This Royalty Agreement involves
Title: ROYALTY CONVERSION AGREEMENT
Governing Law: Texas Date: 11/13/2012
ROYALTY CONVERSION AGREEMENT
THIS ROYALTY CONVERSION AGREEMENT (this “Agreement”), dated as of March 5, 2012, by and among Arrayit Corporation, a Nevada corporation, (“Arrayit”), Ovarian Cancer Testing, LLP, a Nevada limited liability limited partnership (the “Partnership”) and Arrayit Diagnostics, a Nevada corporation, (the “Company”) and the partners listed on Schedule I attached hereto (individually, a “Royalty holder” or collectively “Royalty holders”). Arrayit, Ovarian, the Partnership, the Company and the Royal holders and individually referred to as a “Party” and collectively as the “Parties.”
WHEREAS , the Parties are executing and delivering this Agreement in reliance upon an exemption from securities registration under Section 4(2), Rule 506 of Regulation D, or any or all such exemptions as promulgated by the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
WHEREAS , the Royalty holders are the record and beneficial owners of a partnership interest in the Partnership. The Partnership, in turn, entered into a royalty agreement, date June 30, 2009 with Arrayit Diagnostics (Ovarian), Inc., a Nevada corporation, (“Ovarian”), at the time a wholly owned subsidiary of Diagnostics, Inc.;
WHEREAS , effective May 23, 2011, Arrayit Diagnostics (Ovarian), Inc. was merged with and into Arrayit Diagnostics, Inc. resulting in Diagnostics becoming obligated for payment of the Royalty;
WHEREAS , the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue to the Royalty holders as provided herein, and the Royalty holders shall accept the Company's common stock, par value $0.001 (the “Conversion Shares”) in conversion and full satisfaction of the Royalty;
WHEREAS , no commission or other remuneration will be paid or given, directly or indirectly, in connection with the conversion or redemption of the Royalty;
WHEREAS , contemporaneously with the execution and delivery of this Agreement, the Company is executing and delivering Irrevocable Transfer Agent Instructions substantially in the form attached hereto as Exhibit A (the “Irrevocable Transfer Agent Instructions”); and
NOW, THEREFORE , in consideration of the mutual covenants and other agreements contained in this Agreement the Parties hereby agree as follows:
1. CONVERSION OF ROYALTY .
(a) Conversion of Royalty . Subject to the satisfaction (or waiver) of the terms and conditions of this Agreement, each Royalty elects to convert and the Company agrees to exchange and issue to each Royalty holder Conversion Shares. The number of shares of Conversion Stock that the Royalty holder shall receive at Closing is set out on Schedule I hereto.
(b) Closing Date . The Closing of the issuance and sale of Conversion Shares on conversion of the Royalty shall take place at 10:00 a.m. Central Standard Time on the fifth (5th) business day following the date hereof, subject to notification of satisfaction of the conditions to the Closing set forth herein and in Sections 6 and 7 below (or such later date as is mutually agreed to by the Company and the Royalty holders (the “Closing Date”),.
2. ROYALTY HOLDER'S REPRESENTATIONS AND WARRANTIES .
Each Royalty holder represents and warrants, severally and not jointly, that:
(a) Investment Purpose . Each Royalty holder acquired the Royalty and, upon conversion of the Royalty, the Royalty holder will acquire the Conversion Shares then issuable, for its own account. Royalty holders may dispose of the Conversion Shares at any time in accordance with the exemption from registration in Rule 144 of the 1933 Act covering such Conversion Shares or another available exemption under the 1933 Act.
(b) Investor Status . Each Royalty holder is an “Accredited Investor” as that term is defined in Rule 501(a) of Regulation D and is not an “Affiliate” as that term is defined in Rule 501(b) of Regulation D of the 1933 Act.
(c) Reliance on Exemptions . Each Royalty holder understands that the Conversion Shares are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and such Royalty holder's compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Royalty holder set forth herein in order to determine the availability of such exemptions and the eligibility of such Royalty holder to acquire such securities.
(d) Information . Each Royalty holder and its advisors (and his or, its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information he deemed material to making an informed investment decision regarding his purchase of the Conversion Shares, which have been requested by such Royalty holder. Each Royalty holder and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management. Neither such inquiries nor any other due diligence investigations conducted by such Royalty holder or its advisors, if any, or its representatives shall modify, amend or affect such Royalty holder's right to rely on the Company's representations and warranties contained in Section 3 below. Each Royalty holder understands that its investment in the Conversion Shares involves a high degree of risk. Each Royalty holder is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Royalty holder to obtain information from the Company in order to evaluate the merits and risks of this investment. Each Royalty holder has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to its acquisition of the Conversion Shares.
(e) No Governmental Review . Each Royalty holder understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Conversion Shares, or the fairness or suitability of the investment in the Conversion Shares, nor have such authorities passed upon or endorsed the merits of the offering of the Conversion Shares.
(f) Issuance and Transfer or Resale . Each Royalty holder understands that (i) issuance of the Conversion Shares has not been and are not being registered under the 1933 Act or any state securities laws in reliance on the exemption from such registration in Section 4(2)) of the 1933 Act and Regulation D thereunder, (ii) any sale, assignment or transfer by the Royalty holder may be made pursuant to the exemption from such registration in Rule 144 of the 1933 Act; (ii) that any sale of such securities made in reliance on Rule 144 under the 1933 Act (or a successor rule thereto) (“Rule 144”) will be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) will comply with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iv) neither the Company nor any other person is under any obligation to register such securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.
(g) Legends . Each Royalty holder understands that the certificates representing the Conversion Shares shall bear the customary restrictive legend and stop transfer orders shall be placed against transfer of such stock certificates.
(h) Authorization, Enforcement . This Agreement has been duly and validly authorized, executed and delivered on behalf of such Royalty holder and is a valid and binding agreement of such Royalty holder enforceable in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents . Each Royalty holder and his or its counsel has received and read in their entirety: (i) this Agreement and each representation, warranty and covenant set forth herein, the Security Agreement and the Irrevocable Transfer Agent Instructions; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; and (iii) answers to all questions each Royalty holder submitted to the Company regarding an investment in the Company; and each Royalty holder has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.
(j) Due Formation of Corporate and Other Royalty holders . If the Royalty holders is a corporation, trust, partnership or other entity that is not an natural person, it has been formed and validly exists and has not been organized for the specific purpose of purchasing the Conversion Shares and is not prohibited from doing so.
(k) No Legal Advice From the Company . Each Royalty holder acknowledges, that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors. Each Royalty holder is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .
The Company represents and warrants to each of the Royalty holders:
(a) Organization and Qualification . The Company and its subsidiaries are corporations duly organized and validly existing in good standing under the laws of the jurisdiction in which they are incorporated, and have the requisite corporate power to own their properties and to carry on their business as now being conducted. Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other Instruments . (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions, and any related agreements, and to issue the Conversion Shares in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions (as defined herein) and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Conversion Shares and the reservation for issuance and the issuance of the Conversion Shares issuable upon conversion of the Royalty, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies. The authorized officer of the Company executing this Agreement, the Security Agreement, the Irrevocable Transfer Agent Instructions and any related agreements knows of no reason why the Company cannot perform any of the Company's other obligations under such documents.
(c) Capitalization . The authorized capital stock of the Company consists of 480,000,000 shares of Common Stock, par value $0.001 per share and 20,000,000 shares of Preferred Stock. As of the date hereof, the Company has approximately 30,000,000 shares of Common Stock issued and outstanding and 3,000,000 shares of preferred stock issued or outstanding. All of such outstanding shares have been validly issued and are fully paid and nonassessable. No shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company. As of the date of this Agreement, there are no outstanding registration statements and there are no outstanding comment letters from the SEC or any other regulatory agency. There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Conversion Shares as described in this Agreement.
(d) Issuance of Securities . The Conversion Shares issuable upon conversion of the Royalty have been duly authorized and reserved for issuance. Upon conversion or exercise in accordance with the terms of this Agreement the Conversion Shares will be duly issued, fully paid and nonassessable.
(e) No Conflicts . The execution, delivery and performance of this Agreement, the Security Agreement, and the Irrevocable Transfer Agent Instructions by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Articles of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or the By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of Pink Sheets LC on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any property or asset of the Company or any of its subsidiaries is bound or affected. Neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries. The business of the Company and its subsidiaries is not being conducted, and shall not be conducted in violation of any material law, ordinance, or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated by this Agreement in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company and its subsidiaries are unaware of any facts or circumstance, which might give rise to any of the foregoing.
(f) Absence of Litigation . There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company's subsidiaries, wherein an unfavorable decision, ruling or finding would have a materia