EXHIBIT 10.1
GENETHERA, INC.
SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK AND COMMON STOCK WARRANTS
SUBSCRIPTION AGREEMENT
January 18, 2005
Mercator Advisory Group LLC
Mercator Momentum Fund, LP
Mercator Momentum Fund III, LP
Monarch Pointe Fund, Ltd.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
GeneThera, Inc., a Florida corporation (the "COMPANY"), hereby confirms its
agreement with Mercator Momentum Fund, LP, Mercator Momentum Fund III, LP, and
Monarch Pointe Fund, Ltd. (collectively, the "PURCHASERS") and Mercator Advisory
Group, LLC ("MAG"), as set forth below.
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Purchasers an aggregate
of: (a) Eleven Thousand (11,000) shares of its Series A Convertible Preferred
Stock (the "SERIES A STOCK"), which shall be convertible into shares (the
"CONVERSION SHARES") of the Company's Common Stock (the "COMMON STOCK") in
accordance with the formula set forth in the Articles of Amendment further
described below and (b) Five Hundred Ninety-Seven Thousand Eight Hundred
Twenty-Six (597,826) warrants, substantially in the form attached hereto at
Exhibit A (the "WARRANTS"), to acquire up to Five Hundred Ninety-Seven Thousand
Eight Hundred Twenty-Six (597,826) shares of Common Stock (the "WARRANT SHARES")
at an exercise price of $0.92 per share. The rights, preferences and privileges
of the Series A Stock are as set forth in the Articles of Amendment as filed
with the Secretary of State of the State of Florida (the "ARTICLES OF
AMENDMENT") in the form attached hereto as Exhibit B. The number of Conversion
Shares and Warrant Shares that any Purchaser may acquire at any time are subject
to limitation in the Articles of Amendment and in the Warrants, respectively, so
that the aggregate number of shares of Common Stock of which such Purchaser and
all persons affiliated with such Purchaser have beneficial ownership (calculated
pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does
not at any time exceed 9.99% of the Company's then outstanding Common Stock.
The Series A Stock and the Warrants are sometimes herein collectively
referred to as the "SECURITIES." This Agreement, the Articles of Amendment,
Registration Rights Agreement and the Warrant Agreements are sometimes herein
collectively referred to as the "TRANSACTION DOCUMENTS."
1
The Securities will be offered and sold to the Purchasers without such
offers and sales being registered under the Securities Act of 1933, as amended
(together with the rules and regulations of the Securities and Exchange
Commission (the "SEC") promulgated thereunder, the "SECURITIES ACT"), in
reliance on exemptions therefrom.
In connection with the sale of the Securities, the Company has made
available (including electronically via the SEC's ▇▇▇▇▇ system) to Purchasers
its periodic and current reports, forms, schedules, proxy statements and other
documents (including exhibits and all other information incorporated by
reference) filed with the SEC under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). These reports, forms, schedules, statements,
documents, filings and amendments, are collectively referred to as the
"DISCLOSURE DOCUMENTS." All references in this Agreement to financial statements
and schedules and other information which is "contained," "included" or "stated"
in the Disclosure Documents (or other references of like import) shall be deemed
to mean and include all such financial statements and schedules, documents,
exhibits and other information which is incorporated by reference in the
Disclosure Documents.
2. Representations and Warranties of the Company. Except as set forth
on the Disclosure Schedule (the "DISCLOSURE SCHEDULE") delivered by the Company
to Purchasers on the Closing Date (as defined in Section 3 below), the Company
represents and warrants to and agrees with Purchasers and MAG as follows:
(a) The Disclosure Documents did not at the time of filing,
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The Disclosure Documents and the
documents incorporated or deemed to be incorporated by reference therein, at the
time they were filed with the SEC, complied in all material respects with the
requirements of the Securities Act and/or the Exchange Act, as the case may be,
as applicable.
(b) Schedule A attached hereto sets forth a complete list of
the subsidiaries of the Company (the "SUBSIDIARIES"). Each of the Company and
its Subsidiaries has been duly incorporated and each of the Company and the
Subsidiaries is validly existing in good standing as a corporation under the
laws of its jurisdiction of incorporation, with the requisite corporate power
and authority to own its properties and conduct its business as now conducted as
described in the Disclosure Documents and is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions where the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), properties, or results of operations
of the Company and the Subsidiaries, taken as a whole (any such event, a
"MATERIAL ADVERSE EFFECT"); as of the Closing Date, the Company will have the
authorized, issued and outstanding capitalization set forth in on Schedule B
2
attached hereto (the "COMPANY CAPITALIZATION"); except as set forth in the
Disclosure Documents or on Schedule A, the Company does not have any
subsidiaries or own directly or indirectly any of the capital stock or other
equity or long-term debt securities of or have any equity interest in any other
person; all of the outstanding shares of capital stock of the Company and the
Subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable and were not issued in violation of any preemptive or similar
rights; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents or on Schedule
B, no options, warrants or other rights to purchase from the Company or any
Subsidiary, agreements or other obligations of the Company or any Subsidiary to
issue or other rights to convert any obligation into, or exchange any securities
for, shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on Schedule C, there is no agreement, understanding or arrangement among the
Company or any Subsidiary and each of their respective stockholders or any other
person relating to the ownership or disposition of any capital stock of the
Company or any Subsidiary or the election of directors of the Company or any
Subsidiary or the governance of the Company's or any Subsidiary's affairs, and,
if any, such agreements, understandings and arrangements will not be breached or
violated as a result of the execution and delivery of, or the consummation of
the transactions contemplated by, the Transaction Documents.
(c) The Company has the requisite corporate power and
authority to execute, deliver and perform its obligations under the Transaction
Documents. Each of the Transaction Documents has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms except as the enforcement
thereof may be limited by (A) bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding at
law or in equity).
(d) The Series A Stock and the Warrants have been duly
authorized and, when issued upon payment thereof in accordance with this
Agreement, will have been validly issued, fully paid and non-assessable. The
Conversion Shares issuable have been duly authorized and validly reserved for
issuance, and when issued upon conversion of the Series A Stock in accordance
with the terms of the Articles of Amendment, will have been validly issued,
fully paid and non-assessable. The Warrant Shares have been duly authorized and
validly reserved for issuance, and when issued upon exercise of the Warrants in
accordance with the terms thereof, will have been validly issued, fully paid and
non-assessable. The Common Stock of the Company conforms to the description
thereof contained in the Disclosure Documents. The stockholders of the Company
have no preemptive or similar rights with respect to the Common Stock.
3
(e) No consent, approval, authorization, license,
qualification, exemption or order of any court or governmental agency or body or
third party is required for the performance of the Transaction Documents by the
Company or for the consummation by the Company of any of the transactions
contemplated thereby, or the application of the proceeds of the issuance of the
Securities as described in this Agreement, except for such consents, approvals,
authorizations, licenses, qualifications, exemptions or orders (i) as have been
obtained on or prior to the Closing Date, (ii) as are not required to be
obtained on or prior to the Closing Date that will be obtained when required, or
(iii) the failure to obtain which would not, individually or in the aggregate,
have a Material Adverse Effect.
(f) Except as set forth on Schedule D, none of the Company or
the Subsidiaries is (i) in material violation of its articles of incorporation
or bylaws (or similar organizational document), (ii) in breach or violation of
any statute, judgment, decree, order, rule or regulation applicable to it or any
of its properties or assets, which breach or violation would, individually or in
the aggregate, have a Material Adverse Effect, or (iii) except as described in
the Disclosure Documents, in default (nor has any event occurred which with
notice or passage of time, or both, would constitute a default) in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan agreement,
note, lease, license, franchise agreement, permit, certificate or agreement or
instrument to which it is a party or to which it is subject, which default
would, individually or in the aggregate, have a Material Adverse Effect.
(g) The execution, delivery and performance by the Company of
the Transaction Documents and the consummation by the Company of the
transactions contemplated thereby and the fulfillment of the terms thereof will
not (a) violate, conflict with or constitute or result in a breach of or a
default under (or an event that, with notice or lapse of time, or both, would
constitute a breach of or a default under) any of (i) the terms or provisions of
any contract, indenture, mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, permit, certificate or agreement or instrument to
which any of the Company or the Subsidiaries is a party or to which any of their
respective properties or assets are subject, (ii) the Articles of Incorporation
or bylaws of any of the Company or the Subsidiaries (or similar organizational
document) or (iii) any statute, judgment, decree, order, rule or regulation of
any court or governmental agency or other body applicable to the Company or the
Subsidiaries or any of their respective properties or assets or (b) result in
the imposition of any lien upon or with respect to any of the properties or
assets now owned or hereafter acquired by the Company or any of the
Subsidiaries; which violation, conflict, breach, default or lien would,
individually or in the aggregate, have a Material Adverse Effect.
(h) The audited consolidated financial statements included in
the Disclosure Documents present fairly the consolidated financial position,
results of operations, cash flows and changes in shareholders' equity of the
entities, at the dates and for the periods to which they relate and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis; the interim un-audited consolidated financial statements
included in the Disclosure Documents present fairly the consolidated financial
position, results of operations and cash flows of the entities, at the dates and
for the periods to which they relate subject to year-end audit adjustments and
4
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with the audited consolidated financial statements
included therein; the selected financial and statistical data included in the
Disclosure Documents present fairly the information shown therein and have been
prepared and compiled on a basis consistent with the audited financial
statements included therein, except as otherwise stated therein; and each of the
auditors previously engaged by the Company or to be engaged in the future by the
Company is an independent certified public accountant as required by the
Securities Act for an offering registered thereunder.
(i) Except as described in the Disclosure Documents, there is
not pending or, to the knowledge of the Company, threatened any action, suit,
proceeding, inquiry or investigation, governmental or otherwise, to which any of
the Company or the Subsidiaries is a party, or to which their respective
properties or assets are subject, before or brought by any court, arbitrator or
governmental agency or body, that, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or
otherwise challenge the issuance or sale of the Securities to be sold hereunder
or the application of the proceeds therefrom or the other transactions described
in the Disclosure Documents.
(j) The Company and the Subsidiaries own or possess adequate
licenses or other rights to use all patents, trademarks, service marks, trade
names, copyrights and know-how that are necessary to conduct their businesses as
described in the Disclosure Documents. None of the Company or the Subsidiaries
has received any written notice of infringement of (or knows of any such
infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.
(k) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now or proposed to be conducted as
set forth in the Disclosure Documents ("PERMITS"), except where the failure to
obtain such Permits would not, individually or in the aggregate, have a Material
Adverse Effect and none of the Company or the Subsidiaries has received any
notice of any proceeding relating to revocation or modification of any such
Permit, except as described in the Disclosure Documents and except where such
revocation or modification would not, individually or in the aggregate, have a
Material Adverse Effect.
(l) Subsequent to the respective dates as of which information
is given in the Disclosure Documents and except as described therein, (i) the
Company and the Subsidiaries have not incurred any material liabilities or
obligations, direct or contingent, or entered into any material transactions not
in the ordinary course of business or (ii) the Company and the Subsidiaries have
not purchased any of their respective outstanding capital stock, or declared,
5
paid or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there has not
been any material increase in the long-term indebtedness of the Company or any
of the Subsidiaries, (iv) there has not occurred any event or condition,
individually or in the aggregate, that has a Material Adverse Effect, and (v)
the Company and the Subsidiaries have not sustained any material loss or
interference with respect to their respective businesses or properties from
fire, flood, hurricane, earthquake, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or governmental
proceeding.
(m) There are no material legal or governmental proceedings
nor are there any material contracts or other documents required by the
Securities Act to be described in a prospectus that are not described in the
Disclosure Documents. Except as described in the Disclosure Documents, none of
the Company or the Subsidiaries is in default under any of the contracts
described in the Disclosure Documents, has received a notice or claim of any
such default or has knowledge of any breach of such contracts by the other party
or parties thereto, except for such defaults or breaches as would not,
individually or in the aggregate, have a Material Adverse Effect.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all real property described in the Disclosure Documents as
being owned by it and good and marketable title to the leasehold estate in the
real property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as described
in the Disclosure Documents or such as would not, individually or in the
aggregate, have a Material Adverse Effect. All material leases, contracts and
agreements to which the Company or any of the Subsidiaries is a party or by
which any of them is bound are valid and enforceable against the Company or any
such Subsidiary, are, to the knowledge of the Company, valid and enforceable
against the other party or parties thereto and are in full force and effect.
(o) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which adequate reserves have been provided in
accordance with generally accepted accounting principles, there is no tax
deficiency that has been asserted against the Company or any Subsidiary that
would, individually or in the aggregate, have a Material Adverse Effect.
(p) None of the Company or the Subsidiaries is, or immediately
after the Closing Date will be, required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT").
6
(q) None of the Company or the Subsidiaries or, to the
knowledge of any of such entities' directors, officers, employees, agents or
controlling persons, has taken, directly or indirectly, any action designed, or
that might reasonably be expected, to cause or result in the stabilization or
manipulation of the price of the Common Stock.
(r) None of the Company, the Subsidiaries or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) directly, or through any agent, engaged in any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Securities Act) in connection with the offering of the Securities or
engaged in any other conduct that would cause such offering to be constitute a
public offering within the meaning of Section 4(2) of the Securities Act.
Assuming the accuracy of the representations and warranties of the Purchasers in
Section 6 hereof, it is not necessary in connection with the offer, sale and
delivery of the Securities to the Purchasers in the manner contemplated by this
Agreement to register any of the Securities under the Securities Act.
(s) There is no strike, labor dispute, slowdown or work
stoppage with the employees of the Company or any of the Subsidiaries which is
pending or, to the knowledge of the Company or any of the Subsidiaries,
threatened.
(t) Each of the Company and the Subsidiaries carries general
liability insurance coverage comparable to other companies of its size and
similar business.
(u) Each of the Company and the Subsidiaries maintains
internal accounting controls which provide reasonable assurance that (A)
transactions are executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements and to maintain accountability for its assets, (C) access to its
material assets is permitted only in accordance with management's authorization
and (D) the values and amounts reported for its material assets are compared
with its existing assets at reasonable intervals.
(v) Except for a due diligence fee of $88,000 payable to MAG
(the "DUE DILIGENCE FEE"), the Company does not know of any claims for services,
either in the nature of a finder's fee or financial advisory fee, with respect
to the offering of the Securities and the transactions contemplated by the
Transaction Documents.
(w) The Common Stock is traded on the Over-the-Counter
Bulletin Board (the "OTCBB"). Except as described in the Disclosure Documents,
the Company currently is not in violation of, and the consummation of the
transactions contemplated by the Transaction Documents will not violate, any
rule of the National Association of Securities Dealers.
(x) The Company is eligible to use SB-2 for the resale of the
Conversion Shares and the Warrant Shares by Purchasers or their permitted
transferees and the Warrant Shares by Purchasers, MAG or their transferees. The
Company has no reason to believe that it is not capable of satisfying the
registration or qualification requirements (or an exemption therefrom) necessary
7
to permit the resale of the Conversion Shares and the Warrant Shares under the
securities or "blue sky" laws of any jurisdiction within the United States.
(y) Set forth on Schedule E is the Company's intended use of
the proceeds from this transaction.
(z) Except as set forth on Schedule F, none of the officers or
directors of the Company (i) has been convicted of any crime (other than traffic
violations or misdemeanors not involving fraud) or is currently under
investigation or indictment for any such crime, (ii) has been found by a court
or governmental agency to have violated any securities or commodities law or to
have committed fraud or is currently a party to any legal proceeding in which
either is alleged, (iii) has been the subject of a proceeding under the
bankruptcy laws or any similar state laws, or (iv) has been an officer,
director, general partner, or managing member of an entity which has been the
subject of such a proceeding.
(aa) The Company's most recent SEC review of the Disclosure
Documents commenced on September 13, 2004 and was concluded on December 1, 2004.
3. Purchase, Sale and Delivery of the Securities.
(a) Issuance of Series A Stock and Warrants. On the basis of
the representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Purchasers, and Purchasers agree to purchase from the
Company, 11,000 shares of Series A Stock at $100.00 per share in the amounts
shown on the signature page hereto. In connection with the purchase and sale of
Series A Stock, for no additional consideration, the Purchasers and MAG will
receive Warrants to purchase up to an aggregate of Five Hundred Ninety-Seven
Thousand Eight Hundred Twenty-Six (597,826) shares of Common Stock as set forth
on the signature page hereof, subject to adjustment as set forth in the
Warrants.
(b) Closing. The closing of the transactions described herein
(the "CLOSING") shall take place at a time and on a date (the "CLOSING DATE") to
be specified by the parties, which will be no later than 5:00 p.m. (Pacific
time) on January 18, 2005. On the Closing Date, the Company shall deliver (a)
certificates in definitive form for the Series A Stock in the names and amounts
set forth on the signature page hereto, (b) Warrants, in the names and amounts
set forth on the signature page hereto, (c) the Subscription Agreement,
Certificate of Designation and Registration Rights Agreement, each duly executed
on behalf of the Company, and (d) the Opinion of Counsel in the form attached
hereto as Exhibit C. On the Closing Date, Purchasers shall deliver the purchase
price or $1,100,000 by wire transfer of immediately available funds to the
Company, and (ii) the Subscription Agreement and Registration Rights Agreement,
each duly executed on behalf of the Purchasers and MAG. The Closing will occur
when all documents and instruments necessary or appropriate to effect the
transactions contemplated herein are exchanged by the parties and all actions
taken at the Closing will be deemed to be taken simultaneously.
8
(c) Within three (3) trading days after the Closing, the
Company shall deliver to MAG, the Due Diligence Fee, and the legal fees
contemplated by Section 13 hereof in the amount of $10,000.
4. Certain Covenants of the Company. The Company covenants and agrees with each
Purchaser as follows:
(a) None of the Company or any of its Affiliates will sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Securities Act) which could be integrated with the
sale of the Securities in a manner which would require the registration under
the Securities Act of the Securities.
(b) The Company will not become, at any time prior to the
expiration of three years after the Closing Date, an open-end investment
company, unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under the Investment
Company Act.
(c) None of the proceeds of the Series A Stock will be used to
reduce or retire any insider note or convertible debt held by an officer or
director of the Company.
(d) Subject to Section 10 of this Agreement, the Conversion
Shares and the Warrant Shares will be eligible for trading on the OTCBB, or such
market on which the Company's shares are subsequently listed or traded,
immediately following the effectiveness of the Registration Statement.
(e) The Company will use commercially reasonable efforts to do
and perform all things required to be done and performed by it under this
Agreement and the other Transaction Documents and to satisfy all conditions
precedent on its part to the obligations of the Purchasers to purchase and
accept delivery of the Securities.
(f) Commencing on the Closing Date and continuing until the
effectiveness of the Registration Statement, the Purchasers shall have a right
of first refusal on any financing in which the Company is the issuer of debt or
equity securities (excluding debt instruments executed in connection with
commercial bank loans or lines of credit or equity securities issued to officer,
directors, employees agents or consultants of the Company in their roles as
such).
5. Conditions of the Purchasers' Obligations. The obligation of each
Purchaser to purchase and pay for the Securities is subject to the following
conditions unless waived in writing by the Purchaser:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(other than representations and warranties with a Material Adverse Effect
qualifier, which shall be true and correct as written) on and as of the Closing
Date; the Company shall have complied in all material respects with all
9
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date.
(b) None of the issuance and sale of the Securities pursuant
to this Agreement or any of the transactions contemplated by any of the other
Transaction Documents shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued in respect
thereof; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or, to the Company's knowledge, threatened
against the Company or against any Purchaser relating to the issuance of the
Securities or any Purchaser's activities in connection therewith or any other
transactions contemplated by this Agreement, the other Transaction Documents or
the Disclosure Documents.
(c) The Purchasers shall have received certificates, dated the
Closing Date and signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, to the effect of paragraphs 5(a) and (b).
(d) The Purchasers shall have received an opinion of ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, P.A. with respect to the authorization of the Series A Stock, the
Conversion Shares, the Warrants and the Warrant Shares and other customary
matters in the form attached hereto as Exhibit C.
6. Representations and Warranties of the Purchasers.
(a) Each Purchaser and MAG represents and warrants to the
Company that the Securities to be acquired by it hereunder (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) are being acquired for its own account for
investment and with no intention of distributing or reselling such Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) or any part thereof or
interest therein in any transaction which would be in violation of the
securities laws of the United States of America or any State. Nothing in this
Agreement, however, shall prejudice or otherwise limit a Purchaser's right to
sell or otherwise dispose of all or any part of such Conversion Shares or
Warrant Shares under an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration. By executing this Agreement, each Purchaser
further represents that such Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any person with respect to any of the Securities.
(b) Each Purchaser and MAG understands that the Securities
(including the Conversion Shares and the Warrant Shares that it may acquire upon
conversion or exercise thereof, as the case may be) have not been registered
under the Securities Act and may not be offered, resold, pledged or otherwise
transferred except (a) pursuant to an exemption from registration under the
Securities Act (and, if requested by the Company, based upon an opinion of
counsel acceptable to the Company) or pursuant to an effective registration
10
statement under the Securities Act and (b) in accordance with all applicable
securities laws of the states of the United States and other jurisdictions.
Each Purchaser and MAG agrees to the imprinting, so long as
appropriate, of the following legend on the Securities (including the Conversion
Shares and the Warrant Shares that it may acquire upon conversion or exercise
thereof, as the case may be):
THE SHARES OF STOCK EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED")
IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. IN THE ABSENCE OF SUCH REGISTRATION, SUCH SHARES MAY NOT BE
TRANSFERRED UNLESS, IF THE COMPANY REQUESTS, THE COMPANY HAS RECEIVED A
WRITTEN OPINION FROM COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
COMPANY STATING THAT SUCH TRANSFER IS BEING MADE IN COMPLIANCE WITH ALL
APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
The legend set forth above may be removed if and when the
Conversion Shares or the Warrant Shares, as the case may be, are disposed of
pursuant to an effective registration statement under the Securities Act or in
the opinion of counsel to the Company experienced in the area of United States
Federal securities laws such legends are no longer required under applicable
requirements of the Securities Act. The Series A Stock, the Warrants, the
Conversion Shares and the Warrant Shares shall also bear any other legends
required by applicable Federal or state securities laws, which legends may be
removed when in the opinion of counsel to the Company experienced in the
applicable securities laws, the same are no longer required under the applicable
requirements of such securities laws. The Company agrees that it will provide
each Purchaser, upon request, with a substitute certificate, not bearing such
legend at such time as such legend is no longer applicable. Each Purchaser
agrees that, in connection with any transfer of the Conversion Shares or the
Warrant Shares by it pursuant to an effective registration statement under the
Securities Act, such Purchaser will comply with all prospectus delivery
requirements of the Securities Act. The Company makes no representation,
warranty or agreement as to the availability of any exemption from registration
under the Securities Act with respect to any resale of the Series A Stock, the
Warrants, the Conversion Shares or the Warrant Shares.
(c) Each Purchaser and MAG is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act. Neither
Purchaser nor MAG learned of the opportunity to acquire Securities or any other
security issuable by the Company through any form of general advertising or
public solicitation.
(d) Each Purchaser and MAG represents and warrants to the
Company that it has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, having been represented by
counsel, and has so evaluated the merits and risks of such investment and is
able to bear the economic risk of such investment and, at the present time, is
able to afford a complete loss of such investment.
11
(e) Each Purchaser represents and warrants to the Company that
(i) the purchase of the Securities to be purchased by it has been duly and
properly authorized and this Agreement has been duly executed and delivered by
it or on its behalf and constitutes the valid and legally binding obligation of
the Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; (ii) the
purchase of the Securities to be purchased by it does not conflict with or
violate its charter, by-laws or any law, regulation or court order applicable to
it; and (iii) the purchase of the Securities to be purchased by it does not
impose any penalty or other onerous condition on the Purchaser under or pursuant
to any applicable law or governmental regulation.
(f) Each Purchaser and MAG represents and warrants to the
Company that neither it nor any of its directors, officers, employees, agents,
partners, members, controlling persons or shareholders holding 5% or more of the
Common Stock outstanding on the Closing Date, has taken or will take, directly
or indirectly, any actions designed, or might reasonably be expected to cause or
result in the stabilization or manipulation of the price of the Common Stock.
(g) Each Purchaser and MAG acknowledges it or its
representatives have reviewed the Disclosure Documents and further acknowledges
that it or its representatives have been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment in the Securities;
and (iii) the opportunity to obtain such additional information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy and completeness of the information contained
in the Disclosure Documents.
(h) Each Purchaser and MAG represents and warrants to the
Company that it has based its investment decision solely upon the information
contained in the Disclosure Documents and such other information as may have
been provided to it or its representatives by the Company in response to their
inquiries, and has not based its investment decision on any research or other
report regarding the Company prepared by any third party ("THIRD PARTY
REPORTS"). Each Purchaser understands and acknowledges that (i) the Company does
not endorse any Third Party Reports and (ii) its actual results may differ
materially from those projected in any Third Party Report.
(i) Each Purchaser and MAG understands and acknowledges that
(i) any forward-looking information included in the Disclosure Documents
supplied to Purchaser by the Company or its management is subject to risks and
uncertainties, including those risks and uncertainties set forth in the
Disclosure Documents; and (ii) the Company's actual results may differ
materially from those projected by the Company or its management in such
forward-looking information.
12
(j) Each Purchaser and MAG understands and acknowledges that
(i) the Securities are offered and sold without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption
depends in part on, and that the Company and its counsel will rely upon, the
accuracy and truthfulness of the foregoing representations and Purchaser hereby
consents to such reliance.
7. Covenants of Purchasers Not to Short Stock. Purchasers, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, offer to "short sell", contract to "short sell" or otherwise "short
sell" the securities of the Company, including, without limitation, shares of
Common Stock that will be received as a result of the conversion of the Series A
Stock or the exercise of the Warrants. The Purchasers and MAG, on behalf of
themselves and their affiliates, hereby covenant and agree not to, directly or
indirectly, sell in the aggregate during any trading day shares of Common Stock
totaling more than 20% of the total shares of Common Stock traded on such day.
8. Termination.
(a) This Agreement may be terminated in the sole discretion of
the Company by notice to each Purchaser if at the Closing Date:
(i) the representations and warranties made by any
Purchaser in Section 6 are not true and correct in all material respects; or
(ii) as to the Company, the sale of the Securities
hereunder (i) is prohibited or enjoined by any applicable law or governmental
regulation or (ii) subjects the Company to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
government regulation that would materially reduce the benefits to the Company
of the sale of the Securities to such Purchaser, so long as such regulation, law
or onerous condition was not in effect in such form at the date of this
Agreement.
(b) This Agreement may be terminated by any Purchaser or MAG
by notice to the Company given in the event that the Company shall have failed,
refused or been unable to satisfy all material conditions on its part to be
performed or satisfied hereunder on or prior to the Closing Date, or if after
the execution and delivery of this Agreement and immediately prior to the
Closing Date, trading in securities of the Company on the OTCBB shall have been
suspended.
(c) This Agreement may be terminated by mutual written consent
of all parties.
9. Registration. Within 45 days after the Closing Date, the Company
shall prepare and file with the SEC a registration statement (the "REGISTRATION
STATEMENT") covering the resale of the maximum number of Conversion Shares
issuable upon conversion of the Series A Stock and the Warrant Shares
(collectively, the "REGISTRABLE SECURITIES"), as set forth in the Registration
Rights Agreement attached hereto as Exhibit D. The Company shall use its best
13
efforts to ensure that the Registration Statement is declared effective by the
SEC within 120 days after filing the Registration Statement.
10. Event of Default. If an Event of Default (as defined below) occurs and
remains uncured for a period of 5 days, the Purchasers and MAG shall have the
right to exercise any or all of the rights given to the Purchasers and MAG
relating to the Securities, as further described in the Articles of Amendment,
including any reductions in the conversion price of the Series A Stock as
contemplated therein.
The Holder need not provide and the Company hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Such declaration may be rescinded and annulled by Holder at any
time prior to payment hereunder. No such rescission or annulment shall affect
any subsequent Event of Default or impair any right consequent thereon.
An "EVENT OF DEFAULT" shall include (a) the commencement by
the Company of a voluntary case or proceeding under the bankruptcy laws or (b)
the Company's failure to: (i) discharge or stay a bankruptcy proceeding within
60 days of such action being taken against the Company, (ii) file the
Registration Statement with the SEC within 45 days after the Closing Date, (iii)
have the Registration Statement declared effective by the SEC within 120 days
after the date of filing of the Registration Statement; (iv) maintain trading of
the Company's Common Stock on the OTCBB except for any periods when the stock is
listed on the NASDAQ Small Stock Market, the NASDAQ National Stock Market, the
AMEX or the NYSE, (v) pay the expenses referred to below or the Due Diligence
Fee within three (3) days after the Closing; or (vi) deliver to Purchasers, or
Purchasers' broker, as directed, Common Stock that Purchasers have converted
within three (3) business days of such conversions.
IN THE EVENT THAT THE COMPANY FAILS TO FILE THE REGISTRATION STATEMENT WITH THE
SEC WITHIN 45 DAYS AFTER THE CLOSING DATE, AS A REMEDY FOR SUCH AN EVENT OF
DEFAULT, COMPANY SHALL PAY TO PURCHASERS ON A PRO RATA BASIS BASED ON
INVESTMENT, IN CASH, $733 FOR EACH DAY THAT THE REGISTRATION STATEMENT FILING IS
DELAYED. PURCHASERS AND COMPANY ACKNOWLEDGE AND AGREE THAT THEY HAVE MUTUALLY
DISCUSSED THE IMPRACTICALITY AND EXTREME DIFFICULTY OF FIXING THE ACTUAL DAMAGES
PURCHASERS WOULD INCUR IN THE CASE OF SUCH AN EVENT OF DEFAULT, AND THAT AS A
RESULT OF SUCH DISCUSSION THE PARTIES AGREE THAT $733 FOR EACH DAY THAT THE
REGISTRATION STATEMENT FILING IS DELAYED REPRESENTS A REASONABLE ESTIMATE OF THE
ACTUAL DAMAGES WHICH PURCHASERS WOULD INCUR IN THE CASE OF SUCH AN EVENT OF
DEFAULT. BY SIGNING IN THE SPACES WHICH FOLLOW, PURCHASERS AND COMPANY
SPECIFICALLY AND EXPRESSLY AGREE TO ABIDE BY THE TERMS AND PROVISIONS OF THIS
PARAGRAPH CONCERNING LIQUIDATED DAMAGES.
14
Purchasers: Company:
Mercator Momentum Fund, LP GeneThera, Inc.
a California limited partnership a Florida corporation
By: Mercator Advisory Group LLC
Its: General Partner By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Chief Executive Officer
Managing Member
Mercator Momentum Fund III, LP Monarch Pointe Fund, Ltd.,
a California limited partnership a British Virgin Islands International
Business Company
By: Mercator Advisory Group LLC /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: General Partner By: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Its: President
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member
11. Notices. All communications hereunder shall be in writing and shall be hand
delivered, mailed by first-class mail, couriered by next-day air courier or by
facsimile and confirmed in writing (i) if to the Company, at the addresses set
forth below, or (ii) if to a Purchaser or MAG, to the address set forth for such
party on the signature page hereto.
If to the Company:
GeneThera, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
15
with a copy to:
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ PC
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed certified
mail, return receipt requested; (iii) one business day after being timely
delivered to a next-day air courier guaranteeing overnight delivery; (iv) the
date of transmission if sent via facsimile to the facsimile number as set forth
in this Section or the signature page hereof prior to 6:00 p.m. on a business
day, or (v) the business day following the date of transmission if sent via
facsimile at a facsimile number set forth in this Section or on the signature
page hereof after 6:00 p.m. or on a date that is not a business day. Change of a
party's address or facsimile number may be designated hereunder by giving notice
to all of the other parties hereto in accordance with this Section.
12. Survival Clause. The respective representations, warranties,
agreements and covenants of the Company and the Purchasers set forth in this
Agreement shall survive until the first anniversary of the Closing.
13. Fees and Expenses. Within three (3) days of Closing, the Company
agrees to pay Purchasers' legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents up to $10,000. Any
amounts paid by Company upon execution of the Term Sheet will be credited
against this amount.
14. Legal Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Warrants or the Articles
of Amendment, the prevailing party or parties shall be entitled to receive from
the other party or parties reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.
15. Successors. This Agreement shall inure to the benefit of and be
binding upon Purchasers, MAG and the Company and their respective successors and
legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained; this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person. Neither the Company nor any Purchaser may
16
assign this Agreement or any rights or obligation hereunder without the prior
written consent of the other party.
16. No Waiver; Modifications in Writing. No failure or delay on the
part of the Company, MAG or any Purchaser in exercising any right, power or
remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the Company, MAG or any Purchaser at law or in
equity or otherwise. No waiver of or consent to any departure by the Company,
MAG or any Purchaser from any provision of this Agreement shall be effective
unless signed in writing by the party entitled to the benefit thereof, provided
that notice of any such waiver shall be given to each party hereto as set forth
below. Except as otherwise provided herein, no amendment, modification or
termination of any provision of this Agreement shall be effective unless signed
in writing by or on behalf of each of the Company, MAG and the Purchasers. Any
amendment, supplement or modification of or to any provision of this Agreement,
any waiver of any provision of this Agreement, and any consent to any departure
by the Company, MAG or any Purchaser from the terms of any provision of this
Agreement shall be effective only in the specific instance and for the specific
purpose for which made or given. Except where notice is specifically required by
this Agreement, no notice to or demand on the Company in any case shall entitle
the Company to any other or further notice or demand in similar or other
circumstances.
17. Entire Agreement. This Agreement, together with Transaction
Documents, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.
18. Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.
19. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT GIVING EFFECT TO
PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. THE PARTIES HEREBY
IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING
OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL
COURTS LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.
17
20. Counterparts. This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
21. If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this Agreement shall constitute a binding agreement among the Company,
the Purchasers and MAG.
Very truly yours,
GeneThera, Inc.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
18
ACCEPTED AND AGREED:
MERCATOR MOMENTUM FUND, LP MERCATOR MOMENTUM FUND III, LP
By: Mercator Advisory Group LLC By: Mercator Advisory Group LLC
Its: General Partner Its: General Partner
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Managing Member Managing Member
MERCATOR ADVISORY GROUP, LLC MONARCH POINTE FUND, LTD.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ Its: President
Its: Managing Member
Addresses for Notice to Purchasers and
MAG:
Mercator Advisory Group, LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to:
▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Sheppard, Mullin, ▇▇▇▇▇▇▇ & Hampton LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
----------------------------------------------------------------------------------------------
MERCATOR MERCATOR MONARCH MERCATOR
MOMENTUM MOMENTUM POINTE FUND, ADVISORY
FUND, LP FUND III, LP LTD. GROUP, LLC TOTAL
----------------------------------------------------------------------------------------------
PURCHASE PRICE $ 286,000 $ 187,000 $ 627,000 -- $1,100,000
----------------------------------------------------------------------------------------------
PREFERRED SHARES 2,860 1,870 6,270 -- 11,000
----------------------------------------------------------------------------------------------
WARRANTS 124,348 81,304 272,609 119,565 597,826
----------------------------------------------------------------------------------------------
19