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EXHIBIT 10.5
THIS OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
No. O -__ OPTION TO
ISSUED: May 8, 2001 PURCHASE COMMON STOCK
Void After: November 4, 2001
CETALON CORPORATION
This Option is issued to Innovative Botanical Solutions, Inc., a Utah
corporation, or its registered assigns ("Holder") by Cetalon Corporation, a
Nevada corporation (the "Company"), on May 8, 2001 (the "Option Issue Date").
This Option is issued in connection with the strategic relationship established
between Holder and the Company through the execution of a certain Exclusive
Manufacturing Agreement by and between Holder and the Company dated as of an
even date herewith (the "Manufacturing Agreement").
1. PURCHASE OF SHARES. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Option at the principal
office of the Company (or at such other place as the Company shall notify the
holder hereof in writing), to purchase from the Company 458,997 fully-paid,
nonassable shares of Common Stock. The shares of Common Stock issuable pursuant
to this Section 1 (the "Shares") shall also be subject to adjustment pursuant to
Section 8 hereof.
2. EXERCISE PRICE. The exercise price for the Shares shall be $3.268 per
share, payable in cash or immediately available funds; provided, however, that
up to $1,000,000 of the purchase price shall be payable in the form of a credit
granted to the Company to be used towards the purchase of Products (as that term
is defined in the Manufacturing Agreement) from Holder. Such price shall be
subject to adjustment pursuant to Section 8 hereof (such price, as adjusted from
time to time, is herein referred to as the "Exercise Price").
3. EXERCISE PERIOD. This Option shall become exercisable, in whole or in part,
commencing upon the Option Issue Date. This Option shall expire with respect to
229,498 shares of Common Stock at 5:00 p.m. on the date that is 90 days after
the Option Issue Date, and it shall expire with respect to the remaining Shares
at 5:00 p.m. on November 4, 2001 after the Option Issue Date; provided, however,
that in the event of (a) the closing of the Company's sale or transfer of all or
substantially all of its assets, or (c) the closing of the acquisition of the
Company by another entity by means of merger, consolidation or other transaction
or series of related transactions, resulting in the exchange of the outstanding
shares of the Company's capital stock such that the stockholders of the Company
prior to such transaction own, directly or indirectly, less than 50% of the
voting power of the surviving entity, this Option shall, on the date of such
event, no longer be exercisable and become null and void. In the event of a
proposed
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transaction of the kind described above, the Company shall notify the holder of
the Option at least fifteen (15) days prior to the consummation of such event or
transaction.
4. METHOD OF EXERCISE. While this Option remains outstanding and exercisable
in accordance with Section 3 above, the Holder may exercise, in whole or in
part, the purchase rights evidenced hereby. Such exercise shall be effected by:
(a) the surrender of the Option, together with a duly executed copy of
the form of Notice of Election attached hereto, to the Secretary of the Company
at its principal offices; and
(b) the payment to the Company of an amount equal to the aggregate
Exercise Price for the number of Shares being purchased, which may include a
writing that grants Holder credit to be used towards the purchase of Products
pursuant to Section 2 herein.
5. CERTIFICATES FOR SHARES. Upon the exercise of the purchase rights evidenced
by this Option, one or more certificates for the number of Shares so purchased
shall be issued as soon as practicable thereafter (with appropriate restrictive
legends, if applicable), and in any event within thirty (30) days of the
delivery of the subscription notice.
6. ISSUANCE OF SHARES. The Company covenants that the Shares, when issued
pursuant to the exercise of this Option, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
7. RESTRICTIONS ON TRANSFER. The Shares shall be subject to a transfer
restriction (the "Transfer Restriction"). Except as provided in this Section 7,
Holder shall not transfer, assign, encumber or otherwise dispose of any of the
Shares, except that Holder may transfer the Shares to an individual or entity
controlling, controlled by or under the common control with Holder. The Transfer
Restriction shall lapse on the fifth anniversary of the date of this Agreement;
provided, however, that if the Company fails to meet a Minimum Requirement set
forth on Exhibit C to the Manufacturing Agreement, the Transfer Restriction
shall immediately lapse on the date such Minimum Requirement is not met.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of and kind
of securities purchasable upon exercise of this Option and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time prior to the expiration of this Option subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock or Common Stock as a dividend with respect
to any shares of its Common Stock, the number of Shares issuable on the exercise
of this Option shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Option (as adjusted) shall remain the same. Any
adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) RECLASSIFICATION, REORGANIZATION AND CONSOLIDATION. In case of any
reclassification, capital reorganization, or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Option to purchase, at a total
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price equal to that payable upon the exercise of this Option, the kind and
amount of shares of stock and other securities and property receivable in
connection with such reclassification, reorganization, or change by a holder of
the same number of shares of Common Stock as were purchasable by the Holder
immediately prior to such reclassification, reorganization, or change. In any
such case appropriate provisions shall be made with respect to the rights and
interest of the Holder so that the provisions hereof shall thereafter be
applicable with respect to any shares of stock or other securities and property
deliverable upon exercise hereof, and appropriate adjustments shall be made to
the purchase price per share payable hereunder, provided the aggregate purchase
price shall remain the same.
(c) NOTICE OF ADJUSTMENT. When any adjustment is required to be made in
the number or kind of shares purchasable upon exercise of the Option, or in the
Option Price, the Company shall promptly notify the holder of such event and of
the number of shares of Common Stock or other securities or property thereafter
purchasable upon exercise of this Option.
9. ISSUANCE OF ADDITIONAL STOCK, OPTIONS OR WARRANTS. Notwithstanding
anything to the contrary contained in this Option, the Company agrees that if it
issues, during the next 6 months after the Option Issue Date, any additional
capital stock or warrants or options to purchase any additional capital stock of
the Company (excluding common stock underlying any outstanding debentures,
options, warrants, convertible securities or the like), and if the purchase
price per share of the capital stock or the strike or exercise price for the
warrants or options is less than the Exercise Price (the "Lesser Price"), then
the Company shall forthwith either (i) with respect to Shares already purchased
under this Option, either (a) issue additional shares of common stock to the
Holder to increase the number of shares Holder receives under this Option to the
amount Holder would have received if the Exercise Price had been equal to the
Lesser Price, or (b) refund the difference in cash to the Holder; or (ii) with
respect to Shares still purchasable under this Option, reduce the Exercise Price
to equal the Lesser Price. The foregoing sentence shall not apply to any offer
to sell the Company's Common Stock that has been registered under the Securities
Act.
10. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
11. NO STOCKHOLDER RIGHTS. Prior to exercise of this Option, the Holder shall
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Option or the Purchase Agreement.
12. TRANSFERS OF OPTION. Subject to compliance with applicable federal and
state securities laws, this Option and all rights hereunder shall not be
transferable in whole or in part by the Holder to any person or entity without
the written consent of the Company, except that this Option may be transferred
to an individual or an entity controlling, controlled by or under common control
with the Holder. Permitted transfers shall be recorded on the books of the
Company upon the surrender of this Option, properly endorsed, to the Company at
its principal offices, and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the holders one or more appropriate new
Options.
13. SUCCESSORS AND ASSIGNS. The terms and provisions of this Option and the
Purchase Agreement shall inure to the benefit of, and be binding upon, the
Company and the Holders hereof and their respective permitted successors and
assigns.
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14. AMENDMENTS AND WAIVERS. Any term of this Option may be amended and the
observance of any term of this Option may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Holder.
15. INVESTMENT INTENT. By accepting this Option, the Holder represents that it
is acquiring this Option for investment and not with a view to, or for sale in
connection with, any distribution thereof.
16. NOTICES. All notices required under this Option and shall be deemed to
have been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
17. ATTORNEYS' FEES. If any action of law or equity is necessary to enforce or
interpret the terms of this Option, the prevailing party shall be entitled to
its reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which it may be entitled.
18. CAPTIONS. The section and subsection headings of this Option are inserted
for convenience only and shall not constitute a part of this Option in
construing or interpreting any provision hereof.
19. GOVERNING LAW. This Option shall be governed by the laws of the State of
Nevada as applied to agreements among residents made and to be performed
entirely within the State of Nevada.
IN WITNESS WHEREOF, caused this Option to be executed by an officer thereunto
duly authorized.
________________________________
By: ____________________________
Name and Title
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NOTICE OF EXERCISE
To: [CORPORATION NAME]
The undersigned hereby elects to [check applicable subsection]:
____ (a) Purchase _______________ shares of Series ___
Common Stock of ____________, pursuant to the terms
of the attached Option and payment of the Exercise
Price per share required under such Option
accompanies this notice;
AND/OR
____ (b) Exercise the attached Option for ____________ of
the shares purchasable under the Option for
$________ in credit to be applied towards the
purchase of Products pursuant to Section 2 of such
Option.
The undersigned hereby represents and Options that the undersigned is
acquiring such shares for its own account for investment purposes only, and not
for resale or with a view to distribution of such shares or any part thereof.
OPTIONHOLDER:
______________________________
By: __________________________
[NAME]
Address: ______________________________
______________________________
Date: ____________________________________
Name in which shares should be registered:
__________________________________________
