WARRANT EXCHANGE AGREEMENT
WARRANT
EXCHANGE AGREEMENT, dated as of September
8,
2008
(this “Agreement”),
by
and between PURE BIOFUELS CORP., a Nevada corporation (the “Company”),
and
YA Global Investments, L.P. (formerly known as Cornell Capital Partners, L.P.)
(“PURCHASER”).
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to such terms in the Securities Purchase Agreement, dated as of April
19, 2007 (the “Purchase
Agreement”),
by
and between the Company and the Buyers listed on Schedule I
thereto.
WITNESSETH:
WHEREAS,
PURCHASER is a holder of (i) Warrant No.: PBOF-1-1 (the “July
Warrant”)
to
purchase 704,082 shares of Common Stock at an exercise price of $0.60 and (ii)
Warrant No.: PBOF-1-2 to purchase 704,082 shares of Common Stock at an exercise
price of $0.60 (the “April
Warrant”
and
together with the July Warrant, the “Warrants”);
WHEREAS,
PURCHASER desires,
for
valid business reasons, to consummate an exchange of the Warrants pursuant
to
the terms hereof;
WHEREAS,
the Company has determined that it is in its best interest to recapitalize
its
capital structure through the exchange of the Warrants pursuant to the terms
hereof as a plan of reorganization; and
WHEREAS,
for Federal income tax purposes, it is intended that this Agreement shall
qualify as a “reorganization” within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended, and the regulations promulgated
thereunder (the “Code”).
NOW,
THEREFORE, in consideration of the foregoing premises and of the
representations, warranties, covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Agreement
to Exchange.
PURCHASER and the Company agree that PURCHASER shall exchange all of the
Warrants for 938,776
shares
of
Common Stock (the “Exchange
Shares”).
Upon
issuance of the Exchange Shares to PURCHASER, the Warrants will be null and
void
and of no further force or effect. The parties agree to issue the Exchange
Shares in the name of the PURCHASER.
2. Surrender
of Warrant Certificates.
Concurrently with the execution of this Agreement and the issuance of the
Exchange Shares, PURCHASER shall surrender the Warrants it holds in certificated
form to the Company, upon which surrender PURCHASER shall be deemed to be the
holder of record of the Exchange Shares.
3. Issuance
of Exchange Shares.
Upon
surrender by PURCHASER of the Warrants it holds in certificated form pursuant
to
Section 2 hereof, the Company
agrees
to adopt this plan of reorganization and
shall
issue and deliver to PURCHASER the Exchange Shares issuable to PURCHASER
pursuant to this Agreement, registered in the name of PURCHASER with the
Transfer Agent.
4. Registration
Rights. The
Company and PURCHASER agree that the Exchange Shares shall constitute
“Registrable Securities” under the Registration Rights Agreement.
5. Representations
and Warranties of the Company.
In
order to induce PURCHASER to enter into this Agreement, the Company hereby
represents and warrants to and agrees with PURCHASER that:
(i) All
Exchange Shares shall, when issued in exchange for the Warrants, be duly
authorized, validly issued, fully paid and non-assessable, and free of any
liens, encumbrances and preemptive or similar rights, and shall not be in
violation of the Company’s Certificate of Incorporation or Bylaws or any
applicable law.
(ii) The
Company has the corporate power and authority to execute, deliver and perform
the terms and provisions of this Agreement and has taken all necessary corporate
action to authorize the execution, delivery and performance by it of this
Agreement. The Company has duly executed and delivered this Agreement, and
this
Agreement constitutes its legal, valid and binding obligation enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws generally affecting creditors’ rights and by equitable
principles (regardless of whether enforcement is sought in equity or at
law).
(iii) No
order,
consent, approval, license, authorization or validation of, or filing, recording
or registration with, or exemption by, any governmental authority is required
to
be obtained or made by, or on behalf of, the Company to authorize, or is
required to be obtained or made by, or on behalf of, the Company in connection
with (a) the execution, delivery and performance of this Agreement, (b) the
legality, validity, binding effect or enforceability of this Agreement, or
(c)
the issuance of the Exchange Shares to PURCHASER and the registration of the
Exchange Shares with the Transfer Agent.
(iv)
Neither the execution, delivery or performance by the Company of this Agreement,
nor compliance by it with the terms and provisions thereof, (a) will contravene
any provision of any law, statute, rule or regulation or any order, writ,
injunction or decree of any court or governmental authority, (b) will conflict
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the creation or
imposition of (or the obligation to create or impose) any encumbrance, upon
any
of the property or assets of the Company or any of its subsidiaries pursuant
to
the terms of any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other agreement, contract or instrument, in each case to
which
Company or any of its subsidiaries is a party or by which it or any of the
Company or any of its subsidiaries or property or assets is bound or to which
the Company or any of its subsidiaries may be subject, or (c) will violate
any
provision of the certificate or articles of incorporation, certificate of
formation, limited liability company agreement or by-laws (or equivalent
organizational documents), as applicable, of the Company or any of its
subsidiaries.
(v) (a)
Upon
issuance of the Exchange Shares, the authorized capital stock of the Company
will consist solely of 250,000,000 shares of Common Stock and 1,000,000 shares
of preferred stock, of which 172,374,699 shares of Common Stock (assuming no
additional exercises of existing stock options described in Schedule 4.7 to
this
Agreement) and no shares of preferred stock will be issued and outstanding,
no
shares are held in treasury and 69,745,250 shares of Common Stock (such amount
does not include any shares, warrants or other convertible or exchangeable
securities that may be issued pursuant to the Agreement and Plan of Merger,
dated as of December 4, 2007, by and among the Company, Pure Biofuels del Peru
S.A.C., Interpacific Oil S.A.C. and certain Target Stockholders identified
therein, as amended on January 23, 2008 (the “Merger Agreement”)) will be
reserved for issuance upon the exercise of outstanding warrants, options and
other convertible or exchangeable securities (other than the Exchange Shares).
Schedule 4.7 to this Agreement sets forth the capitalization of the Company
as
of the issuance of the Exchange Shares.
(b)
Except
as
set forth on Schedule 4.7 to this Agreement, as of the date of this Agreement,
there are and upon issuance of the Exchange Shares there will be (i) no
outstanding options, warrants, agreements, conversion rights, exchange rights,
preemptive rights or other rights (whether contingent or not) to subscribe
for,
purchase or acquire any issued or unissued shares of capital stock of the
Company or any subsidiary, and (ii) no restrictions upon, or contracts or
understandings of the Company or any subsidiary, or, to the knowledge of the
Company, contracts or understandings of any other Person, with respect to,
the
voting or transfer of any shares of capital stock of the Company or any
subsidiary.
(vi)
No
agent, broker, Person or firm acting on behalf of the Company or its Affiliates
is, or will be, entitled to any fee, commission or broker’s or finder’s fees
from any of the parties hereto, or from any Person controlling, controlled
by,
or under common control with any of the parties hereto, in connection with
this
Agreement or any of the transactions contemplated hereby.
6. Representations
and Warranties of PURCHASER.
PURCHASER represents and warrants to the Company that:
(i) PURCHASER
has the power to execute, deliver and perform its obligations under this
Agreement and has taken all action necessary to authorize the execution,
delivery and performance by it of this Agreement and to consummate the
transactions contemplated hereby. No other proceedings on the part of PURCHASER
are necessary for such authorization, execution, delivery and consummation.
PURCHASER has duly executed and delivered this Agreement. This Agreement
constitutes a legal, valid and binding obligation of PURCHASER, enforceable
against PURCHASER in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the enforcement of creditors’
rights generally or general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(ii) The
execution, delivery and performance by PURCHASER of this Agreement does not
and
will not (a) violate any organizational document of PURCHASER, (b) contravene
any material applicable law, (c) require any consent of any governmental
authority or other Person, except where the failure to obtain such consent
would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the ability of PURCHASER to perform its obligations under
this
Agreement, or (d) constitute a default under any contract binding upon
PURCHASER, except for any such defaults that would not, individually or in
the
aggregate, reasonably be expected to have a material adverse effect on the
ability of PURCHASER to perform its obligations under this
Agreement.
(iii) PURCHASER
has not engaged any brokers, finders or agents, and neither the Company has,
nor
will, incur, directly or indirectly, as a result of any action taken by
PURCHASER, any liability for brokerage or finders’ fees or agents’ commissions
or any similar charges under this Agreement or the transactions contemplated
hereby.
7. Reserved.
8. Reserved.
9. Certain
Taxes.
The
Company shall pay any and all documentary, stamp or similar issue or transfer
taxes payable in respect of the issue or delivery of the Exchange
Shares.
10. Incorporation
of Provisions from the Purchase Agreement.
The
provisions of Section 9(a) of the Purchase Agreement are incorporated by
reference herein (as if set forth in full in this section) so that this
Agreement shall be subject to the terms and provisions of such section of the
Purchase Agreement.
11. Waiver;
Exercise of Rights and Remedies.
Any
provision of this Agreement may be amended or waived if, and only if, such
amendment or waiver is in writing and signed by PURCHASER and the Company.
No
failure or delay by any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law.
12. Counterparts.
This
Agreement may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which counterparts when
executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. A complete set of counterparts shall
be
lodged with each of the parties hereto.
13. Reorganization.
The
Company and PURCHASER intend, and shall take the position, that the exchange
of
the Warrants pursuant to this Agreement should be characterized as a
reorganization within the meaning of Section 368(a) of the Code and shall not
take any position on any United States tax filing that is inconsistent with
such
characterization.
[Remainder
of page intentionally left blank.]
IN
WITNESS WHEREOF, PURCHASER and the Company have each duly caused this Agreement
to be executed on the day and year first written above.
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By:
/s/ Xxxx Xxxxxxxx
Name:
Xxxx Xxxxxxxx
Title:
Director and CEO
YA
GLOBAL INVESTMENTS, L.P.
By:
Yorkville Advisors, LLC
Its:
Investment Advisor
By:
/s/ Xxxx Xxxxx
Name:
Xxxx Xxxxx
Title:
Senior Managing Director
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