Placement Agency Agreement

Contract

Exhibit 10.1 INDIGO SECURITIES LLC 780 THIRD AVENUE, 23RD FLOOR NEW YORK, NEW YORK 10017 -------------- Telephone (212) 972-0900 Facsimile (212) 298-9933 September 27, 2005 SENT VIA FAX AND FEDERAL EXPRESS - -------------------------------- Dr. Ronald H. Lane Ph.D. Chief Executive Officer Bionutrics, Inc. 2415 East Camelback Road Suite 700 Phoenix, AZ 85016 PLACEMENT AGENCY AGREEMENT -------------------------- Dear Dr. Lane: The undersigned, Bionutrics, Inc. (the "COMPANY"), hereby agrees with Indigo Securities LLC (the "PLACEMENT AGENT") as follows: 1. ENGAGEMENT; OFFERING A. The Company hereby engages the Placement Agent to act as its agent in connection with (i) the sale by the Company (the "NOTE PLACEMENT") of from $5,000,000 (the "MINIMUM AMOUNT") to $10,000,000 million (the "MAXIMUM AMOUNT"), face amount of the Company's 10% Senior Notes (the "COMPANY NOTES" or the "NOTES"), to be offered together with warrants (the "WARRANTS") (ii) the sale by the Company (the "BRIDGE NOTE PLACEMENT") of up to $2,500,000, face amount of the Company's 10% Convertible Bridge Notes (the "BRIDGE NOTES"), to be offered together with warrants (the "BRIDGE WARRANTS") and (iii) the sale by the Company (the "EQUITY PLACEMENT") of up to $5 million of Series A Convertible Preferred Stock of the Company (the "SERIES A PREFERRED") (provided that the Placement Agent shall have an over allotment option to sell an additional 10% of the Maximum Equity Offering) together with warrants (the "EQUITY WARRANTS"; and together with the Notes, Warrants, Bridge Notes, Bridge Warrants and Series A Preferred, the "SECURITIES")), which will be offered on terms as outlined in the term sheet attached hereto as EXHIBIT A. Each of the Note Placement and the Equity Placement shall be conducted as a private placement to be made pursuant to the exemption afforded by Section 4 (2) of the Securities Act of 1933, as amended (the "ACT") and Rule 506 of Regulation D promulgated thereunder, as well as applicable state laws. In addition, the Placement Agent shall have a right of first refusal to serve as (i) placement agent with respect to future security issuances and (ii) financial advisor in any merger, acquisition, sale or similar transaction by the Company (other than an underwritten public offering) for a period of two (2) years following the final closing of the Equity Placement. B. The Equity Placement shall be conditioned upon the prior closing of the Note Placement. C. The closings will be held at the Company's offices, or the offices of counsel to the Company, or as otherwise agreed by the parties, where the proceeds of such accepted offers will be delivered to the Company or its Placement Agent against delivery by the Company of certificates representing the Securities or the Series A Preferred, for delivery to the purchasers, and payment to the Placement Agent of its expenses and other compensation due hereunder including, without limitation, legal fees of the Placement Agent's counsel including disbursements incurred. After the initial closing, additional closings will take place at such reasonable times as specified by the Company and the Placement Agent, after additional proceeds of the respective offerings are received. D. The Note Placement shall terminate on the earlier of: (1) the date on which all the Securities have been sold; or (2) October 31, 2005, unless extended for an additional period of up to 30 days by agreement of the Company and the Placement Agent (the "NOTE OFFERING PERIOD"). The Equity Placement shall terminate on the earlier of: (1) the date on which all applicable shares of Series A Preferred have been sold; or (2) October 31, 2005, unless extended for an additional period of up to 30 days by agreement of the Company and the Placement Agent (the "EQUITY OFFERING PERIOD") and, together with the Note Offering Period, the "OFFERING PERIODS"). 2. SUBSCRIPTIONS AND DISBURSEMENTS OF PROCEEDS A. During the Offering Periods, the Securities or Series A Preferred, as applicable, will be offered by the Company, with the assistance of the Placement Agent, by means of an offering memorandum (the "OFFERING MEMORANDUM") (Exhibit B) inclusive of subscription documents (the "SUBSCRIPTION DOCUMENTS") which shall be delivered to each potential investor. The minimum subscription investment for Securities or Series A Preferred is $25,000 as provided for in the Offering Memorandum. The Securities and Series A Preferred will be sold only to Accredited Investors as that term is defined in Regulation D of the Act. B. The Placement Agent shall only be obligated to assist the Company with the sale of Securities and Series A Preferred on a "best efforts" basis as described above. C. Each of the Company and the Placement Agent reserves the right to reject, in whole or in part, any subscriber in its respective sole discretion. D. The Company and the Placement Agent may have multiple Closings, as they may agree. Unless subscriptions for the Minimum Amount are received during the Offering Periods, the applicable private placement of Securities or Series A Preferred will be terminated and all subscribers funds will be refunded without interest or deduction. 2 E. All funds of subscribers shall be placed in a non-interest bearing bank escrow account subject to the terms of an escrow agreement, acceptable to the Placement Agent and the Company, with Wollmuth Maher & Deutsch LLP (the "ESCROW AGENT") to comply with Rule 15c2-4 of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"). F. The Company will cause to be prepared subscription documents to comply with the requirements of Section 4(2) of the Act and with Regulation D thereunder, all in form and substance to the satisfaction of the Placement Agent. 3. FURTHER AGREEMENTS OF THE COMPANY The Company agrees, at its expense and without any expense to the Placement Agent, as follows: A. As soon as the Company is either informed or becomes aware thereof, to advise the Placement Agent of any material adverse change in the Company's financial condition, business prospects, or of any development materially affecting the Company or rendering untrue or misleading any material statement in the Offering Memorandum occurring at any time prior to the Closing Date. B. To provide the Placement Agent with a copy of all documents, reports and information as may be reasonably requested by the Placement Agent in connection with the Offering Memorandum, or the Company's business plans or prospects. C. To apply the proceeds of the Private Placement in accordance with the Offering Memorandum. D. To provide the Placement Agent with a copy of a list of stockholders, as requested. E. To provide the Placement Agent with as many copies of the Offering Memorandum as the Placement Agent may reasonably request. 4. COMMISSIONS, AGREEMENTS AND EXPENSES A. NOTE PLACEMENT: At each closing in connection with the Note Placement, the Placement Agent will receive a cash fee equal to (i) 3% of the aggregate purchase price of the Notes sold at such closing ("NOTE CASH FEE") plus (ii) warrants exercisable for a number of shares of the Company's common stock equal to 2.5% of the aggregate purchase price of the Notes sold at each closing divided by $4.00 at an exercise price of $4.00 per share (the "PA COMMON STOCK WARRANT"). B. EQUITY PLACEMENT; BRIDGE PLACEMENT: (a) The Placement Agent will receive a cash fee (the "CASH FEE") equal to (i) 9% of the aggregate purchase price of the Series A Preferred 3 shares sold at such closing and payable at each closing plus (ii) 9% of the proceeds to the Company upon the exercise of the Equity Warrants. (b) In the event that the Company closes a bridge financing round, of up to a maximum of $2,500,000, prior to October 7, 2005 (the "BRIDGE ROUND"), the Placement Agent will receive a cash fee equal to (i) 9% of the aggregate purchase price of the Bridge Notes sold at such closing and payable at each closing plus (ii) 9% of the proceeds to the Company upon the exercise of the Bridge Warrants issued in connection with the Bridge Round. The Placement Agent will not receive an additional Cash Fee upon the conversion of the Bridge Notes into equity. C. At the final closing of Series A Preferred (or later in the case of fees attributable to the exercise of Equity Warrants), the Company shall deliver to the Placement Agent or its designees a warrant agreement (the "PA SERIES A PREFERRED WARRANT" in the form of EXHIBIT C and, together with the PA Common Stock Warrant in the form of EXHIBIT D, the "AGENT WARRANTS") granting the right to purchase a number of shares of the Company's Series A Preferred stock equal to the Section 4.B. cash fee attributable to the sale of Series A Preferred and Bridge Notes divided by the original purchase price per share of the Series A Preferred sold to investors in the Equity Placement at an exercise price of $4.00 per share. The Company shall issue additional PA Series A Preferred Warrants in the future granting the right to purchase a number of shares of the Company's Series A Preferred stock equal to the Section 4.B. cash fee attributable to the exercise of Equity Warrants divided by the original purchase price per share of the Series A Preferred sold to investors in the Equity Placement at an exercise price of $4.00 per share. D. The Placement Agent and its affiliates and counsel shall have the right to purchase Securities and Series A Preferred in the Note Placement and the Equity Placement net of cash commissions and the Placement Agent shall receive its pro rata share of the Agent Warrants in connection with any such investment. E. Regardless of the completion of the Note Placement or the Equity Placement, the Company will reimburse the Placement Agent for its actual out of pocket expenses incurred in connection with its services performed hereunder, including, without limitation, reasonable counsel fees and disbursements and the preparation and printing of all necessary offering documents and instruments related to the Note Placement or Equity Placement and the issuance of the Securities or Series A Preferred shares and will also pay its own expenses for accounting, legal and other costs involved with the Note Placement or Equity Placement. The Company will furnish at its expense such quantities of the offering documents and instruments as the Placement Agent may reasonably request. In addition, the Company will pay for all Blue Sky filing fees, counsel fees and disbursements with respect to Blue Sky qualification. The Blue Sky filings shall be prepared by counsel to the Company. F. If, at any time up to and including the final closing of a sale of Securities or Series A Preferred, or the termination of this Agreement by the Company (whichever is earlier), or within the 24 month period after the termination of this Agreement by the Company, the Company or any of its affiliates conducts a private placement of securities to any investor whom 4 the Placement Agent introduced to the Company (including, for this purpose, any exercise by such investors of the Warrants), the Company will pay the Placement Agent the Section 4.A (equity fee) or Section 4.B. (debt fee), cash fee and PA Series A Preferred Warrant, as applicable, with respect to such sale, calculated in accordance with the preceding paragraphs A. and B. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLACEMENT AGENT A. The Placement Agent has the necessary corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. B. The Placement Agent is a limited liability company duly organized and validly existing under the laws of the State of Delaware; the execution and delivery by the Placement Agent of this Agreement and the consummation of the transactions herein contemplated will not result in any violation of, or be in conflict with, or constitute a default under, any material agreement or instrument to which the Placement Agent is a party or by which the Placement Agent or its properties are bound or any judgment, decree, order or, to the Placement Agent's knowledge, any material statute, rule or regulation applicable to the Placement Agent. C. The information contained in the Offering Memorandum relating to the Placement Agent is complete and correct and does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. D. The Placement Agent will deliver, or will obtain the agreement of selected dealers that they will deliver, to each purchaser, prior to any submission by such persons of a written offer to purchase any Notes or Series A Preferred, a copy of the Offering Memorandum, as it may have been most recently amended or supplemented by the Company. E. Upon receipt of executed Subscription Documents and the payments representing subscriptions for such Notes and/or Series A Preferred, the Placement Agent will promptly forward copies of the Subscription Documents to the Company and shall forward all payments for such Notes and/or Series A Preferred to the Escrow Agent. F. The Placement Agent will not deliver the Offering Memorandum to any person it does not reasonably believe to be an Accredited Investor as defined in Regulation D. G. The Placement Agent will not take any action that it reasonably believes would cause the Offering to violate the provisions of Regulation D or the Act. H. The Placement Agent shall have no obligation to insure that (a) any check, note, draft or other means of payment for any Notes or Series A Preferred will be honored, paid or enforceable against the subscriber in accordance with its terms or (b) subject to the performance of the Placement Agent's obligations and the accuracy of the Placement Agent's representations and warranties hereunder, the Offering is exempt from the registration requirements of the Act or any applicable state or foreign "blue sky" law. 5 I. Nothing contained herein shall be deemed to constitute a representation or warranty by the Placement Agent with respect to the Company's compliance with the provisions of Regulation D or the Act. J. The Placement Agent is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") and is duly permitted under NASD rules and regulations to act in its recited capacity herein. 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY The Company represents, warrants and covenants as follows: A. This Agreement has been duly and validly authorized by the Company and is a valid and binding agreement of the Company, enforceable in accordance with its terms. The Securities and Series A Preferred shares to be issued and sold by the Company pursuant to the Offering Memorandum and this Agreement and the equity underlying such securities have been duly authorized and, when issued and paid for in accordance with the Offering Memorandum and this Agreement, as well as against payment therefor in accordance with the terms of any warrants or other instruments pursuant to which such Securities are issuable, will be validly issued, fully paid and non-assessable; the holders thereof are not, and will not be, subject to personal liability solely by reason of being such holders; neither the Securities nor the Series A Preferred Shares are or will be subject to any preemptive rights of any stockholder of the Company; and all corporate action required to be taken for the authorization, issuance and sale of the common stock underlying the Notes and Warrants has been duly and validly taken by the Company. B. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the holders thereof have no rights of rescission with respect thereto; the holders thereof have no preemptive rights and are not subject to personal liability solely by reason of being such holders; and none of such securities were issued in violation of any preemptive rights of any holders of any security of the Company. C. The Company has good and marketable title to, or valid and enforceable leasehold interests in, all material items of real and personal property stated in, or incorporated by referenced into, the Offering Memorandum as, or to be, owned or leased by it, free and clear of all liens, encumbrances, claims, security interests and defects of any nature whatsoever, other than those set forth in, or incorporated by reference into, the Offering Memorandum and liens for taxes not yet due and payable. D. There is no litigation or governmental proceeding ongoing, pending or threatened against or involving the properties or business of the Company, except as set forth in, or incorporated by reference into, the Offering Memorandum. 6 E. The Company's financial statements included in, or incorporated by reference into, the Offering Memorandum fairly represent the financial position and the results of operations of the Company at the dates and for the periods to which they apply. F. The Company is duly organized and is validly existing as a corporation in good standing under the laws of the state of Nevada. The Company is duly qualified or licensed and in good standing as a foreign corporation in each jurisdiction in which its ownership or leasing of any properties or the character of its operations requires such qualification or licensing and where failure to so qualify would have a material adverse effect on the Company. The Company has all requisite corporate power and authority, and all material and necessary authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies, to own or lease its properties and conduct its businesses as described in the Offering Memorandum and the Company is doing business in compliance with all such authorizations, approvals, orders, licenses, certificates and permits and all Federal, state, local and applicable foreign laws, rules and regulations concerning the business in which it is engaged except where the failure so to do business in compliance would not have a materially adverse impact on the business of the Company. The disclosures in, or incorporated by reference into, the Offering Memorandum concerning the effects of federal, state, local and applicable foreign regulation on the business of the Company as currently conducted and as contemplated are correct in all material respects and do not omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company has all corporate power and authority to enter into this Agreement and to carry out the provisions and conditions hereof, and all consents, authorizations, approvals and orders required in connection herewith have been obtained or will have been obtained prior to the Closing Date. No consent, authorization or order of, and no filing with, any domestic court, government agency or other body is required by the Company for the issuance of the Notes pursuant to the Offering Memorandum or this Agreement except with respect to applicable federal and state securities laws. Since its inception, the Company has not incurred any liability arising under, or as a result of, the application of the provisions of the Act, the Exchange Act or the Rules and Regulations thereunder. G. There has been no material adverse change in the condition or prospects for commercialization of the Company, financial or otherwise, from that on the latest dates as of which such condition or prospects, respectively, are set forth in, or incorporated by reference into, the Offering Memorandum and the outstanding debt, the property and the business of the Company conforms in all material respects to the descriptions thereof contained in, or incorporated by reference into, the Offering Memorandum. H. The Company is not in violation of its Certificate of Incorporation or By-Laws. Neither the execution and delivery of this Agreement nor the issue and sale of the Notes comprising the Units, nor the consummation of any of the transactions contemplated herein, nor the compliance by the Company with the terms and provisions hereof, conflicts with, or has resulted in or will result in a breach of, any of the terms and provisions of, or has constituted or will constitute a default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or credit agreement or any other 7 agreement or instrument evidencing an obligation for borrowed money or any other agreement or instrument to which the Company may be bound or in which any of the property or assets of the Company is subject except where such lien, charge or encumbrance, singly or in the aggregate, would not have a material adverse effect on the financial condition or business of the Company and such lien, charge or encumbrance would have no effect on ability the Company has to perform its obligations under this Agreement or to consummate the transactions contemplated hereby; nor will such action result in any violation of the provisions of the Certificate of Incorporation or the By-Laws of the Company, assuming due performance by the Placement Agent of its obligations hereunder, any statute or any order, rule or regulation applicable to the Company of any court or of any federal, state or other regulatory authority or other government body (domestic or foreign) having jurisdiction over the Company. I. The Securities, the Series A Preferred shares and the Subscription Documents conform in all material respects to all statements in relation thereto contained in the Offering Memorandum. J. Subsequent to the dates as of which information is given in, or incorporated by reference into, the Offering Memorandum, amendment or supplement thereto, and except as may otherwise be indicated or contemplated therein, the Company has not (i) issued any securities (other than as specifically disclosed in the Offering Memorandum) or incurred any material liability or obligation, direct or contingent, for borrowed money, or (ii) entered into any material transaction other than in the ordinary course of business other than the pending purchase of shares of InCon Technologies Inc. by the management thereof, or (iii) declared or paid any dividend or made any other distribution on or in respect their capital stock. K. Except as set forth in, or incorporated by reference into, the Offering Memorandum, there are no claims for services in the nature of a finder's or origination fee with respect to the sale of the Securities or Series A Preferred hereunder. L. To the best of the Company's knowledge, except as described in, or incorporated by reference into, the Offering Memorandum, the Company owns or possesses, free and clear of all liens or encumbrances and rights thereto or therein by third parties, the requisite licenses or other rights to use all trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses necessary to conduct its business (including, without limitation, any such licenses or rights described in, or incorporated by reference into, the Offering Memorandum as being owned or possessed by the Company), and there is no claim or action by any person pertaining to, or proceeding, pending or threatened, which challenges the exclusive rights of the Company with respect to any trademarks, service marks, copyrights, service names, trade names, patents, patent applications and licenses used in the conduct of the business of the Company (including, without limitation, any such licenses or rights described in described in, or incorporated by reference into, the Offering Memorandum as being owned or possessed by the Company). To the best of the Company's knowledge, the Company's current products, services and processes do not infringe on the patents or other intellectual property rights of third parties. M. Except as otherwise set forth in, or incorporated by reference into, the Offering Memorandum, the Company is not under any obligation to pay royalties or fees of any kind 8 whatsoever to any third party with respect to technology it has developed, uses, licenses, employs or intends to use, license or employ, except where the default of any such obligation would not have a material adverse effect on the financial condition or business of the Company. N. Subject to the performance by the Placement Agent of its obligations hereunder, the Offering Memorandum, and the offer and sale of the Securities and Series A Preferred, comply, and will continue to comply, up to the final closing in all material respects with the requirements of Rule 506 of Regulation D of the Act and any other applicable Federal laws, rules, regulations and executive orders. Neither the Offering Memorandum nor any amendment or supplement thereto nor any documents will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein, in light of the circumstances under which they were made, not misleading. All statements of material facts in, or incorporated by reference into, the Offering Memorandum are true and correct as of the date of the Offering Memorandum and will be true and correct on each closing date. O. The Company will use the proceeds from the sale of the Securities and Series A Preferred in the manner described in the Offering Memorandum. P. All taxes which are due and payable from the Company have been paid in full and the Company does not have any material tax deficiency or claim outstanding assessed or proposed against it. For purposes of this subsection, the term "material" shall mean in an aggregate amount of $25,000 or more. Q. Neither the Company nor any of its respective officers, employees or agents, nor any other person acting on behalf of the Company has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer or supplier, or official or employee of any governmental agency or instrumentality of any government (domestic or foreign) or other person who is or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed transaction) which (a) might subject the Company to any damage or penalty in any civil, criminal or governmental litigation or proceeding which would have a materially adverse effect on the financial condition and business of the Company, (b) if not given in the past, might have had a materially adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in, or incorporated by reference into, the Offering Memorandum, or (c) if not continued in the future, might adversely affect in the future, the assets, business, operations or prospects of the Company. R. Prior to the initial closing, the Company will have an authorized capitalization as set forth in SCHEDULE A hereto. All shares of Common Stock currently outstanding are, and all shares issued pursuant to this Agreement will be upon issuance, validly issued, fully paid and non-assessable. S. At the initial closing, the Company will not have outstanding any options, stock subscription agreements or warrants to purchase shares of the Company or any other obligation to issue shares of the Company, other than those as set forth in, or incorporated by reference into, 9 the Offering Memorandum and other than agreed to by the Company and the Placement Agent. There will be outstanding immediately following the final closing no other classes or series of capital stock or convertible securities of the Company except as set forth herein or in described in, or incorporated by reference into, the Offering Memorandum. 7. ADDITIONAL AGREEMENTS A. So long as purchasers of Series A Preferred continues to hold shares of Series A Preferred, the Company will furnish the Placement Agent with confidential monthly management reports as well as confidential monthly financial statements compared against plan and will provide Placement Agent with a copy of the Company's annual operating plan within 30 days prior to the beginning of each fiscal year. B. The Placement Agent shall have the right to send a representative to attend and observe (but not vote at) all meetings of the Company's Board of Directors and shall be entitled to receive notice of such meetings and all materials distributed by the Company to Board members in the same manner and within the same periods of time as the members of the Board of Directors. 8. INDEMNIFICATION A. The Company agrees to indemnify and hold harmless the Placement Agent, its employees and representatives and each person who controls the Placement Agent within the meaning of Section 15 of the Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Securities Act or any other statute or at common law in connection with the performance of its duties described herein and to reimburse persons indemnified as above for any reasonable legal or other expense (including the cost of any investigation and preparation) incurred by them in connection with any litigation whether or not resulting in any liability, provided, however, that the indemnity agreement contained in this Section 8.A. shall not apply to amounts paid in settlement of any such litigation if such settlement is effected without the consent of the Company, nor shall it apply to the Placement Agent or any person controlling the Placement Agent in respect of any such losses, claims, damages, or liabilities arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission concerning the Placement Agent for use in the Offering Memorandum, if such statement or omission was made in reliance upon information furnished in writing by the Placement Agent to the Company specifically for use in the Offering Memorandum. The Placement Agent agrees within ten days after the receipt by it of written notice of the commencement of any action against it or against any person controlling it as aforesaid, in respect of which indemnity may be sought from the Company on account of the indemnity agreement contained in this Section 8.A., to notify the Company in writing of the commencement thereof, provided, however, that the omission to so notify the Company shall not relieve the Company from any liability which the Company may have to such Placement Agent or any such person or otherwise, except to the extent that its ability to defend is actually impaired or otherwise prejudiced by such failure or delay. In case any such action shall be brought against the Placement Agent or any such controlling person and the Placement Agent shall promptly notify the Company of the commencement thereof, the Company shall be entitled to participate in (and, to the extent that it shall wish, to direct) the defense thereof at its own 10 expense but such defense shall be conducted by counsel of recognized standing and reasonably satisfactory to the Placement Agent or such controlling person or persons, defendant or defendants in the litigation; provided, that the Company shall not be required to pay for more than one firm of counsel for all indemnified parties, which firm shall be designated by the Placement Agent. The Company agrees to notify the Placement Agent promptly of the commencement of any litigation or proceeding against it or in connection with the issue and sale of any of its securities and to furnish to the Placement Agent, at its request, copies of all pleadings therein and permit the Placement Agent to be an observer therein and apprise the Placement Agent of all developments therein, all at the Company's expense. B. The Placement Agent agrees, in the same manner and to the same extent as set forth in Section 8.A. of this Agreement, to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Act, with respect to any such untrue statement or alleged untrue statement, or any such omission or alleged omission concerning the Placement Agent for use in the Offering Memorandum, if such statement or omission was made in reliance upon information furnished in writing by the Placement Agent to the Company specifically for use in the Offering Memorandum. The Placement Agent shall not be liable for amounts paid in settlement of any such litigation if such settlement was effected without its consent. In case of commencement of any action, in respect of which indemnity may be sought from the Placement Agent on account of the indemnity agreement contained in this Section 8.B., each person agreed to be indemnified by the Placement Agent shall have the same obligation to notify the Placement Agent as the Placement Agent has toward the Company in Section 8.A. of this Agreement, subject to the same loss of indemnity in the event such notice is not given, and the Placement Agent shall have the same right to participate in (and to the extent that it shall wish, to direct) the defense of such action at its own expense, but such defense shall be conducted by one firm of counsel of recognized standing and satisfactory to the Company. C. The respective indemnity agreements between the Placement Agent and the Company contained in Sections 8.A. and 8.B. of this Agreement, and the representations and warranties of the Company set forth elsewhere in this Agreement, shall remain operative and in full force and effect (regardless of any investigation made by or on behalf of the Placement Agent or the Company) or by or on behalf of any controlling person of the Placement Agent or the Company), shall survive the delivery of the Securities. Any successor of the Company and the Placement Agent or of any controlling person of the Placement Agent, as the case may be, shall be entitled to the benefits of the respective indemnity agreements. D. In order to provide for just and equitable contribution under the Act in any case in which (i) any person entitled to indemnification under this Section 8 makes claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) contribution under the Act may be required on the part of any such person in circumstances for which indemnification is provided under this Section 8, then, and in each such case, the Company and the Placement Agent shall contribute to the aggregate losses, claims, damages or 11 liabilities to which they may be subject (after any contribution from others) in such proportions so that the Placement Agent is responsible for the proportion that the fees provided for herein bear to the net proceeds of the Securities or Series A Preferred, as applicable, and the Company is responsible for the remaining portion; provided, that, in any such case, no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. E. Within ten days after receipt by any party to this Agreement of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party, in writing, of the commencement thereof, but the omission so to notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party so notifies a contributing party or his or its Placement Agent of the commencement thereof within the aforesaid ten days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of such contributing party. The contribution provisions contained in Section 8 are in addition to any other rights or remedies which either party hereto may have with respect to the other or hereunder. 9. PAYMENT OF EXPENSES The Company hereby agrees to bear all of its expenses in connection with the Note Placement and the Equity Placement, whether incurred prior to or post-Closing, including, but not limited to, the following: filing fees, bank escrow fees, printing and duplicating costs, closing sets, tombstones, advertisements, postage and mailing expenses with respect to the transmission of offering material, informational meeting costs, registrar and transfer agent fees, the Company's counsel and accounting fees, issue and transfer taxes, if any, and any Blue Sky counsel fees and expenses of the Placement Agent's counsel. In this connection, Blue Sky applications for registration of the Notes and Series A Preferred or exemption therefrom shall be made in such states and jurisdictions as shall be reasonably requested by the Placement Agent provided that such states and jurisdictions do not require the Company to qualify as a foreign corporation or to file a general consent to service of process. 10. CLOSING A. On each closing date, the Placement Agent shall receive the opinion of either the Company's General Counsel or the Company's Securities Counsel, in form and substance satisfactory to counsel for the Placement Agent. B. On or prior to each closing date, the Placement Agent and its counsel shall have been furnished such documents, certificates and opinions as they may reasonably request for the purpose of enabling them to review or pass upon the matters referred to in subparagraph A of 12 this Paragraph 10, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. C. On and prior to each closing date, (i) there shall have been no material adverse change or development involving a prospective change in the condition or prospects or the business activities, financial or otherwise, of the Company, from the latest dates as of which such condition is set forth in the Offering Memorandum; (ii) there shall have been no transaction, not in the ordinary course of business, other than the pending purchase of shares of InCon Technologies Inc. by the management thereof, entered into by the Company from the latest date as of which the financial condition of the Company is set forth in, or incorporated by reference into, the Offering Memorandum which is material to the Company which has not been disclosed to the Placement Agent in writing; (iii) except as described in, or incorporated by reference into, the Offering Memorandum, the Company shall not be in default under any provision of any instrument relating to any outstanding indebtedness; (iv) no assets of the Company shall have been pledged or mortgaged, except as indicated or contemplated in, or incorporated by reference into, the Offering Memorandum; and (v) no action, suit or proceeding, at law or in equity, shall have been pending or threatened against the Company or affecting any of its respective properties or businesses before or by any court of federal or state commission, board or other administrative agency wherein an unfavorable decision, ruling or finding could materially adversely affect the business operations, prospects, financial condition or income of the Company, except as set forth in or incorporated by reference into, the Offering Memorandum the Offering Memorandum. D. At each closing, the Placement Agent shall have received a certificate of the Company signed by its President and by its Chief Financial Officer, dated as of the applicable closing date, to the effect that the conditions set forth in subparagraph C above have been satisfied and that, as of such closing date, the representations and warranties of the Company set forth herein are true and correct. E. The Company's obligation to deliver the Securities and the Series a Preferred shares shall be subject to the following conditions: 1. transfer to and receipt by the Company by wire or certified bank check of same day or next day funds of the amount of the purchase price for the applicable securities being purchased by the subscribers; and 2. the delivery to the Company of the Subscription Documents duly executed by such subscribers. 11. TERMINATION The Company agrees that until the six (6) month anniversary of this Agreement, or such earlier date as the Company and Placement Agent mutually agree to terminate the Offering (the "TERMINATION DATE"), neither the Company or any of its affiliates, officers, directors, employees, agents or representatives who are aware of the discussions between the Company and Placement Agent will, either directly or indirectly, solicit, entertain or conduct discussions with any person 13 with respect to any offer relating to the sale of securities of the Company. The term "person" as used in herein shall be interpreted to include without limitation any individual, corporation, limited liability company, unincorporated association, partnership, trust, estate or other entity. 12. MISCELLANEOUS A. All covenants, warranties and representations herein contained shall survive the Closing Date, and any investigation made by the party relying upon such warranty and/or representation. B. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all which shall be deemed to be one and the same instrument. C. Any notice required or permitted to be given hereunder shall be given in writing and shall be deemed effective when either deposited in the United States mail, registered return receipt requested, when received if personally delivered, or when sent by overnight courier, addressed as follows: To the Placement Agent: Indigo Securities LLC 780 Third Avenue Suite 2302 New York, NY 10017 Attention: Eric Brachfeld To the Company: Bionutrics, Inc. 2415 East Camelback Road Suite 700 Phoenix, AZ 85016 Attention: Dr. Ronald H. Lane Ph.D. or to such other address of which written notice is given to the other party. D. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to conflicts of laws. E. The parties hereto irrevocably submit to the jurisdiction of any State or Federal Court sitting in the State of New York, County of New York, over any suit, action, or proceeding arising out of or relating to this Agreement. Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action, or proceeding brought in such a court and any claim that suit, 14 action, or proceeding has been brought in an inconvenient forum. Each party hereto agrees that the service of process upon it mailed by certified or registered mail, postage prepaid and return receipt requested (and service so made shall be deemed complete three days after the same has been posted as aforesaid) or by personal service shall be deemed in every respect effective service of process upon it in any such suit or proceeding. Nothing herein shall affect a party's right to serve process in any other manner permitted by law. Each party agrees that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. F. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. G. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 15 IN WITNESS WHEREOF, the parties have hereto executed this Agreement as of the _____ day of __________, 2005. INDIGO SECURITIES LLC By:_____________________________ Name: Eric Brachfeld Title: Managing Partner BIONUTRICS, INC. By:____________________________ Name: Dr. Ronald H. Lane Ph.D. Title: Chief Executive Officer 16 SCHEDULE A ---------- CAPITALIZATION TABLE -------------------- BIONUTRICS, INC. FULLY DILUTED SHARES OUTSTANDING AS OF SEPTEMBER 12, 2005 Shares Outstanding as of 09/12/05 22,681,725 Unexercised Options & Warrants 129,000 Unexercised Warrants 170,000 Series A Preferred Shares, As Converted 118,370 ---------- Accumulated Series A Preferred Dividends 46,440 TOTAL 23,145,535 EXHIBIT A OFFERING SUMMARY EQUITY PLACEMENT TERM SHEET ISSUER: Bionutrics, Inc. ("the COMPANY") PLACEMENT AGENT: Indigo Securities, LLC (the "PLACEMENT AGENT") THE OFFERING: Series A Convertible Preferred Stock (the "SERIES A PREFERRED"), initially convertible on a 1:4 basis into shares of the Company's Common Stock (the "COMMON STOCK") and warrants to acquire 25% of the Common Stock into which the Series A Preferred is initially convertible (the "WARRANTS" and, together with the Series A Preferred, the "SECURITIES") at an exercise price equal to 150% of the Original Purchase Price (as defined below). The Warrants shall be exercisable for five years. In addition, the Company's currently outstanding indebtedness and preferred stock must be converted into Common Stock as a condition to closing of the Offering. AMOUNT OF FINANCING: A minimum of $3,000,000 and a maximum of $6,000,000 of Securities. This investment shall close for all investors upon the earliest of the date (i) the parties agree to terminate the offering or (ii) the sale of $6 million of Securities, provided that the Placement Agent shall have an over allotment option to sell an additional 10% of the Maximum Offering. Conversion of the Company's Secured Notes shall not be included in the amount of the financing. PRICE: $16 per share of Series A Preferred convertible into four shares of common stock (the "ORIGINAL PURCHASE PRICE"). INVESTOR(S): Accredited Investors introduced to the Company by the Placement Agent. ESCROW ARRANGEMENTS: Investors shall fund their investment into escrow with a mutually acceptable escrow agent. The escrow shall be released as soon as the aggregate amount funded into escrow equals or exceeds $3,000,000. FEES AND EXPENSES: The Placement Agent shall receive as compensation in connection with the Offering: (i) 9% of the gross proceeds of the Offering in cash, and (ii) warrants (the "AGENT WARRANTS") exercisable for 9% of the number of shares of Series A Preferred sold in the Offering. The Agent Warrants shall be exercisable at a price equal to the Original Purchase Price per share. The Placement Agent and its affiliates and counsel shall have the right to purchase Securities in the Offering net of cash commissions and shall receive its pro rata share of the Agent Warrants in connection with any such investment. The Company shall pay the reasonable fees and expenses, including reasonable legal fees of the Placement Agent, incurred by the Placement Agent in connection with the Offering. ANTICIPATED CLOSING DATE [October 31, 2005] (the "Closing"). TERMS OF SERIES A PREFERRED STOCK Dividends: The holders of the Series A Preferred shall be entitled to receive cumulative dividends in preference to any dividend on the Common Stock at the rate of 8% of the Original Purchase Price per annum, accruing on a semi-annual basis in cash or additional shares of Series A Preferred (which shall be valued at the Original Purchase Price per share). The holders of Series A Preferred also shall be entitled to participate pro rata in any dividends paid on the Common Stock on an as-if-converted basis. Liquidation Preference: In the event of any liquidation or winding up of the Company, the holders of the Series A Preferred shall be entitled to receive in preference to the holders of the Common Stock a per share amount equal to the Original Purchase Price plus any accrued, but unpaid, dividends (the "LIQUIDATION PREFERENCE"). After the payment of the Liquidation Preference to the holders of the Series A Preferred, the remaining assets shall be distributed ratably to the holders of the Common Stock and the Series A Preferred on an as if converted basis. A merger, acquisition, sale of voting control or sale of all or substantially all of the assets of the Company in which the pre-transaction shareholders of the Company do not own a majority of the outstanding shares of the surviving corporation shall be deemed to be a liquidation. Conversion: The holders of the Series A Preferred shall have the right to convert any or all of the Series A Preferred, at any time, into shares of Common Stock. The initial conversion rate shall be 1:4, subject to adjustment as provided below. Antidilution Provisions: The conversion price of the Series A Preferred and the exercise price of the Warrants will be subject to a weighted-average antidilution adjustment (based on all outstanding shares of Preferred and Common Stock) to reduce dilution in the event that the Company issues additional equity securities (other than: (a) up to 1,900,000 shares issued pursuant to reserved employee options, and (b) a one time issuance of up to $2,000,000 in additional equity securities during the twelve (12) month period following the final closing date of the Offering) at a purchase price less than (i) the applicable conversion price in the case of the Series A Preferred or (ii) the applicable exercise price in the case of the Warrants. The conversion price and exercise price will also be subject to proportional adjustment for stock splits, stock dividends, recapitalizations and the like. Voting Rights: Except as otherwise provided herein, the Series A Preferred will vote together with the Common Stock on an as if converted basis and not as a separate class except as specifically provided herein or as otherwise required by law. Each share of Series A Preferred shall have a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series A Preferred. Board of Directors: The size of the Company's Board of Directors shall be set at five (5). The Board of Company will elect Edward Neugeboren to the Board prior to close and Nirmal Mulye and Ronald Lane shall agree to vote their respective shares of Common Stock for the next shareholders meetings in favor of the election of Mr. Neugeboren to a one-year term on the Board. The placement agent shall also be entitled to observer rights at all board meetings. Notification Rights: The Company shall provide the Placement Agent with written notice of any and all future debt or equity financings upon execution of a term sheet or letter of intent in connection with such financing and in no event less than ten (10) business days prior to closing such financing. Right of First Refusal: The Placement Agent shall have a right of first refusal to serve as (i) placement agent with respect to future security issuances and (ii) financial advisor in any merger, acquisition, sale or similar transaction by the Company (other than an underwritten public offering) for a period of two (2) years following the final closing of the Offering. Protective Provisions: For so long as at least 25% of the Series A Preferred remains outstanding, consent of (i) Edward Neugeboren, if he is a member of the Board of Directors of the Company at the time, or (ii) holders of a majority of the shares of Series A Preferred then outstanding, shall be required for any action that (i) alters or changes the rights, preferences or privileges of the Series A Preferred, (ii) constitutes the incurrence of indebtedness by the Company (other indebtedness incurred in the ordinary course of the Company's business, consistent with past practice) which possesses senior repayment rights to the Series A Preferred, except for acquisition indebtedness (or guarantees thereof) used to acquire the shares of Kirk Pharmaceuticals, LLC, and its affiliate, Andapharm, LLC, or an refinancing of such acquisition indebtedness, (iii) creates (by reclassification or otherwise) any new class or series of shares or securities having rights, preferences or privileges senior to, or on a parity, with the Series A Preferred, (iv) results in the redemption of any shares of Common Stock (other than pursuant to equity incentive agreements with service providers giving the Company the right to repurchase shares upon the termination of services), (v) results in any merger, other corporate reorganization, sale of control, or any transaction in which all or substantially all of the assets of the Company are sold, (vi) amends or waives any provision of the Company's Articles of Incorporation or Bylaws relative to the Series A Preferred, (vii) increases the authorized size of the Company's board, (viii) results in the payment or declaration of any dividend on any shares of Common Stock, (ix) results in a confession of judgment against the Company, or settle or compromise by or against the Company (provided that no such consent shall be required for matters involving less than $500,000.00), (x) file for bankruptcy or receivership, (xi) results in any material loans to any insider or shareholder or any guaranty of any debt of a third party, other than in the ordinary course of business; (xii) results in the removal of one of the following officers of the Company other than for "cause": Chief Executive Officer, President and Chief Financial Officer, or the material modification of the compensation payable by the Company to any such officer, (xii) results in the making of any material investments other than in the ordinary course of business, (xiv) results in the mortgaging, pledging, or creating a security interest in the property of the Company, other than in the ordinary course of business consistent with past practice, (xiii) results in the Company entering into new businesses not related to the purpose of the Company, (xvi) or (xvi) results in the consummation of any material contracts with any shareholder, insider or affiliates, except those in place as of the closing date or anticipated in the next twelve (12) months with Nostrum Pharmaceuticals, Inc. ("Nostrum") as required to develop and execute the Company's technology license agreement with Nostrum. Information Rights: So long as any Investor continues to hold shares of Series A Preferred or Common Stock issued upon conversion of the Series A Preferred, the Company will furnish the Placement Agent with monthly management reports as well as confidential monthly financial statements compared against the Company's annual operating plan and will provide a copy of the Company's confidential annual operating plan within 30 days prior to the beginning of the fiscal year. Each Investor shall also be entitled to standard inspection and visitation rights under the Nevada Revised Statutes. Registration Rights: UPFRONT REGISTRATION: The Company shall cause a Registration Statement (the "INITIAL REGISTRATION STATEMENT") covering the 125% of the Common Stock (i) into which the Series A Preferred is convertible and (ii) for which the Warrant and Agent Warrants are exercisable (the "REGISTRABLE SECURITIES") to become effective no later that 120 days from the Closing Date (the "Required Effective Date"). The Company shall use its best efforts to maintain the effectiveness of this Registration Statement until the date (the "Registration Termination Date") which is the earlier of (i) the second anniversary of the Closing Date, (ii) the date upon which the last Registrable Security included in such Registration Statement is sold by the holder thereof, and (iii) the date upon which all investors may sell their Registrable Securities without limitation by virtue of paragraph (e) of Rule 144 under the Securities Act of 1933, as amended. Penalty for default: (i) for the first two one month periods of delay after the Required Effective Date, the penalty shall be 1.0% per month payable in cash or stock valued at the Original Purchase Price; and (ii) for each additional month, 2.5% per month payable in cash or stock valued at the Original Purchase Price. The penalty for partial months shall be pro rated. DEMAND RIGHTS: If for some reason the Initial Registration Statement is not effective at any time during the period beginning 120 days after the Closing Date, Investors holding more than $500,000 in value of the Registrable Securities may require the Company to use its best efforts to cause such Registrable Securities to be registered. The Investors' demand registration rights shall expire two years after the effectiveness date of the Upfront Registration covering all Registrable Securities. COMPANY REGISTRATION: The Investors shall be entitled to "piggy back" registration rights on all registrations of the Company (other than registrations on Forms S-8, S-4 or any successor or similar forms) or on any demand registrations of any other investor subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered in view of market conditions. If the Investors are so limited, however, no party shall sell shares in such registration other than the Company or the investor, if any, invoking the demand registration. No shareholder of the Company shall be granted piggyback registration rights which would reduce the number of shares includable by the holders of the Registrable Securities in such registration without the consent of the holders of at least two-thirds of the Registrable Securities. Investors' piggy-back registration rights shall expire two years after the effectiveness date of the Upfront Registration covering all Registrable Securities. In connection with an underwritten public offering of securities of the Company, upon the request of the managing underwriter, each holder of Registrable Securities who owns at least 2% of the outstanding capital stock of the Company on an "as-converted" basis or is an officer or director of the Company shall agree (provided all other officers and directors also agree) not to effect any public sale or distribution (other than those included in the registration) of any securities of the Company, or any securities, options or rights convertible into or exchangeable or exercisable for such securities during the sixty (60) day period beginning on such effective date, unless the managing underwriter otherwise agrees to a shorter period of time. S-3 RIGHTS. Investors shall be entitled to unlimited demand registrations on Form S-3 (if available to the Company) so long as such registered offerings are not less than $1,000,000. LIMITATION ON PIGGYBACK & S-3 RIGHTS. The Investors' "piggy back" and S-3 registration rights shall not apply during any period that there exists an effective registration statement covering the Investors' Registrable Securities. EXPENSES: The Company shall bear registration expenses (exclusive of underwriting discounts and commissions and expenses of counsel) of all such demands, piggy-backs, and S-3 registrations (including the expense of one special counsel of the selling shareholders). TRANSFER OF RIGHTS: The registration rights may be transferred to (i) any partner or retired partner of any holder which is a partnership, (ii) any family member or trust for the benefit of any individual holder, or (iii) any transferee who acquires at least 5,000 shares of Registrable Securities; in each case, provided that the Company is given written notice thereof. OTHER PROVISIONS: Other provisions shall be contained in the Investor Rights Agreement with respect to registration rights as are reasonable, including cross indemnification, the period of time in which the Registration Statement shall be kept effective and underwriting arrangements. Pre-Emptive Rights: Investors shall have the right in the event the Company sells equity securities, convertible securities or warrants to any person to purchase their pro rata portion of such shares for a period of 30 days after the closing of such sale. Any securities not subscribed for by an eligible Investor may be reallocated among the other eligible Investors. Such keep even right will not apply to any underwritten public offering of Company equity securities by a internationally, nationally, or regionally recognized underwriter, at a price per share of Common Stock no less than three times the Original Purchase Price. Subscription Agreement: The investment shall be made pursuant to a Subscription Agreement reasonably acceptable to the Company and the Investors, which agreement shall contain, among other things, appropriate representations and warranties of the Company, covenants of the Company reflecting the provisions set forth herein and appropriate conditions of closing, including an opinion of counsel for the Company. The Subscription Agreement shall provide that it may only be amended and any waivers thereunder shall only be made with the approval of the holders of two-thirds of the Series A Preferred. Registration rights provisions may be amended or waived solely with the consent of the holders of two-thirds of the Registrable Securities. EMPLOYEE MATTERS Employee Option Pool: Upon the Closing of this financing, 1,900,000 shares of Common Stock will have been reserved for issuance pursuant to employee options. Stock Vesting: All stock and stock equivalents issued after the Closing to employees, directors, consultants and other service providers will be subject to vesting as follows: 33% to vest at the end of the first year following such issuance, with the remaining 66% to vest monthly over the next two years. The repurchase option shall provide that upon termination of the employment of the shareholder, with or without cause, the Company or its assignee (to the extent permissible under applicable securities law qualification) retains the option to repurchase at cost any unvested shares held by such shareholder. Proprietary Information and Inventions Agreement: Each officer, employee and consultant of the Company shall have entered into an acceptable proprietary information and inventions agreement. Forced Conversion: If at any time prior to the conversion of the Series A Preferred into shares of Common Stock, the Common Stock trades at a 30 day trailing average closing price equal to 300% of the equivalent effective purchase price per share of Common Stock in this Offering and the average Common Stock share volume during this 30 day trailing period equals or exceeds 40,000 shares per day and the Common Stock into which the Series A Preferred is covered by an effective registration statement at such time, the Series A Preferred shall automatically convert into Common Stock at the then applicable conversion price. In the event of such conversion, all preferences and other special provisions described and provided for herein to the Series A Preferred or related Warrants including protective provisions, information rights and pre-emptive rights, shall become null and void, except that the registration rights shall remain and the Company will be required to perform as described herein. OTHER MATTERS Conditions Precedent to Financing: 1. Completion of legal documentation satisfactory to the Placement Agent and prospective Investors. 2. Execution of mutually agreeable employment agreements with key employees including: John S. Copanos, Nirmal Mulye and Ronald H. Lane, Ph.D. 3. Bionutrics' receipt of DEA approval in connection with the acquisition of Kirk Pharmaceuticals. 4. Conversion of outstanding Bionutrics (i) Revolving Note in the principal amount of approximately $1,500,000 and (ii) preferred equity to common stock. 5. Satisfactory completion of due diligence by the Placement Agent and prospective Investors (including a complete review of all requested Nostrum Pharmaceutical's due diligence materials). 6. Conversion of B. Berk's Nostrum Pharmaceutical's shares to Bionutrics shares. Exclusivity: The Company agrees that until November 30, 2005, or such earlier date as the Company and Placement Agent mutually agree to terminate the Offering (the "TERMINATION DATE"), neither the Company or any of its affiliates, officers, directors, employees, agents or representatives who are aware of the discussions between the Company and Placement Agent will, either directly or indirectly, solicit, entertain or conduct discussions with any person with respect to any offer relating to the sale of securities of the Company. The term "person" as used in herein shall be interpreted to include without limitation any individual, corporation, limited liability Company, unincorporated association, partnership, trust, estate or other entity. Capitalization: The Company is authorized to issue 50,000,000 shares of which 45,000,000 shares, par value $.001 per share, are designated as Common Stock ("COMMON STOCK") and 5,000,000 shares, par value $.001 per share, are designated as Preferred Stock ("PREFERRED STOCK"). A complete capitalization table as of the date hereof is attached above as Schedule A. In addition, the Placement Agent's affiliate, Indigo Ventures LLC, shall purchase a three (3) year warrant from the Company ("INDIGO VENTURES WARRANT") for 500,000 shares of Common Stock with an exercise price equal to $5.00 per share. The aggregate purchase price for the Indigo Ventures Warrant shall be $150,000. Such purchase price may be paid by Indigo Ventures LLC, at its option, through the issuance of a partial recourse note. Governing Law: The definitive documentation relating to the offering of the Securities shall be governed by and construed in accordance with the laws of the State of New York. Additional Information: For additional information regarding the Company generally and for Management's Discussion and Analysis of the Company's Financial Condition and Results, please see the 10-K and 10-Q attached as exhibits hereto.