UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 15, 2020
ETHEMA HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
| Colorado | 000-15078 | 84-1227328 |
|
(State or other jurisdiction of incorporation or organization) |
(Commission File Number) |
(IRS Employer Identification No.) |
| 1590 South Congress, Palm Springs, Florida 33403 |
| (Address of principal executive offices) |
| (561) 290-0239 |
| (Registrant’s telephone number, including area code) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| [ ] | Written communications pursuant to Rule 425 under the Securities Act |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
FirstFire Global Opportunities Fund, LLC
On June 3, 2020, the Company entered into an agreement with FirstFire whereby the remaining balance of the convertible note of $73,006 would be settled by two payments of $25,000 each.
Between July 2, 2020 and August 17, 2020, the Company repaid the remaining principal outstanding of $50,000 plus additional interest charges of $1,500.
On October 29, 2020, Ethema Health Corporation (the “Company”), entered into a Securities Purchase Agreement with FirstFire Global Opportunities Fund, LLC, a New York corporation (“FirstFire”), pursuant to which the Company issued to FirstFire a Convertible Promissory Note (the “FirstFire Note”) in the aggregate principal amount of $137,500, including an OID of $12,500 and $5,000 in legal fees, for net proceeds of $120,000. The FirstFire Note has a maturity date of October 29, 2021 and bears interest at the rate of six and a half percent per annum from the date on which the FirstFire Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The note is senior to any future borrowings and commencing on November 29, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period. The foregoing summary of the terms and conditions of the FirstFire Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and FirstFire, dated October 29, 2020 and the FirstFire Note which are filed as Exhibits 10.1 and 10.2 hereto, respectively. The financing closed in its entirety November 4, 2020.
On October 29, 2020, the Company entered into a five-year option agreement with FirstFire and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 30% of the total outstanding shares of ATHI. The Company provided First Fire an option to purchase 1,428,571 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $142.86), based on the advances that First Fire and others made to the Company totaling $600,000. First Fire shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by First Fire to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option. The Option Agreement is filed as Exhibit 10.3 attached hereto.
Geneva Roth Remark Holdings, Inc.
On October 29, 2020, Ethema Health Corporation (the “Company”), entered into a Securities Purchase Agreement with Geneva Roth Remark Holdings, Inc., a Virginia corporation (“Geneva”), pursuant to which the Company issued to Geneva a Convertible Promissory Note (the “Geneva Note”) in the aggregate principal amount of $88,000 for net proceeds of $85,000 after expenses. The Geneva Note has a maturity date of August 29, 2021 and bears interest at the rate of nine percent per annum from the date on which the Geneva Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Geneva Note Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%. The outstanding principal amount of the Geneva Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. The foregoing summary of the terms and conditions of the Geneva Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Geneva, dated October 29, 2020 and the Geneva Note which are filed as Exhibits 10.4 and 10.5 hereto, respectively.
On November 25, 2019, Ethema Health Corporation (the “Company”), entered into a Securities Purchase Agreement with Geneva Roth Remark Holdings, Inc., a Virginia corporation (“Geneva”), pursuant to which the Company issued to Geneva a Convertible Promissory Note (the “Geneva Note”) in the aggregate principal amount of $53,000 for net proceeds of $50,000 after expenses. The Geneva Note has a maturity date of September 25, 2021 and bears interest at the rate of nine percent per annum from the date on which the Geneva Note was issued until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. The Company has the right to prepay the Geneva Note Company prior to the expiry of 180 days from issuance date at a prepayment penalty ranging from 112% to 130%. The outstanding principal amount of the Geneva Note is convertible at any time and from time to time at the election of the Purchaser during the period beginning on the date that is 180 days following the issue date into shares of the Company’s common stock at a conversion price equal to 61% of the lowest closing bid price of the Company’s common stock for the ten trading days prior to conversion. The foregoing summary of the terms and conditions of the Geneva Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Geneva, dated October 29, 2020 and the Geneva Note which are filed as Exhibits 10.6 and 10.7 hereto, respectively.
Ed Blasiak
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Ed Blasiak (“Blasiak”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $55,000, including an original issue discount of $5,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period. The foregoing summary of the terms and conditions of the Blasiak Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Blasiak, dated September 14, 2020 and the Blasiak Note which are filed as Exhibits 10.8 and 10.9 hereto, respectively.
On September 14, 2020, the Company entered into a five-year option agreement with Blasiak and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Blasiak an option to purchase 571,428 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $57), based on the advances that Blasiak and others made to the Company totaling $400,000. Blasiak shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Blasiak to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option. The Option Agreement is filed as Exhibit 10.10 attached hereto.
Joshua Bauman
On September 14, 2020, the Company entered into a Securities Purchase Agreement with Joshua Bauman (“Bauman”), pursuant to which the Company issued a senior secured convertible promissory note in the aggregate principal amount of $110,000, including an original issue discount of $10,000. The note bears interest at 6.5% per annum and matures on September 14, 2021. The note is senior to any future borrowings and commencing on October 1, 2020 the Company will make monthly payments of the accrued interest under the note. The note may be prepaid at certain prepayment penalties and is convertible into shares of common stock at a conversion price at the option of the holder at $0.001 per share, adjusted for anti-dilution provisions; or 80% of the price per share of subsequent equity financings or; after six months 60% of the lowest trading price during the preceding six month period. The foregoing summary of the terms and conditions of the Bauman Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Bauman, dated September 14, 2020 and the Bauman Note which are filed as Exhibits 10.11 and 10.12 hereto, respectively.
On September 14, 2020, the Company entered into a five-year option agreement with Bauman and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,142,856 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $114), based on the advances that Bauman and others made to the Company totaling $400,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option. The Option Agreement is filed as Exhibit 10.13 attached hereto.
On October 31, 2020, the Company entered into an amendment to the agreement dated September 14, 2020, pursuant to which the Company issued a senior secured convertible promissory note of $110,000, increasing the principal amount outstanding by $27,500 to $137,500 for additional net proceeds of $25,000 including an OID of $2,500. The amendment is filed as Exhibit 10.14 attached hereto.
The five-year option agreement entered into with Bauman is also amended, so that Bauman and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Bauman an additional option to purchase 285,714 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $28.57), based on the advances that Bauman and others made to the Company totaling $600,000. Bauman shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Bauman to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option. The Amended Option Agreement is filed as Exhibit 10.15 attached hereto.
Leonite Capital LLC
On July 12, 2020, the company entered into a debt extinguishment agreement with Leonite whereby the following occurred:
1. The total amount outstanding under the note, including principal and interest was reduced to $150,000
| 2. | $700,000 of the note was converted into Series A Redeemable Preferred shares in the Company’s subsidiary, Cranberry Cove Holdings, accruing dividends at 10% per annum. |
| 3. | $400,000 of the note was converted into series B Preferred stock in the Company for a twelve-month period, mandatorily redeemable by the Company accruing dividends at 6% per annum payable in cash or stock, subject to certain conditions. |
| 4. | The remaining balance of $150,000 will accrue interest at 8.5% per annum and is convertible into common stock and repayable in 6 monthly installments of $25,000 commencing after December 12, 2020. |
| 5. | The existing warrants were cancelled and a new five-year warrant, with a cashless exercise options, exercisable for a minimum of 326,286,847 shares of common stock and a maximum of 20% of the outstanding equity of the Company at an initial exercise price of $0.10 per share subject to adjustment based on new stock issuances or the lowest volume weighted exercise price of the stock for 30 days immediately preceding the exercise was issued to Leonite. |
| 6. | The total amount outstanding under the note, including principal and interest was reduced to $150,000 |
| 7. | $700,000 of the note was converted into Series A Redeemable Preferred shares in the Company’s subsidiary, Cranberry Cove Holdings, accruing dividends at 10% per annum. |
| 8. | $400,000 of the note was converted into series B Preferred stock in the Company for a 12-month period, mandatorily redeemable by the Company accruing dividends at 6% per annum payable in cash or stock, subject to certain conditions. |
| 9. | The remaining balance of $150,000 will accrue interest at 8.5% per annum and is convertible into common stock and repayable in 6 monthly installments of $25,000 commencing after December 12, 2020. |
| 10. | The existing warrants were cancelled and a new five year warrant, with a cashless exercise options, exercisable for a minimum of 326,286,847 shares of common stock and a maximum of 20% of the outstanding equity of the Company at an initial exercise price of $0.10 per share subject to adjustment based on new stock issuances or the lowest volume weighted exercise price of the stock for 30 days immediately preceding the exercise was issued to Leonite. |
The Amending Agreement is filed as Exhibit 10.14 attached hereto. The Share purchase Agreement for the purchase of the Series A Redeemable Preferred shares in Cranberry Cove Holdings is filed as Exhibit 10.17 attached hereto. The Share purchase Agreement for the purchase of the Series B preferred Stock in the Company is filed as Exhibit 10.18 attached hereto. The new Warrant agreement is filed as Exhibit 10.19 attached hereto.
On July 12, 2020, the Company entered into a Senior Secured Convertible Note agreement with Leonite for $440,000 with an original issue discount of $40,000 for gross proceeds of $400,000, the initial tranche advanced will be for cash of $200,000 plus the OID of $20,000, the remaining advances will be at the discretion of the Leonite. The loan bears interest at 6.5% per annum and matures on June 12, 2021. The Company is required to make monthly payments of the accrued interest on the advances made. The note is convertible into common shares at the option of the holder at $0.10 per share, or 80% multiplied by the price per share paid in subsequent financings or after a six month period from the effective date at 60% of the lowest trading price during the preceding 21 consecutive trading days. The note has both conversion price protection and anti-dilution protection provisions. As of September 30, 2020, net proceeds of $200,000 was advanced to the Company. The following additional advances were received from Leonite in terms of the Senior Secured Note Agreement; (i) On October 20, 2020, Leonite advanced the company a further $25,000 with an OID of $2,500; (ii) on October 23, 2020, Leonite advanced the Company a further $15,000 with an OID of $1,500; and (iii) between October 28, 2020 and October 30, 2020, Leonite advanced the Company a further $60,000 with an OID of $6,000. The total amount outstanding under the Leonite Senior Secured Convertible Note amount to $330,000 including an OID of $30,000. The foregoing summary of the terms and conditions of the Leonite Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Leonite, dated July 12, 2020 and the Leonite Note which are filed as Exhibits 10.20 and 10.21 hereto, respectively.
On July 12, 2020, the Company entered into a five-year option agreement with Leonite and other investors (collectively the “Transferees”), the Company agreed to sell to the Transferees 20% of the total outstanding shares of ATHI. The Company provided Bauman an option to purchase 1,142,856 shares of ATHI from the Company for a purchase consideration of $0.0001 per share (a total consideration of $114), based on the advances that Leonite and others made to the Company totaling $400,000. Leonite shall share in all distributions by ATHI to the Company, on an as exercised basis, equal to the advances made by Leonite to the Company, thereafter the option will be reduced to 50% of the shares exercisable under the option. The Option Agreement is filed as Exhibit 10.20 attached hereto. When Leonite advanced the final last 100,000 the option agreement was increased and the Company agreed to increase the stock they would sell to Transferees to 30% of the total outstanding shares of ATHI. The option agreement was amended and the Amended option Agreement is filed as Exhibit 10.23 attached hereto.
Auctus Fund LLC
On August 13, 2020, the Company entered into a Securities Purchase Agreement with Auctus Fund LLC, pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $100,000 for net proceeds of $85,000 after certain fees and expenses of $15,000. The note has a maturity date of August 13, 2021 and bears interest at 10% per annum. The interest due on the note for the full twelve-month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in six monthly instalments of $16,666.66 commencing 180 days after the issuance date, the balance outstanding under the note due at maturity date. In the event a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest trading price over the prior 5 days prior to the date of the note or the five day volume weighted market price prior to the date of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings sales of assets and loans and advances made by the Company. In conjunction with the issuance of the promissory note, the Company issued a five-year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments. The Company also issued a second five year warrant exercisable for 66,666,666 shares of common stock at an exercisable price of $0.0015 per share subject to anti-dilution and price protection adjustments, which warrants will only be exercisable upon an event of default on the convertible note. The foregoing summary of the terms and conditions of the Auctus Note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Auctus, dated August 13, 2020, the Auctus Note, and the Auctus warrants which are filed as Exhibits 10.24, 10.25 and 10.26 hereto, respectively.
Labrys Fund, LP
On November 24, 2020, the Company signed a term sheet for a new financing with Labrys Fund, LP for a 12% $275,000,00 convertible note including an 10% OID. The funding includes full warrant coverage of 183,333,333 shares at a conversion price of $.0015 for a period of five years. The term sheet is filed as Exhibit 10.27 hereto.
On November 25, 2020, the Company received a conversion notice under the Note dated July 8, 2019 in the principal amount of $282,000.00. The entire amount owing under the Note was extinguished with the one-time conversion in an at-the-market conversion eliminating all future payments required under the amendment. The total number of shares issued under the Conversion Notice was 91,421,457 shares. The Conversion Notice is filed as Exhibit 10.28 hereto.
On November 30, 2020, the Company entered into a Securities Purchase Agreement with Labrys pursuant to which the Company issued a convertible promissory note in the aggregate principal amount of $275,000.00 for net proceeds of $239,050.00 after an OID of 27,500.00 and legal and brokerage fees of $8,450.00. The note has a maturity date of November 30, 2021 and bears interest at 12% per annum. The interest due on the note for the full twelve-month period is due immediately upon issuance of the note, regardless of acceleration or prepayment. The principal amount of the note is payable in ten monthly instalments of $30,800.00 commencing 90 days after the issuance date. In the event a default occurs under the Note, the Note is convertible into shares of common stock at a conversion price equal to the lowest of either (i) 105% of the lowest trading price on the issue date or (ii) the closing bid price of the stock on the day immediately preceding the date of the notice of conversion. The Company is required to adhere to certain covenants including covenants concerning distributions of capital stock; restrictions on stock repurchases, additional borrowings, sales of assets and loans and advances made by the Company. In conjunction with the issuance of the promissory note, the Company issued a five-year warrant exercisable for 100,000,000 shares of common stock at an exercisable price of $0.00205 per share subject to price protection adjustments. The foregoing summary of the terms and conditions of the Labrys note does not purport to be complete and is qualified in its entirety by reference to the full text of the Securities Purchase Agreement by and between the Company and Labrys, dated November 30, 2020, the Labrys note, and the Labrys warrants which are filed as Exhibits 10.29, 10.30 and 10.31 hereto, respectively.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 10, 2020
By: /s/ Shawn E. Leon
Name: Shawn E. Leon
Title: CEO
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of October 29, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and FIRSTFIRE GLOBAL OPPORTUNIITES FUND, LLC, a Delaware Limited Liability Company (“FirstFire” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
B. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $500,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
C. WHEREAS, pursuant to a Note and related Securities Purchase Agreement dated October 29, 2020 (, the “Note”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 30% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Note. The 30% share will be based on a total of $600,000 in total advanced under that Note.
D. NOW THEREFORE, in fulfillment of the foregoing agreement in the Note, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $125,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $600,000.00.
2. Transferor hereby grants an option to Transferee to purchase 1,250,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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Transferor:
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Transferee:
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Ethema Health Corporation
By: Name: Title: ____________________________
Address:
_________________________
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FirstFire Global Opportunities Fund LLC By: Name: Title: ____________________________
Address:
_________________________
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ETHEMA HEALTH CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the “Agreement”) is made as of September 14, 2020 by and between ETHEMA HEALTH CORPORATION (“Ethema”), a Colorado corporation, and ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC, a Florida limited liability company, and SHAWN E LEON, an individual, (collectively, the “Company”), and Ed Blasiak (the “Purchaser).
Recital
A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act;
B. The Purchaser desires to purchase from the Company, and the Company desires to issue and sell to the Purchaser, upon the terms and conditions set forth in this Agreement, a Senior Convertible Promissory Note of the Company, in the aggregate principal amount of Fifty Five Thousand Dollars ($55,000.00) (the “Principal Amount,” and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.01 par value per share, of Ethema (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note shares equal to a pro rata share based on a total loan of $440,000.00 of 20% of the fully diluted shares or interests in each (i) Evernia Health Center, LLC and (ii) Peace of Mind Counseling Services, Inc. (the “Equity Kicker”).
C. The Note carries an original issue discount of $5,000 (the “OID”), to cover the Purchaser’s legal fees, accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of the Note. Thus, the purchase price of this Note shall be $50,000, computed by subtracting the OID from the Principal Amount.
D. Intentionally Omitted.
Agreement
Now, Therefore, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and the Purchaser, intending to be legally bound, hereby agree as follows:
| 1. | Amount and Terms of the Note |
1.1 Purchase of the Note. Subject to the terms of this Agreement, for consideration of Fifty Thousand ($50,000) (the “Consideration”), the Purchaser agrees to subscribe for and purchase from the Company on the Closing Date (as hereinafter defined), and the Company agrees to issue and sell to the Purchaser, the Note. The Holder shall pay the Consideration within a reasonable amount of time after the full execution of the Note and all transactional documents related to the Note. Upon payment of the Consideration, the outstanding principal amount under the Note shall initially consist of the Consideration plus the OID (as defined below).
1.2 Form of Payment. At the Closing (as hereinafter defined): (i) the Buyer shall pay $50,000, by wire transfer of immediately available funds to Ethema, in accordance with Ethema’s written wiring instructions, against delivery of the Note, and the outstanding principal amount under the Note shall initially be $55,000, consisting of the Consideration the OID, which shall be $5,000, and (ii) the Company shall deliver the duly executed Note on behalf of the Company, to the Purchaser, against delivery of the Consideration.
| 2. | Closing and Delivery |
2.1 Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be the date first written above, or such other mutually agreed upon time.
2.2 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
2.3 Delivery. At the Closing, or as promptly as commercially reasonable thereafter, Purchaser shall deliver to Ethema the Consideration, and the Company shall deliver to the Purchaser, the Note, and the Equity Kicker.
2.4 Intentionally Omitted
| 3. | Representations, Warranties the Company |
Except as set forth in: (i) the SEC Reports (as defined below) or (ii) the corresponding section of the Disclosure Schedules delivered to the Purchaser concurrently herewith, the Company hereby makes the following representations and warranties as of the date hereof and as of the Closing Date to the Purchaser:
3.1 Organization, Good Standing and Qualification. Ethema and each of its Subsidiaries (as defined below) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of Ethema and its Subsidiaries has the requisite corporate power to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted. Ethema and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Subscription Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of Ethema and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s ability to perform in any material respect on a timely basis its obligations under any Subscription Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).
3.2 Corporate Power. The Company has all requisite corporate power to execute and deliver this Agreement, to issue the Note and enter into the security and pledge agreement of even date herewith (the “Security and Pledge Agreement”) in the form of Exhibit C and the other instruments, documents and agreements being entered into at the Closing (each a “Subscription Document” and collectively, the “Subscription Documents”) and to carry out and perform its obligations under the terms of the Subscription Documents.
3.3 Subsidiaries and Affiliates. Attached as Schedule 3.3 is a true and correct organizational chart showing all of Ethema’s Subsidiaries and Affiliates, pro forma as of the date hereof reflecting all pending acquisitions. For purposes of this Agreement, the term “Subsidiary” means, with respect to Ethema, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or persons performing similar functions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by Ethema or one or more of its Affiliates and the term “Affiliate” means, as to any person (the “Subject Person”), any other person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the Subject Person. For the purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, through representation on such person’s board of directors or other management committee or group, by contract or otherwise.
3.4 Authorization. All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization of the Subscription Documents and the execution, delivery and performance of all obligations of the Company under the Subscription Documents, including the issuance and delivery of the Note and the reservation of the equity securities issuable upon conversion of the Note (collectively, the “Underlying Securities”) has been taken or will be taken prior to the issuance of such Underlying Securities. The Subscription Documents, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws. The Underlying Securities, when issued in compliance with the provisions of the Subscription Documents, will be, validly issued, fully paid and non-assessable and free of any liens, encumbrances, security interests or other adverse claim (a “Lien”) and issued in compliance with all applicable federal and securities laws.
3.5 Governmental Consents. Neither Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other foreign, federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Subscription Documents, other than (a) applicable Blue Sky filings, (b) such as have already been obtained or such exemptive filings as are required to be made under applicable securities laws, (c) such other filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Section 4 hereof, the Company has taken all action necessary to exempt: (i) the issuance and sale of the Note, (ii) the issuance of the Underlying Shares upon due conversion of the Note, and (iii) the other transactions contemplated by the Subscription Documents from the provisions of any preemptive rights, stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Articles of Incorporation or Bylaws, or other organizational documentation, as the case may be, that is or could reasonably be expected to become applicable to the Purchaser as a result of the transactions contemplated hereby, including without limitation, the issuance of the Note and the Underlying Securities (collectively, the “Securities”) and the ownership, disposition or voting of the Securities by the Purchaser or the exercise of any right granted to the Purchaser pursuant to this Agreement or the other Subscription Documents.
3.6 Compliance with Laws. To the Company’s knowledge, neither Ethema nor any Subsidiary is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition or operations of Ethema and its Subsidiaries.
3.7 Compliance with Other Instruments. Neither Ethema nor any of its Subsidiaries is in violation or default of any term of its certificate of incorporation or bylaws, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ, other than such violations that would not individually or in the aggregate have a Material Adverse Effect on the Company. Except as set forth on Schedule 3.7, the execution, delivery and performance of the Subscription Documents, and the consummation of the transactions contemplated by the Subscription Documents will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any Lien upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company or any of its Subsidiaries, its business or operations or any of its assets or properties. The sale of the Note and the subsequent issuance of the Underlying Securities are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.
3.8 Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 4 hereof, the offer, issue, and sale of Securities are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is applicable to the Company or, to the Company’s knowledge, any person listed in the first paragraph of Rule 506(d)(1) of the Securities Act, except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.
3.9 Capitalization. Ethema has authorized 10,000,000,000 shares of Common Stock, $0.01 par value per share, of which 1,841,090,247shares are issued and outstanding, 10,000,000shares of Series A Preferred Stock, $0.01 par value per share, of which 4,000,000shares are issued and outstanding, and 400,000shares of Series B Preferred Stock, $0.01 par value per share, of which 400,000 shares are issued and outstanding. Ethema has warrants outstanding to purchase 459,620,181shares of Common Stock and options outstanding to purchase zero shares of Common Stock under its stock option and equity plans. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all applicable securities laws. Except for the options and warrants referenced above or otherwise listed on Schedule 3.9, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any shares of common stock, or contracts, commitments, understandings or arrangements by which Ethema or any Subsidiary is or may become bound to issue additional shares of common stock, or securities or rights convertible or exchangeable into shares of common stock. There are no price based anti-dilution or price adjustment provisions contained in any security issued by Ethema (or in any agreement providing rights to security holders) and the issue and sale of the Securities will not obligate Ethema to issue shares of Common Stock or other securities to any person (other than the Purchaser) and will not result in a right of any holder of Ethema’s securities to adjust the exercise, conversion, exchange or reset price under such securities. Ethema owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.
3.10 SEC Reports; Financial Statements. Except as set forth on Schedule 3.10, the Company has filed all reports and registration statements required to be filed by it under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports” and, together with the Disclosure Schedules to this Agreement, the “Disclosure Materials”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as indicated on Schedule 3.10, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
3.11 Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, except as disclosed in its SEC Reports, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock-based plans or agreements.existing Company stock-based plans or agreements.
3.12 Litigation. Except as set forth on Schedule 3.12 hereto, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Subscription Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
3.13 Labor Relations. Neither Ethema nor any Subsidiary is a party to or bound by any collective bargaining agreements or other agreements with labor organizations. Neither Ethema nor any Subsidiary has violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.
3.14 Regulatory Permits. Ethema and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither Ethema nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
3.15 Title to Assets. Except as set forth on Schedule 3.15, Ethema and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of Ethema and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of Ethema and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Ethema and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by Ethema and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which Ethema and the Subsidiaries are in compliance.
3.16 Taxes.
(a) Except as otherwise itemized on Schedule 3.16 hereto, Ethema and its Subsidiaries have timely and properly filed all tax returns required to be filed by them for all years and periods (and portions thereof) for which any such tax returns were due, except where the failure to so file would not have a Material Adverse Effect; all such filed tax returns are accurate in all material respects; the Company has timely paid all taxes due and payable (whether or not shown on filed tax returns), except where the failure to so pay would not have exceeded $10,000 in the aggregate or have a Material Adverse Effect; there are no pending assessments, asserted deficiencies or claims for additional taxes that have not been paid; the reserves for taxes, if any, reflected in the SEC Reports are adequate, and there are no Liens for taxes on any property or assets of the Company and any of its Subsidiaries (other than Liens for taxes not yet due and payable); there have been no audits or examinations of any tax returns by any (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental or administrative division, department, agency, commission, instrumentality, official, organization, unit, body or entity) and any court or other tribunal (a “Governmental Body”), and the Company or its Subsidiaries have not received any notice that such audit or examination is pending or contemplated; no claim has been made by any Governmental Body in a jurisdiction where the Company or any of its Subsidiaries does not file tax returns that it is or may be subject to taxation by that jurisdiction; to the knowledge of the Company, no state of facts exists or has existed which would constitute grounds for the assessment of any penalty or any further tax liability beyond that shown on the respective tax returns; and there are no outstanding agreements or waivers extending the statutory period of limitation for the assessment or collection of any tax.
(b) Neither the Company nor any of its Subsidiaries is a party to any tax-sharing agreement or similar arrangement with any other Person.
(c) The Company has made all necessary disclosures required by Treasury Regulation Section 1.6011-4. The Company has not been a participant in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).
(d) No payment or benefit paid or provided, or to be paid or provided, to current or former employees, directors or other service providers of the Company will fail to be deductible for federal income tax purposes under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”).
3.17 Patents and Trademarks. To the knowledge of Ethema and each Subsidiary, Ethema and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither Ethema nor any Subsidiary has received a written notice that the Intellectual Property Rights used by Ethema or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable. Ethema and its Subsidiaries have taken reasonable steps to protect Ethema’s and its Subsidiaries’ rights in their Intellectual Property Rights and confidential information (the “Confidential Information”). Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that are substantially consistent with the Company’s standard forms thereof. Except under confidentiality obligations, there has been no material disclosure of any of Ethema’s or its Subsidiaries’ Confidential Information to any third party.
3.18 Environmental Matters. Neither Ethema nor any Subsidiary is in violation of any statute, rule, regulation, decision or order of any Governmental Body relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s knowledge, threatened investigation that might lead to such a claim.
3.19 Insurance. Ethema and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Ethema and the Subsidiaries are engaged as described in the SEC Reports. Neither Ethema nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
3.20 Transactions with Affiliates and Employees. Except as disclosed in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with Ethema or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than (a) for payment of salary or consulting fees for services rendered, (b) reimbursement for expenses incurred on behalf of the Company and (c) for other employee benefits, including stock option agreements under any stock option plan of Ethema.
3.21 Brokers and Finders. No person will have, as a result of the transactions contemplated by the Subscription Documents, any valid right, interest or claim against or upon Ethema, any Subsidiary or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.
3.22 Questionable Payments. Neither Ethema nor any of its Subsidiaries nor, to the Company’s knowledge, any of their respective current or former stockholders, directors, officers, employees, agents or other persons acting on behalf of Ethema or any Subsidiary, has on behalf of Ethema or any Subsidiary or in connection with their respective businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of Ethema or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.
3.23 Solvency. The Company has not (a) made a general assignment for the benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (c) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (d) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (e) admitted in writing its inability to pay its debts as they come due; or (f) made an offer of settlement, extension or composition to its creditors generally.
3.24 Foreign Corrupt Practices Act. None of Ethema or any of its Subsidiaries, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any of its Subsidiaries, has, directly or indirectly: (a) used any funds, or will use any proceeds from the sale of the Securities, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by Ethema or any of its Subsidiaries (or made by any person acting on their behalf of which the Company is aware) or any members of their respective management which is in violation of any legal requirement, or (d) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder which was applicable to Ethema or any of its Subsidiaries.
3.25 Disclosures. Neither the Company nor any person acting on its behalf has provided the Purchaser or its agents or counsel with any information that constitutes or might constitute material, non-public information, other than the terms of the transactions contemplated hereby. The written materials delivered to the Purchaser in connection with the transactions contemplated by the Subscription Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
| 4. | Representations and Warranties of the Purchaser |
4.1 Purchase for Own Account. The Purchaser represents that it is acquiring the Note solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Note or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.
4.2 Information and Sophistication. Without lessening or obviating the representations and warranties of the Company set forth in Section 3, the Purchaser hereby: (a) acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Note, (b) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Note and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser and (c) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.
4.3 Ability to Bear Economic Risk. The Purchaser acknowledges that investment in the Note involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Note for an indefinite period of time and to suffer a complete loss of its investment.
4.4 Accredited Investor Status. The Purchaser is an “accredited investor” as such term is defined in Rule 501 under the Act.
4.5 Information Provided by Purchaser. The information that the Purchaser has furnished herein, including without limitation the information furnished by the Purchaser on the accredited investor questionnaire that Purchaser will complete in connection with this offering (the “Accredited Investor Questionnaire”), is correct and complete as of the date of this Agreement and will be correct and complete on the date, if any, that Ethema accepts this Subscription. Further, the Purchaser shall immediately notify Ethema of any change in any statement made herein prior to the Purchaser’s receipt of Ethema’s acceptance of this Subscription. The representations and warranties made by the Purchaser may be fully relied upon by the Company and by any other investigating party.
4.6 Existence; Authorization. The Purchaser is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, having full power and authority to own its properties and to carry on its business as conducted. The principal place of business of the Purchaser is as shown on the Accredited Investor Questionnaire. The Purchaser has the requisite power and authority to deliver this Agreement, perform its obligations set forth herein, and consummate the transactions contemplated hereby. The Purchaser has duly executed and delivered this Agreement and has obtained the necessary authorization to execute and deliver this Agreement and to perform his, her or its obligations herein and to consummate the transactions contemplated hereby. This Agreement, assuming the due execution and delivery hereof by the Company, is a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms.
4.7 No Regulatory Approval. The Purchaser understands that no state or federal authority has scrutinized this Agreement or the Note offered pursuant hereto, has made any finding or determination relating to the fairness for investment in the Note, or has recommended or endorsed the Note, and that the Note has not been registered or qualified under the Act or any state securities laws, in reliance upon exemptions from registration thereunder. The Note may not, in whole or in part, be resold, transferred, assigned or otherwise disposed of unless it is registered under the Act or an exemption from registration is available, and unless the proposed disposition is in compliance with the restrictions on transferability under federal and state securities laws.
4.8 Purchaser Received Independent Advice. The Purchaser confirms that the Purchaser has been advised to consult with the Purchaser’s independent attorney regarding legal matters concerning the Company and to consult with independent tax advisers regarding the tax consequences of investing in the Company. The Purchaser acknowledges that Purchaser understands that any anticipated United States federal or state income tax benefits may not be available and, further, may be adversely affected through adoption of new laws or regulations or amendments to existing laws or regulations. The Purchaser acknowledges and agrees that the Company is providing no warranty or assurance regarding the ultimate availability of any tax benefits to the Purchaser by reason of the subscription.
4.9 Legends. The Purchaser understands that until such time as the Note and upon conversion of the Note in accordance with its respective terms, the Underlying Securities, have been registered under the Securities Act or may be sold pursuant to Rule 144, Rule 144A under the Securities Act or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop- transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
| 5. | Further Agreements; Post-Closing Covenants |
5.1 Intentionally Omitted.
5.2 Intentionally Omitted.
5.3 Use of Proceeds. Once the Note is fully funded, Ethema shall use the proceeds of sale and issuance of the Note as a down payment for an acquisition of an addiction center facility.
5.4 Form D; Blue Sky Laws. Ethema agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing. Ethema shall, on or before the Closing of the , take such action as Ethema shall reasonably determine is necessary to qualify the Securities for sale to the Purchaser at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser on or prior to the initial closing.
5.5 Most Favored Nations. If, while the Note is outstanding, Ethema or any Subsidiary issues any other security with any term reasonably believed by the Purchaser to be more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Purchaser in the Note (“Other Securities”), the Company shall notify the Purchaser in writing of such additional or more favorable term. At the Purchaser’s option, such more favorable term or condition shall become a part of the Subscription Documents with the Purchaser. The Company will provide such notice to the Purchaser within three (3) business days following the issuance of such Other Securities. In the event the Purchaser determines that the terms of the Other Securities are preferable to the terms of the Note, the Purchaser will notify the Company in writing within five 5 days following Purchaser’s receipt of such notice from the Company. Within three (3) business days after receipt of such written notice from the Purchaser, but in any event within 10 days, the Company will amend and restate the Subscription Documents to include the more favorable term or condition and thereby grant to the Purchaser such preferential rights of the holders of such Other Securities. The types of terms contained in Other Securities that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.
5.6 Restrictions on Activities. Commencing as of the date first above written, and so long as the Company has an obligation under the Note, the Company shall not, directly or indirectly, without the Purchaser’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business; or (c) solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with any other person or entity in respect of any variable rate debt transactions (i.e., transactions were the conversion or exercise price of the security issued by the Company varies based on the market price of the Common Stock), whether a transaction similar to the one contemplated hereby or any other investment.
5.7 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Purchaser in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under New York law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under New York law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by New York law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by this Note, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election
5.8 Registration Rights.
(a) Intentionally Omitted.
(b) Piggy-Back Registration. Ethema shall give the Purchaser at least 30 days’ prior written notice of each filing by Ethema of a registration statement (other than a registration statement on Form S-4 or Form S-8 or on any successor forms thereto) with the SEC. If requested by the Purchaser in writing within 20 days after receipt of any such notice, Ethema shall, at Ethema’s sole expense (other than the underwriting discounts, if any, payable in respect of the shares sold by the Purchaser), register all or, at Purchaser’s option, any portion of the Shares concurrently with the registration of such other securities, all to the extent requisite to permit the public offering and sale of the Shares through the securities exchange, if any, on which the Common Stock is being sold or on the over-the-counter market, and will use its reasonable best efforts through its officers, directors, auditors, and counsel to cause such registration statement to become effective as promptly as practicable. If the managing underwriter of any such offering shall determine and advise Ethema that, in its opinion, the distribution of all or a portion of the Shares requested to be included in the registration concurrently with the securities being registered by Ethema would materially adversely affect the distribution of such securities by Ethema then Ethema will include in such registration first, the securities that Ethema proposes to sell and second, the Shares requested to be included in such registration, to the extent permitted by the managing underwriter.
(c) In the event of a registration pursuant to these provisions, Ethema shall use its reasonable best efforts to cause the Shares so registered to be registered or qualified for sale under the securities or blue sky laws of such jurisdictions as the Purchaser may reasonably request; provided, however, that Ethema shall not be required to qualify to do business in any state by reason of this section in which it is not otherwise required to qualify to do business.
(d) Ethema shall keep effective any registration or qualification contemplated by this section and shall from time to time amend or supplement each applicable registration statement, preliminary prospectus, final prospectus, application, document and communication for such period of time as shall be required to permit the Purchaser to complete the offer and sale of the Shares covered thereby.
(e) In the event of a registration pursuant to the provisions of this section, Ethema shall furnish to the Purchaser such reasonable number of copies of the registration statement and of each amendment and supplement thereto (in each case, including all exhibits), of each prospectus contained in such registration statement and each supplement or amendment thereto (including each preliminary prospectus), all of which shall conform to the requirements of the Act and the rules and regulations thereunder, and such other documents, as the Purchaser may reasonably request to facilitate the disposition of the Shares included in such registration.
(f) Ethema shall notify the Purchaser within three (3) business days after such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed.
(g) Ethema shall advise the Purchaser within three (3) business days after it shall receive notice or obtain knowledge of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement, or the initiation or threatening of any proceeding for that purpose and within three (3) business days take action using its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.
(h) Ethema shall within three (3) business days notify the Purchaser at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the reasonable request of the Purchaser prepare and furnish to it such number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares or securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. The Purchaser shall suspend all sales of the Shares upon receipt of such notice from Ethema and shall not re-commence sales until they receive copies of any necessary amendment or supplement to such prospectus, which shall be delivered to the Purchaser within 30 days of the date of such notice from Ethema.
(i) If requested by the underwriter for any underwritten offering of Shares, Ethema and the Purchaser will enter into an underwriting agreement with such underwriter for such offering, which shall be reasonably satisfactory in substance and form to Ethema, Ethema’s counsel and the Purchaser’ counsel, and the underwriter, and such agreement shall contain such representations and warranties by Ethema and the Purchaser and such other terms and provisions as are customarily contained in an underwriting agreement with respect to secondary distributions solely by selling stockholders, including, without limitation, indemnities substantially to the effect and to the extent provided below.
(j) The rights of the Purchaser under this Section 5.8 shall apply equally to the filing by Ethema of an offering statement on Form 1-A under Regulation A promulgated under the Act and, if Ethema files such an offering statement instead of a registration statement, all references to (A) registration statement shall be deemed to be references to offering statement, (B) prospectus shall be deemed to be references to offering circular, and (C) effective date of a registration statement shall be deemed to be references to qualification date of an offering statement. The Purchaser’s rights under this Section 5.8 shall automatically terminate once the Purchaser has sold all of the Shares or all of the Shares may be resold by the Purchaser under Rule 144 of the Act without limitation as to the volume of Shares to be sold.
5.9 Legal Counsel Opinions.
(a) Upon the request of the Purchaser from to time to time, Ethema shall be responsible (at its cost) for promptly supplying to Ethema’s transfer agent and the Purchaser a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Underlying Securities by the Purchaser or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Underlying Securities are not then registered under the 1933 Act for resale pursuant to an effective registration statement). Should Ethema’s legal counsel fail for any reason to issue the Legal Counsel Opinion, the Purchaser may (at Ethema’s cost) secure another legal counsel to issue the Legal Counsel Opinion, and Ethema will instruct its transfer agent to accept such opinion. Ethema shall not impede the removal by its stock transfer agent of the restricted legend from any Common Stock certificate upon receipt by the transfer agent of a Rule 144 Opinion Letter. Ethema hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
5.10 Listing. Ethema will, so long as the Purchaser owns any of the Securities, maintain the listing and trading of its Common Stock on the OTC Pink or any equivalent replacement exchange or electronic quotation system and will comply in all respects with Ethema’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority, or FINRA, and such exchanges, as applicable, as well as with the SEC. Ethema shall promptly provide to the Purchaser copies of any notices it receives from the OTC and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
5.11 Information and Observer Rights
(a) As long as the Purchaser owns any Securities, Ethema covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by Ethema after the date hereof pursuant to the Exchange Act. As long as the Purchaser owns any Securities, if Ethema is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and simultaneously make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Securities under Rule 144. Ethema further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable the Purchaser to sell the Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. If Ethema fails to remain current in its reporting obligations or to provide currently publicly available information in accordance with Rule 144(c) and such failure extends for a period of more than five Trading Days (the date which such five Trading Day-period is exceeded, being referred to as “Event Date”), then in addition to any other rights the Purchaser may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the information failure is cured, Ethema shall pay to the Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to one percent (1.0%) of purchase price paid for the Securities held by the Purchaser at the Event Date; provided, however, that in no case will the aggregate amount of liquidated damages payable to a Purchaser pursuant to this Section 5.6 exceed ten percent (10%) of such Purchaser’s original investment pursuant to this Agreement. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an information failure (except in the case of the first Event Date).
(b) As long as the Purchaser owns any Securities, if the Purchaser notifies Ethema that it wishes to attend meetings of Ethema’s Board of Directors, Ethema shall invite a designated representative of the Purchaser to attend all meetings of Ethema’s Board of Directors in a nonvoting observer capacity and, in this respect, and subject to the Purchaser’s having informed Ethema that it wishes to attend, Ethema shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that Ethema reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between Ethema and its counsel or result in disclosure of trade secrets or a conflict of interest.
5.12 Confidentiality. The Purchaser agrees that the it will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) the terms and conditions of this Agreement or any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of Ethema’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 5.12 by the Purchaser), (b) is or has been independently developed or conceived by the Purchaser without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Purchaser by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Purchaser may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from the Purchaser, if such prospective purchaser agrees to be bound by the provisions of this Section 5.12; (iii) to any existing or prospective affiliate, partner, member, stockholder, or wholly owned subsidiary of the Purchaser in the ordinary course of business, provided that the Purchaser informs such person that such information is confidential and directs such person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Purchaser notifies the Company within three (3) business days of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
5.13 Restrictions on Variable Rate Transactions. So long as Ethema shall have any obligation under this Note and unless approved by the Purchaser, Ethema and each Subsidiary shall not enter into an agreement to effect any sale of securities involving, or convert any securities previously issued under, a Variable Rate Transaction. The term “Variable Rate Transaction” means a transaction in which Ethema or any Subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Ethema or the Subsidiary, as the case may be, or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provisions, or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at-the-market offering”) whereby Ethema or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). The Purchaser shall be entitled to obtain injunctive relief against Ethema and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
5.14 Participation Rights. In the event Ethema proposes to offer and sell its securities in an Equity Financing (defined below), the Purchaser shall have the right, but not the obligation, to participate in the purchase of the securities being offered in such Equity Financing up to an amount equal to the Principal Amount until the earliest of (i) the Maturity Date (as defined in the Note), (ii) the date that the Note and all accrued but unpaid interest shall have been repaid in full, and (iii) the closing date of an Equity Financing in which all, or any remaining portion, of the outstanding principal amount of the Note along with accrued but unpaid interest thereon shall have been converted, in full, into, and on the same terms as, the securities being offered in such Equity Financing (the “Participation Right”). For the avoidance of doubt, an Equity Financing shall mean Ethema’s sale of its Common Stock or any securities conferring the right to purchase Ethema’s Common Stock or securities convertible into, or exchangeable for (with or without additional consideration), Ethema’s Common Stock. In connection with each Participation Right, Ethema shall provide written notice to the Purchaser of the terms and conditions of the Equity Financing at least ten business days prior to the anticipated first closing of such Equity Financing (the “EF Notice”). If the Purchaser shall elect to exercise its Participation Right, it shall notify Ethema, in writing, of such election at least two business days prior to the anticipated closing date set forth in the EF Notice (the “Participation Notice”). In the event the Purchaser does not return a Participation Notice to Ethema within such two-business day period, the Participation Right granted hereunder shall terminate and be of no further force and effect; provided, however, that such Participation Right shall be reinstated if the anticipated closing referenced in the EF Notice does not occur prior to ten business days following the anticipated first closing date specified in such EF notice.
5.15 Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 5, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 4.3 of the Note.
5.16 Transfer Agent Instructions. Ethema shall issue irrevocable instructions to Ethema’s transfer agent to issue certificates, registered in the name of the Purchaser or its nominee, upon conversion of the Note, the Underlying Securities, in such amounts as specified from time to time by the Purchaser to Ethema in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that Ethema proposes to replace its transfer agent, Ethema shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to Ethema and Ethema. Prior to registration of the Underlying Securities under the Securities Act or the date on which the Underlying Securities may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 4.9 of this Agreement. Ethema warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5.16 will be given by Ethema to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of Ethema as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note. Nothing in this Section shall affect in any way the Purchaser’s obligations and agreement set forth in Section 4.9 hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Purchaser provides Ethema, at the cost of Ethema, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Purchaser provides reasonable assurances that the Securities can be sold pursuant to Rule 144, Ethema shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Purchaser. Ethema acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, Ethema acknowledges that the remedy at law for a breach of its obligations under this Section 5.16 may be inadequate and agrees, in the event of a breach or threatened breach by Ethema of the provisions of this Section, that the Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
5.17 Further Assurances. The Purchaser agrees and covenants that at any time and from time to time it will execute and deliver to the Company such further instruments and documents and take such further action as the Company may reasonably require within three (3) business days of any such request in order to carry out the full intent and purpose of this Agreement and to comply with state or federal securities laws or other regulatory approvals.
| 6. | Conditions to the Company’s Obligation to Sell |
The obligation of the Company hereunder to issue and sell the Note to the Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
(a) The Purchaser shall have executed this Agreement and delivered the same to the Company.
(b) The Purchaser shall have delivered the Consideration in accordance with Section 1.2 above.
(c) The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date
(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
| 7. | Conditions to The Purchaser’s Obligation to Purchase |
The obligation of the Purchaser hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Purchaser’s sole benefit and may be waived by the Purchaser at any time in its sole discretion:
(a) The Company shall have executed this Agreement and delivered the same to the Purchaser.
(b) The Company shall have delivered to the Purchaser the duly executed Note in such denominations as the Purchaser shall request and in accordance with Section 1.2 above.
(c) Intentionally Omitted.
(d) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Purchaser, shall have been delivered to and acknowledged in writing by Ethema’s Transfer Agent.
(e) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
(f) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
(g) No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the Exchange Act reporting status of the Company or the failure of the Company to be timely in its Exchange Act reporting obligations.
(h) Trading in the Common Stock on the OTCPINK shall not have been suspended by the SEC, FINRA or the OTCPINK.
(j) Ethema shall have delivered to the Purchaser (i) a certificate evidencing the formation and good standing of Ethema and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date and (ii) resolutions adopted by Ethema’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
| 8. | Miscellaneous |
8.1 Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.2 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of New York, without giving effect to conflicts of laws principles. Each party to this Agreement hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in Rockland County, New York for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) to such party at the address in effect for notices to it under this agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
8.3 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
8.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
8.5 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at 810 Andrews Avenue, Delray Beach, Florida 33483 to the attention of Shawn E. Leon, Chief Executive Officer (email: shawn@ethemahealth.com), and to Purchaser at the addresses set forth on the signature page to this Agreement or at such other addresses as the Company or Purchaser may designate by 10 days’ advance written notice to the other parties hereto.
8.6 Modification; Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective only upon the written consent of the Company and the Purchaser. Any provision of the Note may be amended or waived by the written consent of the Company and the Purchaser.
8.7 Expenses. The Company and the Purchaser shall each bear its respective expenses and legal fees incurred with respect to this Agreement and the transactions contemplated herein.
8.8 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Purchaser, upon any breach or default of the Company under the Subscription Documents shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative.
8.9 Entire Agreement. This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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COMPANY
|
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Ethema Health Corporation
By: Name: Shawn E. Leon Title: ____________________________
Addiction Recovery Institute of America, LLC F/K/A Seastone Delray Healthcare, LLC
By: Name: Shawn E. Leon Title: ____________________________
Address:
1590
South Congress
SHAWN E. LEON, an individual
___________________________
Address: 46 Fairway Heights Drive Thornhill, Ontario L3T3A9
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PURCHASER:
___________________________________
By:
Name: Ed Blasiak
Address:
_3 Rowallen Drive
Scarborough, Ontario M1E 2Y5
Schedules
Schedule 3.3 – Subsidiaries and Affiliates
Schedule 3.7
Schedule 3.9 - Capitalization
Schedule 3.10
Schedule 3.12 - Litigation
Schedule 3.15
Schedule 3.16 - Taxes
Exhibit A
Form of Convertible Promissory Note
(See Attached)
Exhibit B
(Intentionally Omitted)
Exhibit C
Form of Security and Pledge Agreement
(See Attached)
THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUER WILL MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE: (1) THE ISSUE PRICE AND ISSUE DATE OF THE NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTE, (3) THE YIELD TO MATURITY OF THE NOTE, AND (4) ANY OTHER INFORMATION REQUIRED TO BE MADE AVAILABLE BY U.S. TREASURY REGULATIONS UPON RECEIVING A WRITTEN REQUEST FOR SUCH INFORMATION AT THE FOLLOWING ADDRESS: 1590 SOUTH CONGRESS WEST PALM BEACH FL 33406.
NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $55,000 Issue Date: September 14, 2020
Purchase Price: $50,000
Original Issue Discount: $5,000
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, ETHEMA HEALTH CORPORATION, a Colorado corporation, and ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC, a Florida limited liability company, and SHAWN E LEON, an individual (collectively, the “Borrower”), hereby promises to pay to the order of Ed Blasiak, or registered assigns (the “Holder”) the principal sum of $55,000 (the “Principal Amount”), together with interest on the unpaid Principal Amount at the rate of six and one-half percent (6.5%) per annum (the “Stated Rate”), on the dates set forth below or upon acceleration or otherwise, as set forth herein (the “Note”). The consideration to the Borrower for this Note is $50,000 (the “Consideration”). The Holder shall pay the Consideration within a reasonable amount of time after the full execution of the Note and all transactional documents related to this Note. Upon payment of the Consideration, the outstanding principal amount under this Note shall initially consist of the Consideration plus the OID (as defined below). The maturity date shall be twelve (12) months (the “Term”) from the Issue Date (the “Maturity Date”). The principal sum, as well as any accrued and unpaid interest and other fees shall be due and payable in accordance with the payment terms set forth in Article I herein. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Consideration is paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower’s common stock (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
This Note carries an original issue discount of $5,000 (the “OID”), to cover the Holder’s legal fees, accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $50,000.00, computed as follows: The Principal Amount minus the OID. The OID shall be added to the Principal Amount on a pro rata basis of the Purchase Price paid.
It is further acknowledged and agreed that the Principal Amount owed by Borrower under this Note shall be increased by the amount of all expenses incurred by the Holder relating to the conversion of this Note into shares of Common Stock. All such expenses shall be deemed added to the Principal Amount hereunder to the extent such expenses are paid by the Holder.
This Note shall be a senior secured obligation of the Borrower, with priority over all future Indebtedness (as defined below) of the Borrower as provided for herein. The obligations of the Borrower under this Note are secured pursuant to the terms of the following agreement of even date herewith: the security and pledge agreement (the “Security and Pledge Agreement”) by and among the Borrower, and certain subsidiaries and affiliates of the Borrower, and the Holder, and such security interest includes but is not limited to all of the assets of the Borrower and such subsidiaries and affiliates. In addition, Shawn E Leon agrees to personally guaranty and pledge his assets to secure this Note.
This Note is issued by the Borrower to the Holder pursuant to the terms of that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of the Issue Date but which may be executed following the closing of the Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Purchase Agreement. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the OTCQB (as defined in the Purchase Agreement).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following additional terms shall also apply to this Note:
ARTICLE I. PAYMENTS
| 1.1 | Monthly Payments. |
(a) Beginning on October 1, 2020, (the “Initial Monthly Payment Date”) and on the same day of each and every calendar month thereafter throughout the Term of this Note (the “Monthly Payment Dates”), Borrower shall make monthly payments under this Note to the Holder in the amounts provided in this Article I (each, a “Monthly Payment Amount”).
(b) The Monthly Payment Amount for the payment due on each Monthly Payment Date through and including the final Monthly Payment Date during the Term, is equal to the then accrued but unpaid interest on the unpaid principal balance of this Note.
1.2 Payment of Principal Amount. The principal sum of the Consideration, the OID, as well as any accrued and unpaid interest and other fees pursuant to this, shall be due and payable on the Maturity Date.
1.3 Payments from Future Funding Sources. The Borrower shall pay to the Holder on an accelerated basis, at the Holder’s discretion, any outstanding principal amount of the Note, along with accrued, but unpaid interest, from:
(a) Future Financing Proceeds – one hundred percent (100%) of the gross cash proceeds of any future financing of the Borrower, whether debt or equity (“Future Financing Proceeds”), in excess of one hundred thousand dollars ($100,000) in the aggregate, provided however, that in addition to any other terms pursuant to this Note, requiring notice to Holder and/or prior authorization from Holder, Borrower shall be required to provide notice to, and obtain approval from, the Holder, prior to entering into any agreement that would generate any amount of Future Financing Proceeds that are not being used to repay the Holder; and
(b) Other Future Receipts – all net proceeds from any sale of assets of the Borrower or any of its subsidiaries or receipt by Borrower or any of its subsidiaries of any tax credits.
1.4 Remaining payments. Any and all remaining unpaid principal of and interest on this Note shall be due and payable in full on the Maturity Date.
1.5 Prepayment. Unless an Event of Default shall occur, Borrower shall have the right to prepay the Note a follows: (i) at any time within six (6) months from the Issuance Date by making a payment to Lender equal to 115% of all amounts due under the Note, including the outstanding Principal Amount, plus any accrued and unpaid interest, plus all unpaid interest through the remainder of the Term; and (ii) at any time after six (6) months from the Issuance Date but prior to the Maturity Date by making a payment to Lender equal to 130% of all amounts due under the Note, including the outstanding Principal Amount, plus any accrued and unpaid interest, plus all unpaid interest through the remainder of the Term.
ARTICLE II. CONVERSION RIGHTS
2.1 Conversion Right.
(a) The Holder shall have the right at any time after six (6) months from the Issue Date, at the Holder’s option, to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified (each, a “Conversion Share”) at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein, and, if applicable, net of any shares that may be deemed to be owned by any person not affiliated with the Holder who has purchased a portion of the Note from the Holder) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived (up to a maximum of 9.99%) by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 2.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) the Holder’s expenses relating to a Conversion, which expenses shall be set at $2,000 for the Holder’s initial conversion of the Note and for each of any subsequent conversions, the lesser of $1,000 or 25% of the actual conversion cost incurred by Holder, plus (5) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 2.3 and 2.4(g) hereof.
(b) Notwithstanding the preceding paragraph, the Borrower shall have the right to buy the shares issued pursuant to a Conversion (“Conversion Buy Out”) by providing notice to Holder of such desire (the “Conversion Buy Out Notice”), and by making a cash payment to the Holder within 1 day of receiving the Conversion Notice (the “Original Conversion Notice”), equal to the total value of the shares that Holder would have received pursuant to the Conversion. If the Borrower sends the Holder a Conversion Buy Out Notice, but fails to make the required payment within 1 day of receiving the Original Conversion Notice, then (i) Borrower shall be barred from exercising the Conversion Buy Out on future Conversions and (ii) in the event that the stock price has declined, then an amount equal to the difference between the stock price at the time of the Original Conversion Notice and the lower current stock price multiplied by the number of shares issued pursuant to the conversion shall be deducted from the conversion amount.
2.2 Conversion Price.
(a) Calculation of Conversion Price. The Conversion Price shall be, at the option of the Holder, (i) $0.001 (the “Fixed Conversion Price”) (subject to adjustment as further described herein) or (ii) 80% (the “Conversion Price Discount”) multiplied by the price per share paid by the investors in a subsequent Equity Financing (as defined herein) of the Borrower, provided, however, that after 6 months, the Conversion Price shall be equal to the lowest of: (1) the Fixed Conversion Price, (2) 60% multiplied by the lowest trade price of the Common Stock during the twenty one (21) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion, and (3) a discount to market based on subsequent financings with other investors. For the avoidance of doubt, an “Equity Financing” shall mean the Borrower’s sale of its Common Stock or any securities conferring the right to purchase the Borrower’s Common Stock or securities convertible into, or exchangeable for (with or without additional consideration), the Borrower’s Common Stock.
(b) Fixed Conversion Price Adjustments.
(1) Stock Dividends and Stock Splits. If the Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Borrower, then the Fixed Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Borrower) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.
(2) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Borrower effects any merger or consolidation of the Borrower with or into another person, (ii) the Borrower effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Fixed Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Borrower shall apportion the Fixed Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
(3) Anti-dilution Adjustment. If at any time while this Note is outstanding, the Borrower sells or grants (or has sold or granted, as the case may be) any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or has sold or issued, as the case may be, or announces any sale, grant, or any option to purchase, or other disposition), any Common Stock or other securities convertible into, exercisable for, or that would otherwise entitle the holder the right to acquire shares of Common Stock at an effective price per share that is lower than the then Fixed Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Fixed Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance, and the Base Conversion Price shall then be adjusted to equal the lowest of such issuance price), then the Fixed Conversion Price shall be reduced to a price equal the Base Conversion Price as it may be adjusted as provided for above. Such adjustment shall be made whenever such Common Stock or other securities are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 2.2(b)(4) in respect of an Exempt Issuance. For purposes of this Section 2.2(b)(4) an “Exempt Issuance” means an issuance of shares (i) reserved as employee shares described under the Borrower’s option pool now or created in the future, (ii) shares issued for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the Borrower’s Board of Directors (the “Board”), provided, however, that any such issuance shall only be to a person (or to the equity holders of a person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Borrower and shall provide to the Borrower additional benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (iii) shares issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by the Board; or (iv) shares with respect to which the Holder waives its anti-dilution rights granted hereby. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 2.2(b)(4) shall be calculated as if all such securities were issued at the initial closing.
(4) Notice to the Holder. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 2.2(b), the Borrower shall within two (2) business days deliver to the Holder a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
2.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and exercise of the Warrants. The Borrower is required at all times to have authorized and reserved seven (7) times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time, which, if cannot be determined shall be estimated in good faith by the Borrower) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent by letter, a copy of which is attached hereto as Exhibit B to issue certificates for the Common Stock issuable upon conversion of this Note and exercise of the Warrants, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 4.2 of the Note.
2.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 2.1, this Note may be converted by the Holder in whole or in part, at any time on or after the Maturity Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 2.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 2.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article II, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 2.1 and in this Section 2.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 2.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder, and as such, the Borrower will not take any actions to hamper, delay or prevent any Holder conversion of the Note. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 2.4(g) are justified.
2.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 2.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 4.2 of the Note.
2.6 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 2.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 2.3) for the Borrower’s failure to convert this Note.
2.7 Notice to Borrower. Holder shall endeavor in good faith to provide notice to Borrower of each Conversion as well as any communications to the Transfer Agent pursuant to paragraph 2.3 above. Such notice shall be provided via email and is not subject to the requirements of paraph 5.2 below. The absence of any notice as described in this paragraph 2.7, shall not in any way delay or invalidate a Conversion nor delay or invalidate any instruction to the Transfer Agent pursuant to paragraph 2.3 above.
ARTICLE III. RANKING, CERTAIN COVENANTS AND POST CLOSING OBLIGATIONS
3.1 Intentionally Omitted.
3.2 Intentionally Omitted.
3.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions that comply with Section 3.7 below.
3.4 Restrictions on Variable Rate Transactions. So long as the Borrower shall have any obligation under this Note and unless approved by the Holder, the Borrower and each subsidiary shall not enter into an agreement to effect any sale of securities involving, or convert any securities previously issued under, a Variable Rate Transaction. The term “Variable Rate Transaction” means a transaction in which the Borrower or any subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Borrower or the subsidiary, as the case may be, or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provisions, or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at-the-market offering”) whereby the Borrower or any subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). The Holder shall be entitled to obtain injunctive relief against the Borrower and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
3.5 Restrictions on Certain Transactions. So long as the Borrower shall have any obligation under this Note and unless approved in writing by the Holder (which such approval not to be unreasonably withheld), the Borrower shall not directly or indirectly: (a) change the nature of its business; (b) sell, divest, change the structure of any material assets of the Borrower or any subsidiary other than in the ordinary course of business; (c) accept Merchant-Cash-Advances in which it sells future receivables at a discount, any other factoring transactions, or similar financing instruments or financing transactions; or (d) Enter into a borrowing arrangement where the Company pays an effective APR greater than 15%
3.6 Sale of Assets; Issuance of Equity or Debt. Should Borrower sell any assets, issue any equity or debt, Borrower shall use 100% of the proceeds of any such sale to repay the Note, provided however that with regards to the issuance of securities of the Borrower, this obligation shall be limited pursuant to Section 1.3(a) hereinabove,.
3.7 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares; except for the repurchase of shares at a nominal price in connection with rights under an agreement with an employee or consultant of the Borrower whose shares have been forfeited as a result of such employee or consultant’s ceasing to provide services to the Borrower.
3.8 Use of Proceeds. Acquisition of a drug rehab facility
3.9 Ranking and Security. Except as listed in Schedule 3.9 attached hereto, the obligations of the Borrower under this Note shall rank senior with respect to any and all Indebtedness incurred as of or following the Issue Date. The obligations of the Borrower under this Note are secured pursuant to the Security and Pledge Agreement. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any subsidiary or affiliate) incur or suffer to exist or guarantee any Indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder. As used herein, the term “Indebtedness” means (a) all indebtedness of the Borrower for borrowed money or for the deferred purchase price of property or services, including any type of letters of credit, but not including deferred purchase price obligations in place as of the Issue Date or obligations to trade creditors incurred in the ordinary course of business, (b) all obligations of the Borrower evidenced by notes, bonds, debentures or other similar instruments, (c) purchase money indebtedness hereafter incurred by the Borrower to finance the purchase of fixed or capital assets, including all capital lease obligations of the Borrower which do not exceed the purchase price of the assets funded, (d) all guarantee obligations of the Borrower in respect of obligations of the kind referred to in clauses (a) through (c) above that the Borrower would not be permitted to incur or enter into, and (e) all obligations of the kind referred to in clauses (a) through (d) above that the Borrower is not permitted to incur or enter into that are secured and/or unsecured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured and/or unsecured by) any lien or encumbrance on property (including accounts and contract rights) owned by the Borrower, whether or not the Borrower has assumed or become liable for the payment of such obligation.
3.10 Intentionally Omitted
3.11 Intentionally Omitted
3.12 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note, then (i) the Borrower shall notify the Holder of such additional or more favorable term within three (3) business days of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 3.12). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. If Holder elects to have the term become a part of the transaction documents with the Holder, then the Borrower shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Holder (the “Acknowledgment”) within three (3) business days of Borrower’s receipt of request from Holder (the “Adjustment Deadline”), provided that Borrower’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby.
ARTICLE IV. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article IV (each, an “Event of Default”) shall occur:
4.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
4.2 Failure to Reserve Shares. The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 2.3 of this Note) fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within five (5) business days of a demand from the Holder, either in cash or as an addition to the balance of the Note, and such choice of payment method is at the discretion of the Borrower.
4.3 Breach of Covenants. The Borrower, or the relevant related party, as the case may be, breaches any material covenant, post-closing obligation or other material term or condition contained in this Note, or in the related Purchase Agreement, Security and Pledge Agreement, Affidavit of Confession of Judgment, Transfer Agent Letter, Term Sheet or any other collateral or non-collateral documents (together, the “Transaction Documents”) and such breach continues for a period of ten (10) days.
4.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note and the other Transaction Documents.
4.5 Receiver or Trustee. Borrower or any subsidiary of Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
4.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $25,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder.
4.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower. With respect to any such proceedings that are involuntary, Borrower shall have a forty five (45) day cure period in which to have such involuntary proceedings dismissed.
4.8 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
4.9 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
4.10 Maintenance of Assets. The failure by Borrower to maintain any intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future), to the extent that such failure would result in a material adverse condition or material adverse change in or affecting the business operations, properties, condition (financial or otherwise) or prospects of the Borrower or any of its subsidiaries (a “Material Adverse Effect”).
4.11 Financial Statement Restatement. The Borrower restates any financial statements filed by the Borrower with the Securities and Exchange Commission (the “SEC”) for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.
4.12 Failure to Execute Transaction Documents or Complete the Transaction. The failure of the Borrower to execute any of the Transaction Documents or to complete the transaction for the full Principal Amount of the Note, as contemplated by the Purchase Agreement. The Borrower acknowledges that there are additional documents that need to be executed and agrees to execute these post-closing at the request of the Holder.
4.13 Replacement of Transfer Agent. In the event that the Borrower appoints a transfer agent and thereafter replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
4.14 Illegality. Any court of competent jurisdiction issues an order declaring this Note, any of the other Transaction Documents or any provision hereunder or thereunder to be illegal.
4.15 Delisting of Common Stock. If at any time on or after the date in which the Borrower’s Common Stock is listed or quoted on the OTC Pink or an equivalent U.S. replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT, the Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTC Pink or an U.S. equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.
4.16 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act. Notwithstanding the foregoing, the Company shall have a grace period of two (2) weeks from the Effective date, during which time the failure to comply with this Section 4.6 shall not be deemed an Event of Default.
4.17 DTC “Chill.” The DTC places a “chill” (i.e. a restriction placed by DTC on one or more of DTC’s services, such as limiting a DTC participant’s ability to make a deposit or withdrawal of the security at DTC) on any of the Borrower’s securities.
4.18 DWAC Eligibility. In addition to the Event of Default in Section 3.16, the Common Stock is otherwise not eligible for trading through the DTC’s Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs.
4.19 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, with the exception of the Series N Noteholders, who are currently in default, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder or any other 3rd party (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, that results in a Material Adverse Effect shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.
4.20 Variable Rate Transactions. Without the prior approval of the Holder, the Borrower (i) enters into a Variable Rate Transaction (as defined below) (ii) issues shares of Common Stock (or convertible securities or purchase rights) pursuant to an equity line of credit of the Borrower or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future) or (iii) adjusts downward the “floor price” at which shares of Common Stock (or convertible securities or purchase rights) may be issued under an equity line of credit or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future).
4.21 Other Prohibited Transactions. Borrower enters into certain transactions prohibited in sections 3.5, 3.6, and 3.7.
4.22 Remedies Upon Default.
(a) Upon the occurrence of any Event of Default specified in this Article IV, (provided however, that with regard to the Events of Default in Sections 4.1, 4.2, 4.3, 4.5, 4.10, 4.12, 4.15, 4.16, 4.17, 4.18, 4.19, such event shall be deemed to occur only if such default remains uncured after five (5) days,) (i) interest shall accrue at the Default Interest rate; (ii) this Note shall become immediately due and payable, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower, and the Borrower shall pay to the Holder, an amount (the “Default Amount”) equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment, together with all costs, including, without limitation, legal fees and expenses, of collection; (iii) the Borrower shall promptly assign all Borrower receivables to the Holder; (iv) the Holder shall be entitled to exercise all other rights and remedies available at law or in equity, including, without limitation, those set forth in the Related Documents. Upon an Event of Default, in addition to other remedies set forth herein, a liquidated damages charge equal to 25% of the outstanding Principal Amount will be assessed and will become immediately due and payable to the Holder, either in form of a cash payment or as an addition to the balance due under the Note. From and during the continuance of an Event of Default interest shall accrue hereunder at a rate equal to the lesser of 24% and the maximum legal rate.
(b) Intentionally Removed
ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
5.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
ETHEMA HEALTH CORPORATION
1590 South Congress
Palm Springs, FL 33403
Attn: Shawn E. Leon, CEO
e-mail: shawn@ethemahealth.com
with a copy to:
Shawn Leon
46 Fairway Heights Drive
Thornhill, Ontario L3T3A9
If to the Holder:
__________________________
__________________________
__________________________
__________________________
__________________________
__________________________
5.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).
5.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
5.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts located in Rockland County, New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
5.6 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
5.7 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
5.8 Optional Redemption. Notwithstanding anything to the contrary contained in this Note, the Borrower may redeem any amount outstanding under this Note, prior to the Maturity Date, by making a payment to the Holder of an amount in cash equal to (i) 115% of the outstanding principal amount being redeemed under the Note, plus all unpaid interest thereon, if the redemption is effected prior to the 181st day following the Issue Date, and (ii) 130% of the outstanding principal amount being redeemed under the Note, plus all unpaid interest thereon, if the redemption is effected prior to Maturity Date but following the 180th day following the Issue Date.
5.9 Usury. To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Borrower under this Note for payments which under New York law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under New York law in the nature of interest that the Borrower may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by New York law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Holder with respect to indebtedness evidenced by this Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Borrower, the manner of handling such excess to be at the Holder’s election.
5.10 Section 3(a)(10) Transactions. If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act, then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.
5.11 Intentionally Omitted.
[signature page to follow]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 14, 2020.
|
ETHEMA HEALTH CORPORATION
By: _______________ Name: Shawn E. Leon Title: Chief Executive Officer
ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC
By: __________________ Name: Shawn E. Leon Title: Chief Executive Officer
|
SHAWN E. LEON, an individual
___________________________
EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of ETHEMA HEALTH CORPORATION, a Colorado corporation (the “Borrower”) according to the conditions of the senior secured convertible note of the Borrower dated as of June ___, 2020 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
Name of DTC Prime Broker: Account Number:
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
__________________________________________
__________________________________________
e-mail: ___________________
Date of Conversion:
Applicable Conversion Price: $ Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Note: Amount of Principal Balance Due remaining
Under the Note after this conversion:
_________________________________________________
By:_________ Name:____________ Title: __________________ Date: ____________________
EXHIBIT B – TRANSFER AGENT IRREVOCABLE RESERVE LETTER
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of September 14, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and ED BLASIAK (“Blasiak” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
B. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $300,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
C. WHEREAS, pursuant to a Note and related Securities Purchase Agreements dated September 14, 2020 (the “Note”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 20% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Note. The 20% share will be based on a total of $400,000 in total advanced under that Note.
D. NOW THEREFORE, in fulfillment of the foregoing agreement in the Note, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $50,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $400,000.00.
2. Transferor hereby grants an option to Transferee to purchase 500,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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Transferor:
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Transferee:
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Ethema Health Corporation
By:_____________________________ Name: __________________________ Title: ____________________________
Address: _________________________
_________________________
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Ed Blasiak
Address: ________________________
_________________________
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ETHEMA HEALTH CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the “Agreement”) is made as of September 14, 2020 by and between ETHEMA HEALTH CORPORATION (“Ethema”), a Colorado corporation, and ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC, a Florida limited liability company, and SHAWN E LEON, an individual, (collectively, the “Company”), and Joshua Bauman (the “Purchaser).
Recital
A. The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act;
B. The Purchaser desires to purchase from the Company, and the Company desires to issue and sell to the Purchaser, upon the terms and conditions set forth in this Agreement, a Senior Convertible Promissory Note of the Company, in the aggregate principal amount of Fifty Five Thousand Dollars ($110,000.00) (the “Principal Amount,” and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.01 par value per share, of Ethema (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note shares equal to a pro rata share based on a total loan of $440,000.00 of 20% of the fully diluted shares or interests in each (i) Evernia Health Center, LLC and (ii) Peace of Mind Counseling Services, Inc. (the “Equity Kicker”).
C. The Note carries an original issue discount of $10,000 (the “OID”), to cover the Purchaser’s legal fees, accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of the Note. Thus, the purchase price of this Note shall be $100,000, computed by subtracting the OID from the Principal Amount.
D. Intentionally Omitted.
Agreement
Now, Therefore, in consideration of the foregoing, and the representations, warranties, covenants and conditions set forth below, the Company and the Purchaser, intending to be legally bound, hereby agree as follows:
| 1. | Amount and Terms of the Note |
1.1 Purchase of the Note. Subject to the terms of this Agreement, for consideration of One Hundred Thousand ($100,000) (the “Consideration”), the Purchaser agrees to subscribe for and purchase from the Company on the Closing Date (as hereinafter defined), and the Company agrees to issue and sell to the Purchaser, the Note. The Holder shall pay the Consideration within a reasonable amount of time after the full execution of the Note and all transactional documents related to the Note. Upon payment of the Consideration, the outstanding principal amount under the Note shall initially consist of the Consideration plus the OID (as defined below).
1.2 Form of Payment. At the Closing (as hereinafter defined): (i) the Buyer shall pay $100,000, by wire transfer of immediately available funds to Ethema, in accordance with Ethema’s written wiring instructions, against delivery of the Note, and the outstanding principal amount under the Note shall initially be $110,000, consisting of the Consideration the OID, which shall be $10,000, and (ii) the Company shall deliver the duly executed Note on behalf of the Company, to the Purchaser, against delivery of the Consideration.
| 2. | Closing and Delivery |
2.1 Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be the date first written above, or such other mutually agreed upon time.
2.2 Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
2.3 Delivery. At the Closing, or as promptly as commercially reasonable thereafter, Purchaser shall deliver to Ethema the Consideration, and the Company shall deliver to the Purchaser, the Note, and the Equity Kicker.
2.4 Intentionally Omitted
| 3. | Representations, Warranties the Company |
Except as set forth in: (i) the SEC Reports (as defined below) or (ii) the corresponding section of the Disclosure Schedules delivered to the Purchaser concurrently herewith, the Company hereby makes the following representations and warranties as of the date hereof and as of the Closing Date to the Purchaser:
3.1 Organization, Good Standing and Qualification. Ethema and each of its Subsidiaries (as defined below) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. Each of Ethema and its Subsidiaries has the requisite corporate power to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted. Ethema and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of its activities and of its properties (both owned and leased) makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Subscription Document, (ii) a material adverse effect on the results of operations, assets, business or financial condition of Ethema and the Subsidiaries, taken as a whole, or (iii) adversely impair the Company’s ability to perform in any material respect on a timely basis its obligations under any Subscription Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).
3.2 Corporate Power. The Company has all requisite corporate power to execute and deliver this Agreement, to issue the Note and enter into the security and pledge agreement of even date herewith (the “Security and Pledge Agreement”) in the form of Exhibit C and the other instruments, documents and agreements being entered into at the Closing (each a “Subscription Document” and collectively, the “Subscription Documents”) and to carry out and perform its obligations under the terms of the Subscription Documents.
3.3 Subsidiaries and Affiliates. Attached as Schedule 3.3 is a true and correct organizational chart showing all of Ethema’s Subsidiaries and Affiliates, pro forma as of the date hereof reflecting all pending acquisitions. For purposes of this Agreement, the term “Subsidiary” means, with respect to Ethema, any corporation or other entity of which at least a majority of the outstanding shares of stock or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors (or persons performing similar functions) of such corporation or entity (regardless of whether or not at the time, in the case of a corporation, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by Ethema or one or more of its Affiliates and the term “Affiliate” means, as to any person (the “Subject Person”), any other person that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the Subject Person. For the purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, through representation on such person’s board of directors or other management committee or group, by contract or otherwise.
3.4 Authorization. All corporate action on the part of the Company, its directors and its stockholders necessary for the authorization of the Subscription Documents and the execution, delivery and performance of all obligations of the Company under the Subscription Documents, including the issuance and delivery of the Note and the reservation of the equity securities issuable upon conversion of the Note (collectively, the “Underlying Securities”) has been taken or will be taken prior to the issuance of such Underlying Securities. The Subscription Documents, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company enforceable in accordance with their terms, subject to laws of general application relating to bankruptcy, insolvency, the relief of debtors and, with respect to rights to indemnity, subject to federal and state securities laws. The Underlying Securities, when issued in compliance with the provisions of the Subscription Documents, will be, validly issued, fully paid and non-assessable and free of any liens, encumbrances, security interests or other adverse claim (a “Lien”) and issued in compliance with all applicable federal and securities laws.
3.5 Governmental Consents. Neither Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other foreign, federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Subscription Documents, other than (a) applicable Blue Sky filings, (b) such as have already been obtained or such exemptive filings as are required to be made under applicable securities laws, (c) such other filings that have been made pursuant to applicable state securities laws and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Section 4 hereof, the Company has taken all action necessary to exempt: (i) the issuance and sale of the Note, (ii) the issuance of the Underlying Shares upon due conversion of the Note, and (iii) the other transactions contemplated by the Subscription Documents from the provisions of any preemptive rights, stockholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Articles of Incorporation or Bylaws, or other organizational documentation, as the case may be, that is or could reasonably be expected to become applicable to the Purchaser as a result of the transactions contemplated hereby, including without limitation, the issuance of the Note and the Underlying Securities (collectively, the “Securities”) and the ownership, disposition or voting of the Securities by the Purchaser or the exercise of any right granted to the Purchaser pursuant to this Agreement or the other Subscription Documents.
3.6 Compliance with Laws. To the Company’s knowledge, neither Ethema nor any Subsidiary is in violation of any applicable statute, rule, regulation, order or restriction of any domestic or foreign government or any instrumentality or agency thereof in respect of the conduct of its business or the ownership of its properties, which violation would materially and adversely affect the business, assets, liabilities, financial condition or operations of Ethema and its Subsidiaries.
3.7 Compliance with Other Instruments. Neither Ethema nor any of its Subsidiaries is in violation or default of any term of its certificate of incorporation or bylaws, or of any provision of any mortgage, indenture or contract to which it is a party and by which it is bound or of any judgment, decree, order or writ, other than such violations that would not individually or in the aggregate have a Material Adverse Effect on the Company. Except as set forth on Schedule 3.7, the execution, delivery and performance of the Subscription Documents, and the consummation of the transactions contemplated by the Subscription Documents will not result in any such violation or be in conflict with, or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, decree, order or writ or an event that results in the creation of any Lien upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company or any of its Subsidiaries, its business or operations or any of its assets or properties. The sale of the Note and the subsequent issuance of the Underlying Securities are not and will not be subject to any preemptive rights or rights of first refusal that have not been properly waived or complied with.
3.8 Offering. Assuming the accuracy of the representations and warranties of the Purchaser contained in Section 4 hereof, the offer, issue, and sale of Securities are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. No “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) of the Securities Act (a “Disqualification Event”) is applicable to the Company or, to the Company’s knowledge, any person listed in the first paragraph of Rule 506(d)(1) of the Securities Act, except for a Disqualification Event as to which Rule 506(d)(2)(ii–iv) or (d)(3), is applicable.
3.9 Capitalization. Ethema has authorized 10,000,000,000 shares of Common Stock, $0.01 par value per share, of which 1,841,090,247shares are issued and outstanding, 10,000,000shares of Series A Preferred Stock, $0.01 par value per share, of which 4,000,000shares are issued and outstanding, and 400,000shares of Series B Preferred Stock, $0.01 par value per share, of which 400,000 shares are issued and outstanding. Ethema has warrants outstanding to purchase 459,620,181shares of Common Stock and options outstanding to purchase zero shares of Common Stock under its stock option and equity plans. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all applicable securities laws. Except for the options and warrants referenced above or otherwise listed on Schedule 3.9, there are no outstanding options, warrants, script rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any person any right to subscribe for or acquire, any shares of common stock, or contracts, commitments, understandings or arrangements by which Ethema or any Subsidiary is or may become bound to issue additional shares of common stock, or securities or rights convertible or exchangeable into shares of common stock. There are no price based anti-dilution or price adjustment provisions contained in any security issued by Ethema (or in any agreement providing rights to security holders) and the issue and sale of the Securities will not obligate Ethema to issue shares of Common Stock or other securities to any person (other than the Purchaser) and will not result in a right of any holder of Ethema’s securities to adjust the exercise, conversion, exchange or reset price under such securities. Ethema owns, directly or indirectly, all of the capital stock of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights.
3.10 SEC Reports; Financial Statements. Except as set forth on Schedule 3.10, the Company has filed all reports and registration statements required to be filed by it under the Securities Act and the Exchange Act of 1934, as amended (the “Exchange Act”), including pursuant to Section 13(a) or 15(d) of the Exchange Act, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports” and, together with the Disclosure Schedules to this Agreement, the “Disclosure Materials”). As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as indicated on Schedule 3.10, the financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.
3.11 Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that, individually or in the aggregate, has had or that could result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting or the identity of its auditors, except as disclosed in its SEC Reports, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock, and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock-based plans or agreements.
3.12 Litigation. Except as set forth on Schedule 3.12 hereto, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which: (i) adversely affects or challenges the legality, validity or enforceability of any of the Subscription Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.
3.13 Labor Relations. Neither Ethema nor any Subsidiary is a party to or bound by any collective bargaining agreements or other agreements with labor organizations. Neither Ethema nor any Subsidiary has violated in any material respect any laws, regulations, orders or contract terms, affecting the collective bargaining rights of employees, labor organizations or any laws, regulations or orders affecting employment discrimination, equal opportunity employment, or employees’ health, safety, welfare, wages and hours. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.
3.14 Regulatory Permits. Ethema and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits would not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither Ethema nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.
3.15 Title to Assets. Except as set forth on Schedule 3.15, Ethema and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of Ethema and the Subsidiaries and good and marketable title in all personal property owned by them that is material to the business of Ethema and the Subsidiaries, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by Ethema and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by Ethema and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which Ethema and the Subsidiaries are in compliance.
3.16 Taxes.
(a) Except as otherwise itemized on Schedule 3.16 hereto, Ethema and its Subsidiaries have timely and properly filed all tax returns required to be filed by them for all years and periods (and portions thereof) for which any such tax returns were due, except where the failure to so file would not have a Material Adverse Effect; all such filed tax returns are accurate in all material respects; the Company has timely paid all taxes due and payable (whether or not shown on filed tax returns), except where the failure to so pay would not have exceeded $10,000 in the aggregate or have a Material Adverse Effect; there are no pending assessments, asserted deficiencies or claims for additional taxes that have not been paid; the reserves for taxes, if any, reflected in the SEC Reports are adequate, and there are no Liens for taxes on any property or assets of the Company and any of its Subsidiaries (other than Liens for taxes not yet due and payable); there have been no audits or examinations of any tax returns by any (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental or administrative division, department, agency, commission, instrumentality, official, organization, unit, body or entity) and any court or other tribunal (a “Governmental Body”), and the Company or its Subsidiaries have not received any notice that such audit or examination is pending or contemplated; no claim has been made by any Governmental Body in a jurisdiction where the Company or any of its Subsidiaries does not file tax returns that it is or may be subject to taxation by that jurisdiction; to the knowledge of the Company, no state of facts exists or has existed which would constitute grounds for the assessment of any penalty or any further tax liability beyond that shown on the respective tax returns; and there are no outstanding agreements or waivers extending the statutory period of limitation for the assessment or collection of any tax.
(b) Neither the Company nor any of its Subsidiaries is a party to any tax-sharing agreement or similar arrangement with any other Person.
(c) The Company has made all necessary disclosures required by Treasury Regulation Section 1.6011-4. The Company has not been a participant in a “reportable transaction” within the meaning of Treasury Regulation Section 1.6011-4(b).
(d) No payment or benefit paid or provided, or to be paid or provided, to current or former employees, directors or other service providers of the Company will fail to be deductible for federal income tax purposes under Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”).
3.17 Patents and Trademarks. To the knowledge of Ethema and each Subsidiary, Ethema and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights that are necessary or material for use in connection with their respective businesses as described in the SEC Reports and which the failure to so have could have or reasonably be expected to result in a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Neither Ethema nor any Subsidiary has received a written notice that the Intellectual Property Rights used by Ethema or any Subsidiary violates or infringes upon the rights of any Person. To the knowledge of the Company, all such Intellectual Property Rights are enforceable. Ethema and its Subsidiaries have taken reasonable steps to protect Ethema’s and its Subsidiaries’ rights in their Intellectual Property Rights and confidential information (the “Confidential Information”). Each employee, consultant and contractor who has had access to Confidential Information which is necessary for the conduct of Company’s and each of its Subsidiaries’ respective businesses as currently conducted or as currently proposed to be conducted has executed an agreement to maintain the confidentiality of such Confidential Information and has executed appropriate agreements that are substantially consistent with the Company’s standard forms thereof. Except under confidentiality obligations, there has been no material disclosure of any of Ethema’s or its Subsidiaries’ Confidential Information to any third party.
3.18 Environmental Matters. Neither Ethema nor any Subsidiary is in violation of any statute, rule, regulation, decision or order of any Governmental Body relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), owns or operates any real property contaminated with any substance that is subject to any Environmental Laws, is liable for any off-site disposal or contamination pursuant to any Environmental Laws, or is subject to any claim relating to any Environmental Laws, which violation, contamination, liability or claim has had or could reasonably be expected to have a Material Adverse Effect, individually or in the aggregate; and there is no pending or, to the Company’s knowledge, threatened investigation that might lead to such a claim.
3.19 Insurance. Ethema and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which Ethema and the Subsidiaries are engaged as described in the SEC Reports. Neither Ethema nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
3.20 Transactions with Affiliates and Employees. Except as disclosed in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with Ethema or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $120,000 other than (a) for payment of salary or consulting fees for services rendered, (b) reimbursement for expenses incurred on behalf of the Company and (c) for other employee benefits, including stock option agreements under any stock option plan of Ethema.
3.21 Brokers and Finders. No person will have, as a result of the transactions contemplated by the Subscription Documents, any valid right, interest or claim against or upon Ethema, any Subsidiary or the Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.
3.22 Questionable Payments. Neither Ethema nor any of its Subsidiaries nor, to the Company’s knowledge, any of their respective current or former stockholders, directors, officers, employees, agents or other persons acting on behalf of Ethema or any Subsidiary, has on behalf of Ethema or any Subsidiary or in connection with their respective businesses: (a) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (b) made any direct or indirect unlawful payments to any governmental officials or employees from corporate funds; (c) established or maintained any unlawful or unrecorded fund of corporate monies or other assets; (d) made any false or fictitious entries on the books and records of Ethema or any Subsidiary; or (e) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment of any nature.
3.23 Solvency. The Company has not (a) made a general assignment for the benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (c) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (d) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (e) admitted in writing its inability to pay its debts as they come due; or (f) made an offer of settlement, extension or composition to its creditors generally.
3.24 Foreign Corrupt Practices Act. None of Ethema or any of its Subsidiaries, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company or any of its Subsidiaries, has, directly or indirectly: (a) used any funds, or will use any proceeds from the sale of the Securities, for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (b) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) failed to disclose fully any contribution made by Ethema or any of its Subsidiaries (or made by any person acting on their behalf of which the Company is aware) or any members of their respective management which is in violation of any legal requirement, or (d) has violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder which was applicable to Ethema or any of its Subsidiaries.
3.25 Disclosures. Neither the Company nor any person acting on its behalf has provided the Purchaser or its agents or counsel with any information that constitutes or might constitute material, non-public information, other than the terms of the transactions contemplated hereby. The written materials delivered to the Purchaser in connection with the transactions contemplated by the Subscription Documents do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading.
| 4. | Representations and Warranties of the Purchaser |
4.1 Purchase for Own Account. The Purchaser represents that it is acquiring the Note solely for its own account and beneficial interest for investment and not for sale or with a view to distribution of the Note or any part thereof, has no present intention of selling (in connection with a distribution or otherwise), granting any participation in, or otherwise distributing the same, and does not presently have reason to anticipate a change in such intention.
4.2 Information and Sophistication. Without lessening or obviating the representations and warranties of the Company set forth in Section 3, the Purchaser hereby: (a) acknowledges that it has received all the information it has requested from the Company and it considers necessary or appropriate for deciding whether to acquire the Note, (b) represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Note and to obtain any additional information necessary to verify the accuracy of the information given the Purchaser and (c) further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.
4.3 Ability to Bear Economic Risk. The Purchaser acknowledges that investment in the Note involves a high degree of risk, and represents that it is able, without materially impairing its financial condition, to hold the Note for an indefinite period of time and to suffer a complete loss of its investment.
4.4 Accredited Investor Status. The Purchaser is an “accredited investor” as such term is defined in Rule 501 under the Act.
4.5 Information Provided by Purchaser. The information that the Purchaser has furnished
herein, including without limitation the information furnished by the Purchaser on the accredited investor questionnaire that Purchaser will complete in connection with this offering (the “Accredited Investor Questionnaire”), is correct and complete as of the date of this Agreement and will be correct and complete on the date, if any, that Ethema accepts this Subscription. Further, the Purchaser shall immediately notify Ethema of any change in any statement made herein prior to the Purchaser’s receipt of Ethema’s acceptance of this Subscription. The representations and warranties made by the Purchaser may be fully relied upon by the Company and by any other investigating party.
4.6 Existence; Authorization. The Purchaser is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization, having full power and authority to own its properties and to carry on its business as conducted. The principal place of business of the Purchaser is as shown on the Accredited Investor Questionnaire. The Purchaser has the requisite power and authority to deliver this Agreement, perform its obligations set forth herein, and consummate the transactions contemplated hereby. The Purchaser has duly executed and delivered this Agreement and has obtained the necessary authorization to execute and deliver this Agreement and to perform his, her or its obligations herein and to consummate the transactions contemplated hereby. This Agreement, assuming the due execution and delivery hereof by the Company, is a legal, valid and binding obligation of the Purchaser enforceable against the Purchaser in accordance with its terms.
4.7 No Regulatory Approval. The Purchaser understands that no state or federal authority has scrutinized this Agreement or the Note offered pursuant hereto, has made any finding or determination relating to the fairness for investment in the Note, or has recommended or endorsed the Note, and that the Note has not been registered or qualified under the Act or any state securities laws, in reliance upon exemptions from registration thereunder. The Note may not, in whole or in part, be resold, transferred, assigned or otherwise disposed of unless it is registered under the Act or an exemption from registration is available, and unless the proposed disposition is in compliance with the restrictions on transferability under federal and state securities laws.
4.8 Purchaser Received Independent Advice. The Purchaser confirms that the Purchaser has been advised to consult with the Purchaser’s independent attorney regarding legal matters concerning the Company and to consult with independent tax advisers regarding the tax consequences of investing in the Company. The Purchaser acknowledges that Purchaser understands that any anticipated United States federal or state income tax benefits may not be available and, further, may be adversely affected through adoption of new laws or regulations or amendments to existing laws or regulations. The Purchaser acknowledges and agrees that the Company is providing no warranty or assurance regarding the ultimate availability of any tax benefits to the Purchaser by reason of the subscription.
4.9 Legends. The Purchaser understands that until such time as the Note and upon conversion of the Note in accordance with its respective terms, the Underlying Securities, have been registered under the Securities Act or may be sold pursuant to Rule 144, Rule 144A under the Securities Act or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop- transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
| 5. | Further Agreements; Post-Closing Covenants |
5.1 Intentionally Omitted.
5.2 Intentionally Omitted.
5.3 Use of Proceeds. Once the Note is fully funded, Ethema shall use the proceeds of sale and issuance of the Note as a down payment for an acquisition of an addiction center facility.
5.4 Form D; Blue Sky Laws. Ethema agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Purchaser promptly after such filing. Ethema shall, on or before the Closing of the , take such action as Ethema shall reasonably determine is necessary to qualify the Securities for sale to the Purchaser at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Purchaser on or prior to the initial closing.
5.5 Most Favored Nations. If, while the Note is outstanding, Ethema or any Subsidiary issues any other security with any term reasonably believed by the Purchaser to be more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Purchaser in the Note (“Other Securities”), the Company shall notify the Purchaser in writing of such additional or more favorable term. At the Purchaser’s option, such more favorable term or condition shall become a part of the Subscription Documents with the Purchaser. The Company will provide such notice to the Purchaser within three (3) business days following the issuance of such Other Securities. In the event the Purchaser determines that the terms of the Other Securities are preferable to the terms of the Note, the Purchaser will notify the Company in writing within five 5 days following Purchaser’s receipt of such notice from the Company. Within three (3) business days after receipt of such written notice from the Purchaser, but in any event within 10 days, the Company will amend and restate the Subscription Documents to include the more favorable term or condition and thereby grant to the Purchaser such preferential rights of the holders of such Other Securities. The types of terms contained in Other Securities that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.
5.6 Restrictions on Activities. Commencing as of the date first above written, and so long as the Company has an obligation under the Note, the Company shall not, directly or indirectly, without the Purchaser’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business; or (c) solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with any other person or entity in respect of any variable rate debt transactions (i.e., transactions were the conversion or exercise price of the security issued by the Company varies based on the market price of the Common Stock), whether a transaction similar to the one contemplated hereby or any other investment.
5.7 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Purchaser in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under New York law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under New York law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by New York law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by this Note, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election
5.8 Registration Rights.
(a) Intentionally Omitted.
(b) Piggy-Back Registration. Ethema shall give the Purchaser at least 30 days’ prior written notice of each filing by Ethema of a registration statement (other than a registration statement on Form S-4 or Form S-8 or on any successor forms thereto) with the SEC. If requested by the Purchaser in writing within 20 days after receipt of any such notice, Ethema shall, at Ethema’s sole expense (other than the underwriting discounts, if any, payable in respect of the shares sold by the Purchaser), register all or, at Purchaser’s option, any portion of the Shares concurrently with the registration of such other securities, all to the extent requisite to permit the public offering and sale of the Shares through the securities exchange, if any, on which the Common Stock is being sold or on the over-the-counter market, and will use its reasonable best efforts through its officers, directors, auditors, and counsel to cause such registration statement to become effective as promptly as practicable. If the managing underwriter of any such offering shall determine and advise Ethema that, in its opinion, the distribution of all or a portion of the Shares requested to be included in the registration concurrently with the securities being registered by Ethema would materially adversely affect the distribution of such securities by Ethema then Ethema will include in such registration first, the securities that Ethema proposes to sell and second, the Shares requested to be included in such registration, to the extent permitted by the managing underwriter.
(c) In the event of a registration pursuant to these provisions, Ethema shall use its reasonable best efforts to cause the Shares so registered to be registered or qualified for sale under the securities or blue sky laws of such jurisdictions as the Purchaser may reasonably request; provided, however, that Ethema shall not be required to qualify to do business in any state by reason of this section in which it is not otherwise required to qualify to do business.
(d) Ethema shall keep effective any registration or qualification contemplated by this section and shall from time to time amend or supplement each applicable registration statement, preliminary prospectus, final prospectus, application, document and communication for such period of time as shall be required to permit the Purchaser to complete the offer and sale of the Shares covered thereby.
(e) In the event of a registration pursuant to the provisions of this section, Ethema shall furnish to the Purchaser such reasonable number of copies of the registration statement and of each amendment and supplement thereto (in each case, including all exhibits), of each prospectus contained in such registration statement and each supplement or amendment thereto (including each preliminary prospectus), all of which shall conform to the requirements of the Act and the rules and regulations thereunder, and such other documents, as the Purchaser may reasonably request to facilitate the disposition of the Shares included in such registration.
(f) Ethema shall notify the Purchaser within three (3) business days after such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed.
(g) Ethema shall advise the Purchaser within three (3) business days after it shall receive notice or obtain knowledge of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement, or the initiation or threatening of any proceeding for that purpose and within three (3) business days take action using its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued.
(h) Ethema shall within three (3) business days notify the Purchaser at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, would include an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the reasonable request of the Purchaser prepare and furnish to it such number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares or securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. The Purchaser shall suspend all sales of the Shares upon receipt of such notice from Ethema and shall not re-commence sales until they receive copies of any necessary amendment or supplement to such prospectus, which shall be delivered to the Purchaser within 30 days of the date of such notice from Ethema.
(i) If requested by the underwriter for any underwritten offering of Shares, Ethema and the Purchaser will enter into an underwriting agreement with such underwriter for such offering, which shall be reasonably satisfactory in substance and form to Ethema, Ethema’s counsel and the Purchaser’ counsel, and the underwriter, and such agreement shall contain such representations and warranties by Ethema and the Purchaser and such other terms and provisions as are customarily contained in an underwriting agreement with respect to secondary distributions solely by selling stockholders, including, without limitation, indemnities substantially to the effect and to the extent provided below.
(j) The rights of the Purchaser under this Section 5.8 shall apply equally to the filing by Ethema of an offering statement on Form 1-A under Regulation A promulgated under the Act and, if Ethema files such an offering statement instead of a registration statement, all references to (A) registration statement shall be deemed to be references to offering statement, (B) prospectus shall be deemed to be references to offering circular, and (C) effective date of a registration statement shall be deemed to be references to qualification date of an offering statement. The Purchaser’s rights under this Section 5.8 shall automatically terminate once the Purchaser has sold all of the Shares or all of the Shares may be resold by the Purchaser under Rule 144 of the Act without limitation as to the volume of Shares to be sold.
5.9 Legal Counsel Opinions.
(a) Upon the request of the Purchaser from to time to time, Ethema shall be responsible (at its cost) for promptly supplying to Ethema’s transfer agent and the Purchaser a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Underlying Securities by the Purchaser or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Underlying Securities are not then registered under the 1933 Act for resale pursuant to an effective registration statement). Should Ethema’s legal counsel fail for any reason to issue the Legal Counsel Opinion, the Purchaser may (at Ethema’s cost) secure another legal counsel to issue the Legal Counsel Opinion, and Ethema will instruct its transfer agent to accept such opinion. Ethema shall not impede the removal by its stock transfer agent of the restricted legend from any Common Stock certificate upon receipt by the transfer agent of a Rule 144 Opinion Letter. Ethema hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
5.10 Listing. Ethema will, so long as the Purchaser owns any of the Securities, maintain the listing and trading of its Common Stock on the OTC Pink or any equivalent replacement exchange or electronic quotation system and will comply in all respects with Ethema’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority, or FINRA, and such exchanges, as applicable, as well as with the SEC. Ethema shall promptly provide to the Purchaser copies of any notices it receives from the OTC and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
5.11 Information and Observer Rights
(a) As long as the Purchaser owns any Securities, Ethema covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by Ethema after the date hereof pursuant to the Exchange Act. As long as the Purchaser owns any Securities, if Ethema is not required to file reports pursuant to such laws, it will prepare and furnish to the Purchaser and simultaneously make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Securities under Rule 144. Ethema further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable the Purchaser to sell the Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144. If Ethema fails to remain current in its reporting obligations or to provide currently publicly available information in accordance with Rule 144(c) and such failure extends for a period of more than five Trading Days (the date which such five Trading Day-period is exceeded, being referred to as “Event Date”), then in addition to any other rights the Purchaser may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the information failure is cured, Ethema shall pay to the Purchaser an amount in cash, as partial liquidated damages and not as a penalty, equal to one percent (1.0%) of purchase price paid for the Securities held by the Purchaser at the Event Date; provided, however, that in no case will the aggregate amount of liquidated damages payable to a Purchaser pursuant to this Section 5.6 exceed ten percent (10%) of such Purchaser’s original investment pursuant to this Agreement. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an information failure (except in the case of the first Event Date).
(b) As long as the Purchaser owns any Securities, if the Purchaser notifies Ethema that it wishes to attend meetings of Ethema’s Board of Directors, Ethema shall invite a designated representative of the Purchaser to attend all meetings of Ethema’s Board of Directors in a nonvoting observer capacity and, in this respect, and subject to the Purchaser’s having informed Ethema that it wishes to attend, Ethema shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors at the same time and in the same manner as provided to such directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that Ethema reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between Ethema and its counsel or result in disclosure of trade secrets or a conflict of interest.
5.12 Confidentiality. The Purchaser agrees that the it will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) the terms and conditions of this Agreement or any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of Ethema’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 5.12 by the Purchaser), (b) is or has been independently developed or conceived by the Purchaser without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Purchaser by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that the Purchaser may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from the Purchaser, if such prospective purchaser agrees to be bound by the provisions of this Section 5.12; (iii) to any existing or prospective affiliate, partner, member, stockholder, or wholly owned subsidiary of the Purchaser in the ordinary course of business, provided that the Purchaser informs such person that such information is confidential and directs such person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, provided that the Purchaser notifies the Company within three (3) business days of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
5.13 Restrictions on Variable Rate Transactions. So long as Ethema shall have any obligation under this Note and unless approved by the Purchaser, Ethema and each Subsidiary shall not enter into an agreement to effect any sale of securities involving, or convert any securities previously issued under, a Variable Rate Transaction. The term “Variable Rate Transaction” means a transaction in which Ethema or any Subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Ethema or the Subsidiary, as the case may be, or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provisions, or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at-the-market offering”) whereby Ethema or any Subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). The Purchaser shall be entitled to obtain injunctive relief against Ethema and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
5.14 Participation Rights. In the event Ethema proposes to offer and sell its securities in an Equity Financing (defined below), the Purchaser shall have the right, but not the obligation, to participate in the purchase of the securities being offered in such Equity Financing up to an amount equal to the Principal Amount until the earliest of (i) the Maturity Date (as defined in the Note), (ii) the date that the Note and all accrued but unpaid interest shall have been repaid in full, and (iii) the closing date of an Equity Financing in which all, or any remaining portion, of the outstanding principal amount of the Note along with accrued but unpaid interest thereon shall have been converted, in full, into, and on the same terms as, the securities being offered in such Equity Financing (the “Participation Right”). For the avoidance of doubt, an Equity Financing shall mean Ethema’s sale of its Common Stock or any securities conferring the right to purchase Ethema’s Common Stock or securities convertible into, or exchangeable for (with or without additional consideration), Ethema’s Common Stock. In connection with each Participation Right, Ethema shall provide written notice to the Purchaser of the terms and conditions of the Equity Financing at least ten business days prior to the anticipated first closing of such Equity Financing (the “EF Notice”). If the Purchaser shall elect to exercise its Participation Right, it shall notify Ethema, in writing, of such election at least two business days prior to the anticipated closing date set forth in the EF Notice (the “Participation Notice”). In the event the Purchaser does not return a Participation Notice to Ethema within such two-business day period, the Participation Right granted hereunder shall terminate and be of no further force and effect; provided, however, that such Participation Right shall be reinstated if the anticipated closing referenced in the EF Notice does not occur prior to ten business days following the anticipated first closing date specified in such EF notice.
5.15 Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 5, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 4.3 of the Note.
5.16 Transfer Agent Instructions. Ethema shall issue irrevocable instructions to Ethema’s transfer agent to issue certificates, registered in the name of the Purchaser or its nominee, upon conversion of the Note, the Underlying Securities, in such amounts as specified from time to time by the Purchaser to Ethema in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that Ethema proposes to replace its transfer agent, Ethema shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to Ethema and Ethema. Prior to registration of the Underlying Securities under the Securities Act or the date on which the Underlying Securities may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 4.9 of this Agreement. Ethema warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5.16 will be given by Ethema to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of Ethema as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Purchaser upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note. Nothing in this Section shall affect in any way the Purchaser’s obligations and agreement set forth in Section 4.9 hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Purchaser provides Ethema, at the cost of Ethema, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Purchaser provides reasonable assurances that the Securities can be sold pursuant to Rule 144, Ethema shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Purchaser. Ethema acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, Ethema acknowledges that the remedy at law for a breach of its obligations under this Section 5.16 may be inadequate and agrees, in the event of a breach or threatened breach by Ethema of the provisions of this Section, that the Purchaser shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
5.17 Further Assurances. The Purchaser agrees and covenants that at any time and from time to time it will execute and deliver to the Company such further instruments and documents and take such further action as the Company may reasonably require within three (3) business days of any such request in order to carry out the full intent and purpose of this Agreement and to comply with state or federal securities laws or other regulatory approvals.
| 6. | Conditions to the Company’s Obligation to Sell |
The obligation of the Company hereunder to issue and sell the Note to the Purchaser at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
(a) The Purchaser shall have executed this Agreement and delivered the same to the Company.
(b) The Purchaser shall have delivered the Consideration in accordance with Section 1.2 above.
(c) The representations and warranties of the Purchaser shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Purchaser shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date
(d) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
| 7. | Conditions to The Purchaser’s Obligation to Purchase |
The obligation of the Purchaser hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Purchaser’s sole benefit and may be waived by the Purchaser at any time in its sole discretion:
(a) The Company shall have executed this Agreement and delivered the same to the Purchaser.
(b) The Company shall have delivered to the Purchaser the duly executed Note in such denominations as the Purchaser shall request and in accordance with Section 1.2 above.
(c) Intentionally Omitted.
(d) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Purchaser, shall have been delivered to and acknowledged in writing by Ethema’s Transfer Agent.
(e) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
(f) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
(g) No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the Exchange Act reporting status of the Company or the failure of the Company to be timely in its Exchange Act reporting obligations.
(h) Trading in the Common Stock on the OTCPINK shall not have been suspended by the SEC, FINRA or the OTCPINK.
(j) Ethema shall have delivered to the Purchaser (i) a certificate evidencing the formation and good standing of Ethema and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date and (ii) resolutions adopted by Ethema’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
| 8. | Miscellaneous |
8.1 Binding Agreement. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, expressed or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
8.2 Governing Law; Consent to Jurisdiction. This Agreement shall be governed by and construed under the laws of the State of New York, without giving effect to conflicts of laws principles. Each party to this Agreement hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in Rockland County, New York for the adjudication of any dispute hereunder or in connection with any transaction contemplated hereby, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof (certified or registered mail, return receipt requested) to such party at the address in effect for notices to it under this agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.
8.3 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
8.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
8.5 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the Company at 810 Andrews Avenue, Delray Beach, Florida 33483 to the attention of Shawn E. Leon, Chief Executive Officer (email: shawn@ethemahealth.com), and to Purchaser at the addresses set forth on the signature page to this Agreement or at such other addresses as the Company or Purchaser may designate by 10 days’ advance written notice to the other parties hereto.
8.6 Modification; Waiver. No modification or waiver of any provision of this Agreement or consent to departure therefrom shall be effective only upon the written consent of the Company and the Purchaser. Any provision of the Note may be amended or waived by the written consent of the Company and the Purchaser.
8.7 Expenses. The Company and the Purchaser shall each bear its respective expenses and legal fees incurred with respect to this Agreement and the transactions contemplated herein.
8.8 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power or remedy accruing to the Purchaser, upon any breach or default of the Company under the Subscription Documents shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach or default, or any acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. It is further agreed that any waiver, permit, consent or approval of any kind or character by Purchaser of any breach or default under this Agreement, or any waiver by any Purchaser of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in writing and that all remedies, either under this Agreement, or by law or otherwise afforded to the Purchaser, shall be cumulative and not alternative.
8.9 Entire Agreement. This Agreement and the Exhibits hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other party in any manner by any representations, warranties, covenants and agreements except as specifically set forth herein.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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COMPANY
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Ethema Health Corporation
By: ___________________ Name: Shawn E. Leon Title: ____________________________
Addiction Recovery Institute of America, LLC F/K/A Seastone Delray Healthcare, LLC
By: _____________________ Name: Shawn E. Leon Title: ____________________________
Address:
1590
South Congress
SHAWN E. LEON, an individual
___________________________
Address: 46 Fairway Heights Drive Thornhill, Ontario L3T3A9
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PURCHASER:
___________________________________
By: ____________________
Name: Joshua Bauman
Address: 378 Gatestone Blvd., Waterloo, Ontario N2T2J6
Schedules
Schedule 3.3 – Subsidiaries and Affiliates
Schedule 3.7
Schedule 3.9 - Capitalization
Schedule 3.10
Schedule 3.12 - Litigation
Schedule 3.15
Schedule 3.16 - Taxes
Exhibit A
Form of Convertible Promissory Note
(See Attached)
Exhibit B
(Intentionally Omitted)
Exhibit C
Form of Security and Pledge Agreement
(See Attached)
THIS NOTE HAS BEEN ISSUED WITH “ORIGINAL ISSUE DISCOUNT” FOR U.S. FEDERAL INCOME TAX PURPOSES. THE ISSUER WILL MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE: (1) THE ISSUE PRICE AND ISSUE DATE OF THE NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTE, (3) THE YIELD TO MATURITY OF THE NOTE, AND (4) ANY OTHER INFORMATION REQUIRED TO BE MADE AVAILABLE BY U.S. TREASURY REGULATIONS UPON RECEIVING A WRITTEN REQUEST FOR SUCH INFORMATION AT THE FOLLOWING ADDRESS: 1590 SOUTH CONGRESS WEST PALM BEACH FL 33406.
NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $110,000 Issue Date: September 14, 2020
Purchase Price: $100,000
Original Issue Discount: $10,000
SENIOR SECURED CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, ETHEMA HEALTH CORPORATION, a Colorado corporation, and ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC, a Florida limited liability company, and SHAWN E LEON, an individual (collectively, the “Borrower”), hereby promises to pay to the order of Joshua Bauman, or registered assigns (the “Holder”) the principal sum of $110,000 (the “Principal Amount”), together with interest on the unpaid Principal Amount at the rate of six and one-half percent (6.5%) per annum (the “Stated Rate”), on the dates set forth below or upon acceleration or otherwise, as set forth herein (the “Note”). The consideration to the Borrower for this Note is $100,000 (the “Consideration”). The Holder shall pay the Consideration within a reasonable amount of time after the full execution of the Note and all transactional documents related to this Note. Upon payment of the Consideration, the outstanding principal amount under this Note shall initially consist of the Consideration plus the OID (as defined below). The maturity date shall be twelve (12) months (the “Term”) from the Issue Date (the “Maturity Date”). The principal sum, as well as any accrued and unpaid interest and other fees shall be due and payable in accordance with the payment terms set forth in Article I herein. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of twenty four percent (24%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Consideration is paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into the Borrower’s common stock (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
This Note carries an original issue discount of $10,000 (the “OID”), to cover the Holder’s legal fees, accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $100,000.00, computed as follows: The Principal Amount minus the OID. The OID shall be added to the Principal Amount on a pro rata basis of the Purchase Price paid.
It is further acknowledged and agreed that the Principal Amount owed by Borrower under this Note shall be increased by the amount of all expenses incurred by the Holder relating to the conversion of this Note into shares of Common Stock. All such expenses shall be deemed added to the Principal Amount hereunder to the extent such expenses are paid by the Holder.
This Note shall be a senior secured obligation of the Borrower, with priority over all future Indebtedness (as defined below) of the Borrower as provided for herein. The obligations of the Borrower under this Note are secured pursuant to the terms of the following agreement of even date herewith: the security and pledge agreement (the “Security and Pledge Agreement”) by and among the Borrower, and certain subsidiaries and affiliates of the Borrower, and the Holder, and such security interest includes but is not limited to all of the assets of the Borrower and such subsidiaries and affiliates. In addition, Shawn E Leon agrees to personally guaranty and pledge his assets to secure this Note.
This Note is issued by the Borrower to the Holder pursuant to the terms of that certain Securities Purchase Agreement (the “Purchase Agreement”), dated as of the Issue Date but which may be executed following the closing of the Note. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Purchase Agreement. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the OTCQB (as defined in the Purchase Agreement).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following additional terms shall also apply to this Note:
ARTICLE I. PAYMENTS
| 1.1 | Monthly Payments. |
(a) Beginning on October 1, 2020, (the “Initial Monthly Payment Date”) and on the same day of each and every calendar month thereafter throughout the Term of this Note (the “Monthly Payment Dates”), Borrower shall make monthly payments under this Note to the Holder in the amounts provided in this Article I (each, a “Monthly Payment Amount”).
(b) The Monthly Payment Amount for the payment due on each Monthly Payment Date through and including the final Monthly Payment Date during the Term, is equal to the then accrued but unpaid interest on the unpaid principal balance of this Note.
1.2 Payment of Principal Amount. The principal sum of the Consideration, the OID, as well as any accrued and unpaid interest and other fees pursuant to this, shall be due and payable on the Maturity Date.
1.3 Payments from Future Funding Sources. The Borrower shall pay to the Holder on an accelerated basis, at the Holder’s discretion, any outstanding principal amount of the Note, along with accrued, but unpaid interest, from:
(a) Future Financing Proceeds – one hundred percent (100%) of the gross cash proceeds of any future financing of the Borrower, whether debt or equity (“Future Financing Proceeds”), in excess of one hundred thousand dollars ($100,000) in the aggregate, provided however, that in addition to any other terms pursuant to this Note, requiring notice to Holder and/or prior authorization from Holder, Borrower shall be required to provide notice to, and obtain approval from, the Holder, prior to entering into any agreement that would generate any amount of Future Financing Proceeds that are not being used to repay the Holder; and
(b) Other Future Receipts – all net proceeds from any sale of assets of the Borrower or any of its subsidiaries or receipt by Borrower or any of its subsidiaries of any tax credits.
1.4 Remaining payments. Any and all remaining unpaid principal of and interest on this Note shall be due and payable in full on the Maturity Date.
1.5 Prepayment. Unless an Event of Default shall occur, Borrower shall have the right to prepay the Note a follows: (i) at any time within six (6) months from the Issuance Date by making a payment to Lender equal to 115% of all amounts due under the Note, including the outstanding Principal Amount, plus any accrued and unpaid interest, plus all unpaid interest through the remainder of the Term; and (ii) at any time after six (6) months from the Issuance Date but prior to the Maturity Date by making a payment to Lender equal to 130% of all amounts due under the Note, including the outstanding Principal Amount, plus any accrued and unpaid interest, plus all unpaid interest through the remainder of the Term.
ARTICLE II. CONVERSION RIGHTS
2.1 Conversion Right.
(a) The Holder shall have the right at any time after six (6) months from the Issue Date, at the Holder’s option, to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified (each, a “Conversion Share”) at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein, and, if applicable, net of any shares that may be deemed to be owned by any person not affiliated with the Holder who has purchased a portion of the Note from the Holder) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived (up to a maximum of 9.99%) by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 2.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) the Holder’s expenses relating to a Conversion, which expenses shall be set at $2,000 for the Holder’s initial conversion of the Note and for each of any subsequent conversions, the lesser of $1,000 or 25% of the actual conversion cost incurred by Holder, plus (5) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 2.3 and 2.4(g) hereof.
(b) Notwithstanding the preceding paragraph, the Borrower shall have the right to buy the shares issued pursuant to a Conversion (“Conversion Buy Out”) by providing notice to Holder of such desire (the “Conversion Buy Out Notice”), and by making a cash payment to the Holder within 1 day of receiving the Conversion Notice (the “Original Conversion Notice”), equal to the total value of the shares that Holder would have received pursuant to the Conversion. If the Borrower sends the Holder a Conversion Buy Out Notice, but fails to make the required payment within 1 day of receiving the Original Conversion Notice, then (i) Borrower shall be barred from exercising the Conversion Buy Out on future Conversions and (ii) in the event that the stock price has declined, then an amount equal to the difference between the stock price at the time of the Original Conversion Notice and the lower current stock price multiplied by the number of shares issued pursuant to the conversion shall be deducted from the conversion amount.
2.2 Conversion Price.
(a) Calculation of Conversion Price. The Conversion Price shall be, at the option of the Holder, (i) $0.001 (the “Fixed Conversion Price”) (subject to adjustment as further described herein) or (ii) 80% (the “Conversion Price Discount”) multiplied by the price per share paid by the investors in a subsequent Equity Financing (as defined herein) of the Borrower, provided, however, that after 6 months, the Conversion Price shall be equal to the lowest of: (1) the Fixed Conversion Price, (2) 60% multiplied by the lowest trade price of the Common Stock during the twenty one (21) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion, and (3) a discount to market based on subsequent financings with other investors. For the avoidance of doubt, an “Equity Financing” shall mean the Borrower’s sale of its Common Stock or any securities conferring the right to purchase the Borrower’s Common Stock or securities convertible into, or exchangeable for (with or without additional consideration), the Borrower’s Common Stock.
(b) Fixed Conversion Price Adjustments.
(1) Stock Dividends and Stock Splits. If the Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock; (ii) subdivides outstanding shares of Common Stock into a larger number of shares; or (iii) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Borrower, then the Fixed Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Borrower) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event.
(2) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Borrower effects any merger or consolidation of the Borrower with or into another person, (ii) the Borrower effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Borrower or another person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (iv) the Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of 1 share of Common Stock (the “Alternate Consideration”). For purposes of any such conversion, the determination of the Fixed Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of 1 share of Common Stock in such Fundamental Transaction, and the Borrower shall apportion the Fixed Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.
(3) Anti-dilution Adjustment. If at any time while this Note is outstanding, the Borrower sells or grants (or has sold or granted, as the case may be) any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or has sold or issued, as the case may be, or announces any sale, grant, or any option to purchase, or other disposition), any Common Stock or other securities convertible into, exercisable for, or that would otherwise entitle the holder the right to acquire shares of Common Stock at an effective price per share that is lower than the then Fixed Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Fixed Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance, and the Base Conversion Price shall then be adjusted to equal the lowest of such issuance price), then the Fixed Conversion Price shall be reduced to a price equal the Base Conversion Price as it may be adjusted as provided for above. Such adjustment shall be made whenever such Common Stock or other securities are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 2.2(b)(4) in respect of an Exempt Issuance. For purposes of this Section 2.2(b)(4) an “Exempt Issuance” means an issuance of shares (i) reserved as employee shares described under the Borrower’s option pool now or created in the future, (ii) shares issued for consideration other than cash pursuant to a merger, consolidation, acquisition, or similar business combination approved by the Borrower’s Board of Directors (the “Board”), provided, however, that any such issuance shall only be to a person (or to the equity holders of a person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Borrower and shall provide to the Borrower additional benefits in addition to the investment of funds, but shall not include a transaction in which the Borrower is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (iii) shares issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by the Board; or (iv) shares with respect to which the Holder waives its anti-dilution rights granted hereby. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 2.2(b)(4) shall be calculated as if all such securities were issued at the initial closing.
(4) Notice to the Holder. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 2.2(b), the Borrower shall within two (2) business days deliver to the Holder a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
2.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note and exercise of the Warrants. The Borrower is required at all times to have authorized and reserved seven (7) times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Note in effect from time to time, which, if cannot be determined shall be estimated in good faith by the Borrower) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent by letter, a copy of which is attached hereto as Exhibit B to issue certificates for the Common Stock issuable upon conversion of this Note and exercise of the Warrants, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 4.2 of the Note.
2.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 2.1, this Note may be converted by the Holder in whole or in part, at any time on or after the Maturity Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 2.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 2.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article II, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 2.1 and in this Section 2.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 2.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder, and as such, the Borrower will not take any actions to hamper, delay or prevent any Holder conversion of the Note. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 2.4(g) are justified.
2.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 2.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 4.2 of the Note.
2.6 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 2.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 2.3) for the Borrower’s failure to convert this Note.
2.7 Notice to Borrower. Holder shall endeavor in good faith to provide notice to Borrower of each Conversion as well as any communications to the Transfer Agent pursuant to paragraph 2.3 above. Such notice shall be provided via email and is not subject to the requirements of paraph 5.2 below. The absence of any notice as described in this paragraph 2.7, shall not in any way delay or invalidate a Conversion nor delay or invalidate any instruction to the Transfer Agent pursuant to paragraph 2.3 above.
ARTICLE III. RANKING, CERTAIN COVENANTS AND POST CLOSING OBLIGATIONS
3.1 Intentionally Omitted.
3.2 Intentionally Omitted.
3.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions that comply with Section 3.7 below.
3.4 Restrictions on Variable Rate Transactions. So long as the Borrower shall have any obligation under this Note and unless approved by the Holder, the Borrower and each subsidiary shall not enter into an agreement to effect any sale of securities involving, or convert any securities previously issued under, a Variable Rate Transaction. The term “Variable Rate Transaction” means a transaction in which the Borrower or any subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of Common Stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Borrower or the subsidiary, as the case may be, or the market for the Common Stock, other than pursuant to a customary “weighted average” anti-dilution provisions, or (ii) enters into any agreement (including, without limitation, an “equity line of credit” or an “at-the-market offering”) whereby the Borrower or any subsidiary may sell securities at a future determined price (other than standard and customary “preemptive” or “participation” rights). The Holder shall be entitled to obtain injunctive relief against the Borrower and its Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
3.5 Restrictions on Certain Transactions. So long as the Borrower shall have any obligation under this Note and unless approved in writing by the Holder (which such approval not to be unreasonably withheld), the Borrower shall not directly or indirectly: (a) change the nature of its business; (b) sell, divest, change the structure of any material assets of the Borrower or any subsidiary other than in the ordinary course of business; (c) accept Merchant-Cash-Advances in which it sells future receivables at a discount, any other factoring transactions, or similar financing instruments or financing transactions; or (d) Enter into a borrowing arrangement where the Company pays an effective APR greater than 15%
3.6 Sale of Assets; Issuance of Equity or Debt. Should Borrower sell any assets, issue any equity or debt, Borrower shall use 100% of the proceeds of any such sale to repay the Note, provided however that with regards to the issuance of securities of the Borrower, this obligation shall be limited pursuant to Section 1.3(a) hereinabove,.
3.7 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares; except for the repurchase of shares at a nominal price in connection with rights under an agreement with an employee or consultant of the Borrower whose shares have been forfeited as a result of such employee or consultant’s ceasing to provide services to the Borrower.
3.8 Use of Proceeds. Acquisition of a drug rehab facility
3.9 Ranking and Security. Except as listed in Schedule 3.9 attached hereto, the obligations of the Borrower under this Note shall rank senior with respect to any and all Indebtedness incurred as of or following the Issue Date. The obligations of the Borrower under this Note are secured pursuant to the Security and Pledge Agreement. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any subsidiary or affiliate) incur or suffer to exist or guarantee any Indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder. As used herein, the term “Indebtedness” means (a) all indebtedness of the Borrower for borrowed money or for the deferred purchase price of property or services, including any type of letters of credit, but not including deferred purchase price obligations in place as of the Issue Date or obligations to trade creditors incurred in the ordinary course of business, (b) all obligations of the Borrower evidenced by notes, bonds, debentures or other similar instruments, (c) purchase money indebtedness hereafter incurred by the Borrower to finance the purchase of fixed or capital assets, including all capital lease obligations of the Borrower which do not exceed the purchase price of the assets funded, (d) all guarantee obligations of the Borrower in respect of obligations of the kind referred to in clauses (a) through (c) above that the Borrower would not be permitted to incur or enter into, and (e) all obligations of the kind referred to in clauses (a) through (d) above that the Borrower is not permitted to incur or enter into that are secured and/or unsecured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured and/or unsecured by) any lien or encumbrance on property (including accounts and contract rights) owned by the Borrower, whether or not the Borrower has assumed or become liable for the payment of such obligation.
3.10 Intentionally Omitted
3.11 Intentionally Omitted
3.12 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note, then (i) the Borrower shall notify the Holder of such additional or more favorable term within three (3) business days of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 3.12). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage. If Holder elects to have the term become a part of the transaction documents with the Holder, then the Borrower shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Holder (the “Acknowledgment”) within three (3) business days of Borrower’s receipt of request from Holder (the “Adjustment Deadline”), provided that Borrower’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby.
ARTICLE IV. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article IV (each, an “Event of Default”) shall occur:
4.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
4.2 Failure to Reserve Shares. The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 2.3 of this Note) fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within five (5) business days of a demand from the Holder, either in cash or as an addition to the balance of the Note, and such choice of payment method is at the discretion of the Borrower.
4.3 Breach of Covenants. The Borrower, or the relevant related party, as the case may be, breaches any material covenant, post-closing obligation or other material term or condition contained in this Note, or in the related Purchase Agreement, Security and Pledge Agreement, Affidavit of Confession of Judgment, Transfer Agent Letter, Term Sheet or any other collateral or non-collateral documents (together, the “Transaction Documents”) and such breach continues for a period of ten (10) days.
4.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note and the other Transaction Documents.
4.5 Receiver or Trustee. Borrower or any subsidiary of Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
4.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $25,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder.
4.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against Borrower or any subsidiary of Borrower. With respect to any such proceedings that are involuntary, Borrower shall have a forty five (45) day cure period in which to have such involuntary proceedings dismissed.
4.8 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
4.9 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
4.10 Maintenance of Assets. The failure by Borrower to maintain any intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future), to the extent that such failure would result in a material adverse condition or material adverse change in or affecting the business operations, properties, condition (financial or otherwise) or prospects of the Borrower or any of its subsidiaries (a “Material Adverse Effect”).
4.11 Financial Statement Restatement. The Borrower restates any financial statements filed by the Borrower with the Securities and Exchange Commission (the “SEC”) for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.
4.12 Failure to Execute Transaction Documents or Complete the Transaction. The failure of the Borrower to execute any of the Transaction Documents or to complete the transaction for the full Principal Amount of the Note, as contemplated by the Purchase Agreement. The Borrower acknowledges that there are additional documents that need to be executed and agrees to execute these post-closing at the request of the Holder.
4.13 Replacement of Transfer Agent. In the event that the Borrower appoints a transfer agent and thereafter replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
4.14 Illegality. Any court of competent jurisdiction issues an order declaring this Note, any of the other Transaction Documents or any provision hereunder or thereunder to be illegal.
4.15 Delisting of Common Stock. If at any time on or after the date in which the Borrower’s Common Stock is listed or quoted on the OTC Pink or an equivalent U.S. replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT, the Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTC Pink or an U.S. equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.
4.16 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings), and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act. Notwithstanding the foregoing, the Company shall have a grace period of two (2) weeks from the Effective date, during which time the failure to comply with this Section 4.6 shall not be deemed an Event of Default.
4.17 DTC “Chill.” The DTC places a “chill” (i.e. a restriction placed by DTC on one or more of DTC’s services, such as limiting a DTC participant’s ability to make a deposit or withdrawal of the security at DTC) on any of the Borrower’s securities.
4.18 DWAC Eligibility. In addition to the Event of Default in Section 3.16, the Common Stock is otherwise not eligible for trading through the DTC’s Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs.
4.19 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, with the exception of the Series N Noteholders, who are currently in default, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other financial instrument, including but not limited to all promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder or any other 3rd party (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, that results in a Material Adverse Effect shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.
4.20 Variable Rate Transactions. Without the prior approval of the Holder, the Borrower (i) enters into a Variable Rate Transaction (as defined below) (ii) issues shares of Common Stock (or convertible securities or purchase rights) pursuant to an equity line of credit of the Borrower or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future) or (iii) adjusts downward the “floor price” at which shares of Common Stock (or convertible securities or purchase rights) may be issued under an equity line of credit or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future).
4.21 Other Prohibited Transactions. Borrower enters into certain transactions prohibited in sections 3.5, 3.6, and 3.7.
4.22 Remedies Upon Default.
(a) Upon the occurrence of any Event of Default specified in this Article IV, (provided however, that with regard to the Events of Default in Sections 4.1, 4.2, 4.3, 4.5, 4.10, 4.12, 4.15, 4.16, 4.17, 4.18, 4.19, such event shall be deemed to occur only if such default remains uncured after five (5) days,) (i) interest shall accrue at the Default Interest rate; (ii) this Note shall become immediately due and payable, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower, and the Borrower shall pay to the Holder, an amount (the “Default Amount”) equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment, together with all costs, including, without limitation, legal fees and expenses, of collection; (iii) the Borrower shall promptly assign all Borrower receivables to the Holder; (iv) the Holder shall be entitled to exercise all other rights and remedies available at law or in equity, including, without limitation, those set forth in the Related Documents. Upon an Event of Default, in addition to other remedies set forth herein, a liquidated damages charge equal to 25% of the outstanding Principal Amount will be assessed and will become immediately due and payable to the Holder, either in form of a cash payment or as an addition to the balance due under the Note. From and during the continuance of an Event of Default interest shall accrue hereunder at a rate equal to the lesser of 24% and the maximum legal rate.
(b) Intentionally Removed
ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
5.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
ETHEMA HEALTH CORPORATION
1590 South Congress
Palm Springs, FL 33403
Attn: Shawn E. Leon, CEO
e-mail: shawn@ethemahealth.com
with a copy to:
Shawn Leon
46 Fairway Heights Drive
Thornhill, Ontario L3T3A9
If to the Holder:
Joshua Bauman
378 Gatestone Blvd.,
Waterloo, Ontario
N2T 2J6
5.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act).
5.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
5.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts located in Rockland County, New York. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documents by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
5.6 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
5.7 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
5.8 Optional Redemption. Notwithstanding anything to the contrary contained in this Note, the Borrower may redeem any amount outstanding under this Note, prior to the Maturity Date, by making a payment to the Holder of an amount in cash equal to (i) 115% of the outstanding principal amount being redeemed under the Note, plus all unpaid interest thereon, if the redemption is effected prior to the 181st day following the Issue Date, and (ii) 130% of the outstanding principal amount being redeemed under the Note, plus all unpaid interest thereon, if the redemption is effected prior to Maturity Date but following the 180th day following the Issue Date.
5.9 Usury. To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Borrower under this Note for payments which under New York law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under New York law in the nature of interest that the Borrower may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by New York law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Holder with respect to indebtedness evidenced by this Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Borrower, the manner of handling such excess to be at the Holder’s election.
5.10 Section 3(a)(10) Transactions. If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act, then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.
5.11 Intentionally Omitted.
[signature page to follow]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 14, 2020.
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ETHEMA HEALTH CORPORATION
By: _________________ Name: Shawn E. Leon Title: Chief Executive Officer
ADDICTION RECOVERY INSTITUTE OF AMERICA, LLC F/K/A SEASTONE DELRAY HEALTHCARE, LLC
By: ________________ Name: Shawn E. Leon Title: Chief Executive Officer
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SHAWN E. LEON, an individual
___________________________
EXHIBIT A -- NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of ETHEMA HEALTH CORPORATION, a Colorado corporation (the “Borrower”) according to the conditions of the senior secured convertible note of the Borrower dated as of June ___, 2020 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).
Name of DTC Prime Broker: Account Number:
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
__________________________________________
__________________________________________
e-mail: ___________________
Date of Conversion:
Applicable Conversion Price: $ Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Note: Amount of Principal Balance Due remaining
Under the Note after this conversion:
_________________________________________________
By:_________________ Name: _________________ Title: ______________ Date: _______________
EXHIBIT B – TRANSFER AGENT IRREVOCABLE RESERVE LETTER
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of September 14, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and JOSHUA BAUMAN (“Bauman” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
B. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $300,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
C. WHEREAS, pursuant to a Note and related Securities Purchase Agreements dated September 14, 2020 (the “Note”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 20% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Note. The 20% share will be based on a total of $400,000 in total advanced under that Note.
D. NOW THEREFORE, in fulfillment of the foregoing agreement in the Note, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $100,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $400,000.00.
2. Transferor hereby grants an option to Transferee to purchase 500,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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Transferor:
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Transferee:
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Ethema Health Corporation
By: ______________________________ Name: ___________________________ Title: ____________________________
Address: _________________________
_________________________
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Joshua Bauman
Address: ________________________
_________________________
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AMENDMENT #1 TO THE CONVERTIBLE PROMISSORY NOTE
ISSUED ON SEPTEMBER 14, 2020
THIS AMENDMENT #1 TO THE CONVERTIBLE PROMISSORY NOTE ISSUED ON September 14, 2020 (the “Amendment”) is entered into as of October 31, 2020 (the “Effective Date”), by and between Ethema Health Corporation, a Colorado corporation (the “Company”), and Joshua Bauman (the “Holder”) (collectively the “Parties”).
BACKGROUND
A. The Company and Holder are the parties to that certain convertible promissory
note originally issued by the Company to the Holder on September 14, 2020in the original principal amount of $110,000.00 (the “Note”);
B. The Holder has advanced additional funds to the Company in the principal amount of $25,000.00 on or about October 12, 2020.
B. The Parties desire to amend the Note as set forth expressly below.
NOW THEREFORE, in consideration of the execution and delivery of the Amendment and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1. The Parties agree that the face amount of the Note will increase from $110,000.00 to $137,500.00 and all other terms of the note will remain the same.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first
above written.
| Ethema Healthcare Corporation | Joshua Bauman | |||||||
| By: __________________________________ __________________________________ | ||||||||
| Name: Shawn Leon | ||||||||
| Title: Chief Executive Officer | ||||||||
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of October 29, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and JOSHUA BAUMAN (“Bauman” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, this Stock Option Agreement cancels and replaces the Stock Option Agreement Dated September 14, 2020 between Ethema and Bauman.
B. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
C. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $300,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
D. WHEREAS, pursuant to a Note and related Securities Purchase Agreements dated September 14, 2020 (the “Note”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 20% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Note. The 20% share will be based on a total of $400,000 in total advanced under that Note.
E. NOW THEREFORE, in fulfillment of the foregoing agreement in the Note, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $100,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $400,000.00.
2. Transferor hereby grants an option to Transferee to purchase 500,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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Transferor:
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Transferee:
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Ethema Health Corporation
By: _____________________________ Name: ___________________________ Title: ____________________________
Address: ________________________
_________________________
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Joshua Bauman
Address: ________________________
_________________________
|
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of July 10, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and LEONOITE CAPITAL LLC, a Delaware Limited Liability Company (“Leonite” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
B. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $300,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
C. WHEREAS, pursuant to a series of Notes and related Securities Purchase Agreements each dated on or after July 12, 2020 (collectively, the “Notes”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 20% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Notes. The 20% share will be based on a total of $400,000 in total advanced under that Notes.
D. NOW THEREFORE, in fulfillment of the foregoing agreement in the Notes, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $200,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $400,000.00.
2. Transferor hereby grants an option to Transferee to purchase 2,000,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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COMPANY:
|
|
American Treatment Holdings, Inc.
By: _____________________________ Name: ___________________________ Title: ____________________________
Address: _________________________
_________________________
|
This STOCK OPTION AGREEMENT (the “Agreement”) is made as of October 29, 2020 by and between ETHEMA HEALTH CORPORATION, a Colorado corporation (“Ethema” or “Transferor”), and LEONOITE CAPITAL LLC, a Delaware Limited Liability Company (“Leonite” or the “Transferee”). The Transferor and the Transferee are referred to herein each as a “Party” and collectively, the “Parties.”
Recital
A. WHEREAS, this Stock Option Agreement cancels and replaces the Stock Option Agreement Dated July 12, 2020 between Ethema and Leonite.
B. WHEREAS, American Treatment Holdings, Inc., a Florida corporation (“ATHI”) owns 100% of the membership interest in Evernia Health Services, LLC, a Florida limited liability company (“Evernia”), which operates drug rehabilitation facilities.
C. WHEREAS, pursuant to an agreement between ATHI and Ethema, Ethema has agreed to lend ATHI up to $500,000.00 and once Ethema has lent that amount of money to ATHI , ATHI has agreed to apply for a change of ownership so that it can sell 10,200,000 shares of ATHI to Ethema.
D. WHEREAS, pursuant to a series of Notes and related Securities Purchase Agreements each dated on or after July 12, 2020 (collectively, the “Notes”), Ethema agreed that after it acquires the shares of ATHI, it would sell to Transferee, an amount of shares equal to 30% the total outstanding shares of ATHI (the “Transferred Shares”), with the Transferee receiving a percentage of the Transferred Shares equal to the percentage of the total amount actually advanced by Transferee under the Notes. The 20% share will be based on a total of $600,000 in total advanced under that Notes.
E. NOW THEREFORE, in fulfillment of the foregoing agreement in the Notes, and in consideration of the promises herein made to one another, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties are executing this Agreement, to give Transferee an option to purchase the Transferred Shares pursuant to the terms and conditions below:
Agreement
1. The Parties hereby agree and acknowledges that Transferee has advanced under the Note the sum of $300,000.00 and that the total amount advanced by Transferee and Other Transferees collectively under the Note shall not exceed $600,000.00.
2. Transferor hereby grants an option to Transferee to purchase 3,000,000 shares of ATHI for a period of 5 years (the “Option”), at a price of $0.0001 per share.
3. Transferee agrees and acknowledges that all shares received pursuant to this Agreement are subject to the rights, privileges, and obligations of the Shareholder Agreement that shall be executed by the shareholders of ATHI at the time of the sale of the shares.
4. Transferee agrees that for a period of 5 years from the date hereof, all voting rights of all optioned shares or shares received pursuant to this Agreement shall be assigned to Ethema.
5. The Parties agree that (a) Transferee shall share in all distributions to shareholders on an as exercised basis and (b) upon such time that Transferee receives distributions in the aggregate from ATHI equal to the amount that Transferee advanced under the Note, (i) the remaining amount of shares exercisable pursuant to the Option shall be reduced by half, and (ii) half of any shares held as a result of exercising the option shall be returned to the Ethema.
6. In no event shall the Transferee be entitled to acquire an amount of Commons Shares through the exercise of the Option, of which the sum of (1) the number of Common Shares beneficially owned by the Transferee and its affiliates (other than Common Shares which may be deemed beneficially owned through the ownership of the unexercised portion of the Option) and (2) the number of Common Shares transferable to Transferee upon the exercise of the portion of this Option with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Transferee and its affiliates of more than 9.99% of the outstanding Common Shares.
7. The Parties agree that the shares transferrable to or acquired by Transferee pursuant to this Agreement will be held in escrow by an escrow agent until the later of (a) the change of ownership is approved by the Florida Department of Children and Families or (b) the shares are acquired by Transferee.
[Signature page follows]
In Witness Whereof, the parties have executed this Securities Purchase Agreement as of the date first written above.
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COMPANY:
|
|
American Treatment Holdings, Inc.
By: _____________________________ Name: ___________________________ Title: ____________________________
Address: _________________________
_________________________
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