Document:

AGREEMENT

 

THIS AGREEMENT, dated April, 6th 2009, is made by and among INVERSE TECHNOLOGY CORPORATION, a Delaware corporation, having a place of business at 5540 South Street, Suite 208, Lincoln, Nebraska 68506, United States of America, (hereinafter referred to as  "INVERSE"); KINETECS, INC., a Nebraska corporation, having a place of business at 5540 South Street, Suite 208, Lincoln, Nebraska, 68506, United States of America (hereinafter referred to as “KINETECS”)(INVERSE and KINETECS collectively referred to herein as “LICENSORS”); and FORCE TEK ENTERPRISES, LLC, a limited liability company existing under the laws of the Commonwealth of Pennsylvania having a place of business at 1005 Breezewood Drive, Cecil, Pennsylvania 15317, United States of America  (hereinafter referred to as "LICENSEE").

  

ARTICLE I

PREMISES

WHEREAS, LICENSORS and/or LICENSORS’ officers, directors and shareholders own or otherwise control certain United States and foreign patents and patent applications for, and in respect of, FORCE TECHNIQUE, as defined in Article II, Section 1(2); and

WHEREAS, LICENSORS own or otherwise control certain proprietary ideas, KNOW-HOW (as defined in Article II, Section 1(5) below), formulations and trade secrets relating to said FORCE TECHNIQUE; and

WHEREAS, LICENSEE desires to have the exclusive rights to design, develop, make or have made, use, market, sell or offer for sale, modify, lease, import and license others to design, develop, make or have made, use, market, sell or offer for sale, modify, lease and import video gaming, sports training, occupational therapy, military training, personal conditioning and space exploration equipment, together with any derivatives thereof, incorporating FORCE TECHNIQUE and to further develop and to commercialize the FORCE TECHNIQUE through the exclusive control and use of LICENSORS’ United States and foreign patents and patent applications for, and in respect of FORCE TECHNIQUE; rights of priority to certain unexamined inventions filed in patent applications for, and in respect of, such FORCE TECHNIQUE and right to file patent applications thereon; and proprietary ideas, technological know-how, formulations and trade secrets relating to said FORCE TECHNIQUE except for INVERSE’S FIELD OF USE;  and

 

  

  

  

WHEREAS, LICENSORS wish to provide LICENSEE with an exclusive license to design, develop, make or have made, use, market, sell or offer for sale, modify, lease, import and license others to design, develop, make or have made, use, market, sell or offer for sale, modify, lease and import video gaming, sports training, occupational therapy, military training, personal conditioning and space exploration equipment, together with any derivatives thereof, incorporating FORCE TECHNIQUE and to further develop and to commercialize FORCE TECHNIQUE through the exclusive control and use of LICENSORS’ United States and foreign patents and patent applications for, and in respect of FORCE TECHNIQUE; rights of priority to certain unexamined inventions filed in patent applications for, and in respect of, such FORCE TECHNIQUE and right to file patent applications thereon; and proprietary ideas, technological know-how, formulations and trade secrets relating to said FORCE TECHNIQUE, on the condition that INVERSE retain certain exclusive rights to manufacture and market existing equipment and procedures using FORCE TECHNIQUE in their current state of development.  Modifications of existing equipment and procedures and their uses within INVERSE’S FIELD OF USE shall not be considered deviations from their current state of development provided they do not introduce electronic sensing or electronic control of motion or resistance to motion or introduce control of multiple joints or introduce movement in three dimensions or introduce control of joints other than the knee joint, in which events INVERSE would have no claim with respect to any such modifications or the PROPRIETARY RIGHTS related thereto.

NOW, THEREFORE, in consideration of the following mutual promises and obligations, the parties agree as follows:

   

ARTICLE II

DEFINITIONS

Section 1.  Definitions

As used in this license:

 

(1)           "FAIR MARKET VALUE" means the price LICENSEE would realize from the sale of a product substantially identical to a LICENSED PRODUCT to an unaffiliated buyer in an arm's-length sale in the same country, in the same quantity and at the same time as the transaction subject to royalty; provided, however, that such FAIR MARKET VALUE shall not be lower than the direct costs and indirect expenses properly allocable to the sale, manufacture and distribution of such LICENSED PRODUCT.

(2)           “FORCE TECHNIQUE” shall mean a method and apparatus for controlling the force needed for motion at predetermined locations for limbs.

(3)           “FOREIGN PATENTS” shall mean Canadian patent 2,166,977 granted October 10, 2006; United Kingdom patent 0707467 issued June 1, 2005; German patent 69434390.0-08 issued June 1, 2005; Japanese patent 3,713,046 issued August 26, 2005; French patent 0707467, issued June 1, 2005; Australian patent 688,348 issued July 2, 1998, Australian patent 724,663, issued September 28, 2000; and Italian patent 0707467, issued August 23, 2005; together with any patents issued from European patent 07007467, issued June 1, 2005, and World patents WO1995/001769 and WO1997/000661 and any other non-United States patents in respect of FORCE TECHNIQUE belonging to LICENSORS not otherwise listed herein.

 

  

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(4)           “INVERSE’S FIELD OF USE” shall mean physical therapy, chiropractic and occupational therapy applications, which applications shall be defined by the treatment of disabilities and diseases through FORCE TECHNIQUE using the Protonics® Neuromuscular Device and ProtonicsTM Therapy Program, as more fully described in Schedule 1 hereto, in existence as of the date of this Agreement.  Modification in the Protonics® Neuromuscular Device and ProtonicsTM Therapy Program shall not be considered as taking the Protonics® Neuromuscular Device and ProtonicsTM Therapy Program out of INVERSE’S FIELD OF USE provided such modifications do not introduce electronic sensing or electronic control of motion or resistance to motion or introduce control of multiple joints or introduce movement in three dimensions or introduce control of joints other than the knee joint.

(5)           “KNOW-HOW” means information, inventions, ideas concepts, discoveries, procedures, techniques, processes, technology, technical documentation, designs, models, simulations, technological know-how, confidential, business-and-technical information, formulations, and trade secrets related to, or in respect of, FORCE TECHNIQUE other than U.S. PATENTS and FOREIGN PATENTS.

(6)           “LICENSABLE INVENTIONS” means any invention, whether developed by LICENSEE or any purchaser, licensee or sublicensee thereof, covered by one or more claims of PATENT RIGHTS or employing or derived from KNOW-HOW.

(7)           "LICENSED PRODUCTS" means any product, whether developed by LICENSEE or any purchaser, licensee or sublicensee thereof, incorporating or having been made with the use of one or more LICENSABLE INVENTIONS.

(8)           “LICENSEE’S FIELD OF USE" shall mean any and all fields of use other than INVERSE’S FIELD OF USE, including without limitation any and all physical therapy and healthcare applications based on KNOW-HOW developed on or after the date of this Agreement by either INVERSE or LICENSEE, FORCE TECHNIQUE and methods and applications in LICENSEE’S FIELD OF USE.

(9)           “NET PROCEEDS” shall mean the amount received by LICENSEE from the sale of LICENSED PRODUCTS sold by LICENSEE, less (1) payments made to customers for returns; (2) amounts paid by LICENSEE for components and materials used in manufacturing LICENSED PRODUCTS sold by LICENSEE; (3) shipping insurance and charges, if any; (4) duties, tariffs, and other customs charges; (5) sales, use, value added, and similar taxes, if any.

(10)         “PATENT RIGHTS” shall mean any and all rights relating to and stemming from the U.S. PATENTS, the FOREIGN PATENTS and any patent applications relating to FORCE TECHNIQUE already filed or to be filed by LICENSORS.

(11)         "PROPRIETARY RIGHTS" means any and all rights relating to and stemming from the PATENT RIGHTS and KNOW-HOW.

 

  

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(12)           The terms "sales", "sell", "sold" relating to sales by LICENSEE or any variation thereof, means any sale, transfer, lease or other conveyance of any LICENSED PRODUCT by LICENSEE for any purpose other than demonstration or test.  A LICENSED PRODUCT shall be considered sold upon receipt of payment therefore by LICENSEE from a bona fide purchaser.

(13)           “U.S. PATENTS” shall mean U.S. Patents 5,788,618 issued August 4, 1998; 5,976,063 issued November 2, 1999, 5,980,435 issued November 9, 1999; 5,954,621 issued September 21, 1999; U.S. patent applications 12/006,210 filed December 31, 2007; and 12/006,383 filed January 2, 2008, together with any other United States patents in respect of FORCE TECHNIQUE belonging to LICENSORS not otherwise listed herein.

(14)           “WINDFALL AGREEMENT" means an agreement that transfers rights to one or more LICENSABLE INVENTIONS to one or more entities other than INVERSE or LICENSEE.

(15)           “DEVELOPMENT COSTS” shall mean the costs incurred by LICENSEE in connection with the development of KNOW-HOW, LICENSABLE INVENTIONS and LICENSED PRODUCTS in LICENSEE’S FIELD OF USE, including without limitation, Frank Joutras’ base salary, amounts paid for prototype components and materials and fees paid to sub-contractors for time, materials, components and software costs incurred by such sub-contractors in the development of prototypes.

 

ARTICLE III

GRANTS OF LICENSES

Section 1.  GRANT OF LICENSE

LICENSORS hereby grant to LICENSEE and LICENSEE accepts from LICENSOR upon the terms and conditions herein specified an assignable, exclusive and transferable right to design, develop, make or have made, use, market, sell or offer for sale, modify, lease, import and license others to design, develop, make or have made, use, market, sell or offer for sale, modify, lease and import LICENSED PRODUCTS and to further develop and to commercialize the FORCE TECHNIQUE in LICENSEE’S FIELD OF USE through the exclusive control, use and application of LICENSORS’ U.S. PATENTS, FOREIGN PATENTS, PATENT RIGHTS, PROPRIETARY RIGHTS and KNOW-HOW.  Any and all LICENSED PRODUCTS, KNOW-HOW or patents developed by LICENSEE during the term of this Agreement shall be the exclusive property of LICENSEE and will inure to the benefit of LICENSEE so long as said patents are not within INVERSE’S FIELD OF USE and all other requirements of this Agreement remain in force and are treated in the same manner for purposes of this Agreement as though the patents had been obtained by LICENSORS.  LICENSOR retains the right to make modifications in Protonics® Neuromuscular Device and ProtonicsTM Therapy Program within INVERSE’S FIELD OF USE provided the modifications do not introduce electronic sensing or electronic control of motion or resistance to motion or introduce control of multiple joints or introduce movement in three dimensions or introduce control of joints other than the knee joint.

  

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Section 2. INVERSE’S FIELD OF USE

Notwithstanding the terms of Article III, Section 1 above, INVERSE shall retain sole and exclusive ownership of any and all PATENT RIGHTS, PROPRIETARY RIGHTS, KNOW-HOW and LICENSED PRODUCTS in INVERSE’S FIELD OF USE and shall have the exclusive right to make or have made, use, market, sell or offer for sale, lease, import and license others to make or have made, use, market, sell or offer for sale, lease and import LICENSED PRODUCTS in INVERSE’S FIELD OF USE.

Section 3. Scope of Rights

The rights granted to LICENSEE in this agreement shall extend to any and all LICENSED PRODUCTS, LICENSABLE INVENTIONS and KNOW-HOW developed by LICENSORS or LICENSEE within LICENSEE’S FIELD OF USE during the term of this Agreement, together with any and all KNOW-HOW, PATENT RIGHTS and patents related to or in respect of such LICENSED PRODUCTS, LICENSABLE INVENTIONS, KNOW-HOW, FORCE TECHNIQUE, generally, or the collection, creation, formation, design, development, manufacture, use, marketing, sale, modification, importation or licensing of any of any such LICENSED PRODUCTS, LICENSABLE INVENTIONS, PATENT RIGHTS, patents or KNOW-HOW developed by LICENSORS or LICENSEE within LICENSEE’S FIELD OF USE on or after the date hereof.

Section 4. Transfer of Rights

The grant of rights under Article III shall be fully transferable and assignable by LICENSEE.

 

ARTICLE IV

ROYALTIES, RECORDS AND REPORTS

Section 1.  License Fee

LICENSEE shall pay to INVERSE two hundred fifty thousand dollars ($250,000.00) within ten (10) days after execution of this agreement which shall be in addition to any royalty provided hereinafter.

  

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Section 2.  Royalty

Subject to the terms of Article VI, Section 1 below, LICENSEE shall pay a royalty to INVERSE equal to fifteen percent (15%) of the NET PROCEEDS from the sale of LICENSED PRODUCTS sold by LICENSEE.  LICENSEE shall require purchasers or licensees or any sub-licensees of LICENSEE of PROPRIETARY RIGHTS from LICENSEE to agree to this royalty payment except in the case of any WINDFALL AGREEMENTS that INVERSE elects to receive payment in lieu of royalties payable to INVERSE pursuant to Article XI of this Agreement and so long as PATENT RIGHTS remain in force.  The agreement between LICENSEE and a purchaser from LICENSEE of PROPRIETARY RIGHTS shall provide for payment of the royalty to INVERSE and this provision shall inure to the benefit of INVERSE and be enforceable by INVERSE against either LICENSEE or the purchaser from LICENSEE so long as PATENT RIGHTS remain in force.  The parties hereto shall act in good faith and use their respective reasonable best efforts to complete any sale or sublicense agreement with any future purchaser or sublicensee.

Section 3.  Records

  

LICENSEE shall keep full, true and accurate books of account containing all particulars which may be necessary for the purpose of showing the amount payable to INVERSE by way of royalty as aforesaid.  The books of account shall be kept at LICENSEE's principal place of business and the books of the supporting data therefore shall be open at all reasonable times for five (5) years following the end of the calendar year to which they pertain to the inspection of an independent certified public accountant retained by INVERSE for the purpose of verifying LICENSEE's royalty statement or LICENSEE's compliance in any respect with this license.

 

Section 4.  Reports

LICENSEE within thirty (30) days after the first day of January, April, July and October of each year, shall deliver to INVERSE a true and accurate report giving such particulars of the business conducted by LICENSEE during the preceding three (3) months under this license as are pertinent to an accounting for royalty under this license.

 

These shall include at least the following:

	
  

	
(1)

	
the period of time covered by the report;

	
  

	
(2)

	
identification of the LICENSED PRODUCTS made and sold during such period;

	
  

	
(3)

	
the total amount of LICENSED PRODUCTS made and sold during such period;

	
  

	
(4)

	
the NET PROCEEDS of the LICENSED PRODUCTS sold during such period; and

	
  

	
(5)

	
the computation of royalty thereon.

Simultaneously with the delivery of each report, LICENSEE shall pay to INVERSE the royalty accrued for the period covered by such report.  If no royalties are due on the LICENSED PRODUCTS, it shall be so reported.   LICENSEE shall require purchasers of PROPRIETARY RIGHTS from LICENSEE to agree to provide the same reports as described above except in the case of WINDFALL AGREEMENTS in which INVERSE elects to receive payment in lieu of royalties payable to INVERSE pursuant to Article IV, Section 2 of this Agreement.  Copies of such reports shall be provided to INVERSE by LICENSEE.

 

  

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Section 5.  Payments

Only one royalty shall be payable hereunder in respect of any LICENSED PRODUCT and such royalty shall be remitted quarterly together with the reports specified in Section 4 above.

ARTICLE V

SPONSORED RESEARCH

Section 1.  Reasonable Best Efforts

It is an obligation of the LICENSEE to undertake reasonable best efforts to development and market through LICENSEE or LICENSEE agreement with purchasers or licenses or sublicensees the FORCE TECHNIQUE in all areas of LICENSEE FIELD OF USE.  LICENSEE shall require purchasers or licensees or sublicensees of PROPRIETARY RIGHTS from LICENSEE to agree to use best efforts to develop and market the PROPRIETARY RIGHTS they purchase or license except in the case of WINDFALL AGREEMENTS in which INVERSE elects to receive payment in lieu of royalties payable to INVERSE pursuant to Article IV, Section 2 of this Agreement.

Section 2.  Work Statements

LICENSEE shall submit to INVERSE proposed development projects, if any.

Section 3.  Modification of Terms

INVERSE and LICENSEE agree that LICENSEE may make reasonable modifications to the terms of any and all development projects proposed to INVERSE by informing INVERSE of such modifications in writing with reasonable notice.

Section 4.  Reports

LICENSEE within thirty (30) days after the first day of January, April, July and October of each year, will prepare and send to INVERSE a written report on the progress of the work in commercializing LICENSABLE INVENTIONS conducted by LICENSEE or purchasers or licensees or sublicensees during the preceding three (3) months under this license.

These shall include at least the following:

	
  

	
(1)

	
the period of time covered by the report;

	
  

	
(2)

	
development projects upon which work was performed during such period;

	
  

	
(3)

	
the amount of money spent on each development project and an indication of what the money was spent on;

	
  

	
(4)

	
the total amount of money spent on development during the period;

  

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(5)

	
the LICENSED PRODUCTS put on the market during the period

 

ARTICLE VI

RIGHT OF FIRST REFUSAL

  

Section 1.  LICENSEE’s Request For License

LICENSEE may at any time during the term of this agreement develop LICENSED PRODUCTS in LICENSEE’S FIELD OF USE, whether through LICENSEE’s own efforts or through a sub-licensor, provided LICENSEE pays to INVERSE a royalty for sales of said LICENSED PRODUCTS as provided in Article IV, Section 2.

ARTICLE VII

TERM OF AGREEMENT

  

This agreement shall remain in full force and effect for the life of the last to expire LICENSABLE INVENTIONS unless terminated under Article VIII.

 

ARTICLE VIII

TERMINATION

This agreement may be terminated as follows:

	
  

	
(a)

	
If either party is in material breach of any of its obligations under this agreement, the other party may give notice of such breach to the defaulting party and request that the latter remedy the same.  If the party in breach fails to remedy said breach within 60 days after the date of notice, then this agreement may be terminated immediately by written notice from the complaining party.

	
  

	
(b)

	
INVERSE may terminate this agreement by written notice to take effect immediately upon receipt thereof by LICENSEE if LICENSEE is liquidated or shall become bankrupt, or if LICENSEE shall make an assignment for the benefit of creditors, or upon the appointment of a receiver of LICENSEE’s business or on the filing of a Petition in Bankruptcy, or upon a change in the controlling ownership of LICENSEE.

  

	
  

	
(c)

	
This agreement may be terminated by LICENSEE at any time after one year from the date of initial appointment of LICENSEE, upon 90 days' written notice.  In the event of termination under this Article VIII, no paid Licensing Fees, Royalties or Royalties owed to INVERSE are refundable.

 

  

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(d)

	
All accounts between the parties shall be settled within 30 days of the end of the quarter during which the agreement is terminated and shall be settled by way of quarterly report as set forth in Article IV, Section 4 above.

 

ARTICLE IX

OWNERSHIP OF TRADE SECRETS, KNOW-HOW AND INVENTIONS

Any and all LICENSED PRODUCTS and LICENSABLE INVENTIONS, together with any and all KNOW-HOW, PATENT RIGHTS and patents related to such LICENSED PRODUCTS, LICENSABLE INVENTIONS and FORCE TECHNIQUE, generally, and the collection, creation, formation, design, development, manufacture, use, marketing, sale, modification, importation or licensing of any of any such LICENSED PRODUCTS, LICENSABLE INVENTIONS, PATENT RIGHTS, patents or KNOW-HOW, developed by LICENSEE during the term of this Agreement shall be the exclusive property of LICENSEE and will inure to the benefit of LICENSEE.

Similarly, any and all LICENSED PRODUCTS and LICENSABLE INVENTIONS, together with any and all KNOW-HOW, PATENT RIGHTS and patents related to such LICENSED PRODUCTS, LICENSABLE INVENTIONS and FORCE TECHNIQUE, generally, or the collection, creation, formation, design, development, manufacture, use, marketing, sale, modification, importation or licensing of any of any such LICENSED PRODUCTS, LICENSABLE INVENTIONS, PATENT RIGHTS, patents or KNOW-HOW, developed by LICENSORS during the term of this Agreement shall be the exclusive property of LICENSORS and will inure to the benefit of LICENSORS; provided, however, that the rights granted to LICENSEE pursuant to this agreement shall extend to all of the foregoing in accordance with Article III, Section 3 above.

Notwithstanding the foregoing, if LICENSORS is unable, or unwilling to, file for additional U.S. or foreign patents based on KNOW-HOW and inventions developed during the term hereof, after a request in writing is presented to LICENSORS from LICENSEE that demonstrates the need and rationale for filing and pursuing additional U.S. and/or foreign patents, then LICENSEE shall have the right to use such KNOW-HOW and inventions to file additional U.S. and/or foreign patents to be assigned to LICENSEE, so long as rights to use said patents pending or granted are not within INVERSE’S FIELD OF USE and all other requirements of this Agreement remain in force, and shall be treated in the same manner for purposes of this Agreement as though the patents had been obtained by LICENSORS.

 

ARTICLE X

TERRITORY

The territory shall be worldwide.

 

  

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ARTICLE XI

WINDFALL AGREEMENT

If prior to developing a LICENSED PRODUCT, but in no event after the first year of this Agreement, LICENSEE enters into one or more WINDFALL AGREEMENTS, LICENSEE shall at the discretion of INVERSE either remit to INVERSE, in lieu of royalties pursuant to Article IV, Section 2 of this Agreement, fifty percent (50%) of any amounts received by LICENSEE pursuant to each such WINDFALL AGREEMENT after a one-time only recoupment by LICENSEE of DEVELOPMENT COSTS, or continue to receive royalties payable to INVERSE pursuant to Article IV, Section 2 of this Agreement from one or more entities other than INVERSE or LICENSEE who gained rights to one or more LICENSABLE INVENTIONS based on such WINDFALL AGREEMENT. The election by INVERSE to receive payment under any WINDFALL AGREEMENT or to continue receiving royalty payments as set forth herein shall be made in good faith and within a reasonable time afterreceipt by INVERSE of written notice from the LICENSEE of the proposed terms and conditions of any such pending sale or licensing transaction.  If the proposed terms and conditions of any such pending sale or licensing transaction, for which INVERSE has made an election, are changed, then INVERSE has the right at its sole discretion to change its election.

 

ARTICLE XII

SECRECY

Section 1.  All parties hereto recognize that the KNOW-HOW conveyed under this agreement is of a highly secret and confidential nature.  Accordingly, the parties hereto will not make any unauthorized disclosure of any such KNOW-HOW to third parties and will use its best efforts to prevent its employees from making any unauthorized disclosures.

Section 2. All parties hereto shall use at least the same standards for protecting the confidentiality of the KNOW-HOW conveyed under this agreement as it uses to protect its own trade secrets.

Section 3. All parties hereto hereby agree that all employees who are informed of the KNOW-HOW conveyed by this agreement or who are permitted in any to learn of such KNOW-HOW:  (a) will be identified to the other party; (b) will sign a copy of the appropriate agreement attached hereto as either Attachment A or Attachment B; and (c) will forward one such copy to the other party.

Section 4.  Upon termination of this agreement, each of the parties hereto shall return to the other any and all written documentation of KNOW-HOW belonging to the others and shall keep such KNOW-HOW confidential as trade secrets until such KNOW-HOW is in the public domain by written publications from the other or a third party; provided, however that each party shall retain sole ownership of the KNOW-HOW, LICENSED PRODUCTS, LICENSABLE INVENTIONS and patents, if any, developed by it during the term hereof.  Notwithstanding the foregoing, each party hereto shall retain sole possession of any and all written documentation of KNOW-HOW developed by such party.

  

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ARTICLE XIII

MISCELLANEOUS

Section 1. Nothing contained in this agreement shall be construed as:

	
  

	
(a)

	
requiring the filing of any additional patent applications nor the maintaining of any patent in force;

	
  

	
(b)

	
a warranty or representation by LICENSORS as to the validity or scope of any patent except that LICENSORS warrant that they are acting in good faith without fraud;

	
  

	
(c)

	
a warranty or representation that any manufacture, sale, lease or use hereunder will be free from infringement of patents owned by others;

	
  

	
(d)

	
an agreement to bring or prosecute actions or suits against third parties for infringement; or

	
  

	
(e)

	
conferring any right to use in advertising,  publicity or otherwise, any name, trade name or trademark, any contraction, abbreviation or simulation  thereof except as expressly stated herein.

Section 2. The construction and performance of this agreement shall be governed by the substantive laws of the Commonwealth of Pennsylvania.  The parties hereto agree to submit any controversy arising hereunder to the jurisdiction of the United States District Court for the Western District of Pennsylvania, Pittsburgh Division or to the Court of Common Pleas of Allegheny County, Pennsylvania.

Section 3. Any notice, request or statement hereunder shall be deemed to be sufficiently given when sent by registered mail addressed to LICENSEE or LICENSORS at the addresses hereinbelow specified or at such changed address as the addressee shall specify by written notice.

  

Section 4. Termination of this agreement under Article VII or Article VIII shall not affect the obligations of LICENSEE to pay INVERSE any royalty or other payments which may be due and unpaid at the date of termination, nor shall the same prejudice any other right of INVERSE under this agreement.  LICENSEE agrees not to manufacture or sell following the termination of this agreement any of LICENSED PRODUCTS developed by INVERSE prior to or during the term hereof, and if termination is for non-payment of Licensing Fees or Royalties by LICENSEE under Article VIII (a) or based on Article VIII (b) or Article VIII (c), then any and all LICENSED PRODUCTS, KNOW-HOW or patents derived from FORCE TECHNIQUE developed prior or during the term of this Agreement shall become the exclusive property of LICENSOR and will inure to the benefit of LICENSOR, except for LICENSABLE INVENTIONS that have already been developed and are being marketed within LICENSEE'S FIELD OF USE so long as all other requirements of this Agreement, including payment of Fees and Royalties, remain in force.

  

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Section 5. LICENSEE shall mark LICENSED PRODUCTS sold under this agreement with the legend, "Licensed under U.S. and Foreign Patents _______” (numbers shall be supplied by INVERSE upon request).

Section 6. The license hereunder shall be fully transferable and may be sublicensed without approval of INVERSE.

  

Section 7. Neither LICENSEE nor LICENSORS shall control the activities and operations of the other, each being an independent contractor and free agent, nor shall either have the right or authority to commit the other to any matter, cause or thing whatsoever, without prior written consent of the other, or to use the other's name in any way not specifically authorized by this agreement.  Moreover LICENSEE indemnifies LICENSORS against damages arising from LICENSEE's manufacture or sale of LICENSED PRODUCTS in suits for product liability brought by third parties.

Section 8.  Mutual Indemnification:  Each party to the contract agrees to indemnify and hold harmless the other for their respective actions and omissions under this Agreement. 

  

Section 9.  LICENSORS’ Representations and Warranties.  LICENSORS hereby represent and warrant that they alone and not their respective shareholders, directors, officers and employees, individually and collectively, possess all rights, title and interest in and to all of the intellectual property rights hereby being licensed to LICENSEE pursuant to this Agreement, including without limitation the Protonics® Neuromuscular Device and ProtonicsTM Therapy Program, the FOREIGN PATENTS and the U.S. PATENTS, free and clear from all liabilities, liens, restrictions and encumbrances of whatever nature and to the best of their individual and collective knowledge there exist no other claims or property rights to FORCE TECHNIQUE or any of the intellectual property rights conveyed to LICENSEE hereby.

 

ARTICLE XIV

NOTICES AND ADDRESSES

All notices, reports, and other communications required by this agreement (other than orders for the LICENSED PRODUCTS) shall be sent by first class mail, postage prepaid and return receipt requested, or telex, facsimile, or by courier, facsimile, or cable, addressed as follows:

 

  

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TO LICENSEE:

	
TO INVERSE:

	  	  
	
Force Tek Enterprises, LLC

	
Inverse Technology Corporation

	
Attn: Shannon Vissman

	
5540 South Street, Suite 208

	
1005 Breezewood Drive

	
Lincoln, NE 68506

	
Cecil, PA  15317

	
Fax: 402-438-2404

	
Fax:

	
  

	  	  
	  
	
TO KINETECS:

	  
	
C/O Inverse Technology Corporation

	
5540 South Street, Suite 208

	
Lincoln, NE 68506

	
Fax: 402-202-6145

Such addresses may be changed at any time by written first-class mail notice to the other party.  All notices shall be dated and be effective from the date of postmark, or transmission in the case of courier or facsimile messages.  Cables shall be presumed to have been received two days after dispatch.

 

ARTICLE XV

ATTACHMENTS

The following attachments are made a part of this agreement:

  

	
  

	
(1)

	
Schedule 1 – Protonics® Neuromuscular Device and ProtonicsTM Therapy Program

	
  

	
(2)

	
Attachment A – Confidential Disclosure Agreement – Inverse Technology Corp.

	
  

	
(3)

	
Attachment B – Confidential Disclosure Agreement – Force Tek Enterprises, LLC

	
  

	
(4)

	
Attachment C – Confidential Disclosure Agreement – Kinetecs, Inc.

 

  

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INVERSE TECHNOLOGY

CORPORATION

	 	FORCE TEK ENTERPRISES, L.L.C.
	
 

	
 

	
 

	 	 	 
	
Daniel N. Griepentrog

	  	
Shannon Vissman

	
Chief Executive Officer

	  	  
	  	  	
Title:

	  
	  	  	  
	
Date:

	  	  	
Date:

	  
	  	  	  
	
KINETECS, INC.

	  	  
	  	  	  
	 	 	 
	
By:

	  	  	  
	  	  	  
	
Title:

	  	  	  
	  	  	  	  
	
Date:

	  	
  

	  

  

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SCHEDULE 1

PROTONICS® NEUROMUSCULAR DEVICE and

PROTONICSTM THERAPY PROGRAM

  

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ATTACHMENT A

INVERSE TECHNOLOGY CORPORATION

CONFIDENTIAL DISCLOSURE AGREEMENT

  

I, __________________________________, residing at  __________________________, city of ________________, State of  __________________, have been informed that my employer, Force Tek Enterprises, LLC, is a recipient of certain know-how, formulations and trade secrets relating to equipment incorporating resistance devices for insertion into fixtures applied to body joints for treatment and rehabilitation of orthopedic injuries and disorders and training and recreational activities using interactive video presentations  and  processes for making the same (hereinafter referred to  as Trade Secrets) owned by Inverse Technology Corporation and Kinetecs, Inc.

  

I agree, in return for my continued employment in accordance with an agreement between my employer and Inverse Technology Corporation and Kinetecs, Inc., that:

	
  

	
1.

	
Trade Secrets, some of which may be the subject matter of certain patent applications or some portion of them, have been identified to me;

	
  

	
2.

	
I will not make any unauthorized disclosure of such Trade Secrets to third parties until such Information is published by Inverse Technology Corporation or Kinetecs, Inc., or by a third party; and

	
  

	
3.

	
This agreement inures to the benefit of Inverse Technology Corporation and Kinetecs, Inc., and Inverse Technology Corporation and Kinetecs, Inc., may enforce it as a party to it.

  

	
Date:

	  	  	
By:

	  
	  	  
	  	
Title:

	  	  
	 	 
	  	
Employer:  Force Tek Enterprises, LLC

 

  

16

  

 

ATTACHMENT B

FORCE TEK ENTERPRISES, LLC

CONFIDENTIAL DISCLOSURE AGREEMENT

 

I, __________________________________, residing at  __________________________, city of ________________, State of  __________________, have been informed that my employer,  Inverse Technology Corporation, is a recipient of certain know-how, formulations and trade secrets relating to equipment incorporating resistance devices for insertion into fixtures applied to body joints for treatment and rehabilitation of orthopedic injuries and disorders and training and recreational activities using interactive video presentations  and  processes for making the same (hereinafter referred to  as Trade Secrets) owned by Inverse Technology Corporation and Kinetecs, Inc..

  

I agree, in return for my continued employment in accordance with an agreement between my employer and Force Tek Enterprises, LLC and Kinetecs, Inc., that:

	
  

	
1.

	
Trade Secrets, some of which may be the subject matter of certain patent applications or some portion of them, have been identified to me;

	
  

	
2.

	
I will not make any unauthorized disclosure of such Trade Secrets to third parties until such Information is published by Inverse Technology Corporation, by Kinetecs, Inc., or by a third party; and

	
  

	
3.

	
This agreement inures to the benefit of Force Tek Enterprises, LLC and Kinetecs, Inc., and Force Tek Enterprises, LLC and Kinetecs, Inc., may enforce it as a party to it.

  

	
Date:

	  	  	
By:

	  
	  	  	  
	  	  	
Title:

	  	  	  
	 	 	 
	  	  	
Employer:

	  	
  

	
Inverse Technology Corporation

 

  

17

  

ATTACHMENT C

KINETECS, INC.

CONFIDENTIAL DISCLOSURE AGREEMENT

 

I, __________________________________, residing at  __________________________, city of ________________, State of  __________________, have been informed that my employer,  Kinetecs, Inc., is a recipient of certain know-how, formulations and trade secrets relating to equipment incorporating resistance devices for insertion into fixtures applied to body joints for treatment and rehabilitation of orthopedic injuries and disorders and training and recreational activities using interactive video presentations  and  processes for making the same (hereinafter referred to  as Trade Secrets) owned by Inverse Technology Corporation and Kinetecs, Inc.

  

I agree, in return for my continued employment in accordance with an agreement between my employer and Inverse Technology Corporation and Force Tek Enterprises, LLC, that:

	
  

	
1.

	
Trade Secrets, some of which may be the subject matter of certain patent applications or some portion of them, have been identified to me;

	
  

	
2.

	
I will not make any unauthorized disclosure of such Trade Secrets to third parties until such Information is published by Inverse Technology Corporation or Force Tek Enterprises, LLC, or by a third party; and

	
  

	
3.

	
This agreement inures to the benefit of Inverse Technology Corporation and Force Tek Enterprises, LLC, and Inverse Technology Corporation and Force Tek Enterprises, LLC, may enforce it as a party to it.

  

	
Date:

	  	  	
By:

	  
	  	  	  
	  	  	
Title:

	  	  	  
	 	 	 
	  	  	
Employer:  Kinetecs, Inc.

 

  

18Unassociated Document

SECURITIES PURCHASE AGREEMENT

 

SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of April 8, 2011, by and among First Corporation, a Colorado corporation, (the “Company”), and each of the Purchaser set forth on the signature pages hereto (the “Purchaser”).

 

WHEREAS:

 

A.           The Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “1933 Act”) and the rules and regulations promulgated by the United States Securities and Exchange Commission (the “SEC”) thereunder;

 

B.           Purchaser desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement, its 8% secured convertible notes of the Company, in the form attached hereto as Exhibit “A”, in an aggregate principal amount of up to Two Million ($2,000,000) (together with any note(s) issued in replacement thereof or as interest thereon or otherwise with respect thereto in accordance with the terms thereof, the “Notes”), convertible into shares of common stock, par value $.001 per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Notes.

 

C.           Purchaser wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Notes as is set forth immediately below its name on the signature pages hereto; and

 

NOW THEREFORE, the Company and the Purchaser hereby agrees as follows:

 

1.           PURCHASE AND SALE OF NOTES.

 

a.           Purchase of Notes.  On the terms and subject to the conditions set forth herein, the Company agrees to issue and sell and the Purchaser agrees to Purchase Notes as follows:

 

(i)          First Tranche.  On the Initial Closing Date (as defined below), the Company shall issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, Notes in the aggregate original principal amount of $250,000 (such issuance and sale being hereinafter referred to as the “First Tranche”).

 

(ii)         Subsequent Tranches. On each Subsequent Closing Date (as defined below), the Company shall issue and sell to Purchaser, and Purchaser agrees to purchase from the Company, Notes in the aggregate original principal amount as may be required by the Company in a Funding Notice (in substantially the form attached hereto as Exhibit B hereto) but not less than $100,000, delivered to the Purchaser by the Company no less than 14 days prior to such Subsequent Closing Date (each such subsequent issuance and sale being hereinafter referred to as a “Subsequent Tranche”); provided, however, that in no event shall the Purchaser be obligated to Purchase Notes in an aggregate original principal amount in excess of $250,000 in any 30-day period.

 

  

  

 

 

b.           Form of Payment.  On the First Closing Date and each Subsequent Closing Date (as defined below), (i) the Purchaser shall pay the purchase price for the Notes to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Notes in the principal amount equal to the Purchase Price, and (ii) the Company shall deliver such Notes duly executed on behalf of the Company, to the Purchaser, against delivery of such Purchase Price.

 

c.           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 First Tranche of Notes pursuant to this Agreement (the “First Closing Date”) shall be 12:00 noon, Eastern Standard Time on April __, 2011, or such other mutually agreed upon time, and the date and time of the issuance and sale of each Subsequent Tranche of Notes pursuant to this Agreement (each, a “Subsequent Closing Date”) shall be 12:00 noon, Eastern Standard Time on a date which is no more than 14 days from the date of delivery of the Funding Notice for such Subsequent Tranche, or such other mutually agreed upon time (collectively, the “Closing Date”).  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.

 

2.           PURCHASER’S REPRESENTATIONS AND WARRANTIES.  Purchaser represents and warrants to the Company that:

 

a.           Investment Purpose.  As of the date hereof, the Purchaser is purchasing the Notes and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Notes (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Notes and (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Notes, such shares of Common Stock being collectively referred to herein as the “Conversion Shares”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Purchaser does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

 

b.           Accredited Investor Status.  The Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).

 

c.           Reliance on Exemptions.  The Purchaser understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Securities.

 

  

2

 

 

d.           Information.  The Purchaser and its advisors, if any, have been, and for so long as the Notes remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser or its advisors.  The Purchaser and its advisors, if any, have been, and for so long as the Notes remain outstanding will continue to be, afforded the opportunity to ask questions of the Company.  Notwithstanding the foregoing, the Company has not disclosed to the Purchaser any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Purchaser.  The Purchaser understands that its investment in the Securities involves a significant degree of risk.

 

e.           Governmental Review.  The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

 

f.           Transfer or Re-sale.  The Purchaser understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Purchaser shall have delivered to the Company an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Purchaser who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Purchaser shall have delivered to the Company an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.  Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

  

3

 

g.           Legends.  The Purchaser understands that the Notes and the Conversion Shares, have not been registered under the 1933 Act and may not be sold except pursuant to Rule 144 or Regulation S or an available exemption from registration and shall bear the following legend:

 

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended.  The securities may not be sold, transferred or assigned in the absence of an effective registration statement for the securities under said Act, or an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, that registration is not required under said Act or unless sold pursuant to Rule 144 or Regulation S under said Act.”

 

h.           Authorization; Enforcement. This Agreement has been duly and validly authorized and duly executed and delivered on behalf of the Purchaser, and this Agreement constitutes, the valid and binding agreement of the Purchaser enforceable in accordance with their terms.

 

i.           Residency.  The Purchaser is a resident of the jurisdiction indicated on the signature pages hereto.

 

3.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company represents and warrants to each Purchaser that:

 

a.           Organization and Qualification.  The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted.

 

b.           Authorization; Enforcement.  (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement and the Notes and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement and the Notes by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Notes, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

 

  

4

 

c.           Issuance of Shares.  The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Notes in accordance with their respective terms, will be validly issued, fully paid and non-assessable, and 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 Company and will not impose personal liability upon the holder thereof.

 

d.           No Conflicts.  The execution, delivery and performance of this Agreement and the Notes by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Articles of Incorporation or By-laws or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii)  result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect).

 

e.           Absence of Litigation.  There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect.

 

f.           No Materially Adverse Contracts, Etc.  Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect.  Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

 

g.           Certain Transactions.  Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (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 corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

 

  

5

 

h.           Disclosure.  All information relating to or concerning the Company set forth in this Agreement and provided to the Purchaser in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading.  No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

 

i.           Internal Accounting Controls.  The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

j.           Foreign Corrupt Practices.  Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

4.           COVENANTS.

 

a.           Best Efforts.  The parties shall use their best efforts to satisfy timely each of the conditions described in Section 5 and 6 of this Agreement.

 

b.           Form D; Blue Sky Laws.  The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to Purchaser promptly after such filing.  The Company shall, on or before the Closing Date, take such action as the Company 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 Closing Date.

 

  

6

 

 

c.           Authorization and Reservation of Shares.  The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient number of shares of Common Stock to provide for the full conversion of the outstanding Notes.  If at any time the number of shares of Common Stock authorized and reserved for issuance is insufficient to provide for full conversion of the outstanding Notes, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional shares to so provide.

 

d.           Corporate Existence.  So long as Purchaser beneficially owns any Notes, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.

 

e.           No Integration.  The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

 

f.           Restriction on Short Sales.  The Purchaser agrees that, so long as any of the Notes remain outstanding, the Purchaser will not enter into or effect any “short sale” (as such term is defined in Rule 3b-3 of the 1934 Act) of the Common Stock or hedging transaction which establishes a net short portion with respect to the Common Stock.

 

5.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.  The obligation of the Company hereunder to issue and sell the Notes to 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 Purchase Price in accordance with Section 1(b) 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 Purchaser at or prior to the Closing Date.

 

  

7

 

 

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.

 

6.           CONDITIONS TO PURCHASER’S OBLIGATION TO PURCHASE.  The obligation of the Purchaser hereunder to purchase the Notes at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions unless otherwise waived:

 

a.           The Company shall have executed this Agreement and delivered the same to the Purchaser.

 

b.           The Company shall have delivered to such Purchaser duly executed Notes (in such denominations as the Purchaser shall request) in accordance with Section 1(b) above.

 

c.           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 the 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.  The Purchaser shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Purchaser including, but not limited to certificates with respect to the Company’s Articles of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

 

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.

 

e.           The Purchaser’s obligation to purchase Notes in a Subsequent Tranche is subject to the average closing share price exceeding $0.80 on each of the ten trading days prior to the Company’s issuance of the Funding Notice with respect to such Subsequent Tranche.

 

  

8

 

 

7.           GOVERNING LAW; MISCELLANEOUS.

 

a.           Governing Law.  THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

 

b.           Counterparts; Signatures by Facsimile.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

 

c.           Headings.  The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

 

d.           Severability.  In the event that any provision of this Agreement 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 provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

 

e.           Entire Agreement; Amendments.  This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Purchaser makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

 

f.           Notices.  Any notices required or permitted to be given under the terms of this Agreement shall be sent by certified or registered mail (return receipt requested) or delivered personally or by courier (including a recognized overnight delivery service) or by facsimile and shall be effective five days after being placed in the mail, if mailed by regular United States mail, or upon receipt, if delivered personally or by courier (including a recognized overnight delivery service) or by facsimile, in each case addressed to a party.  The addresses for such communications shall be:

 

  

9

 

 

If to the Company:

	 	
To its address at

	 	
Maranello

	 	
Watch House Green

	 	
Felsted, Essex

	 	
England CM6 EF

	 	
Facsimile:

	  	  
	 	
E-mail:

	 	
Attention: Andrew Clarke, CEO and Director

 

With a copy to:

 

	
 

	
Mary P. O’Hara, Esq.

	 	
Madama Griffitts O’Hara LLP

	 	
450 Park Avenue South, 8th Floor

	 	
New York, New York  10016

	 	
Telephone:  212-209-5483

	 	
Facsimile:    212-209-5460

If to Purchaser:  To the address set forth on the signature pages hereto.

 

With copy to:

	  	  	 
	  	  	 
	  	  	 

Each party shall provide notice to the other party of any change in address.

 

g.           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns.  Neither the Company nor Purchaser shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other.  Notwithstanding the foregoing, subject to Section 2(f), Purchaser may assign its rights hereunder to any person that purchases Securities in a private transaction from a Purchaser or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

 

h.           Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

  

10

 

 

i.           Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

j.           No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

  

11

 

IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this Agreement to be duly executed as of the date first above written.

 

	
FIRST CORPORATION

	  
	
By:

	/s/ Andrew Clarke	  
	  	
Andrew Clarke

	  	
Chief Executive Officer

	
INVESTA SECURITIES LIMITED

	  
	
By:

	
/s/ Jeurg Walker

	 
	  	
Jeurg Walker

	  	
Managing Director

	
JURISDICTION/RESIDENCE:  BVI/Switzerland

	  
	
ADDRESS:

	
Pasea Estate

	  	
Road Town

	  	
Tortola, BVI

 

  

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Exhibit A

 

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”).  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.

 

CONVERTIBLE NOTE

 

	
April __, 2011

	$250,000

 

FOR VALUE RECEIVED, FIRST CORPORATION, a Colorado corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ______________________ or registered assigns (the “Holder”) the sum of ____________________ Dollars ($________), on April __, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) per annum from April __, 2011 (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date thereof until the same is paid (“Default Interest”).  Interest shall commence accruing on the issue date, shall be computed on the basis of a 365-day year and the actual number of days elapsed and shall accrue and be payable, quarterly on March 31, June 30, September 30 and December 31 of each year beginning on June 30, 2011.  All payments due hereunder (to the extent not converted into common stock, $.001 par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America, provided that [the first 2 year’s interest payment] shall be payable on the date hereof.  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.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated April __, 2011, pursuant to which this Note is issued (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 terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1          Conversion Right.  The Holder shall have the right from time to time, and at any time on or prior to the earlier of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, or any payments pursuant to Section 1.7, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified 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 Notes or the unexercised or unconverted portion of any other security of the Borrower (including, without limitation, the warrants issued by the Borrower pursuant to the Purchase Agreement) subject to a limitation on conversion or exercise analogous to the limitations contained herein) 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 4.9% 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, and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso.  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 1.4 below; provided that the Notice of Conversion is submitted by facsimile (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) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date plus (3) Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2).

 

  

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1.2          So long as (i) no Event of Default shall have occurred and be continuing, (ii) the Borrower has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Notes, and (iii) the closing price of the Common Stock is at or below $1.00 per share for each of the ten prior trading days, then at any time after the Issue Date, the Borrower shall have the right, exercisable on not less than ten (10) days’ prior written notice to the Holders of the Notes to cause the conversion of all or any portion of the outstanding Notes in accordance with this Section 1.  The Notice of Conversion shall be delivered and the mechanics of conversion of Notes effected under this Section 1.2 in the same manner as a conversion under Section 1.1.

 

1.3          Conversion Price.  The Conversion Price shall be $0.60 per share.

 

1.4          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 the other Notes issued pursuant to the Purchase Agreement.  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 Notes 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 Notes.

 

If, at any time a Holder of this Note submits a Notice of Conversion, and the Borrower does not have sufficient authorized but unissued shares of Common Stock available to effect such conversion in accordance with the provisions of this Article I, the Borrower shall issue to the Holder all of the shares of Common Stock which are then available to effect such conversion.  The Borrower shall use its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable after the Holder notifies the Borrower or that the Borrower otherwise becomes aware that there are or likely will be insufficient authorized and unissued shares to allow full conversion thereof.  The Borrower shall promptly send notice to the Holder of the authorization of additional shares of Common Stock.

 

1.5          Method of Conversion.

 

(a)           Mechanics of Conversion.  Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower no less than ten days prior to the Conversion Date a Notice of Conversion (by facsimile 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 1.4(b), surrendering this Note at the principal office of the Borrower.

 

  

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(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 be controlling and determinative in the absence of manifest error.  Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note.  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 other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, 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 ten (10) business days after such receipt (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase.

 

(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 I, 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.

 

  

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(f)           Delivery of Common Stock by Electronic Transfer.  In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower’s transfer agent 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 1.1 and in this Section 1.4, 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.

 

1.6          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 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).  Except as otherwise provided in the Purchase Agreement (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, shall bear a legend substantially in the following form, as appropriate:

 

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID ACT.”

 

  

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The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefor 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 and the shares are so sold or transferred, (ii) such 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 that the Common Stock issuable upon conversion of this Note (to the extent such securities are deemed to have been acquired on the same date) can be sold pursuant to Rule 144 or (iii) 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.

 

1.7          Effect of Certain Events.

 

(a)           Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either:  (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.  “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.

 

(b)           Adjustment Due to Merger, Consolidation, Etc.  If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof.  The Borrower shall not effect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b).  The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

 

  

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(c)           Adjustment Due to Distribution.  If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d)           Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

 

1.8          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 1.3 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 1.3) for the Borrower’s failure to convert this Note.

 

  

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ARTICLE II. CERTAIN COVENANTS

 

2.1          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 pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

 

2.2          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.

 

2.3          Sale of Assets.  So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.  Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.

 

ARTICLE III. EVENTS OF DEFAULT

 

If any of the following events of default (each, an “Event of Default”) shall occur:

 

3.1          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 a Trading Market Prepayment Event pursuant to Section 1.7, upon acceleration or otherwise;

 

3.2          Conversion and the Shares.  The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens 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 (for a period of at least sixty (60) days, if such failure is solely as a result of the circumstances governed by Section 1.3 and the Borrower is using its best efforts to authorize a sufficient number of shares of Common Stock as soon as practicable), fails to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note;

 

  

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3.3          Breach of Covenants.  The Borrower breaches any material covenant of this Note and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder;

 

3.4          Breach of Representations and Warranties.  Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), 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 or the Purchase Agreement;

 

3.5          Receiver or Trustee.  The Borrower or any subsidiary of the 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;

 

3.6          Judgments.  Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld;

 

3.7          Bankruptcy.  Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower;

 

then, upon the occurrence and during the continuation of any Event of Default specified in this Section 3, at the option of the Holder within 15 days following the delivery of written notice to the Borrower (the “Default Notice”), the Notes shall become immediately due and payable and the Borrower shall pay to the Holder the principal amount outstanding hereunder, in full satisfaction of its obligations hereunder, and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.  If the Borrower fails to pay all amounts so owing within ten (10) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of such amounts, the number of shares of Common Stock of the Borrower equal to the total amount owed hereunder divided by the Conversion Price.

 

ARTICLE IV. MISCELLANEOUS

 

4.1          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.

 

  

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4.2          Notices.  Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or sent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail, certified, with postage pre-paid and properly addressed, if sent by mail.  For the purposes hereof, the address of the Holder shall be as shown on the records of the Borrower; and the address of the Borrower shall be Maranello, Watch House Green, Felsted, Essex, England CM6 EF.  Both the Holder and the Borrower may change the address for service by service of written notice to the other as herein provided.

 

4.3          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 (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4          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).  Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

4.5          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.

 

4.6          Governing Law.  THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.  THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING.  NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.  BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.  THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.

 

  

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4.7          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.

 

4.8          Denominations.  At the request of the Holder, upon surrender of this Note, the Borrower shall promptly issue new Notes in the aggregate outstanding principal amount hereof, in the form hereof, in such denominations of at least $50,000 as the Holder shall request.

 

4.9          Purchase Agreement.  By its acceptance of this Note, each Holder agrees to be bound by the applicable terms of the Purchase Agreement.

 

4.10        Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock.  The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least ten (10) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.12.

 

  

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4.11        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.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this ____ day of April, 2011.

 

	
FIRST CORPORATION

	  
	
By:

	  
	  	
Andrew Clarke

	  	
Chief Executive Officer

  

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EXHIBIT A

 

NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Notes)

 

The undersigned hereby irrevocably elects to convert $__________ principal amount of the Note (defined below) into shares of common stock, par value $.001 per share (“Common Stock”), of First Corporation, a Colorado corporation (the “Borrower”) according to the conditions of the convertible Notes of the Borrower dated as of April __, 2011 (the “Notes”), as of the date written below.  If securities are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.  A copy of each Note is attached hereto (or evidence of loss, theft or destruction thereof).

 

If eligible, 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:

	  	  

 

In lieu of receiving shares of Common Stock issuable pursuant to this Notice of Conversion by way of a DWAC Transfer, 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:

 

	
Name:

	  
	
Address:

	  

 

The undersigned represents and warrants that all offers and sales by the undersigned of the securities issuable to the undersigned upon conversion of the Notes shall be made pursuant to registration of the securities under the Securities Act of 1933, as amended (the “Act”), or pursuant to an exemption from registration under the Act.

 

	
Date of Conversion:

	  	 
	
Applicable Conversion Price:

	  	 
	
Number of Shares of Common Stock to be Issued Pursuant to

	
Conversion of the Notes:

	  	 
	
Signature:

	  	 
	
Name:

	  	 
	
Address:

	  	 

  

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The Borrower shall issue and deliver shares of Common Stock to an overnight courier not later than three business days following receipt of the original Note(s) to be converted, and shall make payments pursuant to the Notes for the number of business days such issuance and delivery is late.

 

  

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