Exhibit 10.1 
 
FORBEARANCE AGREEMENT

This FORBEARANCE AGREEMENT (this “Agreement”) is entered into as of February 16,
2007, by and among the note holders identified on Schedule A hereto (each a
“Note Holder” and collectively, the “Note Holders”) and Biophan Technologies,
Inc., a Nevada Corporation (the “Company”).
 
All capitalized terms not defined in this Agreement but defined in that certain
Securities Purchase Agreement, dated as of October 11, 2006 (the “Purchase
Agreement”), by and among the Note Holders and the Company, shall have the
meanings given to such terms in the Purchase Agreement.
 
Preliminary Statements:
 
A. Pursuant to the Purchase Agreement, on October 12, 2006, the Company issued
to the Note Holders (i) an aggregate of $7,250,000 face amount of Senior Secured
Convertible Notes (the “Notes”), (ii) warrants to purchase an aggregate of
5,410,498 shares of the Company’s common stock, par value $0.005 per share, (the
“Common Stock”) at an exercise price of $0.81 per share (the “A Warrants”) (iii)
warrants to purchase an aggregate of 5,410,498 shares of Common Stock at an
exercise price of $0.89 per share (the “B Warrants”) and (iv) warrants to
purchase an aggregate of 10,820,896 shares of Common Stock at an exercise price
of $0.67 per share (the “C Warrants”), in the respective amounts set forth next
to each Note Holders name on Schedule A hereto; and
 
B. Events (as defined in the Purchase Agreement) (“Triggering Events”),
including that the Registration Statement filed by the Company (No. 333-138632)
(the “Registration Statement”) was not declared effective by the Commission by
the Required Effectiveness Date have occurred and remain uncured; and
 
C. The Purchase Agreement provides, in part, that upon the occurrence of an
Triggering Event, and on each monthly anniversary of the Event Date, so long as
the Triggering Event remains uncured, the Company shall pay to each Purchaser
liquidated damages as provided in the Purchase Agreement and the Note Holders
are the Purchasers entitled to the benefits of the Purchase Agreement; and
 
D. The Company failed to make a scheduled payment of principal on the Notes due
and payable on February 1, 2007 (the “Principal Payment Default”); and
 

--------------------------------------------------------------------------------

 
E. Pursuant to Section 8(e) of the Notes, the Note Holders are entitled to
enforce any and all of their rights and remedies thereunder. Such rights
include, but are not limited to, the right to demand that the Company repurchase
all of the outstanding principal amount of the Notes at a repurchase price equal
to 110% of such outstanding principal amount plus all accrued but unpaid
interest thereon.
 
F. The Company does not anticipate making any interest, principal, penalty
payment or liquidated damages payments on the Notes or with respect to the
Purchase Agreement prior to March 31, 2007 (together with the Principal Payment
Default, the “Payment Defaults”); and
 
G. The Company has requested that the Note Holders forbear from exercising their
rights and remedies under the Purchase Agreement and Notes with respect to the
Triggering Events and the Payment Defaults (and any other defaults and Events of
Default under the Notes) prior to March 31, 2007; and
 
H. In consideration for the Note Holders entering into this Forbearance
Agreement, the Company shall issue to the Note Holders warrants to purchase an
aggregate of 60,000 shares of Common Stock with an exercise price of $0.51 per
share (the “Fee Warrants”); and
 
I. The A Warrants and B Warrants contain anti-dilution protection whereby, upon
issuance of the Fee Warrants, the exercise price of the A Warrants and B
Warrants will be automatically adjusted to $0.51 per share pursuant to Section
9(d)(i) of the respective warrant.
 
NOW THEREFORE, in consideration of the mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
 
1. Forbearance.
 
1.1 No Forbearance Except as Expressly Stated. Nothing in this Agreement shall
in any way limit, restrict or bar any rights or remedies available to the Note
Holders (whether pursuant to the Purchase Agreement or Note or at law or in
equity or otherwise) or the exercise or enforcement thereof by the Note Holders,
except only as is expressly provided in this Section 1, and subject to the
limitations set forth therein.
 
1.2 Forbearance Period. The Note Holders hereby agree that during the period
commencing on the date hereof and terminating on the earlier of either March 31,
2007 or the date on which any Termination Event (as defined below) first occurs
(said period is hereinafter referred to as the “Forbearance Period”), the Note
Holders will forbear from exercising any and all of the rights and remedies
which the Note Holders may have against the Company or any of their respective
assets under the Purchase Agreement or Notes or at law or in equity as a result
of the occurrence or continuance of any Payment Default or any other default or
Event of Default under the Notes or any Triggering Event with respect to the
Purchase Agreement. Upon the occurrence of any Termination Event, the
Forbearance Period shall immediately and automatically terminate and be null and
void and have no further force or effect.
 

--------------------------------------------------------------------------------

 
1.3 Termination Events. The occurrence of any of the following events shall
constitute a Termination Event (hereinafter referred to collectively as the
“Termination Events” and each singly as a “Termination Event”) under this
Agreement:
 
1.3.1 The failure by the Company to promptly, punctually, and faithfully
observe, perform, discharge or comply with any provisions of this Agreement; or
 
1.3.2 The determination that any written statement, certificate, report,
financial statement, representation or warranty made or furnished by the Company
to the Note Holders in connection with or pursuant to this Agreement is false
when it was made in any material adverse respect, or omits or fails to state a
material fact necessary in order to make the statement, representation or
warranty contained therein not misleading in any material adverse respect; or
 
1.3.3 The occurrence of any action (a) taken or initiated by, assented or agreed
to, acquiesced in or permitted by the Company, or (b) taken or initiated by
another party which is not in control of or controlled by the Company (other
than a Note Holder) and which is not acting with the assent, agreement,
acquiescence or permission of the Company, which action results in any of the
following events: (i) the filing of any complaint, application or petition
seeking relief or the entry of any order of judgment for any such relief with
respect to the Company pursuant to the Bankruptcy Code, or pursuant to any
similar state or federal law or procedure for any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar for debtors; (ii)
the appointment of any trustee, receiver, master, assignee, liquidator,
custodian or other similar party with respect to the Company or any of their
respective properties; (iii) any assignment for the benefit of other creditors
of the Company; (iv) the convening of any meeting of creditors, formal or
informal, of the Company; or (v) the taking of possession, custody or control of
a substantial part or all of the property of the Company by any other party; or
 
1.3.4 The dissolution, termination of existence, winding up or liquidation of
the Company; or
 
1.3.5 Any preferential transfer by the Company as described in Section 547 of
the Bankruptcy Code, or any fraudulent transfer or conveyance by the Company as
described in Section 548 of the Bankruptcy Code, or in the MFTA, in each case
without the requirement of the filings of any petition under the Bankruptcy
Code, or commencement of any action under the MFTA; or
 
1.3.6 The Company, or any Person claiming by or through the Company, commences,
joins in, assists, cooperates in or participates as an adverse party in any suit
or other proceeding against the Note Holders which relates to the Notes or the
Purchase Agreement.
 

--------------------------------------------------------------------------------

 
1.4 Consequence of Termination Event. Notwithstanding any provision contained in
this Agreement to the contrary, the parties hereto acknowledge and agree that
upon the occurrence and during the continuance of any Termination Event, that:
 
1.4.1 Subsection 1.2 of this Agreement shall immediately and automatically
terminate and be null and void and have no further force or effect.
 
1.4.2 All of the other remaining provisions contained in this Agreement shall
remain in full force and effect, and shall continue to be binding upon the
parties hereto, it being understood and agreed that the Note Holders shall
continue to retain the Fee Warrants.
 
2. Forbearance Fee. The Company shall issue to the Note Holders on the date
hereof Fee Warrants, in substantially the form attached hereto as Exhibit I, in
the denominations set forth opposite the names of the Note Holders on Schedule
B. Each Note Holder, by accepting a Fee Warrant, represents and warrants to the
Company and to each other Note Holder that (i) it is acquiring such Fee Warrant
for investment purposes and with no present intention of distributing such Fee
Warrant or any shares of Common Stock issuable upon exercise thereof in
violation of applicable securities laws, (ii) it is acquiring such Fee Warrant
hereunder in the ordinary course of its business, and (iii) it understands that
the Company, in issuing the Fee Warrants, is relying upon, among other things,
the representations and warranties of such Note Holder herein.
 
3. Anti-dilution Provisions of Outstanding Notes and Warrants.
 
3.1  Adjustment of the A Warrants and the B Warrants. The Company hereby
acknowledges that, pursuant to Section 9(d)(i) of each of the A Warrants and B
Warrants, upon the issuance of the Fee Warrants, the exercise price of the A
Warrants and B Warrants will automatically be adjusted from $0.81 per share and
$0.89 per share, respectively, to $0.51 per share.
 
3.2  No Adjustment of the C Warrants and the Notes. The Note Holders hereby
waive the application of Section 9(d)(i) of the C Warrants and of Section
10(d)(i) of the Notes to the issuance of the Fee Warrants and agree that,
notwithstanding the provisions of such Sections, no adjustment to the conversion
price of the Notes or to the exercise of the exercise price of the C Warrants as
a result of the issuance of the Fee Warrants.
 
4. Operating Expenses. The Company hereby covenants and agrees that the Company
will not incur expenses (other than the accrual of interest, penalties and
liquidated damages on the Notes or under the Purchase Agreement) in excess of
$500,000 during each thirty-day period commencing on the date of this Agreement
and terminating on the date on which the Registration Statement is declared
effective by the Commission, without the prior written consent of Note Holders
then holding Notes representing, in the aggregate, at least sixty percent (60%)
of the face amount of all outstanding Notes. Upon request from any Note Holder,
the Company shall provide weekly cash flow statements to such Note Holder or to
an authorized designee of such Note Holder; provided, that such Note Holder
first executes and delivers to the Company a non-disclosure agreement in form
and substance satisfactory to the Company.
 

--------------------------------------------------------------------------------

 
5. General Release. The Company on its own behalf, and on behalf of its
successors and assigns, and any Person acting for or on behalf of, or claiming
through, any of them, and each of them (collectively, the “Releasing Parties”),
for good and valuable consideration, receipt and sufficiency of which are hereby
acknowledged, fully, finally and forever releases and discharges the Note
Holders and each of their past, present and future officers, directors, agents,
attorneys, employees, representatives, predecessors, successors, assigns, heirs,
parents, subsidiaries, and any Person acting for or on behalf of any of them,
and each of them (collectively, the“Released Parties”), of and from any and all
claims, actions, causes and rights of action, suits, debts, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, obligations, promises, trespasses, damages,
judgments, executions, losses, claims, liabilities and demands of any kind or
nature whatsoever, whether at law, in equity or otherwise, whether known or
unknown, contingent or absolute, suspected or unsuspected, disclosed or
undisclosed, hidden or concealed, disputed or undisputed, liquidated or
unliquidated, matured or unmatured and whether or not accrued, and whether or
not asserted or assertable in law, equity or otherwise, for, upon or by reason
of any act, omission or other matter, cause or thing whatsoever from the
beginning of the world until the date hereof relating to, arising from or in any
manner whatsoever connected with (a) the Purchase Agreement or Notes and (b) all
actions taken or contemplated to be taken in connection with, arising from or in
any manner whatsoever relating to the Purchase Agreement or Notes, which any of
the Releasing Parties ever had or may have had, now has or may now have against
any of the Releasing Parties for, upon or by reason of any act, omission or
other matter, cause or thing whatsoever from the beginning of the world until
the date hereof.
 
6. No Setoffs, Counterclaims or Defenses. The Company hereby represents and
warrants to the Note Holders, and agrees, that the Company has no defense,
setoff or counterclaim to the payment of the indebtedness, obligations and
liabilities owed by the Company to the Note Holders under or pursuant to the
Purchase Agreement or Notes. To the extent any such defense, setoff or
counterclaim ever existed or may exist, the Company hereby irrevocably waives
and releases any and all such defenses, counterclaims and setoffs that may now
exist or that may hereafter be claimed to have existed on or before the date
hereof.
 
7. No Waiver. Nothing herein shall constitute a waiver by the Note Holders of
any default or Event of Default under the Notes or any Triggering Event with
respect to the Purchase Agreement, and each Note Holder expressly reserves all
of its rights and remedies in respect thereof, subject, however, to the
provisions of Section 1 above. Nothing contained in this Agreement shall
constitute a waiver of any term or condition by, nor a bar (except to the extent
provided in Section 1 above) to the exercise of any right or remedy available
to, the Note Holders under or with respect to the Purchase Agreement or Notes.
All rights and remedies of the Note Holders are cumulative, and not exclusive,
and all rights and remedies herein are in addition to any rights and remedies
otherwise available to the Note Holders under the Purchase Agreement and Notes
or at law or in equity or otherwise. Notwithstanding the provisions of this
Section 7, the Note Holders hereby waive the provisions of Sections 4.6(a) and
4.6(b) of the Purchase Agreement solely for the purpose of permitting the
Company to issue Fee Warrants to the Note Holders as contemplated in this
Agreement.
 
8. Conditions to Effectiveness. The effectiveness of this Agreement and all of
the obligations of each of the undersigned Note Holders hereunder is subject to
the satisfaction of the following conditions precedent, each of which shall be
in form, scope and substance satisfactory to such Note Holder:
 

--------------------------------------------------------------------------------

 
8.1 Forbearance Agreement. Such Note Holder shall have received this Agreement,
as executed and delivered by the Company.
 
8.2 Corporate Proceedings of Company. Such Note Holder shall have received a
copy of the resolutions of the Board of Directors of the Company authorizing the
execution, delivery and performance of this Agreement and the issuance of the
Fee Warrants, as certified by the Secretary of the Company, which certificate
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
 
8.3 Forbearance Fee. A Fee Warrant in the denomination set forth opposite the
name of such Note Holder on Schedule B shall have been issued and delivered to
such Note Holder.
 
8.4 Other. Such Note Holder shall have received from the Company such other
documents, instruments, certificates and affidavits as it may reasonably
require.
 
9. Miscellaneous.
 
9.1 Voluntary Act. Each Note Holder acknowledges, agrees and respectively says
under the penalties of perjury, that (a) it is executing this Agreement as its
free act and deed, (b) it is not acting under any duress or undue influence, (c)
it has received from the Company good and adequate consideration, the receipt
and sufficiency of which are hereby acknowledged, in connection with the
execution of this Agreement and (d) it has done so after consultation with, or
after the opportunity to consult with, its own legal counsel.
 
9.2 Individual Act. The obligations of each Note Holder under this Agreement are
several and not joint with the obligations of any other Note Holder, and no Note
Holder shall be responsible in any way for the performance or non-performance of
the obligations of any other Note Holder hereunder. Nothing contained herein or
in the Purchase Agreement or Notes, and no action taken by any Note Holder
pursuant thereto, shall be deemed to constitute the Note Holders as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Note Holders are in any way acting in concert or
as a group with respect to such obligations or the transactions contemplated by
this Agreement. Each Note Holder shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out of this
Agreement or out of the Purchase Agreement or the Notes, and it shall not be
necessary for any other Note Holder to be joined as an additional party in any
proceeding for such purpose.
 
9.3 Successors and Assigns. This Agreement is binding upon and shall inure to
the benefit of the parties hereto, and their respective heirs, executors,
administrators, successors and assigns. Nothing herein is intended to be for the
benefit of any party other than the parties to this Agreement.
 

--------------------------------------------------------------------------------

 
9.4 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This Agreement shall become binding and effective as to the
undersigned upon execution and as to all Note Holders when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as the signatories. Executed counterparts
may be delivered by facsimile or other electronic transmission and such delivery
shall be deemed to be delivery of an executed original notwithstanding any
subsequent failure or refusal to deliver a counterpart signed in ink.
 
9.5 Integration; Severability. This Agreement constitutes and integrates the
entire agreement between the parties as to its subject matter and supersedes any
and all prior or contemporaneous discussions, understandings and negotiations;
and the Company expressly acknowledges and agrees that the Note Holders have
made no agreements, representations, warranties or promises concerning the
subject of this Agreement except as expressly set forth in this Agreement. If
any term or provision of this Agreement shall be determined to be invalid or
unenforceable in any instance, such determination shall not affect the
enforceability or validity of such term or provision in any other instance or
the enforceability and validity of any other term or provision, each of which
shall remain in full force and effect.
 
9.6 Notices. All notices required or permitted hereunder shall be in writing and
delivered in accordance with the provisions of the Purchase Agreement.
 
9.7 Amendment. Neither this Agreement nor any of the provisions hereof can be
changed, waived, discharged or terminated, except by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
termination is sought.
 
9.8 Further Assurances. The Company agrees that it shall hereafter execute and
deliver, or cause to be executed and delivered, such documents and do, or cause
to be done, such acts and things as might reasonably be requested by the Note
Holders to more fully vest in and secure to the Note Holders the benefits of
this Agreement.
 
9.9 No Conflicts. To the extent and only to the extent that any provision
contained in this Agreement is directly inconsistent and conflicts with any
corresponding provision contained in the Purchase Agreement or Notes, then the
provision contained in this Agreement will control over the corresponding
provision contained in the Purchase Agreement or Notes. To the extent possible,
however, provisions of this Agreement, the Purchase Agreement and Notes shall be
interpreted to compliment and supplement each other and the absence of any
provision or portion thereof in any such document shall not be deemed to be an
inconsistency with any other such document which contains such provision or
portion thereof.
 
9.10 Construction of Agreement. Should any provision of this Agreement require
interpretation or construction, it is agreed by the parties hereto that the
court, administrative body or other entity interpreting or construing this
Agreement shall not apply any presumption that the provisions hereof shall be
more strictly construed against one party by reason of the rule of construction
that a document is to be construed more strictly against the party who itself or
through its agents prepared the same, it being agreed that the parties and their
respective attorneys and agents have fully participated in the preparation,
review and analysis of this Agreement.
 

--------------------------------------------------------------------------------

 
9.11 Governing Law; Jurisdiction. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York, without
giving effect to the conflict of law provisions thereof. The Company submits
itself to the non-exclusive jurisdiction of the Courts of the State of New York
for all purposes with respect to this Agreement and the Purchase Agreement and
Notes.
 
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of
the date first written above.
 

        BIOPHAN TECHNOLOGIES, INC.  
   
   
    By:   /s/ Darryl L. Canfield  

--------------------------------------------------------------------------------

Name: Darryl L. Canfield  
Title: Chief Financial Officer

 

        TRUK OPPORTUNITY FUND, LLC       By: Atoll Asset Management, LLC  
   
   
    By:  
/s/ Michael E. Fein
 

--------------------------------------------------------------------------------

Name: Michael E. Fein  
Title: Principal

 

        CRESCENT INTERNATIONAL LTD.  
   
   
    By:   /s/ Maxi Brezzi  

--------------------------------------------------------------------------------

Name: Maxi Brezzi  
Title: Authorized Signatory

 

        HARBORVIEW MASTER FUND LP  
   
   
    By:  
/s/ Peter Cooper /s/ Thomas Van Poucke
 

--------------------------------------------------------------------------------

Name: Navigator Management Ltd.   
Title: Authorized Signatory

--------------------------------------------------------------------------------

 

        CAMOFI MASTER LDC  
   
   
    By:  
/s/ Jeffrey M. Haas 
 

--------------------------------------------------------------------------------

Name: Jeffrey M. Haas   
Title: Authorized Signatory

 

        CRANSHIRE CAPITAL, L.P.  
   
   
    By:   /s/ Mitchell P. Kopin  

--------------------------------------------------------------------------------

Name: Mitchell P. Kopin  
Title: President - Downsview Capital
  The General Partner

 

       
CASTERLIGG MASTER INVESTMENTS LTD.
 
   
   
    By:   /s/ Patrick T. Burke  

--------------------------------------------------------------------------------

Name: Patrick T. Burke  
Title: Senior Managing Director

 

       
BRIDGEPOINTE MASTER FUND LTD.
 
   
   
    By:   /s/ Eric S. Swartz  

--------------------------------------------------------------------------------

Name: Eric S. Swartz  
Title: Director

--------------------------------------------------------------------------------

 

       
ROCKMORE INVESTMENT MASTER
FUND LTD
 
   
   
    By:   /s/ Michael Clateman  

--------------------------------------------------------------------------------

Name: Michael Clateman  
Title: Vice President

 

       
HIGHBRIDGE INTERNATIONAL LLC
     
By: Highbridge Capital Management, LLC
 
   
   
    By:   /s/ Scott M. Wallace  

--------------------------------------------------------------------------------

Name: Scott M. Wallace  
Title: Senior Vice President

 

       
IROQUOIS MASTER FUND, LTD.
 
   
   
    By:   /s/ Joshua Siverman  

--------------------------------------------------------------------------------

Name: Joshua Siverman  
Title: Authorized Signator

 

--------------------------------------------------------------------------------

SCHEDULE A

Note Holders
Note Principal Amount
A Warrant Shares
B Warrant Shares
C Warrant Shares
Truk Opportunity Fund, LLC
$500,000.00
373,135
373,134
746,269
Crescent International Ltd.
$500,000.00
373,135
373,134
746,269
Harborview Master Fund LP
$500,000.00
373,135
373,134
746,269
CAMOFI Master LDC
$1,000,000.00
746,269
746,268
1,492,537
Cranshire Capital, L.P.
$750,000.00
559,702
559,701
1,119,403
Castlerigg Master Investments Ltd.
$1,000,000.00
746,269
746,268
1,492,537
BridgePointe Master Fund Ltd.
$750,000.00
559,702
559,701
1,119,403
Rockmore Investment Master Fund Ltd
$500,000.00
373,135
373,134
746,269
Highbridge International LLC
$500,000.00
373,135
373,134
746,269
Iroquois Master Fund, Ltd.
$1,250,000.00
932,836
932,836
1,865,672

--------------------------------------------------------------------------------

SCHEDULE B

Note Holders
Note Principal Amount
Fee Warrant Shares
Truk Opportunity Fund, LLC
$500,000.00
4,138
Crescent International Ltd.
$500,000.00
4,138
Harborview Master Fund LP
$500,000.00
4,138
CAMOFI Master LDC
$1,000,000.00
8,276
Cranshire Capital, L.P.
$750,000.00
6,207
Castlerigg Master Investments Ltd.
$1,000,000.00
8,276
BridgePointe Master Fund Ltd.
$750,000.00
6,207
Rockmore Investment Master Fund Ltd
$500,000.00
4,138
Highbridge International LLC
$500,000.00
4,138
Iroquois Master Fund, Ltd.
$1,250,000.00
10,344

 

--------------------------------------------------------------------------------