Document:

Exhibit 10.1

SUBSCRIPTION AGREEMENT

This Subscription Agreement (this “Agreement”) is dated as of December 28, 2007, by and among Artificial Life, Inc., a Delaware corporation (the “Company”), and the Purchasers identified on the signature pages hereto (each, a “Purchaser” and collectively, the “Purchasers”).

RECITALS

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act (as defined below) the Company desires to sell and issue to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company certain securities of the Company, as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers agree as follows:

AGREEMENT

 

1.         The Securities.  Subject to the terms and conditions herein contained, the Company will issue and sell to the Purchasers: (a) up to Five Million (5,000,000) shares (the “Shares”) of Company Common Stock with a par value of $0.01 (the "Common Stock") for $1.70 per Share, and (b) warrants in the form attached hereto as Exhibit A (the “Warrants”) to acquire up to Two Million (2,000,000) shares of Common Stock (the “Warrant Shares”).  The Shares, the Warrants and the Warrant Shares are sometimes herein collectively referred to as the "Securities."  

The Securities are offered and sold to the Purchasers without such offers and sales being registered under the Securities Act of 1933, as amended (together with the rules and regulations of the Securities and Exchange Commission (the "SEC") promulgated thereunder) ( the "Securities Act"), in reliance on exemptions therefrom.  In connection with the sale of the Securities, the Company has made available (including electronically via the SEC EDGAR system) to Purchasers its periodic and current reports, forms, schedules, proxy statements and other documents (including exhibits and all other information incorporated by reference) filed with the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Those reports, forms,
schedules, statements, documents, filings and amendments that have been filed with the SEC on or after April 2, 2007, are collectively referred to as the "Disclosure Documents."  All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Disclosure Documents (or other references of like import) will be deemed to mean and include all such financial statements and schedules, documents, exhibits and other information which is incorporated by reference in the Disclosure Documents.  This Agreement, and any other documents or agreements (including the Warrants) executed in connection with the transactions contemplated hereunder are sometimes herein collectively referred to as the "Transaction Documents." 

2.         Purchase, Sale and Delivery of the Securities.  Subject to the terms and conditions herein and in exchange for the payment of the aggregate purchase price as set forth on the signature page hereto (the “Purchase Price”), the Company agrees to issue and sell to each Purchaser, severally and not jointly, and each Purchaser agrees to purchase, severally and not jointly, from the Company, the number of Shares shown on the signature page hereto for the aggregate purchase price set forth below such Purchaser’s name.  In connection with the purchase and sale of the Shares, for no 

 

1

additional purchase price, each Purchaser will receive warrants to purchase the number of shares of Common Stock shown on the signature page of this Agreement, which number will be forty percent (40%) of the number of Shares purchased by such Purchaser, subject to adjustments as set forth in the Warrants, substantially in the form attached hereto at Exhibit A .

(a)        The closing of the transactions described herein (the “Closing”) shall take place at a time and on a date (the “Closing Date”) to be specified by the parties, which will be no later than 5:00 p.m. (Pacific Time) on December 28, 2007.  

(b)       On the Closing Date, the Company will: (i) deliver the Subscription Agreement duly executed on behalf of the Company; (ii) deliver to its transfer agent irrevocable instructions to issue and deliver certificates for the number of shares of Common Stock that the Purchasers have agreed to purchase, in the names and amounts set forth on the signature pages hereto; (iii) issue and deliver the Warrants, in the names and amounts set forth on the signature page hereto; (iv) deliver a Registration Rights Agreement in the form attached hereto as Exhibit B (the “Registration Rights Agreement”) duly executed on behalf of the Company; and (v) deliver a certificate of the Chief Executive Officer of the Company, dated as of the closing date, certifying:
(i) the adoption by the Company’s Board of Directors of attached resolutions authorizing, among other things, the execution of the Transaction Documents and the consummation of the transactions contemplated therein, (ii) the incumbency of the officer executing the Transaction Documents, (iii) that the representations and warranties contained in this Agreement are, to such officer’s knowledge, true and correct as of the Closing Date, and (iv) that the Company has performed all obligations and complied with all agreements, covenants and conditions required hereunder to be performed by it prior to the Closing.

(c)        On the Closing Date, each Purchaser will deliver (i) the Purchase Price by wire transfer of immediately available funds to an account previously designated in writing, and (ii) the Subscription Agreement duly executed on behalf of the Purchaser, and (iii) the Registration Rights Agreement duly executed on behalf of the Purchaser.  

(d)       The Closing will occur when all documents and instruments necessary or appropriate to effect the transactions contemplated herein are exchanged by the parties and all actions taken at the Closing will be deemed to be taken simultaneously.  

3.         Representations and Warranties of the Company.  Except as set forth in the Disclosure Documents, the Company represents and warrants to and agrees with Purchasers as follows:  

(a)        The Disclosure Documents did not at the time of filing (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Disclosure Documents and the documents incorporated or deemed to be incorporated by reference therein, at the time they were filed with the SEC, complied at the time of filing, in all material respects with the requirements of the Securities Act and/or the Exchange Act, as the case may be, as applicable.

(b)       The Company has filed all reports required to be filed by the Company under the Securities Act and the Exchange Act for the twelve months preceding the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such reports prior to the expiration of any such extension.  

(c)        The Company has no direct or indirect Subsidiaries other than as specified in the Disclosure Documents. Each of the Company and its Subsidiaries has been duly 

 

2

incorporated and each of the Company and the Subsidiaries is validly existing in good standing as a corporation under the laws of its jurisdiction of incorporation, with the requisite corporate power and authority to own its properties and conduct its business as now conducted as described in the Disclosure Documents.

(d)       The authorized capital stock of the Company as of the date of this Agreement consists of 130,000,000 shares of Common Stock and 5,000,000 shares of preferred stock.  As of the date hereof, excluding the Securities issued pursuant to this Agreement, (a) 40,382,397 shares of Company Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (b) no shares of Company preferred stock are issued and outstanding, and (c) 6,824,078 shares of Company Common Stock are issuable upon the exercise of outstanding Company options and warrants.

(e)        The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents.  Each of the Transaction Documents has been duly and validly authorized by the Company and, when executed and delivered by the Company, will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms except as the enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting creditors' rights generally or (ii) general principles of equity and the discretion of the court before which any proceeding therefore may be brought (regardless of whether such enforcement is considered in a proceeding at law
or in equity).

(f)        The Shares and the Warrants have been duly authorized and, when issued upon payment thereof in accordance with this Agreement, will have been validly issued, fully paid and non-assessable.  The Warrant Shares have been duly authorized and validly reserved for issuance, and when issued upon exercise of the Warrants in accordance with the terms thereof, will have been validly issued, fully paid and non-assessable.  

(g)       To the Company’s knowledge, no consent, approval, authorization, license, qualification, exemption or order of any court or governmental agency or body or third party is required for the performance of the Transaction Documents by the Company or for the consummation by the Company of any of the transactions contemplated thereby, except for such consents, approvals, authorizations, licenses, qualifications, exemptions or orders (i) as have been obtained on or prior to the Closing Date, (ii) as are not required to be obtained on or prior to the Closing Date that will be obtained when required, or (iii) the failure to obtain which would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or other), properties or results of operations of the Company and the Subsidiaries,
taken as a whole (any such event, a "Material Adverse Effect").

(h)       Neither the Company or its Subsidiaries are (i) in material violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to it or any of its properties or assets, which breach or violation would, individually or in the aggregate, have a Material Adverse Effect, or (iii) except as described in the Disclosure Documents, in default (nor has any event occurred which with notice or passage of time, or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which it is a party or to which
it is subject, which default would, individually or in the aggregate, have a Material Adverse Effect.

 

3

(i)        The execution, delivery and performance by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby and the fulfillment of the terms thereof will not (i) violate, conflict with or constitute or result in a breach of or a default under (or an event that, with notice or lapse of time, or both, would constitute a breach of or a default under) any of (1) the terms or provisions of any contract, indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate or agreement or instrument to which any of the Company or the Subsidiaries is a party or to which any of their respective properties or assets are subject, or (2) the certificate of incorporation or bylaws of any of the Company or the Subsidiaries (or similar
organizational document); or (ii) result in the imposition of any lien upon or with respect to any of the properties or assets now owned or hereafter acquired by the Company or any of the Subsidiaries; which violation, conflict, breach, default or lien would, individually or in the aggregate, have a Material Adverse Effect.

(j)        The audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations, cash flows and changes in shareholders' equity of the entities, at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis; the interim un-audited consolidated financial statements included in the Disclosure Documents present fairly the consolidated financial position, results of operations and cash flows of the entities, at the dates and for the periods to which they relate subject to normal year-end audit adjustments and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis with the audited consolidated financial
statements included therein.

(k)       Based on the financial condition of the Company as of the Closing Date, after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature and (ii) the Company can meet it obligations as they become due and owing.  

(l)        Assuming the accuracy of the Purchasers’ representations and warranties set forth in this Agreement, neither the Company nor any agent authorized to act on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act.

(m)      Since the date of the latest Disclosure Document filed with the SEC prior to the date hereof, there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect.

(n)       Except as described in the Disclosure Documents, there is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation, governmental or otherwise, to which any of the Company or the Subsidiaries is a party, or to which their respective properties or assets are subject, before or brought by any court, arbitrator or governmental agency or body, that, if determined adversely to the Company or any such Subsidiary, would, individually or in the aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder.

(o)       The Company and the Subsidiaries own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how that are necessary to conduct their businesses as described in the Disclosure Documents.  Except as provided in the Disclosure Documents, none of the Company or the Subsidiaries has received any written notice of 

 

4

infringement of asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how that, if such assertion of infringement or conflict were sustained, would, individually or in the aggregate, have a Material Adverse Effect.

(p)       Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals presently known by the Company to be required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Disclosure Documents ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect and none of the Company or the Subsidiaries has received any notice of any proceeding
relating to revocation or modification of any such Permit, except as described in the Disclosure Documents and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect.

(q)       Subsequent to the respective dates as of which information is given in the Disclosure Documents and except as described therein, (i) the Company and the Subsidiaries have not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business or (ii) the Company and the Subsidiaries have not purchased any of their respective outstanding capital stock, or declared, paid or otherwise made any dividend or distribution of any kind on any of their respective capital stock or otherwise (other than, with respect to any of such Subsidiaries, the purchase of capital stock by the Company), (iii) there has not been any material increase in the long-term indebtedness of the Company or any of the Subsidiaries, (iv) there has not occurred any event or
condition, individually or in the aggregate, that has a Material Adverse Effect, and (v) the Company and the Subsidiaries have not sustained any material loss or interference with respect to their respective businesses or properties from fire, flood, hurricane, earthquake, accident or other calamity, whether or not covered by insurance, or from any labor dispute or any legal or governmental proceeding.

(r)        Except as described in the Disclosure Documents, none of the Company or the Subsidiaries is in default under any of the contracts described in the Disclosure Documents, has received a notice or claim of any such default or has knowledge of any breach of such contracts by the other party or parties thereto, except for such defaults or breaches as would not, individually or in the aggregate, have a Material Adverse Effect.

(s)        Except with respect to the material terms and conditions of the exchange contemplated by the Transaction Documents, and the information contained in the related press release (all of which will be disclosed in a current report on Form 8-K filed with the SEC within 24 business hours after the date of this Agreement), the Company confirms that neither it nor any other person acting on its behalf has provided any of the Purchasers or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Disclosure Documents.  The Company understands and confirms that the Purchasers will rely on the foregoing representation in effecting transactions in securities of the Company.  All disclosure furnished by or on behalf of the Company to the
Purchasers regarding the Company, its business and the transactions contemplated hereby is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The Company acknowledges and agrees that the Purchasers do not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 4 hereof.

 

5

(t)        There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the Subsidiaries which is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened.

4.         Representations and Warranties of the Purchasers.  Each Purchaser, severally and not jointly,  represents and warrants to the Company as follows:

(a)        If an entity, the Purchaser, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement has been duly authorized by all necessary corporate or, if such Purchaser is not a corporation, such partnership, limited liability company or other applicable like action, on the part of such Purchaser.  

(b)       The Securities to be acquired by it hereunder (including the Warrant Shares that it may acquire upon exercise thereof, as the case may be) are being acquired for its own account for investment and with no intention of distributing or reselling such Securities (including the Warrant Shares that it may acquire upon exercise thereof, as the case may be) or any part thereof or interest therein in any transaction which would be in violation of the securities laws of the United States of America or any State.  Nothing in this Agreement, however, will prejudice or otherwise limit a Purchaser's right to sell or otherwise dispose of all or any part of such Shares or Warrant Shares in compliance with the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration.  

(c)        The Purchaser understands that the Securities (including the Warrant Shares that it may acquire upon exercise thereof, as the case may be) have not been registered under the Securities Act and may not be offered, resold, pledged or otherwise transferred except (i) pursuant to an exemption from registration under the Securities Act or pursuant to an effective registration statement in compliance with Section 5 under the Securities Act and (ii) in accordance with all applicable securities laws of the states of the United States and other jurisdictions.

(d)       The Purchaser understands that the Securities may only be disposed of in compliance with state and federal securities laws.  Accordingly, Purchase agrees that the Certificates evidencing the Securities (including the Warrant Shares), will contain a legend substantially in the form as follows, so long as such legend is required:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED") IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. 

The legend set forth above will be removed if and when the Shares or the Warrant Shares, as the case may be, are disposed of pursuant to an effective registration statement in compliance with Section 5 under the Securities Act or in the opinion of counsel to the Company experienced in the area of United States Federal securities laws such legends are no longer required under applicable requirements of the Securities Act.  Each Purchaser agrees that, in connection with any transfer of the Shares or the Warrant Shares by it pursuant to an effective registration statement in compliance with Section 5 under the Securities Act, such Purchaser will comply with all prospectus delivery requirements of the Securities Act.  

 

6

(e)        The Purchaser is an "Accredited Investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act.  The Purchaser has not learned of the opportunity to acquire Securities or any other security issuable by the Company through any form of general advertising or public solicitation within the meaning of Rule 502(c) under the Securities Act.

(f)        The transactions contemplated by the Transaction Documents have been duly and properly authorized by or on behalf of the Purchaser.

(g)       This Agreement has been duly executed and delivered by the Purchaser or on its behalf and constitutes the valid and legally binding obligation of the Purchaser, enforceable against the Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights generally and to general principles of equity.

(h)       The Purchaser acknowledges it or its representatives have reviewed the Disclosure Documents and further acknowledges that it or its representatives have been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Company's financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment in the Securities; and (iii) the opportunity to obtain such additional information which the Company possesses or can acquire without unreasonable effort or expense that is necessary to verify the accuracy and completeness
of the information contained in the Disclosure Documents.

(i)        The Purchaser has based its investment decision solely upon the information contained in the Disclosure Documents and such other information as may have been provided to it or its representatives by the Company in response to their inquiries, and has not based its investment decision on any research or other report regarding the Company prepared by any third party ("Third Party Reports").  The Purchaser understands and acknowledges that (i) the Company does not endorse any Third Party Reports and (ii) its actual results may differ materially from those projected in any Third Party Report.

(j)        The Purchaser has had access to the Disclosure Documents, and has had the opportunity to read and understand the Disclosure Documents, including but not limited to all disclaimers regarding  all forward-looking information included in the Disclosure Documents.

(k)       The Purchaser understands and acknowledges that (i) the Securities are offered and sold without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act, and (ii) the availability of such exemption depends in part on, and that the Company and its counsel will rely upon, the accuracy and truthfulness of the foregoing representations and Purchaser hereby consents to such reliance.

(l)        Except for a fee payable to Oppenheimer & Co. Inc. by the Company, the Purchaser does not know of any claims for payment, either in the nature of a finder's fee or financial advisory fee, with respect to the offering of the Securities and the transactions contemplated by the Transaction Documents.

5.         Right of First Refusal.  If the Company desires to  issue or sell equity or convertible debt securities of the Company to a third party pursuant to terms offered or accepted by such third party (excluding debt instruments executed in connection with commercial bank loans or lines of 

 

7

credit) at any time between the Closing Date until December 31, 2008, then the Company will provide First Wilshire Securities Management, Inc. (“First Wilshire”) and any Purchasers introduced by or related to First Wilshire whom First Wilshire designates as such to the Company in writing on or before the Closing Date (collectively, “Eligible Purchasers”) with written notice of such third party offer and, for a period of ten (10) days after the Eligible Purchasers’ receipt of such notice the Eligible Purchasers will have a right of first refusal, exercisable by providing written notice to the Company, to purchase (on a pro rata basis in proportion to their respective investments pursuant to this Agreement or such other allocation as may be agreed upon by such Eligible Purchasers) all of
such securities on the same terms and conditions set forth in the Company’s notice.  The Eligible Purchasers hereby waive any and all rights provided for in this subsection to the offer and sale of up to 2,000,000 shares of Common Stock at $1.70 per share, consummated on or before December 31, 2007, in a transaction meeting the requirements of Regulation S or to purchasers who are “accredited investors” (as defined in Regulation D).  

6.         [Intentionally omitted].

7.         Notices.  All communications hereunder will be in writing and will be hand delivered, mailed by first-class mail, couriered by next-day air courier or by facsimile (i) if to the Company, at the addresses set forth below, or (ii) if to a Purchaser to the address set forth for such party on the signature page hereto.

If to the Company:

Artificial Life, Inc.

26/F., 88 Hing Fat Street

Causeway Bay

Hong Kong

Attention:  Eberhard Schoneburg, Chief Executive Officer

Tel: (+852) 3102-2800

Fax: (+852) 3102-0690

with a copy to:

Kirkpatrick & Lockhart Preston Gates Ellis LLP

1900 Main Street, Suite 600

Irvine, CA 92614-7319

Attn: Raymond L. Veldman

Tel: (949) 253-0900

Fax: (949) 253-0902

 

All such notices and communications will be deemed to have been duly given:  (i) when delivered by hand, if personally delivered; (ii) five business days after being deposited in the mail, postage prepaid, and mailed certified mail, with return receipt requested and obtained; (iii) one business day after being timely delivered to a next-day air courier guaranteeing overnight delivery; (iv) the date of transmission if sent via facsimile to the facsimile number as set forth in this Section or the signature page hereof prior to 4:00 p.m. on a business day, or (v) the business day following the date of transmission if sent via facsimile at a facsimile number set forth in this Section or on the signature page hereof after 4:00 p.m. or on a date that is not a business day.  Change of a party's address or facsimile number may be designated hereunder by giving notice to all of the other parties
hereto in accordance with this Section.

8.         Fees and Expenses.  Except as expressly set forth herein to the contrary, each party will pay the fees and expenses of its own advisers, counsel, accountants and other experts and all 

 

8

other expenses incurred by such party incident to the negotiation, preparation, execution delivery and performance of this Agreement and the transactions contemplated hereby. 

9.         Attorney’s Fees.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, or the Warrants, the prevailing party or parties will be entitled to receive from the other party or parties reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which the prevailing party or parties may be entitled.  

10.       Successors.  This Agreement will inure to the benefit of and be binding upon Purchasers and the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or will be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person. Neither the Company nor any Purchaser may assign this Agreement or any rights or obligation hereunder without the prior written consent of the other party.

11.       No Waiver; Modifications in Writing.  No failure or delay on the part of the Company, or any Purchaser in exercising any right, power or remedy hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Purchaser at law or in equity or otherwise.  No waiver of or consent to any departure by the Company, or any Purchaser from any provision of this Agreement will be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver will be given to each party
hereto as set forth below.  Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement will be effective unless signed in writing by or on behalf of each of the Company and the Purchasers.  Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company or any Purchaser from the terms of any provision of this Agreement will be effective only in the specific instance and for the specific purpose for which made or given.  Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case will entitle the Company to any other or further notice or demand in similar or other circumstances.

12.       Entire Agreement.  This Agreement, together with Transaction Documents, constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter hereof and thereof.

13.       Severability.  If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement will not in any way be affected or impaired thereby.

14.       APPLICABLE LAW.  THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. 

 

9

15.       Counterparts.  This Agreement may be executed in two or more counterparts and may be delivered by facsimile transmission, each of which will be deemed an original, but all of which together will constitute one and the same instrument. 

 

[Signature Page Follows]

 

10

IN WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement to be duly executed by their respective authorized signatories to be effective as of the date indicated above.

ARTIFICIAL LIFE, INC.

	
             
 	
            By:  
 	
            /s/  Eberhard Schoneburg
 

Eberhard Schoneburg

	
             
 	
            Chairman and Chief Executive Officer
 

 

 

[Remainder Of Page Intentionally Left Blank

Signature Pages For Purchasers Follow]

 

11

NAME OF PURCHASER

_______________________________________

	
             
 	
            By: ____________________________________
 

	
             
 	
            Name: ______________________________
 

	
             
 	
            Title: _______________________________
 

	
             
 	
            Shares of Common Stock Purchased: __________
 

	
             
 	
            Shares Underlying Warrants: ________________
 

	
             
 	
            Purchase Price:  $_________________________
 

	
             
 	
            Tax ID No.: _____________________________
 

ADDRESS FOR NOTICE

	
             
 	
            c/o: ____________________________________
 

	
             
 	
            Street: __________________________________
 	
             
 

	
             
 	
            City/State/Zip: ____________________________
 	
             
 

	
             
 	
            Attention: _______________________________
 	
             
 

	
             
 	
            Tel: ____________________________________
 

	
             
 	
            Fax: ____________________________________
 	
             
 

	
             
 	
            E-mail: __________________________________
 	
             
 

DELIVERY INSTRUCTIONS

(if different from above)

	
             
 	
            c/o: ____________________________________
 

	
             
 	
            Street: __________________________________
 	
             
 

	
             
 	
            City/State/Zip: ____________________________
 	
             
 

	
             
 	
            Attention: _______________________________
 	
             
 

	
             
 	
            Tel: ____________________________________
 

	
             
 	
            Fax: ____________________________________
 	
             
 

	
             
 	
            E-mail: __________________________________
 	
             
 

[Signature Page to Subscription Agreement]

[Signature Pages Continue]

 

12

Exhibit A  

Form of Warrant

 

 

1

Exhibit B

 

Form of Registration Rights Agreement

 

1Exhibit 10.2

 

THIS WARRANT AND THE SECURITIES ISSUABLE ON EXERCISE HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ("TRANSFERRED") IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. 

 

 

Warrant No: [___________]

 

ARTIFICIAL LIFE, INC.

 

COMMON STOCK PURCHASE WARRANT 

 

This certifies, for value received, ___________________ (“Holder”), as a registered owner of this Warrant, is entitled to purchase from Artificial Life, Inc., a Delaware corporation (“Company”), at any time or from time to time during the term commencing on the effective Date set forth below (the “Effective Date”) and until 5:00 p.m., Pacific Standard Time Standard Time, on December ___, 2010  (the “Expiration Time”), up to ______________ (____________) shares of Common Stock, with par value $0.01 (the “Common Stock”) of Company, for $1.50 per share (the “Exercise
Price”), all subject to adjustment and upon the terms and conditions as hereinafter provided. To the extent not exercised previously, this Warrant will become void at the Expiration Time.  This Warrant is one of a series of similar warrants issued pursuant to that certain Subscription Agreement, dated as of the date hereof, by and among Company and the Purchasers identified therein (the “Subscription Agreement”).

 

The term “Warrant” means this Warrant, and any warrants delivered in substitution or exchange as provided herein.  

 

ARTICLE I

EXERCISE OF WARRANTS

 

1.1        Method of Exercise. This Warrant is exercisable in whole or in part from time to time prior to the Expiration Time. To exercise this Warrant, Holder will deliver to Company, at the principal office of Company, (a) this Warrant or a copy hereof, together with a lost document affidavit, (b) a duly completed and executed Exercise Notice, in substantially the form of the Exercise Notice attached hereto as Exhibit A, of such Holder’s election to exercise this Warrant, which Exercise Notice will specify the number of shares of  Common Stock to be purchased, (c) payment of the Exercise Price with respect to such shares, and (d) any representation required by Section 2.3 hereof. Such payment may be made, at the option of Holder, by cash, certified
or bank cashier’s check or wire transfer.

 

As promptly as practicable and in any event within thirty (30) business days after receipt of the items referred to in this Section 1.1, Company will execute and deliver or caused to be executed and delivered, in accordance with the Exercise Notice, a certificate or certificates representing the aggregate number of fully paid and non-assessable shares of Common Stock specified in the Exercise Notice. The share certificate or certificates so delivered will be in such denominations as may be specified in such Exercise Notice or, if such Exercise Notice will not specify denominations, will be in the amount of the 

 

1

number of shares of Common Stock for which the Warrant is being exercised, and will be issued in the name of Holder, or such other name or names as will be designated in the Exercise Notice.  Such certificate or certificates will be deemed to have been issued, and such Holder or any other person so designated to be named therein will be deemed for all purposes to have become a holder of record of such shares, as of two (2) trading days after the date the Exercise Notice is received by Company.  If this Warrant has been exercised only in part, at the time of delivery of the share certificate or certificates, Company will deliver to Holder a new Warrant evidencing the rights to purchase the remaining shares of Common Stock called for by this Warrant, which new Warrant will in all other respects be identical to this Warrant. 

 

1.2       Shares to Be Fully Paid and Nonassessable. All shares of Common Stock issued upon the exercise of this Warrant will be validly issued, fully paid and nonassessable.

 

1.3       No Fractional Shares to Be Issued. Company will not be required to issue fractions of shares of Common Stock upon exercise of this Warrant. If any fraction of a share would, but for this Section 1.3, be issuable upon any exercise of this Warrant, in lieu of such fractional share Company will pay to Holder, in cash, an amount equal to such fraction multiplied by the Exercise Price.  

 

1.4        Share Legend. This Warrant and the securities issuable upon exercise have not been registered under the Securities Act of 1933, as amended (the "Act"), or applicable state securities laws, and no interest herein or therein may be sold, distributed, assigned, offered, pledged or otherwise transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving said securities, or (b)  such transaction is exempt from registration.  Accordingly, a legend setting forth or referring to the above restrictions will be placed on this Warrant, any replacement and any certificate representing the securities issuable upon the exercise of this Warrant, and a
stop transfer order shall be placed on the books of Company and with any transfer agent until such securities may be legally sold or otherwise transferred.

 

1.5        Reservation; Authorization. Company has reserved and will keep available for issuance upon exercise of the Warrants 110% of the total number of shares of Common Stock deliverable upon exercise of this Warrant from time to time.

 

1.6        Company’s Failure to Timely Deliver Instructions to the Transfer Agent.  If within two (2) trading days after receipt by Company of the later of (i) the Exercise Notice or (ii) payment of the Exercise Price for the shares of Common Stock being purchased pursuant to the Exercise Notice (the later of (i) and (ii) being the “Notice Trigger”),  Company shall fail to deliver to its transfer agent written instructions directing the transfer agent to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Company’s share register or credit the Holder’s balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder’s exercise hereunder, and if on or after the third (3rd) trading
day following the Notice Trigger Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company (a “Buy-In”), then the Company shall, within three (3) Business Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such shares of Common Stock) shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock
and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the Closing Bid Price on the date of exercise.   For purposes of clarification, Company shall not incur any liabilities under this Section 

 

2

1.6 unless it fails to timely deliver the instructions to its transfer agent as set forth above, and any failure of the transfer agent to act on such instructions shall not create a liability for Company hereunder.

 

ARTICLE II

TRANSFER, EXCHANGE AND REPLACEMENT OF WARRANTS

 

2.1        Ownership of Warrant. Company may deem and treat the person in whose name this Warrant is registered as Holder and owner hereof (notwithstanding any notations of ownership or writing hereon made by any person) for all purposes.

 

2.2        Loss, Theft, Destruction or Mutilation of Warrants. Upon receipt of evidence satisfactory to Company of the loss, theft, destruction or mutilation of any Warrant, including but not limited to an affidavit that the Holder, at the time of the loss, theft, destruction or mutilation of any Warrant was (and is currently) the owner of such Warrant, and owns such Warrant free and clear of all liens or encumbrances; and an indemnity or security reasonably satisfactory to Company, all documents in a form reasonably satisfactory to Company, Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock as provided for in such lost, stolen, destroyed or
mutilated Warrant.  Holder will be responsible for payment to Company for any and all costs associated with the replacement of any Warrant based on the above.

 

2.3       Investment Representation; Transfer Restrictions. By acceptance of this Warrant, Holder acknowledges that Holder is acquiring the Warrant for Holder’s own individual account, for investment, and not with a view to distribution or resale in violation of the registration requirements of the Securities Act. Upon exercise of this Warrant, Holder will make a similar written representation with respect to the shares to be received upon exercise, in the form satisfactory to Company and its counsel, unless, in the opinion of counsel, such representation is not necessary or appropriate to assure compliance with the registration provisions of the Act or any applicable state securities laws. 

 

ARTICLE III

ANTIDILUTION PROVISIONS

 

3.1        Certain Adjustments. The Exercise Price and the number and kind of securities purchasable upon the exercise of this Warrant will be subject to adjustment from time to time upon the happening of certain events as follows:

 

3.1.1    Adjustment for Reclassifications.  In case at any time or from time to time after the Effective Date the holders of the Common Stock of the Company (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (including cash) by way of dividend, distribution, stock split, spin-off, reclassification, combination of shares or similar corporate event, then and in each such case the Holder of this Warrant, upon the exercise hereof as provided in Article I, shall be entitled to receive the amount of stock and other securities and property which such
Holder would hold on the date of such exercise if on the issue date he had been the holder of record of the number of shares of Common Stock of the Company called for under this Warrant immediately prior to such event and had thereafter, during the period from the issue date, to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property receivable by him as aforesaid during such period, giving effect to all adjustments called for during such period.  In the event of any such adjustment, the Exercise Price shall be adjusted proportionally.

 

3

3.1.2    Adjustment for Reorganization, Consolidation, Merger.  In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) after the issue date, or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or convey all or substantially all of its assets to another corporation, then and in each such case the Holder of this Warrant, upon the exercise hereof as provided in Article I at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities or property to which such Holder would be entitled had the Holder exercised this Warrant immediately
prior thereto, the same amount and kind of securities, cash or property (“Alternative Consideration”) that Holder would have been entitled to receive upon the occurrence of such reorganization, consolidation, merger or conveyance if Holder had been, immediately prior to such reorganization, consolidation, merger or conveyance, the holder of the number of shares of Common Stock issuable upon the exercise in full of this Warrant, all subject to further adjustment as provided herein; in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such reorganization, consolidation, merger or conveyance shall issue to the Holder a new warrant consistent with the foregoing provisions and
evidencing the Holder’s right to exercise such warrant into the applicable Alternate Consideration.

 

	
             
 	
            3.1.3
 	
            Subsequent Equity Sales.  
 

 

(a)        If, at any time prior to the one year anniversary of the date of this Warrant, the Company issues additional shares of Common Stock or rights, warrants, options or other securities or debt convertible, exercisable or exchangeable for shares of Common Stock or otherwise entitling any person to acquire shares of Common Stock (collectively, “Common Stock Equivalents”) at a net price to the Company per share of Common Stock (the “Effective Price”) less than the Exercise Price (as adjusted hereunder to such date), then the Exercise Price shall be reduced to equal the Effective Price.  For purposes of this paragraph, in connection with any issuance of any Common Stock Equivalents, (A) the maximum number of shares of Common Stock
potentially issuable at any time upon conversion, exercise or exchange of such Common Stock Equivalents (the “Deemed Number”) shall be deemed to be outstanding upon issuance of such Common Stock Equivalents, (B) the Effective Price applicable to such Common Stock shall equal the minimum dollar value of consideration payable to the Company to purchase such Common Stock Equivalents and to convert, exercise or exchange them into Common Stock (net of any discounts, fees, commissions and other expenses), divided by the Deemed Number, and (C) no further adjustment shall be made to the Exercise Price upon the actual issuance of Common Stock upon conversion, exercise or exchange of such Common Stock Equivalents. In case any Common Stock Equivalent is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Common
Stock Equivalent by the parties thereto, the Common Stock Equivalent will be deemed to have been issued for a consideration of $0.01. 

 

(b)       If, at any time prior to the one year anniversary of the date of this Warrant, the Company issues Common Stock Equivalents with an Effective Price or a number of underlying shares that floats or resets or otherwise varies or is subject to adjustment based (directly or indirectly) on market prices of the Common Stock (a “Floating Price Security”), then for purposes of applying the preceding paragraph in connection with any subsequent exercise, the Effective Price will be determined separately on each Exercise Date and will be deemed to equal the lowest Effective Price at which any holder of such Floating Price Security is entitled to acquire Common Stock on such Exercise Date (regardless of whether any such holder actually acquires any shares on such date).

 

4

(c)        Notwithstanding the foregoing, no adjustment will be made under this Section 3.1.3 in respect of (i) any shares of Common Stock or Common Stock Equivalents granted to directors, officers, employees or other service providers of the Company pursuant to any Company stock or option plan approved by the Board of Directors of the Company and any shares of Common Stock or other securities issuable in connection with the exercise or conversion of any such Common Stock Equivalents, (ii) shares of Common Stock issued pursuant to Common Stock Equivalents outstanding as of the date of this Warrant; (iii); (iv) any adjustment provided for in Section 3.1.1 or Section 3.1.2; or (v) any issuance of shares of Common Stock or Common Stock Equivalents approved by the Purchaser (as defined in the Subscription Agreement) of the largest number of Shares issued
pursuant to the Subscription Agreement, provided that no more than 5,000,000 Shares are issued pursuant to the Subscription Agreement.

 

3.2        New Warrants. Notwithstanding anything herein to the contrary, if Company issues a new Warrant in whole or partial replacement of this Warrant upon the transfer, combination, division or partial exercise of this Warrant, in replacement of a loss, theft, destruction or mutilation of this Warrant or for any other reason, the new Warrant, at Company’s option, shall reflect any adjustments theretofore made pursuant to this Article III.

 

ARTICLE IV

MISCELLANEOUS

 

4.1        Notices. All notices, requests, demands and other communications required or permitted hereunder will be in writing and will, unless otherwise expressly required, be deemed to have been duly given, made and received only when delivered (personally or by national courier service such as Federal Express) or when deposited in the United States mails, registered or certified mail, postage prepaid, return receipt requested, addressed as set forth herein. In the case of Company, such notices, requests, demands and other communications will be addressed to:

 

Artificial Life, Inc.

26/F., 88 Hing Fat Street

Causeway Bay

Hong Kong

Attn: Eberhard Schoneburg, Chief Executive Officer 

 

In the case of Holder, such notices, requests, demands and communications will be addressed to its address as shown on the signature page to the Subscription Agreement executed by such Holder, unless Holder will notify Company that notices and communications should be sent to a different address, in which case such notices and communications will be sent to the address (or telex number) specified by Holder.

 

Any party may alter the address to which communications are to be sent by giving written notice in conformity with the foregoing provision.

 

4.2        Amendments. The provisions of this Warrant may be amended, modified or waived only with the written consent of Company and the Holder.  

 

4.3        Covenants to Bind Successor and Assigns. All covenants, stipulations, promises and agreements in this Warrant by or on behalf of Company and the Holder will bind its successors and assigns.

 

4.4        No Rights as Stockholder. This Warrant does not entitle Holder to vote or receive dividends or be deemed the holder of Common Stock or any other securities of Company that may at any 

 

5

time be issuable upon the exercise of this Warrant for any purpose, nor will anything in this Warrant be construed to give the Holder any rights as a stockholder of Company either in law or in equity, unless and until Holder exercises the right to purchase Common Stock in accordance to the terms and conditions set forth in this Warrant.

 

4.5        Governing Law.  This Warrant will be governed by and construed under the laws of the State of Delaware without regard to its choice of law principles to the contrary.  

 

6

 

IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its authorized officer to be effective as of the date set forth below.

 

	
             
 	
            Dated: December __, 2007
 

	
             
 	
            ARTIFICIAL LIFE, INC.
 

 

By:_____________________________________ 

	
             
 	
            Eberhard Schoneburg, Chief Executive Officer
 

 

 

 

 

 

7

EXHIBIT A

 

EXERCISE NOTICE

(To be executed for exercise of the Warrant)

 

	
            To:
 	
            ARTIFICIAL LIFE, INC.
 

 

The undersigned hereby irrevocably elects to exercise the right of purchase represented by the attached Warrant No. [____________]for, and to purchase [____________] shares of Common Stock (“Shares”) as provided for therein, and tenders herewith payment of the full Exercise Price in the amount of $__________, paid in the following form (please check applicable box):

 

	
             
 	
            □
 	
            cash
 

	
             
 	
            □
 	
            certified or bank officer’s check
 

	
             
 	
            □
 	
            wire transfer
 

 

Please issue a certificate or certificates for such shares of Common Stock in the following name(s) denominations (if no contrary instructions are stated, a single certificate will be issued in the name of Holder):

 

_____________________________________________________________________________________

PRINT EXACT NAME

_____________________________________________________________________________________ 
DELIVERY ADDRESS

_____________________________________________________________________________________

ADDRESS OF REGISTERED OWNER OF SHARES

_____________________________________________________________________________________

NUMBER OF SHARES

 

(Attach additional sheets if necessary)

 

As of the date set forth herein, Holder hereby represents and warrants to Company that the Shares of Company are acquired for the individual account of the undersigned for investment and not with a view to distribution or resale in violation of the registration requirements of Securities Act of 1933, as amended (the "Securities Act").  In addition, the undersigned represents that he, she or it (as the case may be) is an "accredited investor" as such term is defined in Rule 501(a) of the Securities Act.  

 

Undersigned acknowledges that if the number of shares issued pursuant to this Exercise Notice will not be all the shares issuable upon exercise of the attached Warrant, a new Warrant is to be issued in the name of Holder for the balance remaining of such shares less any fraction of a share paid in cash in accordance with the Warrant.

 

Dated:  ________________

 

Name of Holder of Warrant:______________________________________________________________

 

Address:_____________________________________________________________________________

 

Signature:____________________________________________________________________________

 

**Note: The above signature should correspond exactly with the name on the face of the attached Warrant.

 

8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00134-of-00352.parquet"}]]