EXCHANGE AGREEMENT
Exhibit
10.9
This
Agreement is entered into as of November 23, 2005, by and between Entrx
Corporation, a Delaware corporation with principal offices in Minneapolis,
Minnesota (the “Company”), and Pandora Select Partners L.P., a British Virgin
Islands limited partnership with principal offices in Minneapolis, Minnesota
(“Pandora”).
Recitals
A. The
Company issued Pandora a Convertible Promissory Note in the principal amount
of
$1,300,000 dated December 3, 2003 (the “Note”), in exchange for a loan in the
same amount (the “Loan”). The outstanding principal and accrued interest
outstanding under said Note at any time is convertible into common stock of
the
Company at $1.35 per share.
B. In
connection with the issuance of the Note and in further consideration of the
Loan, the Company issued a Warrant No. PSP-1 to Pandora for the purchase of
400,000 shares of the Company’s common stock dated December 3, 2003 (the
“Warrant”), having an initial exercise price of $1.50 per share.
C. In
connection with the issuance of the Note and in further consideration of the
Loan, the Company entered into a Pledge Agreement with Pandora dated December
3,
2003 (the “Pledge Agreement”), whereby the Company pledged certain of its assets
as collateral against the payment of the Note.
D. In
connection with the issuance of the Note and in further consideration of the
Loan, the Company entered into a Registration Rights Agreement with Pandora
dated December 3, 2003 (the “Registration Rights Agreement”), whereby the
Company agreed to file and use its best efforts to obtain the effectiveness
of a
registration statement (the “Registration Statement”) under the Securities Act
of 1933, as amended (the “Act”), covering the sale of shares of the Company’s
common stock that may be acquired by Pandora under the Note, the Warrant and
the
additional Warrants described below in paragraph E.
E. Under
the
terms of the Warrant, if the Company fails to obtain the effectiveness of the
Registration Statement prior to June 16, 2004, then for each full month such
failure continues thereafter through October 15, 2004 (prorated for partial
months), Pandora will be entitled to acquire an additional 6,500 shares of
common stock under the Warrant, and if the Company fails to obtain the
effectiveness of the Registration Statement prior to October 16, 2004, then
for
each full month such failure continues thereafter (prorated for partial months),
Pandora will be entitled to acquire 13,000 additional shares of common stock
under the Warrant.
F. The
Company has not obtained the effectiveness of the Registration Statement, and
as
a result, 188,500 additional shares of the Company’s common stock are
exercisable under the Warrant, as of October 31, 2005.
G. Representatives
of Pandora and the Company reached a verbal understanding on September 15,
2005,
whereby the Warrant and the right of Pandora to convert the Note into common
stock would be cancelled in exchange for fully paid and non-assessable shares
of
the Company’s common stock, under terms to be set forth in a written document
agreeable to all parties.
Agreement
Accordingly,
in consideration of the recitals and the mutual covenants contained herein,
the
parties hereto agree as follows:
1. Exchange
of Warrant for Shares.
At the
Closing (as hereinafter defined), Pandora shall assign and deliver the Warrant
and the Note to the Company for cancellation, and the Company shall, in exchange
therefore, deliver to Pandora (i) an Amended and Restated Note, in the form
attached hereto as Exhibit A, eliminating the right of Pandora under the Note
to
convert the Note into the Company’s common stock, and eliminating the right of
the Company to pay any amount due under the Note by the issuance of the
Company’s common stock, and (ii) a certificate representing 300,000 shares (the
“Securities”) of the Company’s common stock registered in the name of Pandora
Select Partners, L.P. The issuance of the Securities shall be duly authorized
by
the Company’s Board of Directors, and the Securities shall be, upon issuance and
delivery to Pandora, fully paid and non-assessable.
2. Registration
Rights Agreement.
The
Registration Rights Agreement, having no further effect in view of the covenants
contained in paragraph 1 hereunder, is hereby rescinded.
3. Investment
Intent.
Pandora
represents and warrants to Company as follows:
(a) Pandora
has been advised that (i) neither the offer nor the issuance of the Securities
to Pandora will have been registered under the Securities Act of 1933 (the
"Act") on the grounds, among others, that it will be exempt from registration
under Section 4(2) of the Act; (ii) reliance upon such exemption or exemptions
is predicated in part on Pandora's representation that Pandora is acquiring
such
Securities for investment for Pandora's own account with no present intention
of
dividing Pandora's participation with others or reselling or otherwise
distributing the same, and the Pandora alone shall have the full legal and
equitable right, title and interest in the Securities; and (iii) Pandora's
representations, including the foregoing, are essential to the reliance of
the
Company upon exemptions from registration or qualification of this transaction
or the Securities under applicable state securities laws.
(b) Pandora
understands that the effect and intent of Pandora's representations in
subparagraph (a) above to be that Pandora does not presently contemplate the
disposal of all or any part of the Securities, and that at such time as Pandora
determines to dispose of all or any part of the Securities, Pandora understands
that Pandora must first notify the Company, and that the Company may require
an
opinion of its attorney (at the Company’s expense), of Pandora's attorney, or
both, that such disposition will not negate Pandora's intent as expressed
herein, and that, in view of the exemption claimed, such disposition will be
permissible.
(c) Pandora
understands that the subsequent transfer of the Securities will be restricted,
and that the effect of the restrictions on the transfer of the Securities
include the facts, among others, that (i) Pandora will not have liquidity with
respect to the Securities for an indefinite period of time, and (ii) Pandora
will be unable to sell, encumber or otherwise transfer the Securities unless
there is an effective registration statement covering such disposition under
the
Act, and effective registrations and qualifications under applicable state
law,
or exemptions from such registrations or qualifications under the Act and state
law are applicable.
(d) Pandora
recognizes that an investment in the Securities involves a high degree of risk
and that the purchase of the Securities should be considered a long-term
investment. Pandora has a financial net worth or anticipated income such that
a
sale of such Securities need not be made in the foreseeable future to satisfy
any financial obligation of which Pandora is or contemplates Pandora will become
subject.
(e) Pandora
understands that exemptions from the registration and qualification
requirements, as referred to in subparagraph (c) above, may not be available
to
Pandora, and, except as provided in subparagraph (b) above, with respect to
assuming the expense of any attorney engaged by the Company to render an
opinion, the Company will have no obligation to assist Pandora in registering
or
qualifying a disposition of the Securities or in obtaining or establishing
an
exemption from such registration or qualification requirements.
(f) Pandora
understands that (i) any certificate or other document representing the
Securities will bear a legend stating in effect that the issuance or sale of
the
Securities has not been registered under the Act or any applicable state
securities laws, and such legend may refer to the restrictions on transfers
and
sales contained in this Agreement, and (ii) that a transfer restriction may
be
placed in the books and records of the Company and of its common stock transfer
agent with respect to the Securities.
4. Accredited
Investor Information.
Pandora
represents and warrants to the Company that Pandora is an "Accredited Investor",
as that term is defined in Rule 501(a) of Regulation D promulgated under the
Act, by reason of the fact that (i) each of the beneficial owners of an equity
interest in Pandora are individually accredited investors, and (ii) Pandora
was
not formed for the purpose of acquiring the Securities and has total assets
in
excess of $5,000,000.
5. Effectiveness
of Pledge Agreement.
Except
as affected by this Agreement, the Pledge Agreement shall remain in full force
and effect.
6. Closing.
The
Closing shall occur on December 9, 2005, at 10:00 a.m. at the offices of
Felhaber Xxxxxx, Xxxxxx & Xxxx, P.A., 000 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxxxxxx, Xxxxxxxxx, unless another date, time or place is agreed to between
the parties hereto.
IN
WITNESS WHEREOF,
the
parties hereto have caused this Agreement to be executed and delivered by their
respective duly authorized officers or representatives as of the date first
written above.
| Entrx Corporation | Pandora Select Partners, L.P. | |||
| By | By | |||
|
Xxxxx Xxxxxx, Treasurer |
Its ___________________________________________ |
|||
