common Stock are required, the Company shall
propose to its stockholders an amendment to its certificate of incorporation to
increase its authorized shares so that it can meet its contractual obligations
under this Agreement. Notwithstanding Article II of this Agreement, if, at any
Closing, the number of Shares to be issued at such Closing would cause the
outstanding shares of the Company to exceed the number of shares of Common Stock
authorized by its Certificate of Incorporation, the number of Shares issued at
such Closing shall be reduced to the maximum number of Shares that can be
issued, and the Closing with respect to the balance of the Shares required by
this Agreement to be issued at such Closing, but not so issued, shall be
postponed (but not for more than six months) until the Company has caused its
Certificate of Incorporation to be amended to increase its authorized shares of
Common Stock to accommodate the issuance of the additional Shares at such
Closing and any other additional Shares that can reasonably be anticipated to be
issued under this Agreement. The Company shall use reasonable best efforts to
promptly call a special meeting of stockholders to cause its Certificate of
Incorporation to be amended to increase the number of authorized shares of
Common Stock, or shall cause such amendment to be included in its next annual
meeting of stockholders if such meeting is within three months of the date of
such closing. In furtherance of the foregoing, the Investors hereby agree to
vote the Shares and all shares of Common Stock held by such Investors as of the
record date for such meeting in favor of such an amendment and hereby grants the
Company a limited irrevocable proxy to vote the shares of Common Stock as to
which such Investor has voting power for the Investor and in the Investor’s
name, place and stead, at any annual or special meeting of the stockholders of
the Company, as applicable, or at any adjournment thereof for the adoption of
such charter amendment. Notwithstanding the foregoing, the obligation of the
Investors to vote their voting securities of the Company as such is in their
capacity as such and as a stockholder of the Company and will not affect their
obligation to act in their capacity as a director, officer or advisor of the
Company, as applicable, or to comply with their fiduciary duties as such.

 

6.6     LLC Director Designees.

 

(a)     Until the termination of the LLC’s rights under Section 6.6(d), the LLC
shall have the right (but not the obligation) to designate two (2) director
nominees to the Board of Directors of the Company (in addition to its current
right to have (2) observers).

 

(b)     Each Investor shall vote all voting securities that such Investor holds,
or may acquire, in the Company in favor of the election of the two (2) director
nominees as designated by LLC pursuant to Section 6.6(a) and in furtherance of
the foregoing hereby constitutes and appoints as such Investor’s proxy, and
hereby grants a power of attorney to, each of Nasser Kazeminy and Rhonda
Donahoe, with full power of substitution, with respect to the election of the
two (2) director nominees as members of the Board of Directors of the Company in
accordance with Section 6.6(a). Notwithstanding the foregoing, the obligation of
each Investor to vote his, her or its voting securities of the Company as such
is in his capacity as such and as a stockholder of the Company and will not
affect such Investor’s obligation to act in his, her or its separate capacity as
a director, officer or advisor of the Company, as applicable, or to comply with
his fiduciary duties as a director, officer or advisor.

 

 
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(c)     The LLC hereby covenants and agrees (a) not to designate or participate
in the designation of any director designee pursuant to Section 6.6(a) who, to
the LLC’s knowledge, is a Disqualified Designee (as defined below) and (b) that
in the event the LLC becomes aware that any individual previously designated by
the LLC is or has become a Disqualified Designee, the LLC shall as promptly as
practicable take such actions as are necessary to remove or cause the removal of
such Disqualified Designee from the Board of Directors of the Company and
designate a replacement designee who is not a Disqualified Designee. For
purposes of this Section 6.6(c), a “Disqualified Designee” is any director
designee to whom any event set forth in Rule 506(d)(1)(i)-(viii) promulgated
under the Securities Act has occurred within the timeframes set forth therein,
and with respect to which no dispensation under Rule 506(d)(ii) or (iii), or
Rule 506(d)(3) applies.

 

(d)     All rights of the LLC under this Section 6.6 shall expire upon the
earlier of (i) completion by the Company of a Qualified Public Offering (as
defined below) or an acquisition of the Company; or (ii) the date on which LLC
no longer owns ten percent (10%) of the voting power of the Company’s
outstanding common stock entitled to vote. For purposes of this Section 6.6(d),
a “Qualified Public Offering” is a sale of common stock by the Company in a firm
commitment underwritten public offering pursuant to a registration statement
which results in net proceeds of at least $20 million.

 

6.7     Waiver of Preemptive Right Applicable to Issuance of Warrants and Shares
Under this Agreement. By execution of this Agreement, the LLC hereby waives its
preemptive right in Section 6.3 of that certain Investment Agreement dated as of
January 19, 2007 (the “Investment Agreement”), with respect to the issuance of
the Warrants, the Warrant Shares and the Shares under this Agreement.

 

ARTICLE VII
MISCELLANEOUS

 

7.1     Fees and Expenses. Each party shall pay the fees and expenses of its
respective advisers, counsel, accountants and other experts, if any, and all
other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement; provided, however, that
the Company shall pay one-half of the out-of-pocket attorney fees and expenses
incurred by the LLC. The Company shall pay all transfer agent fees, stamp taxes
and other taxes and duties levied in connection with the delivery of any
Securities to the Investors.

 

7.2     Entire Agreement. The Transaction Documents, together with the exhibits
and schedules thereto, contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, including,
without limitation, that certain Term Sheet dated January 14, 2015, which the
parties acknowledge have been merged into such documents, exhibits and
schedules. For the avoidance of doubt, except as provided in Section 6.6,
nothing in this Agreement shall alter or affect in any way, the obligations of
the Company, or the rights of the LLC, under the Investment Agreement.

 

 
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7.3     Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of: (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
set forth on the signature pages attached hereto prior to 5:30 p.m. (New York
time) on any Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto on a day that
is not a Business Day or later than 5:30 p.m. (New York time) on any Business
Day, (c) the second (2nd) Business Day following the date of mailing, if sent by
U.S. nationally recognized overnight courier service or (d) upon actual receipt
by the party to whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto. For the purposes of this Agreement, the term “Business Day” shall mean
any day except any Saturday, any Sunday, any day which is a federal legal
holiday in the United States or any day on which banking institutions in the
State of New York are authorized or required by law or other governmental action
to close.

 

7.4     Amendments; Waivers. No provision of this Agreement may be waived,
modified, supplemented or amended except in a written instrument signed, in the
case of an amendment, by the Company and the LLC and Villafaña or, in the case
of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of any party to
exercise any right hereunder in any manner impair the exercise of any such
right.

 

7.5     Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.

 

7.6     Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Investor (other than by merger or
disposition of substantially all of its assets). Any Investor may assign any or
all of its rights under this Agreement to any person to whom such Investor
assigns or transfers any Securities, provided that such transferee agrees in
writing to be bound, with respect to the transferred Securities, by the
provisions of the Transaction Documents that apply to the “Investors.”

 

7.7     No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective successors and permitted assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

 

7.8     Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the laws of the State of Delaware,
without giving effect to conflict of laws principles thereof. Each party agrees
that all legal proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
affiliates, directors, officers, stockholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of
Minneapolis, Minnesota. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Minneapolis,
Minnesota for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction Documents),
and hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is improper or is an
inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law. If either party shall
commence an action or proceeding to enforce any provisions of the Transaction
Documents, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its reasonable attorneys’ fees and other costs
and expenses incurred with the investigation, preparation and prosecution of
such action or proceeding.

 

 
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7.9     Survival. The representations and warranties contained herein shall
survive the Closings and the delivery of the Securities for the applicable
statute of limitations.

 

7.10     Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, 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 or “.pdf” signature page were an original thereof.

 

7.11     Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.

 

7.12     Replacement of Securities. If any certificate or instrument evidencing
any Securities is mutilated, lost, stolen or destroyed, the Company shall issue
or cause to be issued in exchange and substitution for and upon cancellation
thereof (in the case of mutilation), or in lieu of and substitution therefor, a
new certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity or security, if requested. The applicant for a new
certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance
of such replacement Securities.

 

7.13     Remedies. In addition to being entitled to exercise all rights provided
herein or granted by law, including recovery of damages, each of the Investors
and the Company will be entitled to specific performance under the Transaction
Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to
assert in any action for specific performance of any such obligation the defense
that a remedy at law would be adequate.

 

7.14     Payment Set Aside. To the extent that the Company makes a payment or
payments to any Investor pursuant to any Transaction Document or an Investor
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

 

 
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7.15     Independent Nature of Investors’ Obligations and Rights. The
obligations of each Investor under any 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 or non-performance of the obligations
of any other Investor under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Investor
pursuant 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 the
Transaction Documents. Each Investor shall be entitled to independently protect
and enforce its rights including, without limitation, the 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 has been represented by its own
separate legal counsel in their review and negotiation of the Transaction
Documents. The Company has elected to provide all Investors with the same terms
and Transaction Documents for the convenience of the Company and not because it
was required or requested to do so by any of the Investors.

 

7.16     Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding Business Day.

 

7.17     Construction. The parties agree that each of them and/or their
respective counsel has reviewed and had an opportunity to revise the Transaction
Documents and, therefore, the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of the Transaction Documents or any amendments hereto. In
addition, each and every reference to share prices and shares of Common Stock in
any Transaction Document shall be subject to adjustment for reverse and forward
stock splits, stock dividends, stock combinations and other similar transactions
of the Common Stock that occur after the date of this Agreement.

 

7.18     WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY
JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH
KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW,
HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER
TRIAL BY JURY.

 

 

 

(Signature pages follow)

 

 
19

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

  

KIPS BAY MEDICAL, Inc.

Address for Notice:

 

3405 Annapolis Lane North

Suite 200

Minneapolis, MN 55447

Attn: Chief Executive Officer

By:           /s/ Scott
Kellen                                                                    

 Fax: (763) 235-3545

Name:     Scott
Kellen                                                                    

 

Title:       Chief Operating Officer and Chief Financial Officer   

 

 

With a copy to (which shall not constitute notice):

 

Oppenheimer Wolff & Donnelly LLP

222 South Ninth Street, Suite 2000

Minneapolis, Minnesota 55402

Fax: (612) 607-7100

Attention: Amy E. Culbert, Esq. 

 

 

 

 

 

[Remainder of page intentionally left blank; signature page for Investors
follows]

 

 
20

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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

 

KIPS BAY INVESTMENTS, LLC.

 

Address for Notice:

 

c/o NJK Holding Corporation

8500 Normandale Lake Boulevard

Suite 600

Minneapolis, MN 55437

Attn: Chief Financial Officer

By:____/s/ Rhonda Donahoe______________________

Name:_Rhonda Donahoe_________________________

Title:___Manager_______________________________

 

With a copy to (which shall not constitute notice):

Fax: (952) 831-9072

   

Dorsey & Whitney

50 South Sixth Street, Suite 1500

Minneapolis, Minnesota 55402-1498

Facsimile: (612) 340-2868

Attention: Thomas Martin, Esq.

 

 

 

 

 

[Signature page of LLC]

 

 
21

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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

 

 

 

Address for Notice:

 

 

P.O. Box 47946

Minneapolis, MN 55447

Attention: Manny Villafaña

______/s/ Manny Villafaña_______________________

Name: Manny Villafaña

 

With a copy to (which shall not constitute notice):

 

 

 

 

 

[Signature page of Villafaña]

 

 
22

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IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.

 

 

 

Name of Investor: ________________________________________________________

 

Signature of Authorized Signatory of Investor: _________________________________

 

Name of Authorized Signatory: _______________________________________________

 

Title of Authorized Signatory: ________________________________________________

 

Email Address of Authorized Signatory:_________________________________________

 

Facsimile Number of Authorized Signatory:
__________________________________________

 

Address for Notice to Investor:

 

 

Address for Delivery of Securities to Investor (if not same as address for
notice):

 

 

 

 

[Signature page of Investor]