Document:

exhibit_10-1.htm

Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is entered as of December 13th, 2013 (“Effective Date”) by and between MagicJack VocalTec Ltd. (the “Company”) and Timothy McDonald (the “Executive” and, together with the Company, the “Parties”).

 

WHEREAS, the Company desires for the Executive to be employed as Chief Operating Officer (“COO”) of the Company as of December 13th, 2013, and Executive desires to accept employment, subject to and on the terms and conditions set forth in this Agreement; and

 

WHEREAS, both the Company and the Executive have read and understood the terms and provisions set forth in this Agreement and have been afforded a reasonable opportunity to review this Agreement with their respective legal counsel; and

 

WHEREAS, the terms of this Agreement have been reviewed and approved by the members of the Compensation Committee of the Board of Directors of the Company (the “Board”), approved by the Board, and determined by the Compensation Committee and the Board to be consistent with the principles of Amendment 20 to the Israeli Companies Law.

 

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other valuable consideration the receipt and adequacy of which is hereby acknowledged, the Parties hereby agree as follows:

 

	
1.

	
POSITION AND DUTIES.  The Company hereby agrees to employ the Executive in the positions and titles of COO of the Company effective as of December 13th, 2013, and the Executive hereby agrees to be employed in such capacity. The Executive will perform all duties and responsibilities inherent in the positions of COO. The Executive shall report directly to the Company’s Chief Executive Officer. He shall have all authority and responsibility commensurate with the COO title.

 

	
2.

	
TERM OF AGREEMENT AND EMPLOYMENT.  The term of the Executive’s employment under this Agreement will begin on the date hereof and terminate on December 31st, 2016.

 

	
3.

	
DEFINITIONS.

 

	
  

	
A.

	
CAUSE.  For purposes of this Agreement, “Cause” for the termination of the Executive’s employment hereunder shall be deemed to exist if, in the reasonable judgment of the Company’s Board: (i) the Executive commits fraud, theft or embezzlement against the Company or any subsidiary or affiliate thereof; (ii) the Executive commits a felony or a crime involving moral turpitude; (iii) the Executive breaches any non-competition, confidentiality or non-solicitation agreement with the Company or any subsidiary or affiliate thereof; (iv) the Executive’s material breach of the Company’s Insider Trading Policy, FD/Media Policy or Investment Policy, (v) the Executive breaches any of the terms of this Agreement and fails to cure such breach within thirty (30) days after the receipt of written notice of such breach from the Company; or (vi) the Executive engages in gross negligence or willful misconduct that causes harm to the business and operations of the Company or a subsidiary or affiliate thereof.

 

  

  

  

 

	
  

	
B.

	
GOOD REASON.  Termination by the Executive of his employment for “Good Reason” shall mean a termination by the Executive of his employment upon the occurrence of one of the following events or conditions without the consent of the Executive:

 

(i)           A material reduction in the authority, duties or responsibilities of the Executive;

 

(ii)          Any material reduction in the Executive’s Annual Base Salary or Target Annual Bonus (as defined below); or

 

(iii)         Any material breach of this Agreement by the Company.

 

Notwithstanding the foregoing, the Executive shall not be deemed to have terminated his employment for Good Reason unless: (i) the Executive terminates his employment no later than ninety (90) days following his initial discovery of the above referenced event or condition which is the basis for such termination; and (ii) the Executive provides to the Company a written notice of the existence of the above referenced event or condition which is the basis for the termination within forty-five (45) days following his initial discovery of such event or condition, and the Company fails to remedy such event or condition within thirty (30) days following the receipt of such notice.

 

	
  

	
C.

	
CHANGE OF CONTROL.  For purposes of this Agreement, a “Change of Control” of the Company shall be deemed to occur if (i) a Person acquires ownership of stock that, together with stock held by such Person, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company; (ii) a majority of the members of the Board are replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of such Board before the date of such appointment or election; or (iii) a Person (other than a Person controlled, directly or indirectly, by shareholders of the Company) acquires fifty percent (50%) or more of the gross fair market value of the assets of the Company over a twelve (12) week period.

 

For purposes of the above, the terms “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section 13(d) thereof.  It is intended that the definition of Change of Control complies with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and all questions or determinations in connection with any such Change of Control shall be construed and interpreted in accordance with the provisions of such Regulations.  Notwithstanding the above, a Change of Control shall occur only if it constitutes a “change of control” within the meaning of Section 409A of the Code and the regulations promulgated thereunder.

 

  

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4.

	
COMPENSATION.

 

	
  

	
A.

	
ANNUAL BASE SALARY.  Executive shall be paid an annual base salary of $350,000, subject to review each calendar year and possible increase in the sole discretion of the Board, payable in equal twice monthly installments (the “Annual Base Salary”).

 

	
  

	
B.

	
ANNUAL BONUS.  For each fiscal year of employment during which the Company employs the Executive, Executive shall be eligible to receive a bonus (the “Annual Bonus”) based on the Company meeting certain performance criteria.  Executive’s target annual bonus will be $150,000, subject to review each calendar year and possible increase in the sole discretion of the Board (the “Target Annual Bonus”).  The Annual Bonus will range from thirty-five percent (35%) to two hundred percent (200%) of the Target Annual Bonus.  The Annual Bonus formula and performance criteria for each fiscal year will be based: (i) fifty percent (50%) on the Company meeting at least eighty percent (80%) and up to one hundred and twenty percent (120%) of its target revenue for the fiscal year; and (ii) fifty percent (50%) on the Company meeting at least eighty percent (80%) and up to one hundred and twenty percent (120%) of its target EBITDA for the fiscal year.  A table showing the Target Annual Bonus payable at various increments is attached hereto as Attachment A.  The Company’s target revenue and target EBITDA shall be set by the Compensation Committee and communicated to Executive no later than ninety (90) days after the start of each fiscal year.  For purposes of this Agreement, “EBITDA” shall mean earnings before interest, taxes, depreciation and amortization calculated in accordance with generally accepted accounting principles consistent with the application of such concepts in developing the Company’s annual budget, subject to adjustments for one-time occurrences outside the ordinary course of business as deemed appropriate by the Company’s Compensation Committee.

 

Executive will not be entitled to a bonus for calendar year 2013.  Each Annual Bonus thereafter shall be paid on the basis of the Company’s fiscal year, which is the calendar year.

 

The Annual Bonus payable to Executive shall be paid no later than 2-1/2 months following the end of the calendar year with respect to which the Annual Bonus was earned.

 

Except as otherwise provided in Section 7, below, Executive shall only be entitled to receive an Annual Bonus if Executive is employed by the Company pursuant to this Agreement at the close of business on the last day of the applicable fiscal year with respect to the Annual Bonus.

 

  

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If the Company’s financial statements are restated for a period for which an Annual Bonus has been paid under the terms of this Agreement, the Annual Bonus amount for such period will be re-calculated by the Company (the “Recalculated Bonus Amount”).  In any such event, the difference between the Annual Bonus in question and the Recalculated Bonus Amount shall be paid to or refunded by the Executive, as applicable, not later than sixty (60) days after the restatement, provided that no such adjustments will be made at any time after the 2nd anniversary of the Annual Bonus payment in question.

 

	
  

	
C.

	
SIGNING BONUS.  Executive shall receive a signing bonus in the amount of $350,000 within three (3) days after full execution of this Agreement.

 

	
5.

	
EXECUTIVE BENEFITS AND REIMBURSEMENTS.  Executive will be entitled to twenty (20) paid-time-off (PTO) days of vacation per fiscal year. The Executive will be eligible to participate in, without action by the Board or any committee thereof, any benefits and perquisites available to executive officers of the Company, including any group health, dental, life insurance, disability, or other form of executive benefit plan or program of the Company now existing or that may be later adopted by the Company (collectively, the “Executive Benefits”). The Company shall reimburse Executive for all ordinary and necessary business expenditures made by Executive in connection with, or in furtherance of, his employment upon presentation by Executive of expense statements, receipts, vouchers or such other supporting information as may from time to time be reasonably requested by the Board.

 

	
6.

	
EQUITY GRANT. Executive shall be granted stock options to purchase 255,794 shares of the Company’s ordinary shares at an exercise price equal to the fair market value of the Company’s ordinary shares on the date of grant, which will be the date of this Agreement (the “Options”).   In addition, Executive shall be granted 24,410 shares of restricted ordinary shares (the “Restricted Stock”) effective as of the date of this Agreement upon approval of the magicJack Vocaltec 2013 Long-Term Incentive Plan by the Company’s stockholders. The Options and Restricted Stock will vest as set forth in the Option Agreement and Restricted Stock Agreement granting the Options and the Restricted Stock.

 

	
7.

	
TERMINATION.  Either the Executive or the Company may terminate the Executive’s employment under this Agreement for any reason upon not less than thirty (30) days prior written notice.

 

	
  

	
A.

	
TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY WITHOUT CAUSE.  Upon the termination of the Executive’s employment prior to a Change of Control under this Agreement by the Executive for Good Reason or by the Company without Cause, the Executive shall be entitled to be paid a termination payment (the “Termination Payment”) equal to one (1) times the sum of (a) Executive’s Annual Base Salary at the time of such termination and (b) the Executive’s Target Annual Bonus for the fiscal year in which his employment is terminated (as if the applicable performance criteria have been met at the level that would result in payment of the Target Annual Bonus at the 100% level irrespective of whether or not that is the case). The Termination Payment shall be paid in lump sum within fifteen (15) days after the Company’s receipt of a general release that has become irrevocable as specified in Section 7(F) following any termination pursuant to this Section 7(A).

 

  

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B.

	
TERMINATION OF EMPLOYMENT BY RESIGNATION OF EXECUTIVE WITHOUT GOOD REASON, BY THE COMPANY WITH CAUSE, DEATH OR DISABILITY.  Upon the termination of the Executive’s employment by the resignation of  Executive without Good Reason, by the Company with Cause, death, disability or for any other reason other than a reason described in Sections 7(A) or 7(C), the Executive shall be due no further compensation other than what is due and owing through the effective date of such Executive’s resignation or termination (including any Annual Bonus that may be due and payable to the Executive), which amounts shall be paid to the Executive within fifteen (15) days after the Company’s receipt of a general release that has become  irrevocable as specified in Section 7(F) following any termination  pursuant to this Section 7(B).

 

	
  

	
C.

	
TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY WITHOUT CAUSE FOLLOWING A CHANGE OF CONTROL.  If upon or within 6 months subsequent to a Change of Control, the Executive’s employment under this Agreement is terminated by the Executive for Good Reason or by the Company without Cause (“Change of Control Termination”), the Executive shall be entitled to and paid a termination payment (the “Change of Control Termination Payment”) equal to three (3) times the sum of (a) Executive’s Annual Base Salary at the time of such termination and (b) the Executive’s Target Annual Bonus for the fiscal year in which his employment is terminated (as if the applicable performance criteria have been met at the level that would result in payment of the Target Annual Bonus at the 100% level irrespective of whether or not that is the case). The Change of Control Termination Payment shall be made within five (5) days after a Change of Control Termination.

 

	
  

	
D.

	
TERMINATION OF EMPLOYMENT BY THE EXECUTIVE FOR GOOD REASON OR BY THE COMPANY WITHOUT CAUSE WITHIN 180 DAYS PRIOR TO  A CHANGE OF CONTROL.  If the Executive’s employment under this Agreement is terminated by the Executive for Good Reason or by the Company without Cause 180 days prior to the Company's execution of an agreement which, if consummated, would constitute a Change of Control, then upon consummation of such Change of Control, Executive shall receive an additional payment equal to the difference between (i) the Change of Control Termination Payment described in Section 7(C) and (ii) any Termination Payment previously provided to Executive under Section 7(A).  Any additional payment pursuant to this Section 7(D) shall be made within five (5) days after a Change of Control.

 

  

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E.

	
PAYMENT REDUCTION UNDER SECTION 280G. Notwithstanding any other provision of this Agreement, in the event that the Change of Control Termination Payment or any payment or benefit received or to be received by Executive (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (collectively, the "Total Benefits") would be subject to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), the Total Benefits shall be reduced to the extent necessary so that no portion of the Total Benefits is subject to the Excise Tax; provided, however, that no such reduction in the Total Benefits shall be made if by not making such reduction, Executive’s Retained Amount (as hereinafter defined) would be greater than Executive’s Retained Amount if the Total Benefits are not so reduced.  In the event any such reduction is required, the Total Benefits shall be reduced in the following order: (i) the Change of Control Termination Payment, the Termination Payment, and the payment provided for by Section 7.D (pro rata to the extent more than one is payable), (ii) any other portion of the Total Benefits that are not subject to Section 409A of the Code (other than Total Benefits resulting from any accelerated vesting of equity-based awards), (iv) Total Benefits that are subject to Section 409A of the Code in reverse order of payment, and (v) Total Benefits that are not subject to Section 409A and arise from any accelerated vesting of any equity-based awards.  All determinations with respect to this Section 7(D) and the assumptions to be utilized in arriving at such determination shall be made by an independent public accounting firm with a national reputation in the United States that is reasonably agreed to by the Executive and the Company (the “Accounting Firm”) which shall provide detailed support and calculations both to the Company and to Executive. The parties hereto hereby elect to use the applicable Federal rate that is in effect on the date this Agreement is entered into for purposes of determining the present value of any payments provided for hereunder for purposes of Section 280G of the Code.  “Retained Amount” shall mean the present value (as determined in accordance with sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of the Total Benefits net of all federal, state and local taxes imposed on Executive with respect thereto.

 

	
  

	
F.

	
GENERAL RELEASE OF CLAIMS.  Executive shall not be entitled to any Termination Payment, Change of Control Termination Payment, or the payment provided for by Section 7.D (each, a “Severance Payment”) unless (i) Executive has executed and delivered to the Company a general release of claims (in such form as the Executive and the Company shall reasonably agree) (the “Release”) and such Release has become irrevocable under the Age Discrimination in Employment Act (ADEA) and its terms not later than fifty-six (56) days after the date of Executive’s termination of employment hereunder.  The Company shall deliver to Executive a copy of the Release not later than three (3) days after the Company’s termination of Executive’s employment without Cause or Executive’s termination of Employment for Good Reason.

 

	
  

	
G.

	
NO OFFSET AND NO MITIGATION.  Executive shall not be required to mitigate any damages resulting from a breach by the Company of this Agreement by seeking other comparable employment. The amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation or benefits earned by or provided to Executive as a result of his employment by another employer.

 

  

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8.

	
RESTRICTIVE COVENANTS.

 

	
  

	
A.

	
GENERAL.  The Company and the Executive hereby acknowledge and agree that (i) the Executive is in possession of trade secrets of the Company (the “Trade Secrets”), (ii) the restrictive covenants contained in this Section 8 are justified by legitimate business interests of the Company, including, but not limited to, the protection of the Trade Secrets, and (iii) the restrictive covenants contained in this Section 8 are reasonably necessary to protect such legitimate business interests of the Company.

 

	
  

	
B.

	
NON-COMPETITION.  In consideration for the termination payments and benefits that the Executive may receive in accordance with Section 7 of this Agreement, the Executive agrees that during the period of the Executive’s employment with the Company and until two (2) years after the termination of the Executive’s employment with the Company, the Executive will not, directly or indirectly, either (i) on the Executive’s own behalf or as a partner, officer, director, trustee, executive, agent, consultant or member of any person, firm or corporation, or otherwise, enter into the employ of, render any service to, or engage in any business or activity which is the same as or competitive with any business or activity conducted by the Company or any of its majority-owned subsidiaries, or (ii) become an officer, employee or consultant of, or otherwise assume a substantial role or relationship with, any governmental entity, agency or political subdivision that is a client or customer of the Company or any subsidiary or affiliate of the Company; provided, however, that the foregoing shall not be deemed to prevent the Executive from investing in securities of any company having a class of securities which is publicly traded, so long as through such investment holdings in the aggregate, the Executive is not deemed to be the beneficial owner of more than five percent (5%) of the class of securities that is so publicly traded.  During the period of the Executive’s employment and until three years after the termination of the Executive’s employment, the Executive will not, without the Company’s prior written consent, directly or indirectly, on the Executive’s own behalf or as a partner, shareholder, officer, executive, director, trustee, agent, consultant or member of any person, firm or corporation or otherwise, seek to employ or otherwise seek the services of any employee or consultant of the Company or any of its majority-owned subsidiaries.

 

	
  

	
C.

	
CONFIDENTIALITY.  During and following the period of the Executive’s employment with the Company, the Executive will not use for the Executive’s own benefit or for the benefit of others, or divulge to others, any information, Trade Secrets, knowledge or data of a secret or confidential nature and otherwise not available to members of the general public that concerns the business or affairs of the Company or its subsidiaries or affiliates and which was acquired by the Executive at any time prior to or during the term of the Executive’s employment with the Company (collectively the “Data”), except with the specific prior written consent of the Company.

 

  

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D.

	
WORK PRODUCT.  The Executive agrees that all programs, inventions, innovations, improvements, developments, methods, designs, analyses, reports and all similar or related information which relate to the business of the Company and its subsidiaries or affiliates, actual or anticipated, or to any actual or anticipated research and development conducted in connection with the business of the Company and its subsidiaries or affiliates, and all existing or future products or services, which are conceived, developed or made by the Executive (alone or with others) during the term of this Agreement (“Work Product”) belong to the Company.  The Executive will cooperate fully in the establishment and maintenance of all rights of the Company and its subsidiaries or affiliates in such Work Product. The provisions of this Section 8(D) will survive termination of this Agreement indefinitely to the extent necessary to require actions to be taken by the Executive after the termination of the Agreement with respect to Work Product created during the term of this Agreement.

 

	
  

	
E.

	
ENFORCEMENT.  The Parties agree and acknowledge that the restrictions contained in this Section 8 are reasonable in scope and duration and are necessary to protect the Company or any of its subsidiaries or affiliates. If any covenant or agreement contained in this Section 8 is found by a court having jurisdiction to be unreasonable in duration, geographical scope or character of restriction, the covenant or agreement will not be rendered unenforceable thereby but rather the duration, geographical scope or character of restriction of such covenant or agreement will be reduced or modified with retroactive effect to make such covenant or agreement reasonable, and such covenant or agreement will be enforced as so modified.  The Executive agrees and acknowledges that the breach of this Section 8 will cause irreparable injury to the Company or any of its subsidiaries or affiliates and upon the breach of any provision of this Section 8, the Company or any of its subsidiaries or affiliates shall be entitled to injunctive relief, specific performance or other equitable relief, without being required to post a bond; PROVIDED, HOWEVER, that, this shall in no way limit any other remedies which the Company or any of its subsidiaries or affiliates may have (including, without limitation, the right to seek monetary damages).  In the event of any conflict between the provisions of this Section 8 and Section 7 of the Agreement, the provisions of this Section 8 shall prevail.

 

	
9.

	
REPRESENTATIONS.  The Executive hereby represents and warrants to the Company that (i) the execution, delivery and full performance of this Agreement by the Executive does not and will not conflict with, breach, violate or cause a default under any agreement, contract or instrument to which the Executive is a party or any judgment, order or decree to which the Executive is subject; and (ii) upon the execution and delivery of this Agreement by the Executive and the Company, this Agreement will be the Executive’s valid and binding obligation, enforceable in accordance with its terms.

 

	
10.

	
INTENTIONALLY OMITTED.

 

  

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11.

	
ASSIGNMENT.  The Executive may not assign, transfer, convey, mortgage, hypothecate, pledge or in any way encumber the compensation or other benefits payable to the Executive or any rights which the Executive may have under this Agreement. Neither the Executive nor the Executive’s beneficiary or beneficiaries will have any right to receive any compensation or other benefits under this Agreement, except at the time, in the amounts and in the manner provided in this Agreement. This Agreement will inure to the benefit of and will be binding upon any successor to the Company, and any successor to the Company shall be authorized to enforce the terms and conditions of this Agreement, including the terms and conditions of the restrictive covenants contained in Section 8 hereof. As used in this Agreement, the term “successor” means any person, firm, corporation or other business entity which at any time, whether by merger, purchase or otherwise, acquires all or substantially all of the capital stock or assets of the Company. This Agreement may not otherwise be assigned by the Company.

 

	
12.

	
GOVERNING LAW.  This Agreement shall be governed by the laws of the State of Florida without regard to the application of conflicts of laws.

 

	
13.

	
ENTIRE AGREEMENT.  This Agreement constitutes the only agreements between Company and the Executive regarding the Executive’s employment by the Company. This Agreement supersedes any and all other agreements and understandings, written or oral, between the Company and the Executive regarding the subject matter hereof and thereof. A waiver by either party of any provision of this Agreement or any breach of such provision in an instance will not be deemed or construed to be a waiver of such provision for the future, or of any subsequent breach of such provision. This Agreement may be amended, modified or changed only by further written agreement between the Company and the Executive, duly executed by both Parties.

 

	
14.

	
SEVERABILITY; SURVIVAL.  In the event that any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction, then such unenforceable provision shall be deemed modified so as to be enforceable (or if not subject to modification then eliminated herefrom) to the extent necessary to permit the remaining provisions to be enforced in accordance with the Parties’ intention. The provisions of Section 8 (and the restrictive covenants contained therein) shall survive the termination for any reason of this Agreement and/or the Executive’s relationship with the Company.

 

	
15.

	
NOTICES.  Any and all notices required or permitted to be given hereunder will be in writing and will be deemed to have been given when deposited in United States mail, certified or registered mail, postage prepaid. Any notice to be given by the Executive hereunder will be addressed to the Company to the attention of Chairman of the Board of Directors at 222 Lakeview Avenue, Suite 1550, West Palm Beach, FL 33401. Any notice to be given to the Executive will be addressed to the Executive at the Executive’s residence address last provided by the Executive to the Company. Either party may change the address to which notices are to be addressed by notice in writing to the other party given in accordance with the terms of this Section.

 

  

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16.

	
HEADINGS.  Section headings are for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement or any of its terms and conditions.

 

	
17.

	
SECTION 409A COMPLIANCE.

 

	
  

	
A.

	
GENERAL.  It is the intention of both the Company and the Executive that the benefits and rights to which the Executive is entitled pursuant to this Agreement comply with Code Section 409A or exceptions thereto and the provisions of this Agreement shall be construed in a manner consistent with that intention. If the Executive or the Company believes, at any time, that any such benefit or right that is subject to Code Section 409A does not so comply, it shall promptly advise the other and shall negotiate reasonably and in good faith to amend the terms of such benefits and rights such that they comply with Code Section 409A (with the most limited possible economic effect on the Executive and on the Company).

 

	
  

	
B.

	
DISTRIBUTIONS ON ACCOUNT OF SEPARATION FROM SERVICE.  To the extent required to comply with Code Section 409A, any payment or benefit required to be paid under this Agreement on account of termination of the Executive’s service (or any other similar term) shall be made only in connection with a “separation from service” with respect to the Executive within the meaning of Code Section 409A.

 

	
  

	
C.

	
NO ACCELERATION OF PAYMENTS.  Neither the Company nor the Executive, individually or in combination, may accelerate any payment or benefit that is subject to Code Section 409A, except in compliance with Code Section 409A and the provisions of this Agreement, and no amount that is subject to Code Section 409A shall be paid prior to the earliest date on which it may be paid without violating Code Section 409A.

 

	
  

	
D.

	
SIX MONTH DELAY FOR SPECIFIED EMPLOYEES. In the event that the Executive is a “specified employee” (as described in Code Section 409A), and any payment or benefit payable pursuant to this Agreement constitutes deferred compensation under Code Section 409A, then, to the extent required to comply with Section 409A of the Code, no such payment or benefit shall be made before the date that is six months after the Executive’s “separation from service” (as described in Code Section 409A) (or, if earlier, the date of the Executive’s death). Any payment or benefit delayed by reason of the prior sentence shall be paid out or provided in a single lump sum at the end of such required delay period in order to catch up to the original payment schedule.

 

	
  

	
E.

	
TREATMENT OF EACH INSTALLMENT AS A SEPARATE PAYMENT.  For purposes of applying the provisions of Code Section 409A to this Agreement, each separately identified amount to which the Executive is entitled under this Agreement shall be treated as a separate payment. In addition, to the extent permissible under Code Section 409A, any series of installment payments under this Agreement shall be treated as a right to a series of separate payments.

 

  

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F.

	
REIMBURSEMENTS AND IN-KIND BENEFITS.  With respect to reimbursements and in-kind benefits that may be provided under the Agreement (the “Reimbursement Plans”), to the extent any benefits provided under the Reimbursement Plans are subject to Section 409A, the Reimbursement Plans shall meet the following requirements:

 

(i)            Reimbursement Plans shall use an objectively determinable, nondiscretionary definition of the expenses eligible for reimbursement or of the in-kind benefits to be provided;

 

(ii)           Reimbursement Plans shall provide that the amount of expenses eligible for reimbursement, or in-kind benefits provided, during the Executive’s taxable year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided, however, that Reimbursement Plans providing for reimbursement of expenses referred to in Code Section 105(b) shall not fail to meet the requirement of this Section 17(F)(ii) solely because such Reimbursement Plans provide for a limit on the amount of expenses that may be reimbursed under such arrangements over some or all of the period in which Reimbursement Plans remain in effect;

 

(iii)          The reimbursement of an eligible expense is made on or before the last day of Executive’s taxable year following the taxable year in which the expense was incurred; and

 

(iv)          The right to reimbursement or in-kind benefits under the Reimbursement Plans shall not be subject to liquidation or exchange for another benefit.

 

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

 

  

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IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Agreement under seal as of the date first above written.

 

MAGICJACK VOCALTEC LTD.

 

Signature:    /s/ Gerald T. Vento                                                                      

 

Name:           Gerald T. Vento

 

Title:             President and Chief Executive Officer

 

EXECUTIVE

 

Signature:    /s/ Timothy McDonald                                                                      

 

Name:          Timothy McDonald

 

  

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ATTACHMENT A

 

	
% of Revenue Target

	 	 	
Annual Target Bonus*

	 	 	
% of EBITDA Target

	 	 	
Annual Target Bonus*

	 
	 	 	 	 	 	 	 	 	 	 	 
	
<80

	%	 	$	-	 	 	
<80

	%	 	$	-	 
	 	80	%	 	$	26,250.00	 	 	 	80	%	 	$	26,250.00	 
	 	81	%	 	$	28,687.50	 	 	 	81	%	 	$	28,687.50	 
	 	82	%	 	$	31,125.00	 	 	 	82	%	 	$	31,125.00	 
	 	83	%	 	$	33,562.50	 	 	 	83	%	 	$	33,562.50	 
	 	84	%	 	$	36,000.00	 	 	 	84	%	 	$	36,000.00	 
	 	85	%	 	$	38,437.50	 	 	 	85	%	 	$	38,437.50	 
	 	86	%	 	$	40,875.00	 	 	 	86	%	 	$	40,875.00	 
	 	87	%	 	$	43,312.50	 	 	 	87	%	 	$	43,312.50	 
	 	88	%	 	$	45,750.00	 	 	 	88	%	 	$	45,750.00	 
	 	89	%	 	$	48,187.50	 	 	 	89	%	 	$	48,187.50	 
	 	90	%	 	$	50,625.00	 	 	 	90	%	 	$	50,625.00	 
	 	91	%	 	$	53,062.50	 	 	 	91	%	 	$	53,062.50	 
	 	92	%	 	$	55,500.00	 	 	 	92	%	 	$	55,500.00	 
	 	93	%	 	$	57,937.50	 	 	 	93	%	 	$	57,937.50	 
	 	94	%	 	$	60,375.00	 	 	 	94	%	 	$	60,375.00	 
	 	95	%	 	$	62,812.50	 	 	 	95	%	 	$	62,812.50	 
	 	96	%	 	$	65,250.00	 	 	 	96	%	 	$	65,250.00	 
	 	97	%	 	$	67,687.50	 	 	 	97	%	 	$	67,687.50	 
	 	98	%	 	$	70,125.00	 	 	 	98	%	 	$	70,125.00	 
	 	99	%	 	$	72,562.50	 	 	 	99	%	 	$	72,562.50	 
	 	100	%	 	$	75,000.00	 	 	 	100	%	 	$	75,000.00	 
	 	101	%	 	$	78,750.00	 	 	 	101	%	 	$	78,750.00	 
	 	102	%	 	$	82,500.00	 	 	 	102	%	 	$	82,500.00	 
	 	103	%	 	$	86,250.00	 	 	 	103	%	 	$	86,250.00	 
	 	104	%	 	$	90,000.00	 	 	 	104	%	 	$	90,000.00	 
	 	105	%	 	$	93,750.00	 	 	 	105	%	 	$	93,750.00	 
	 	106	%	 	$	97,500.00	 	 	 	106	%	 	$	97,500.00	 
	 	107	%	 	$	101,250.00	 	 	 	107	%	 	$	101,250.00	 
	 	108	%	 	$	105,000.00	 	 	 	108	%	 	$	105,000.00	 
	 	109	%	 	$	108,750.00	 	 	 	109	%	 	$	108,750.00	 
	 	110	%	 	$	112,500.00	 	 	 	110	%	 	$	112,500.00	 
	 	111	%	 	$	116,250.00	 	 	 	111	%	 	$	116,250.00	 
	 	112	%	 	$	120,000.00	 	 	 	112	%	 	$	120,000.00	 
	 	113	%	 	$	123,750.00	 	 	 	113	%	 	$	123,750.00	 
	 	114	%	 	$	127,500.00	 	 	 	114	%	 	$	127,500.00	 
	 	115	%	 	$	131,250.00	 	 	 	115	%	 	$	131,250.00	 
	 	116	%	 	$	135,000.00	 	 	 	116	%	 	$	135,000.00	 
	 	117	%	 	$	138,750.00	 	 	 	117	%	 	$	138,750.00	 
	 	118	%	 	$	142,500.00	 	 	 	118	%	 	$	142,500.00	 
	 	119	%	 	$	146,250.00	 	 	 	119	%	 	$	146,250.00	 
	 	120	%	 	$	150,000.00	 	 	 	120	%	 	$	150,000.00	 
	
>120

	%	 	$	150,000.00	 	 	
>120

	%	 	$	150,000.00	 
	
 

*Based on Target Bonus of $150,000

	 	 	 	 	 	 	 	 	 

 

13ex10-1.htm

Exhibit 10.1

 

 

SUBSCRIPTION AGREEMENT

 

Pubco (to be identified prior to closing) AV Therapeutics, Inc.

20 East 68th St., Suite 204

New York, NY 10065

 

Ladies and Gentlemen:

 

1.         Subscription.  The undersigned (the “Purchaser”), intending to be legally bound, hereby irrevocably agrees to purchase from Pubco1, a Delaware corporation (the “Company”) the number of shares of Pubco’s common stock (the “Shares”) set forth on the signature page hereof at a purchase price of $0.20 per Share.  The Shares are being purchased in connection with a reverse acquisition transaction between AV Therapeutics, Inc. (“AVT”), the Company and two wholly-owned subsidiaries of the Company.

2.         This subscription is submitted to you in accordance with and subject to the terms and conditions described in this Subscription Agreement (the “Agreement” or “Subscription Agreement”) and the Confidential Private Placement Memorandum (“PPM”) of the Company and AVT dated September 30, 2013, as amended or supplemented from time to time, including all attachments, schedules and exhibits thereto (the “Memorandum”), relating to the offering (the “Offering”) by the Company of  up  to  a  maximum  of 12,500,000 shares of common stock ($2,500,000) (“Maximum Offering Amount”).   The terms of the Offering are more completely described in the Memorandum and such terms are incorporated herein in their entirety.

3.         Payment.   The Purchaser encloses herewith a check payable to, or will immediately make a wire transfer payment to, “Sichenzia Ross Friedman Ference, Escrow Agent for AV Therapeutics, Inc.” in the full amount of the purchase price of the Shares being subscribed for.  Wire transfer instructions are set forth on page 12 hereof under the heading “To subscribe for Shares in the private offering of Pubco/AV Therapeutics, Inc.”  Such funds will be held for the Purchaser's benefit, and will be returned promptly, without interest or offset if (i) this Subscription Agreement is not accepted by the Company and AVT, (ii) the Acquisition (as defined in the PPM) is not consummated, or (ii) the Offering is terminated pursuant to its terms by the Company prior to the First Closing (as defined hereafter). Together with a check for, or wire transfer of, the full purchase price, the Purchaser is delivering

 

 

1 

  The identity of Pubco will be circulated to potential investors prior to the closing. In connection with the consummation of the proposed reverse acquisition transaction, it is contemplated that Pubco will change its name to AV Therapeutics, Inc. (or a substantially similar name to be determined by management).

  

1

  

 

a completed and executed Omnibus Signature Page to this Subscription Agreement and the Registration Rights Agreement, in the form of Exhibit C to the Memorandum (the “Registration Rights Agreement”).

4.         Deposit of Funds.  All payments made as provided in Section 3 hereof shall be deposited with Sichenzia Ross Friedman Ference LLP (the “Escrow Agent”), in a non-interest-bearing escrow account (the “Escrow Account”) until the earliest to occur of (a) the closing of the first sale of the Shares after the Acquisition (the “First Closing”), (b) the rejection of such subscription, and (c) the termination of the Offering by the Company, or AVT.  The Company may continue to offer and sell the Shares and conduct additional  closings  for  the  sale  of  additional  Shares  after  the  First  Closing  and  until  the termination of the Offering.

5.         Acceptance of Subscription and Delivery of Shares.  The Purchaser understands and agrees that the Company and AVT, in their sole discretion, reserves the right to accept or reject this or any other subscription for Shares, in whole or in part, notwithstanding prior receipt by the Purchaser of notice of acceptance of this subscription. The Company shall have no obligation hereunder until the Company shall execute and deliver to the Purchaser an executed copy of this Subscription Agreement.  If this subscription is rejected in whole, or the Offering of Shares is terminated for any reason, all funds received from the Purchaser will be returned without interest or offset, and this Subscription Agreement shall thereafter be of no further force or effect.    If  this  subscription  is  rejected  in  part,  the  funds  for  the  rejected  portion  of  this subscription will be returned without interest or offset, and this Subscription Agreement will continue in full force and effect to the extent this subscription was accepted. The Company shall deliver or cause to be delivered to the Purchasers certificates for the Shares within ten business days of the applicable Closing for such Shares, at the addresses set forth on the signature page to this Agreement, or at such other address as the Purchasers may provide in writing to the Company or AVT.

6.         Representations and Warranties.

The Purchaser hereby acknowledges, represents, warrants, and agrees as follows:

(a)       None of the Shares offered pursuant to the Memorandum are registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws.  The Purchaser understands that the offering and sale of the Shares is intended to be exempt from registration under the Securities Act, by virtue of Section 4(a)(2) thereof and the provisions of Regulation D (“Regulation D”) as promulgated by the United States Securities and Exchange Commission (the “SEC”) thereunder, based, in part, upon the representations, warranties and agreements of the Purchaser contained in this Subscription Agreement;

(b)       Prior to the execution of this Subscription Agreement, the Purchaser and the Purchaser's attorney, accountant, purchaser representative and/or tax adviser, if any (collectively, the “Advisers”), have received the Memorandum and all other documents requested by the Purchaser, have carefully reviewed them and understand the information contained therein;

(c)       Neither  the  Securities  and  Exchange  Commission  nor  any  state  securities commission or other regulatory authority has approved the Shares, or passed upon or endorsed the merits of the offering of Shares or

  

2

  

 

confirmed the accuracy or determined the adequacy of the Memorandum. The Memorandum has not been reviewed by any federal, state or other regulatory authority;

(d)       All documents, records, and books pertaining to the investment in the Shares (including, without limitation, the Memorandum) have been made available for inspection by such Purchaser and its Advisers, if any;

(e)       The Purchaser and its Advisers, if any, have had a reasonable opportunity to ask questions of and receive answers from a person or persons acting on behalf of the Company concerning  the  Offering  of  the  Shares  and  the  business,  financial  condition  and  results  of operations of the Company and AVT, and all such questions have been answered to the full satisfaction of the Purchaser and its Advisers, if any;

(f)        In evaluating the suitability of an investment in the Company, the Purchaser has not relied upon any representation or information (oral or written) other than as stated in the Memorandum;

(g)       The Purchaser is unaware of, is in no way relying on, and did not become aware of the Offering of the Shares through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television, radio or the Internet (including, without limitation, internet “blogs,” bulletin boards, discussion groups and social networking sites) in connection with the Offering and sale of the Shares and is not subscribing for the Shares and did not become aware of the Offering of the Shares through or as a result of any seminar or meeting to which the Purchaser was invited by, or any solicitation of a subscription by, a person not previously known to the Purchaser in connection with investments in securities generally;

(h)       The Purchaser has taken no action that would give rise to any claim by any person for brokerage commissions, finders' fees or the like relating to this Subscription Agreement or the transactions contemplated hereby;

(i)        The  Purchaser,  together  with  its  Advisers,  if  any,  has  such  knowledge  and experience in financial, tax, and business matters, and, in particular, investments in securities, so as to enable it to utilize the information made available to it in connection with the Offering to evaluate the merits and risks of an investment in the Shares and the Company and to make an informed investment decision with respect thereto;

(j)        The Purchaser is not relying on the Company, AVT, or any of their respective employees or agents with respect to the legal, tax, economic and related considerations of an investment in the Shares, and the Purchaser has relied on the advice of, or has consulted with, only its own Advisers;

(k)       The Purchaser is acquiring the Shares solely for such Purchaser's own account for investment purposes only and not with a view to or intent of resale or distribution thereof, in whole or in part.  The Purchaser has no agreement or arrangement, formal or informal, with any

  

3

  

 

person to sell or transfer all or any part of the Shares, and the Purchaser has no plans to enter into any such agreement or arrangement.

(l)        The Purchaser must bear the substantial economic risks of the investment in the Shares indefinitely because none of the Shares may be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or an exemption from such registration is available. Legends shall be placed on the Shares to the effect that they have not been registered under the Securities Act or applicable state securities laws and appropriate notations thereof will be made in the Company's stock books.   Appropriate notations will be made in the Company's stock books to the effect that the Shares have not been registered under the Securities Act or applicable state securities laws.  Stop transfer instructions will be placed with the transfer agent of the Shares.  The Company has agreed that purchasers of the Shares will have, with respect to the Shares, the registration rights described in the Registration Rights Agreement.  Notwithstanding such registration rights, there can be no assurance that there will be any market for resale of the Shares, nor can there be any assurance that such securities will be freely transferable at any time in the foreseeable future.

(m)      The Purchaser has adequate means of providing for such Purchaser's current financial needs and foreseeable contingencies and has no need for liquidity of its investment in the Shares for an indefinite period of time;

(n)       The Purchaser is aware that an investment in the Shares is high risk, involving a number of very significant risks and has carefully read and considered the matters set forth under the caption “Risk Factors” in the Memorandum, and, in particular, acknowledges its understanding that AVT has a limited operating history, significant operating losses since inception, no revenues to date, limited assets and is engaged in a highly competitive business;

 

(o)       The Purchaser meets the requirements of at least one of the suitability standards for an “accredited investor” as that term is defined in Regulation D and as set forth on the Accredited Investor Certification contained herein;

(p)       The Purchaser (i) if a natural person, represents that the Purchaser has reached the age of 21 and has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Shares, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Subscription Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the securities constituting the Shares, the execution and delivery of this Subscription Agreement has been duly authorized by all necessary action, this Subscription Agreement has been duly executed and

  

4

  

 

delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Subscription Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Subscription Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Purchaser is executing this Subscription Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company, and represents that this Subscription Agreement constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Subscription Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Purchaser is a party or by which it is bound;

(q)       The Purchaser and the Advisers, if any, have had the opportunity to obtain any additional information, to the extent the Company and/or AVT have such information in its possession or could acquire it without unreasonable effort or expense, necessary to verify the accuracy of the information contained in the Memorandum and all documents received or reviewed in connection with the purchase of the Shares and have had the opportunity to have representatives of the Company and AVT provide them with such additional information regarding the terms and conditions of this particular investment and the financial condition, results of operations, business of the Company and AVT deemed relevant by the Purchaser or the Advisers, if any, and all such requested information, to the extent the Company had such information in its possession or could acquire it without unreasonable effort or expense, has been provided to the full satisfaction of the Purchaser and the Advisers, if any;

(r)        Any information which the Purchaser has heretofore furnished or is furnishing herewith to the Company, or AVT is complete and accurate and may be relied upon by the Company, and AVT in determining the availability  of  an  exemption  from  registration  under  federal  and  state  securities  laws  in connection with the offering of securities as described in the Memorandum.   The Purchaser further represents and warrants that it will notify and supply corrective information to the Company and AVT immediately upon the occurrence of any change therein occurring prior to the Company's issuance of the Shares;

(s)       The Purchaser has significant prior investment experience, including investment in non-listed and non-registered securities.  The Purchaser is knowledgeable about investment considerations in companies with limited operating histories.  The Purchaser has a sufficient net worth to sustain a loss of its entire investment in the Company in the event such a loss should occur.   The Purchaser's overall commitment to investments which are not readily marketable is not excessive in view of the Purchaser’s net worth and financial circumstances and the purchase of the Shares will not cause such commitment to become excessive. The investment is a suitable one for the Purchaser;

(t)        The Purchaser is satisfied that the Purchaser has received adequate information with respect to all matters which it or the Advisers, if any, consider material to its decision to make this investment;

  

5

  

 

(u)       The Purchaser acknowledges that any estimates or forward-looking statements or projections included in the Memorandum were prepared by AVT in good faith but that the attainment  of  any  such  projections,  estimates  or  forward-looking  statements  cannot  be guaranteed by the Company or AVT and should not be relied upon;

(v)       No oral or written representations have been made, or oral or written information furnished, to the Purchaser or the Advisers, if any, in connection with the Offering which are in any way inconsistent with the information contained in the Memorandum;

(w)      Within five (5) days after receipt of a request from the Company or AVT, the Purchaser will provide such information and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which the Company or AVT is subject;

(x)       THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS.   THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.  THE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM OR THIS SUBSCRIPTION AGREEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL;

 

(y)       In making an investment decision investors must rely on their own examination of the Company, AVT and the terms of the Offering, including the merits and risks involved. The Purchaser should  be  aware that it  will be  required to  bear the  financial risks  of  this investment for an indefinite period of time;

(z)       (For ERISA  plans  only)        The  fiduciary of  the  ERISA plan (the  “Plan”) represents that such fiduciary has been informed of and understands the Company’s investment objectives, policies and strategies, and that the decision to invest “plan assets” (as such term is defined in ERISA) in the Company is consistent with the provisions of ERISA that require diversification  of  plan  assets  and  impose  other  fiduciary  responsibilities.    The  Purchaser fiduciary or Plan (a) is responsible for the decision to invest in the Company; (b) is independent of the Company or any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the Purchaser fiduciary or Plan has not relied primarily on any advice or recommendation of the Company or any of its affiliates;

  

6

  

 

(aa)     The Purchaser should check the Office of Foreign Assets Control (“OFAC”) website at <http://www.treas.gov/ofac> before making the following representations. The Purchaser represents that the amounts invested by it in the Company in the Offering were not and are not directly or indirectly derived from activities that contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations. Federal regulations and Executive Orders administered by OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals.  The lists of OFAC prohibited countries, territories, persons and entities can be found  on  the  OFAC  website  at  <http://www.treas.gov/ofac>.    In  addition,  the  programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals2 or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists;

(bb)     To the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2) any person controlling or controlled by the Purchaser; (3) if the Purchaser is a privately-held entity, any person  having a  beneficial interest in  the Purchaser; or  (4)  any person  for  whom  the Purchaser is acting as agent or nominee in connection with this investment is a country, territory, individual or entity named on an OFAC list, or a person or entity prohibited under the OFAC Programs.   The Purchaser acknowledges that the Company may not accept any amounts from a prospective investor if such prospective investor cannot make the representation set forth in the preceding paragraph.   The Purchaser agrees to promptly notify the Company and AVT should the Purchaser become aware of any change in the information set forth in these representations;

(cc)     To the best of the Purchaser’s knowledge, none of: (1) the Purchaser; (2) any person controlling or controlled by the Purchaser; (3) if the Purchaser is a privately-held entity, any person  having a  beneficial interest in  the Purchaser; or  (4)  any person  for  whom  the Purchaser is acting as agent or nominee in connection with this investment is a senior foreign political figure,3 or any immediate family4 member or close associate5 of a senior foreign political figure, as such terms are defined in the footnotes below; and

 

2

These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

 

3

A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government- owned corporation. In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.

 

  

7

  

 

(dd)     If the Purchaser is affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if the Purchaser receives deposits from, makes payments on behalf of, or handles other financial transactions related to a Foreign Bank, the Purchaser represents and warrants to the Company that: (1) the Foreign Bank has a fixed address, other than solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking authority that licensed the Foreign Bank to conduct banking activities; and (4) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.

 

7.         Anti-Dilution Adjustment for Common Stock. For a period commencing on the First Closing and terminating on a date which is 18 months from the First Closing (the “Adjustment Period”), in the event the Company issues or grants any shares of common stock or securities convertible, exchangeable or exercisable for shares of common stock (“Common Stock Equivalents”) pursuant to which shares of common stock may be acquired at a price less than $0.20 per share (an “Adjustment Event”), then the Company shall promptly issue additional shares of common stock to the Purchasers in an amount sufficient that the subscription price paid hereunder, when divided by the total number of shares issued will result in an actual price paid by the Purchaser per share of common stock equal to such lower price (for purposes of explanation this Section is intended to provide for a “full ratchet” adjustment). Such adjustments shall be made successively whenever such an issuance is made during the Adjustment Period and shall only be applicable to the Shares of common stock originally purchased hereunder, and which continue to be held, by the Purchasers as of the date of the Adjustment Event.  This Section shall not apply to an “Exempt Issuance”. The Company shall issue any additional shares of common stock to the Purchasers required to be issued pursuant to this Section within 15 business days of the date of the Adjustment Event.  “Exempt Issuance” means the issuance or sale of Common Stock or Common Stock Equivalents for or in connection with (i) full or partial consideration in connection with a bona fide strategic merger. acquisition, consolidation or purchase of substantially all of the securities or assets of a corporation or other entity by the Company or any subsidiary of the Company so long as such issuances are not for the purpose of raising capital, (ii) bona fide strategic license agreements and other bona fide partnering arrangements so long as such issuances are not for the purpose of raising capital, (iii) the Company’s issuance of common stock or Common Stock Equivalents  to employees, directors, and consultants  approved by majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (iv) the exercise or exchange of or conversion of securities exercisable or exchangeable for or convertible into shares of common stock issued and outstanding as of the date of this Agreement, or pursuant to agreements in effect as of the date of this Agreement (including, without limitation, securities issuable pursuant to this Agreement or the Memorandum), (v) securities issued or issuable pursuant to agreements and/ or securities issued or issuable in connection with the Acquisition and (vi) issuances of securities in connection with a public offering which is underwritten on a firm commitment basis.

8.         Indemnification.  The Purchaser agrees to indemnify and hold harmless the Company, AVT, and their respective officers, directors, employees, agents, control persons and affiliates from and against all losses, liabilities, claims, damages, costs, fees and expenses whatsoever (including, but not limited to, any and all expenses incurred in investigating, preparing or 

 

  

8

  

 

defending against any litigation commenced or threatened) based upon or arising out of any actual or alleged false acknowledgment, representation or warranty, or misrepresentation or omission to state a material fact, or breach by the Purchaser of any covenant or agreement made by the Purchaser herein or in any other document delivered in connection with this Subscription Agreement.

9.         Irrevocability; Binding Effect.  The Purchaser hereby acknowledges and agrees that the subscription hereunder is irrevocable by the Purchaser, except as required by applicable law, and that this Subscription Agreement shall survive the death or disability of the Purchaser and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives, and permitted assigns.   If the Purchaser is more than one person, the obligations of the Purchaser hereunder shall be joint and several and the agreements, representations, warranties, and acknowledgments herein shall be deemed to be made by and be binding upon each such person and such person's heirs, executors, administrators, successors, legal representatives, and permitted assigns.

10.       Modification.  All modifications, amendments or waivers to this Agreement shall require the written consent of both the Company and the holders of the majority of the Shares originally purchased who continue to hold such Shares purchased pursuant to this Agreement at the time when any such modifications, amendments or waivers is sought.

 

11.       Immaterial Modifications to the Registration Rights Agreement.  The Company may, at any time prior to the First Closing, modify the Registration Rights Agreement if necessary to clarify any provision therein, without first providing notice or obtaining prior consent of the Purchaser, if, and only if, such modification is not material in any respect.

 

 

4

“Immediate family” of a senior foreign political figure typically includes the figure’s parents, siblings, spouse, children and in-laws.

 

5

A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

  

9

  

 

12.       Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt to the party to whom it is to be given (a) if to the Company or AVT, at the address set forth above, or (b) if to the Purchaser, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section).  Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof.

13.       Assignability.  This Subscription Agreement and the rights, interests and obligations hereunder are not transferable or assignable by the Purchaser and the transfer or assignment of Shares shall be made only in accordance with all applicable laws.

14.       Applicable Law, Disputes.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving effect to the conflict of law provisions thereof, and the parties hereto irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or, if jurisdiction in such court is lacking, the Supreme Court of the State of New York, New York County, in respect of any dispute or matter arising out of or connected with this Agreement..

15.       Blue Sky Qualification.  The purchase of Shares under this Subscription Agreement is expressly conditioned upon the exemption from qualification of the offer and sale of the Shares from applicable federal and state securities laws.  The Company shall not be required to qualify this transaction under the securities laws of any jurisdiction and, should qualification be necessary, the Company shall be released from any and all obligations to maintain its offer, and may rescind any sale contracted, in the jurisdiction.

16.       Use of Pronouns.  All pronouns and any variations thereof used herein shall be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons referred to may require.

17.       Confidentiality.  The Purchaser acknowledges and agrees that any information or data the Purchaser has acquired from or about the Company or AVT, not otherwise properly in the public domain, was received in confidence.   The Purchaser agrees not to divulge, communicate or disclose, except as may be required by law or for the performance of this Agreement, or use to the detriment of the Company or AVT or for the benefit of any other person or persons, or misuse in any way, any confidential information of the Company or AVT, including any scientific, technical, trade or business secrets of the Company or AVT and any scientific, technical, trade or business materials that are treated by the Company or AVT as confidential or proprietary, including, but not limited to, ideas, discoveries,  inventions,  developments  and  improvements  belonging  to  the  Company  or AVT and confidential information obtained by or given to the Company or AVT about or belonging to third parties.

18.       Miscellaneous.

(a)       This Subscription Agreement, together with the Registration Rights Agreement, constitute the entire agreement between the Purchaser and the Company with respect to the subject matter hereof and supersede all prior oral or written agreements and understandings, if any, relating to the subject matter hereof.  The terms and provisions of this Subscription 

 

  

10

  

 

Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party entitled to the benefits of such terms or provisions.

(b)       The representations and warranties of the Company and the Purchaser made in this Subscription Agreement shall survive the execution and delivery hereof and delivery of the Shares.

(c)       Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Subscription  Agreement  and  the  transactions  contemplated  hereby  whether  or  not  the transactions contemplated hereby are consummated.

(d)       This Subscription Agreement may be executed in one or more counterparts each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.

(e)       Each provision of this Subscription Agreement shall be considered separable and, if for any reason any provision or provisions hereof are determined to be invalid or contrary to applicable law, such invalidity or illegality shall not impair the operation of or affect the remaining portions of this Subscription Agreement.

(f)        Paragraph titles are for descriptive purposes only and shall not control or alter the meaning of this Subscription Agreement as set forth in the text.

(g)       The Purchaser understands and acknowledges that there may be multiple closings for this Offering.

(h)       Independent Nature of Subscribers.  The obligations of each Purchaser under this Agreement or other transaction document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under this Agreement or any other transaction document.  Each Purchaser shall be responsible only for its own representations, warranties, agreements and covenants hereunder.  The decision of each Purchaser to purchase Shares pursuant to this Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company which may have been made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any other Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions.  Nothing contained herein or in any other transaction document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to constitute the Purchaser as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchaser are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by this Agreement.  Except as otherwise provided in this Agreement or any other transaction document, each Purchaser shall be entitled to independently protect and enforce its rights arising out of this Agreement or out of the other transaction documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Subscriber has been represented by its own separate legal counsel in connection with the transactions contemplated hereby.

 

  

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

    

20.       Omnibus Signature Page.  This Subscription Agreement is intended to be read and construed in conjunction with the Registration Rights Agreement pertaining to the issuance by the Company of the Shares to subscribers pursuant to the Memorandum.   Accordingly, pursuant to the terms and conditions of this Subscription Agreement and such related agreements it is hereby agreed that the execution by the Purchaser of this Subscription Agreement, in the place set forth herein, shall constitute agreement to be bound by the terms and conditions hereof and the terms and conditions of the Registration Rights Agreement, with  the  same  effect  as  if  each  of  such  separate  but  related  agreement  were separately signed.

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Instructions

 

 

To subscribe for Shares in the private offering of Pubco/AV Therapeutics, Inc.:

 

1.         Date and Fill in the number of Shares being purchased and Complete and Sign the attached Omnibus Signature Page to the Subscription Agreement and Registration Agreement.

2.         Initial the Accredited Investor Certification page attached hereto.

 

3.         Complete and Sign the Selling Stockholder Questionnaire.

 

4.         E-mail the Omnibus Signature Page, Accredited Investor Certification page, Investor Profile and, if applicable, Wire Transfer Authorization, to Darrin Ocasio at dmocasio@srff.com and then send all signed original documents with check (if applicable) to:

 

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32nd Fl.

New York, NY 10006

Attention: Darrin Ocasio

 

5.      Please make your subscription payment payable to the order of “Sichenzia Ross Friedman Ference, Escrow Agent for AV Therapeutics, Inc.”

For wiring funds directly to the escrow account, see the following instructions:

 

Wire to:

 

All funds tendered by Purchasers will be held in a non-interest bearing escrow account in the Company’s name at Sichenzia Ross Friedman Ference LLP, 61 Broadway, 32nd Fl., New York, New York 10006.  It is contemplated that the funds will be released from escrow at such time (or promptly thereafter) as all conditions to closing as set forth in the Subscription Agreement have been satisfied (or otherwise waived) and a closing is consummated. 

 

PUBCO/AV THERAPEUTICS, INC. 

 OMNIBUS SIGNATURE PAGE TO THE SUBSCRIPTION AGREEMENT

AND REGISTRATION RIGHTS AGREEMENT

Subscriber hereby elects to subscribe under the Subscription Agreement for a total of [________]    Shares at a price of $0.20 per Share for an aggregate purchase price of $[_____] (NOTE: to be completed by subscriber) and executes the Subscription Agreement and the Registration Rights Agreement.

 

  

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Date (NOTE: To be completed by subscriber): 

 

 

If the Purchaser is an INDIVIDUAL, and if purchased as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY:

	 	                                                                               	                                                                               
	 	
Print Name(s)

	
Social Security Number(s)

	 	  	  
	 	                                                                               	                                                                               
	 	
Signature(s) of Subscriber(s)

	
Signature

	 	  	  
	 	                                                                               	                                                                               
	 	
Date

	
Address

 

If the Purchaser is a PARTNERSHIP, CORPORATION, LIMITED LIABILITY COMPANY or TRUST:

	 	                                                                               	                                                                               
	 	
Name of Partnership,

Corporation, Limited 

Liability Company or Trust

	
Federal Taxpayer

Identification Number

	 	  	  
	 	By:                                                                       	                                                                               
	 	
   Name:

	State of Organization
	 	   Title: 	  
	 	 	 
	 	                                                                               	                                                                               
	 	
Date

	
Address

 

	 	
AV Therapeutics, Inc.

	 
	 	  	  
	 	By:                                                                       	 
	 	
   Authorized Officer

	 
	 	 	 
	 	                                                                               (Name of Pubco to be inserted at closing)
	 	 	 
	 	By:                                                                       	 
	 	

   Authorized Officer

	
 

 

 

  

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PUBCO/AV THERAPEUTICS, INC.

 

ACCREDITED INVESTOR CERTIFICATION

 

For Individual Investors Only

(all Individual Investors must INITIAL where appropriate):

 

 

Initial                 I have an individual net worth, or joint net worth with my spouse, as of the date hereof (excluding, for the purpose of net worth calculation, the value of such person’s or persons’ primary residence, after deducting any mortgage securing such primary residence) in excess of $1 million.

 

 

Initial                 I have had an annual gross income for the past two years of at least $200,000 (or $300,000 jointly with my spouse) and expect my income (or joint income, as appropriate) to reach the same level in the current year.

 

 

Initial                 I am a director or executive officer of Pubco.

 

 

For Non-Individual Investors

(all Non-Individual Investors must INITIAL where appropriate):

 

Initial                   The investor certifies that it is a partnership, corporation, limited liability company or business trust that is 100% owned by persons who meet at least one of the criteria for Individual Investors set forth above.

 

 

Initial                   The investor certifies that it is a partnership, corporation, limited liability company or any organization described in Section 501(c)(3) of the Internal Revenue Code, Massachusetts or similar business trust that has total assets of at least $5 million and was not formed for the purpose of investing the Company.

 

 

Initial                   The investor certifies that it is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, whose investment decision is made by a plan fiduciary (as defined in ERISA §3(21)) that is a bank,   savings   and   loan   association,  insurance  company   or   registered investment adviser.

 

 

Initial                   The investor certifies that it is an employee benefit plan whose total assets exceed $5,000,000 as of the date of this Agreement.

 

 

Initial                 The undersigned certifies that it is a self-directed employee benefit plan whose investment decisions are made solely by persons who meet either of the criteria for Individual Investors.

 

 

  

15

  

 

Initial                 The investor certifies that it is a U.S. bank, U.S. savings and loan association or other similar U.S. institution acting in its individual or fiduciary capacity.

 

 

Initial                 The undersigned certifies that it is a broker-dealer registered pursuant to §15 of the Securities Exchange Act of 1934.

 

 

Initial                  The investor certifies that it is an organization described in §501(c)(3) of the Internal Revenue Code with total assets exceeding $5,000,000 and not formed for the specific purpose of investing in the Company.

 

Initial                  The investor certifies that it is a trust with total assets of at least $5,000,000, not formed for the specific purpose of investing in the Company, and whose purchase is directed by a person with such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment.

 

 

Initial                 The investor certifies that it is a plan established and maintained by a state or its political subdivisions, or any agency or instrumentality thereof, for the benefit of its employees, and which has total assets in excess of $5,000,000.

 

Initial                   The investor certifies that it is an insurance company as defined in §2(13) of the Securities Act, or a registered investment company.

 

 

Initial                   An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act.

 

Initial                   A Small Business Investment Company licensed by the U.S.  Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958.

 

Initial                    A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940.

 

  

16

  

 

 

Date

 

 

 

 

 

 

  

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