Exhibit 10.2
SECURITIES PURCHASE AGREEMENT
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THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
March 3, 2008, by and among Galea Life Sciences, Inc. a Florida corporation,
with headquarters located at 000 XX 0xx Xxx, Xxxxx 0000, Xxxx Xxxxxxxxxx, XX
00000 (the "Company"), and the Buyers listed on Schedule I attached hereto
(individually, a "Buyer" or collectively "Buyers").
WITNESSETH:
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WHEREAS, the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities registration pursuant to
Section 4(2) and/or Rule 506 of Regulation D ("Regulation D") as promulgated by
the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "1933 Act");
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Buyer(s),
as provided herein, and the Buyer(s) shall purchase up to Two Hundred
Seventy-Five Thousand Dollars ($275,000) of secured convertible debentures (the
"Convertible Debentures"), which shall be convertible into shares of the
Company's common stock, par value $.0001 (the "Common Stock") (as converted, the
"Conversion Shares") of which all Two Hundred Seventy-Five Thousand Dollars
($275,000) shall be funded on the date hereof (the "Closing"), for a total
purchase price of Two Hundred Seventy-Five Thousand Dollars ($275,000), (the
"Purchase Price") in the respective amounts set forth opposite each Buyer(s)
name on Schedule I (the "Subscription Amount"); and
WHEREAS, the aggregate proceeds of the sale of the Convertible
Debentures contemplated hereby shall be held in escrow pursuant to the terms of
an escrow agreement substantially in the form of the Escrow Agreement attached
hereto as Exhibit B (the "Escrow Agreement"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering Irrevocable Transfer
Agent Instructions substantially in the form attached hereto as Exhibit C (the
"Irrevocable Transfer Agent Instructions"); and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Security Agreement
substantially in the form attached hereto as Exhibit D (the "Security
Agreement") pursuant to which the Company has agreed to provide the Buyer a
security interest in Pledged Collateral (as this term is defined in the Security
Agreement dated the date hereof) to secure Company's obligations under this
Agreement, the Convertible Debenture, the Warrant, the Irrevocable Transfer
Agent Instructions, the Security Agreement, the Pledge Agreement and the Escrow
Agreement (collectively, the "Transaction Documents") or any other obligations
of the Company to the Buyer;
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Buyer(s) hereby agree
as follows:
1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.
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(a) Purchase of Convertible Debentures. Subject to the
satisfaction (or waiver) of the terms and conditions of this Agreement, each
Buyer agrees, severally and not jointly, to purchase at Closing (as defined
herein below) and the Company agrees to sell and issue to each Buyer, severally
and not jointly, at Closing, Convertible Debentures in amounts corresponding
with the Subscription Amount set forth opposite each Buyer's name on Schedule I
hereto. Upon execution hereof by a Buyer, the Buyer shall wire transfer the
Subscription Amount set forth opposite his name on Schedule I in same-day funds
or a check payable to "Xxxxx X. Xxxxxxx XX, P.A. as Escrow Agent for Trafalgar
Capital Investment Fund - Galea Life Sciences", which Subscription Amount shall
be held in escrow pursuant to the terms of the Escrow Agreement (as hereinafter
defined) and disbursed in accordance therewith. Notwithstanding the foregoing, a
Buyer may withdraw his Subscription Amount and terminate this Agreement as to
such Buyer at any time after the execution hereof and prior to the Closing (as
hereinafter defined).
(b) Closing Date. The Closing of the purchase and sale of the
Convertible Debentures shall take place at 10:00 a.m. Eastern Standard Time on
the date hereof, subject to notification of satisfaction of the conditions to
the Closing set forth herein and in Sections 6 and 7 below (or such later date
as is mutually agreed to by the Company and the Buyer(s)) (the "Closing Date").
The Closing shall occur on the Closing Date at the offices of Xxxxx X. Xxxxxxx
XX, P.A., 0000 Xxxxxxxx Xxx, Xxxx Xxxxx, XX 00000 (or such other place as is
mutually agreed to by the Company and the Buyer(s)).
(c) Escrow Arrangements; Form of Payment. Upon execution
hereof by Buyer(s) and pending the Closings, the aggregate proceeds of the sale
of the Convertible Debentures to Buyer(s) pursuant hereto shall be deposited in
an escrow account with Xxxxx X. Xxxxxxx XX, P.A., as escrow agent (the "Escrow
Agent"), pursuant to the terms of an escrow agreement between the Company, the
Buyer(s) and the Escrow Agent in the form attached hereto as Exhibit B (the
"Escrow Agreement"). Subject to the satisfaction of the terms and conditions of
this Agreement, on the Closing Date, (i) the Escrow Agent shall deliver to the
Company in accordance with the terms of the Escrow Agreement such aggregate
proceeds for the Convertible Debentures to be issued and sold to such Buyer(s),
minus the fees and expenses as set forth herein which shall be paid directly
from the gross proceeds held in escrow at the Closing by wire transfer of
immediately available funds and (ii) the Company shall deliver to each Buyer,
Convertible Debentures which such Buyer(s) is purchasing in amounts indicated
opposite such Buyer's name on Schedule I, duly executed on behalf of the
Company.
(d) "Closing Date Exchange Rate" means the Euro to US dollar
spot exchange rate as quoted in the London edition of the Financial Times on the
Closing Date.
(e) "Repayment Exchange Rate" means in relation to each date
of a Conversion Notice or date of a Redemption Notice, the Euro to US dollar
spot exchange rate as quoted in the London edition of the Financial Times on
such date.
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(f) If on the date of any Conversion Notice or Redemption
Notice, the Repayment Exchange Rate is less than the Closing Date Exchange Rate
then the number of Shares to be issued shall be increased by the same percentage
as results from dividing the Closing Date Exchange Rate by the relevant
Repayment Exchange Rate. By way of example, if the number of Shares to be issued
in respect of a particular Conversion Notice or Redemption Notice would, but for
this Clause 1(f), be 1,000 and if the Closing Date Exchange Rate is 1.80 and the
relevant Repayment Exchange Rate is 1.75, then 1,029 Shares will be issued in
relation to that Conversion Notice or Redemption Notice, as the case may be.
(g) If on the Repayment Date or any Interest Repayment Date,
the Cash Payment Date Exchange Rate, as defined below is less than the Closing
Date Exchange Rate then the amount of cash required to satisfy the amounts due
at such time shall be increased by the same percentage as results from dividing
the Closing Date Exchange Rate by the relevant Cash Payment Date Exchange Rate.
"Cash Payment Date Exchange Rate" means in relation to each Repayment Date or
Interest Repayment Date the Euro to US dollar spot exchange rate as quoted in
the London edition of the Financial Times on such date. By way of example, if
the amount of cash required to repay all amounts due on such date would, but for
this Clause 1(g), be $1,000 and if the Closing Date Exchange Rate is 1.80 and
the relevant Repayment Date Exchange Rate is 1.75 then the amount of cash from
the Cash Payment required to repay all amounts due on such date will be
$1,028.57.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
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Each Buyer represents and warrants, severally and not jointly, that:
(a) Investment Purpose. Each Buyer is acquiring the
Convertible Debentures and, upon conversion of Convertible Debentures, the Buyer
will acquire the Conversion Shares then issuable, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer reserves the right to dispose of the
Conversion Shares at any time in accordance with or pursuant to an effective
registration statement covering such Conversion Shares or an available exemption
under the 1933 Act.
(b) Accredited Investor Status. Each Buyer is an "Accredited
Investor" as that term is defined in Rule 501(a)(3) of Regulation D.
(c) Reliance on Exemptions. Each Buyer understands that the
Convertible Debentures are being offered and sold to it in reliance on specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the eligibility of
such Buyer to acquire such securities.
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(d) Information. Each Buyer and its advisors (and his or, its
counsel), if any, have been furnished with all materials relating to the
business, finances and operations of the Company and information he deemed
material to making an informed investment decision regarding his purchase of the
Convertible Debentures and the Conversion Shares, which have been requested by
such Buyer. Each Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company and its management. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Each Buyer understands that its investment in the
Convertible Debentures and the Conversion Shares involves a high degree of risk.
Each Buyer is in a position regarding the Company, which, based upon employment,
family relationship or economic bargaining power, enabled and enables such Buyer
to obtain information from the Company in order to evaluate the merits and risks
of this investment. Each Buyer has sought such accounting, legal and tax advice,
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Convertible Debentures and the Conversion
Shares.
(e) No Governmental Review. Each Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the
Convertible Debentures or the Conversion Shares, or the fairness or suitability
of the investment in the Convertible Debentures or the Conversion Shares, nor
have such authorities passed upon or endorsed the merits of the offering of the
Convertible Debentures or the Conversion Shares.
(f) Transfer or Resale. Each Buyer understands that: (i) the
Convertible Debentures have not been and are not being registered under the 1933
Act or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (A) subsequently registered thereunder, or (B)
such Buyer shall have delivered to the Company an opinion of counsel, in a
generally acceptable form, to the effect that such securities to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration requirements; (ii) any sale of such securities
made in reliance on Rule 144 under the 1933 Act (or a successor rule thereto)
("Rule 144") may be made only in accordance with the terms of Rule 144 and
further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 0000 Xxx) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder. The Company reserves the right to place stop transfer
instructions against the shares and certificates for the Conversion Shares.
(g) Legends. Each Buyer understands that the certificates or
other instruments representing the Convertible Debentures and or the Conversion
Shares shall bear a restrictive legend in substantially the following form (and
a stop transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, GENERALLY ACCEPTABLE TO COMPANY'S
COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS.
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The legend set forth above shall be removed and the Company within three (3)
business days shall issue a certificate without such legend to the holder of the
Conversion Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) in connection with a sale transaction, provided the
Conversion Shares are registered under the 1933 Act or (ii) in connection with a
sale transaction, after such holder provides the Company with an opinion of
counsel, which opinion shall be in form, substance and scope reasonably
acceptable to counsel for the Company, to the effect that a public sale,
assignment or transfer of the Conversion Shares may be made without registration
under the 1933 Act.
(h) Authorization, Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
(i) Receipt of Documents. Each Buyer and his or its counsel
has received and read in their entirety: (i) this Agreement and each
representation, warranty and covenant set forth herein, and the Transaction
Documents; (ii) all due diligence and other information necessary to verify the
accuracy and completeness of such representations, warranties and covenants; and
(iii) answers to all questions each Buyer submitted to the Company regarding an
investment in the Company; and each Buyer has relied on the information
contained therein and has not been furnished any other documents, literature,
memorandum or prospectus.
(j) Due Formation of Corporate and Other Buyers. If the
Buyer(s) is a corporation, trust, partnership or other entity that is not an
individual person, it has been formed and validly exists and has not been
organized for the specific purpose of purchasing the Convertible Debentures and
is not prohibited from doing so.
(k) No Legal Advice From the Company. Each Buyer acknowledges,
that it had the opportunity to review this Agreement and the transactions
contemplated by this Agreement with his or its own legal counsel and investment
and tax advisors. Each Buyer is relying solely on such counsel and advisors and
not on any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with respect to
this investment, the transactions contemplated by this Agreement or the
securities laws of any jurisdiction.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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Except as otherwise provided in the Company Disclosure Schedule
delivered herewith, and except as set forth in the Company's SEC Documents filed
with the Securities and Exchange Commission pursuant to the 1934 Act, the
Company represents and warrants as of the date hereof and as of the Closing Date
to each of the Buyers that:
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(a) Organization and Qualification. The Company and its
subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on their
business as now being conducted. Each of the Company and its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole.
(b) Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement, the Transaction Documents, and any
related agreements, and to issue the Convertible Debentures and the Conversion
Shares in accordance with the terms hereof and thereof, (ii) the execution and
delivery of this Agreement, the Transaction Documents and any related agreements
by the Company and the consummation by it of the transactions contemplated
hereby and thereby, including, without limitation, the issuance of the
Convertible Debentures, the Conversion Shares and the reservation for issuance
and the issuance of the Conversion Shares issuable upon conversion or exercise
thereof, have been duly authorized by the Company's Board of Directors and no
further consent or authorization is required by the Company, its Board of
Directors or its stockholders, (iii) this Agreement, the Transaction Documents
and any related agreements have been duly executed and delivered by the Company,
(iv) this Agreement, the Transaction Documents and any related agreements
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
Company knows of no reason why the Company cannot perform any of the Company's
obligations under this Agreement or the Transaction Documents.
(c) Capitalization. The authorized capital stock of the
Company consists of 36,000,000 shares of Common Stock, par value $.0001 per
share and no shares of Preferred Stock. As of the date hereof, the Company has
29,000,000 shares of Common Stock and no shares of Preferred Stock issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. No shares of Common Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. As of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act and (iv) there
are no outstanding registration statements and there are no outstanding comment
letters from the SEC or any other regulatory agency. There are no securities or
instruments containing anti-dilution or similar provisions that will be
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triggered by the issuance of the Convertible Debentures as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto other than stock options issued to employees
and consultants.
(d) Issuance of Securities. The Convertible Debentures are
duly authorized and, upon issuance in accordance with the terms hereof, shall be
duly issued, fully paid and nonassessable, are free from all taxes, liens and
charges with respect to the issue thereof. The Conversion Shares issuable upon
conversion of the Convertible Debentures have been duly authorized and reserved
for issuance. Upon conversion or exercise in accordance with the Convertible
Debentures the Conversion Shares will be duly issued, fully paid and
nonassessable.
(e) No Conflicts. The execution, delivery and performance of
this Agreement, the Transaction Documents and any related agreements by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby will not (i) result in a violation of the Articles of
Incorporation or the By-laws or (ii), to the knowledge of the Company, conflict
with or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws and regulations and
the rules and regulations of The National Association of Securities Dealers
Inc.'s OTC Bulletin Board on which the Common Shares are quoted) applicable to
the Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. To the knowledge of the
Company, neither the Company nor its subsidiaries is in violation of any term of
or in default under its Articles of Incorporation or By-laws or their
organizational charter or by-laws, respectively, or, any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted in violation of any material law,
ordinance, or regulation of any governmental entity. Except as specifically
contemplated by this Agreement and as required under the 1933 Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under or contemplated by this Agreement in accordance with
the terms hereof. All consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof, except
for any required post-Closing notice filings under applicable United States
federal or state securities laws, if any.
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(f) SEC Documents: Financial Statements. The Company has filed
or furnished, as applicable, all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC under of the Securities
Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed
prior to the date hereof or amended after the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to as the "SEC
Documents"). The Company has delivered to the Buyers or their representatives,
or made available through the SEC's website at xxxx://xxx.xxx.xxx, true and
complete copies of the SEC Documents. As of their respective dates, the
financial statements of the Company disclosed in the SEC Documents (the
"Financial Statements") complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such Financial Statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes or may be
condensed or summary statements) and, fairly present in all material respects
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
(g) No Material Misstatement or Omission. None of the
Company's SEC Documents at the time of filing, none of the materials provided to
the Buyer(s) by the Company and none of the representation and warranties made
in this Agreement or any of the other Transaction Documents include any untrue
statements of material fact, nor do the Company's SEC Documents at the time of
filing, the materials provided to the Buyer(s) by the Company and the
representations and warranties made in this Agreement or any of the other
Transaction Documents omit to state any material fact required to be stated
therein necessary to make the statements made, in light of the circumstances
under which they were made, not misleading.
(h) Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending against or
affecting the Company, the Common Stock or any of the Company's subsidiaries,
wherein an unfavorable decision, ruling or finding would (i) have a material
adverse effect on the transactions contemplated hereby (ii) adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the Transaction
Documents, or (iii) except as expressly disclosed in the SEC Documents, have a
material adverse effect on the business, operations, properties, financial
condition or results of operations of the Company and its subsidiaries taken as
a whole.
(i) Acknowledgment Regarding Buyer's Purchase of the
Convertible Debentures. The Company acknowledges and agrees that the Buyer(s) is
acting solely in the capacity of an arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that the Buyer(s) is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by the Buyer(s) or any
of their respective representatives or agents in connection with this Agreement
and the transactions contemplated hereby is merely incidental to such Buyer's
purchase of the Convertible Debentures or the Conversion Shares. The Company
further represents to the Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation by the Company and
its representatives.
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(j) No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 0000 Xxx) in connection with the offer or sale of the
Convertible Debentures or the Conversion Shares.
(k) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Convertible Debentures or the Conversion Shares under the 1933 Act or cause this
offering of the Convertible Debentures or the Conversion Shares to be integrated
with prior offerings by the Company for purposes of the 1933 Act.
(l) Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are good.
(m) Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. The Company and its subsidiaries do not have any
knowledge of any infringement by the Company or its subsidiaries of trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service xxxx registrations, trade secret or other
similar rights of others, and, to the knowledge of the Company there is no
claim, action or proceeding being made or brought against, or to the Company's
knowledge, being threatened against, the Company or its subsidiaries regarding
trademark, trade name, patents, patent rights, invention, copyright, license,
service names, service marks, service xxxx registrations, trade secret or other
infringement; and the Company and its subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
(n) Environmental Laws. The Company and its subsidiaries are
(i) in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval.
(o) Title. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
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(p) Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its subsidiaries, taken as a whole.
(q) Regulatory Permits. The Company and its subsidiaries
possess all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
(r) Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, and (iii) the recorded amounts for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(s) No Material Adverse Breaches, etc. Neither the Company nor
any of its subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
material adverse effect on the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. Neither the Company nor any of its subsidiaries is in breach of
any contract or agreement which breach, in the judgment of the Company's
officers, has or is expected to have a material adverse effect on the business,
properties, operations, financial condition, results of operations or prospects
of the Company or its subsidiaries.
(t) Tax Status. The Company and each of its subsidiaries has
made and filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and (unless
and only to the extent that the Company and each of its subsidiaries has set
aside on its books provisions reasonably adequate for the payment of all unpaid
and unreported taxes) has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
10
(u) Certain Transactions. Except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed in the SEC Documents, none
of the officers, directors, or employees of the Company is presently a party to
any transaction with the Company (other than for services as employees, officers
and directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
(v) Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of first refusal
basis or otherwise to any third parties including, but not limited to, current
or former shareholders of the Company, underwriters, brokers, agents or other
third parties.
4. COVENANTS.
---------
(a) Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in Sections
6 and 7 of this Agreement.
(b) Form D. The Company agrees to file a Form D with respect
to the Conversion Shares as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Conversion Shares, or obtain an exemption
for the Conversion Shares for sale to the Buyers at the Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to the Closing Date.
(c) Reporting Status. Until the earlier of (i) the date as of
which the Buyer(s) may sell all of the Conversion Shares without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto),
or (ii) the date on which (A) the Buyer(s) shall have sold all the Conversion
Shares and (B) none of the Convertible Debentures are outstanding (the
"Registration Period"), the Company shall file in a timely manner all reports
required to be filed with the SEC pursuant to the 1934 Act and the regulations
of the SEC thereunder, and the Company shall not terminate its status as an
issuer required to file reports under the 1934 Act even if the 1934 Act or the
rules and regulations thereunder would otherwise permit such termination.
(d) Use of Proceeds. The Company will use the proceeds from
the sale of the Convertible Debentures for the purposes of producing and
marketing product.
11
(e) Reservation of Shares. The Company shall take all action
reasonably necessary to at all times have authorized, and reserved for the
purpose of issuance, such number of shares of Common Stock as shall be necessary
to effect the issuance of the Conversion Shares and the issuance of the shares
upon exercise of the Warrants (as defined below). If at any time the Company
does not have available such shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all of the Conversion Shares of the
Company or the issuance of all shares upon exercise of the Warrants, the Company
shall file a preliminary proxy statement with the Securities and Exchange
Commission within ten (10) business day and shall call and hold a special
meeting of the shareholders as soon as practicable after such occurrence, for
the sole purpose of increasing the number of shares authorized. The Company's
management shall recommend to the shareholders to vote in favor of increasing
the number of shares of Common Stock authorized. Management shall also vote all
of its shares in favor of increasing the number of authorized shares of Common
Stock.
(f) Fees and Expenses.
(i) Each of the Company and the Buyer(s) shall pay
all costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement the Transaction Documents and any other documents relating to
this transaction.
(ii) The Company has agreed to pay a legal and
documentation review fee to Buyer of Seven Thousand Five Hundred
Dollars ($7,500), which shall be paid directly from the proceeds of the
Closing.
(iii) The Company has agreed to pay a Due Diligence
Fee to Buyer of Five Thousand Dollars ($5,000), one-half of which has
been paid prior to this date and one-half of which shall be paid
directly from the proceeds of the Closing.
(iv) The Company shall issue to the Buyer warrants to
purchase up to two hundred seventy-five thousand (275,000) shares of
the Company's Common Stock for a period of three (3) years at an
exercise price equal to the per $0.19 share ("Warrants"). The Warrants
shall be issued in full at the Closing and shall be exercised on a cash
basis provided that the Company is not in Default and the shares
underlying the Warrants are subject to an effective registration
statement.
(v) The Company shall pay to the Buyer a Commitment
Fee equal to seven percent (7%) of the Purchase Price which shall be
paid directly from the proceeds the Closing.
(vi) The Company shall pay to the Buyer a Loan
Commitment Fee equal to two percent (2%) of the Purchase Price which
shall be paid directly from the proceeds the Closing.
12
(g) Corporate Existence. So long as any of the Convertible
Debentures remain outstanding, the Company shall not directly or indirectly
consummate any merger, reorganization, restructuring, reverse stock split
consolidation, sale of all or substantially all of the Company's assets or any
similar transaction or related transactions (each such transaction, an
"Organizational Change") unless, prior to the consummation an Organizational
Change, the Company obtains the written consent of each Buyer. In any such case,
the Company will make appropriate provision with respect to such holders' rights
and interests to insure that the provisions of this Section 4(g) will thereafter
be applicable to the Convertible Debentures.
(h) Transactions With Affiliates. So long as any Convertible
Debentures are outstanding, the Company shall not, and shall cause each of its
subsidiaries not to, enter into, amend, modify or supplement, or permit any
subsidiary to enter into, amend, modify or supplement any agreement,
transaction, commitment, or arrangement with any of its or any subsidiary's
officers, directors, persons who were officers or directors at any time during
the previous two (2) years, stockholders who beneficially own five percent (5%)
or more of the Common Stock, or Affiliates (as defined below) or with any
individual related by blood, marriage, or adoption to any such individual or
with any entity in which any such entity or individual owns a five percent (5%)
or more beneficial interest (each a "Related Party"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
investment in an Affiliate of the Company, (c) any agreement, transaction,
commitment, or arrangement on an arms-length basis on terms no less favorable
than terms which would have been obtainable from a person other than such
Related Party, (d) any agreement transaction, commitment, or arrangement which
is approved by a majority of the disinterested directors of the Company, for
purposes hereof, any director who is also an officer of the Company or any
subsidiary of the Company shall not be a disinterested director with respect to
any such agreement, transaction, commitment, or arrangement. "Affiliate" for
purposes hereof means, with respect to any person or entity, another person or
entity that, directly or indirectly, (i) has a ten percent (10%) or more equity
interest in that person or entity, (ii) has ten percent (10%) or more common
ownership with that person or entity, (iii) controls that person or entity, or
(iv) shares common control with that person or entity. "Control" or "controls"
for purposes hereof means that a person or entity has the power, direct or
indirect, to conduct or govern the policies of another person or entity.
(i) Transfer Agent. The Company covenants and agrees that, in
the event that the Company's agency relationship with the transfer agent should
be terminated for any reason prior to a date which is two (2) years after the
Closing Date, the Company shall immediately appoint a new transfer agent and
shall require that the new transfer agent execute and agree to be bound by the
terms of the Irrevocable Transfer Agent Instructions (as defined herein).
(j) Restriction on Issuance of the Capital Stock. So long as
any Convertible Debentures are outstanding, the Company shall not, without the
prior written consent of the Buyer(s), (i) issue or sell shares of Common Stock
or Preferred Stock without consideration or for a consideration per share less
than the bid price of the Common Stock determined immediately prior to its
issuance, (ii) issue any preferred stock, warrant, option, right, contract,
call, or other security instrument granting the holder thereof, the right to
acquire Common Stock without consideration or for a consideration less than such
Common Stock's bid price value determined immediately prior to its issuance,
(iii) enter into any security instrument granting the holder a security interest
in any and all assets of the Company, or (iv) file any registration statement on
Form S-8.
13
(k) Restriction on "Short" Position. Neither the Buyer nor any
of its affiliates have an open short position in the Common Stock of the
Company, and the Buyer agrees that it shall not, and that it will cause its
affiliates not to, engage in any short sales with respect to the Common Stock as
long as any Convertible Debentures shall remain outstanding.
5. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue the Irrevocable Transfer Agent Instructions to
its transfer agent irrevocably appointing Xxxxx X. Xxxxxxx XX, P.A. as its agent
for purpose of having certificates issued, registered in the name of the
Buyer(s) or its respective nominee(s), for the Conversion Shares representing
such amounts of Convertible Debentures as specified from time to time by the
Buyer(s) to the Company upon conversion of the Convertible Debentures, for
interest owed pursuant to the Convertible Debenture, and for any and all
liquidated damages. Xxxxx X. Xxxxxxx XX, P.A. shall be paid a cash fee of One
Hundred Dollars ($100) for every occasion they act pursuant to the Irrevocable
Transfer Agent Instructions. The Company shall not change its transfer agent
without the express written consent of the Buyer(s), which may be withheld by
the Buyer(s) in its sole discretion. Prior to registration of the Conversion
Shares under the 1933 Act, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 5, and stop transfer instructions to give effect to Section 2(g)
hereof (in the case of the Conversion Shares prior to registration of such
shares under the 0000 Xxx) will be given by the Company to its transfer agent
and that the Conversion Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this Agreement
and the Transaction Documents. Nothing in this Section 5 shall affect in any way
the Buyer's obligations and agreement to comply with all applicable securities
laws upon resale of Conversion Shares. If the Buyer(s) provides the Company with
an opinion of counsel, in form, scope and substance customary for opinions of
counsel in comparable transactions and reasonably acceptable to the Company's
counsel, to the effect that registration of a resale by the Buyer(s) of any of
the Conversion Shares is not required under the 1933 Act, the Company shall
within two (2) business days instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by the Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 5, that the Buyer(s) shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell the
Convertible Debentures to the Buyer(s) at the Closings is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
14
(a) Each Buyer shall have executed this Agreement, and the
Transaction Documents and delivered the same to the Company.
(b) The Buyer(s) shall have delivered to the Escrow Agent the
Purchase Price for Convertible Debentures in respective amounts as set forth
next to each Buyer as outlined on Schedule I attached hereto and the Escrow
Agent shall have delivered the net proceeds to the Company by wire transfer of
immediately available U.S. funds pursuant to the wire instructions provided by
the Company.
(c) The representations and warranties of the Buyer(s) shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer(s) shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer(s) at or prior to the Closing Date.
(d) The Company shall have filed a form UCC-1 with regard to
the Pledged Property and Pledged Collateral as detailed in the Security
Agreement dated the date hereof and provided proof of such filing to the
Buyer(s).
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
------------------------------------------------
The obligation of the Buyer(s) hereunder to purchase the Convertible
Debentures at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions:
(a) The Company shall have executed this Agreement the
Transaction Documents and any other documents relating to this transaction and
delivered the same to the Buyer(s).
(b) Xxxxxxxx X. Xxxxxxxx and Gemini Financial Services Corp.
shall have executed the Pledge Agreement and delivered all required shares and
medallion guaranteed stock powers required thereunder.
(c) The trading in the Common Shares on the pink sheets shall
not have been suspended for any reason.
(d) The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. If requested by
the Buyer, the Buyer shall have received a certificate, executed by the
President of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by the Buyer
including, without limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
15
(e) The Company shall have executed and delivered to the
Buyer(s) the Convertible Debentures in the respective amounts set forth opposite
each Buyer(s) name on Schedule I attached hereto.
(f) The Buyer(s) shall have received an opinion of counsel
from counsel to the Company in a form satisfactory to the Buyer(s).
(g) The Company shall have provided to the Buyer(s) a
certificate of good standing from the secretary of state from the state in which
the company is incorporated.
(h) As of the Closing Date, the Company shall have reserved
out of its authorized and unissued Common Stock, solely for the purpose of
effecting the conversion of the Convertible Debentures, shares of Common Stock
to effect the conversion of all of the Conversion Shares then outstanding.
(i) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(j) The Company shall have provided to the Buyer an
acknowledgement, to the satisfaction of the Buyer, from the Company's
independent certified public accountants as to its ability to provide all
consents required in order to file a registration statement in connection with
this transaction.
(k) The Company shall file a form UCC-1 or such other forms as
may be required to perfect the Buyer's interest in the Pledged Collateral as
detailed in the Security Agreement dated the date hereof, providing the Buyer
with a senior lien on all of the Company's assets and intellectual property and
provided proof of such filing to the Buyer(s).
(l) The satisfactorily completion of all due diligence.
8. INDEMNIFICATION.
---------------
(a) In consideration of the Buyer's execution and delivery of
this Agreement and acquiring the Convertible Debentures and the Conversion
Shares hereunder, and in addition to all of the Company's other obligations
under this Agreement, the Company shall defend, protect, indemnify and hold
harmless the Buyer(s) and each other holder of the Convertible Debentures and
the Conversion Shares, and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by the Buyer Indemnitees or any of them as a result of,
or arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Company in this Agreement, the
16
Transaction Documents or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, or the Transaction
Documents or any other certificate, instrument or document contemplated hereby
or thereby, or (c) any cause of action, suit or claim brought or made against
such Indemnitee by a third party and arising out of or resulting from the
execution, delivery, performance or enforcement of this Agreement or any other
instrument, document or agreement executed pursuant hereto by any of the
Indemnities, any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Convertible
Debentures or the status of the Buyer or holder of the Convertible Debentures
the Conversion Shares, as a Buyer of Convertible Debentures in the Company. To
the extent that the foregoing undertaking by the Company may be unenforceable
for any reason, the Company shall make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities, which is permissible
under applicable law.
(b) In consideration of the Company's execution and delivery
of this Agreement, and in addition to all of the Buyer's other obligations under
this Agreement, the Buyer shall defend, protect, indemnify and hold harmless the
Company and all of its officers, directors, employees and agents (including,
without limitation, those retained in connection with the transactions
contemplated by this Agreement) (collectively, the "Company Indemnitees") from
and against any and all Indemnified Liabilities incurred by the Indemnitees or
any of them as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Buyer(s) in this Agreement, the Transaction Documents or any other certificate,
instrument or document contemplated hereby or thereby executed by the Buyer, (b)
any breach of any covenant, agreement or obligation of the Buyer(s) contained in
this Agreement, the Transaction Documents or any other certificate, instrument
or document contemplated hereby or thereby executed by the Buyer, or (c) any
cause of action, suit or claim brought or made against such Company Indemnitee
based on material misrepresentations or due to a material breach and arising out
of or resulting from the execution, delivery, performance or enforcement of this
Agreement, the Transaction Documents or any other certificate instrument,
document or agreement executed pursuant hereto by any of the Company
Indemnities. To the extent that the foregoing undertaking by each Buyer may be
unenforceable for any reason, each Buyer shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities, which is
permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
----------------------------
(a) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Florida without regard
to the principles of conflict of laws. The parties further agree that any action
between them shall be heard in Broward County, Florida and expressly consent to
the jurisdiction and venue of the State Court sitting in Broward County, Florida
and the United States District Court for the Southern District of Florida for
the adjudication of any civil action asserted pursuant to this Paragraph.
17
(b) Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party.
(c) Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
(e) Entire Agreement, Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyer(s), the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the party to be charged with enforcement.
(f) Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon confirmation of receipt, when sent
by facsimile; (iii) three (3) days after being sent by U.S. certified mail,
return receipt requested, or (iv) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
18
If to the Company, to: Galea Life Sciences, Inc.
000 XX 0xx Xxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxxxxx, President
Telephone:
Facsimile:
With a copy to: Xxxxxxxx X. Xxxxxxxx, PA
000 XX 0xx Xxx., Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
=========
Facsimile: (000) 000-0000
=========
If to the Transfer Agent, to:
Telephone:
Facsimile:
With Copy to: Xxxxx X. Xxxxxxx XX, P.A.
0000 Xxxxxxxx Xxx
Xxxx Xxxxx, XX 00000
Attention: Xxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Buyer(s), to its address and facsimile number on Schedule I,
with copies to the Buyer's counsel as set forth on Schedule I. Each party shall
provide five (5) days' prior written notice to the other party of any change in
address or facsimile number.
(g) Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
assigns. Neither the Company nor any Buyer shall assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party hereto.
(h) No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
(i) Survival. Unless this Agreement is terminated under
Section 9(l), the representations and warranties of the Company and the Buyer(s)
contained in Sections 2 and 3, the agreements and covenants set forth in
Sections 4, 5 and 9, and the indemnification provisions set forth in Section 8,
shall survive the Closing for a period of two (2) years following the date on
which the Convertible Debentures are converted in full. The Buyer(s) shall be
responsible only for its own representations, warranties, agreements and
covenants hereunder.
19
(j) Publicity. The Company and the Buyer(s) shall have the
right to approve, before issuance any press release or any other public
statement with respect to the transactions contemplated hereby made by any
party; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer(s), to issue any press release or other public disclosure
with respect to such transactions required under applicable securities or other
laws or regulations (the Company shall use its best efforts to consult the
Buyer(s) in connection with any such press release or other public disclosure
prior to its release and Buyer(s) shall be provided with a copy thereof upon
release thereof).
(k) Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Termination. In the event that the Closing shall not have
occurred with respect to the Buyers on or before five (5) business days from the
date hereof due to the Company's or the Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the non-breaching party's
failure to waive such unsatisfied condition(s)), the non-breaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated by the
Company pursuant to this Section 9(l), the Company shall remain obligated to pay
the Buyer(s) for the structuring fee described in Section 4(g) above.
(m) No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY:
GALEA LIFE SCIENCES, INC.
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: President
BUYER:
TRAFALGAR CAPITAL SPECIALIZED
INVESTMENT FUND, LUXEMBOURG
By: Trafalgar Capital Sarl
Its: General Partner
By: /s/ Xxxxxx Xxxxx
Name: Xxxxxx Xxxxx
Title: Chairman of the Board
21
EXHIBIT A
[RESERVED]
22
EXHIBIT B
FORM OF ESCROW AGREEMENT
23
EXHIBIT C
TRANSFER AGENT INSTRUCTIONS
24
SCHEDULE I
----------
SCHEDULE OF BUYERS
------------------
Address/Facsimile Amount of
Name Signature Number of Buyer Subscription
----------------------------- ---------------------------- ---------------------- ------------
8-10 Rue Xxxxxxx Xxxxx
Trafalgar Capital Specialized By: Trafalgar Capital Sarl BP 3023 $ 275,000
Investment Fund, Luxembourg Its: General Partner X-0000 Xxxxxxxxxx
Facsimile:
011-44-207-405-0161
By: /s/ Xxxxxx Xxxxx and
----------------------
Name: Xxxxxx Xxxxx 001-786-323-1651
Its: Chairman of the Board
Buyer's Counsel:
Xxxxx X. Xxxxxxx XX, P.A.
0000 Xxxxxxxx Xxx
Xxxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
25
THIS SECURED DEBENTURE AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD
RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
SECURED DEBENTURE
GALEA LIFE SCIENCES, INC.
Secured Convertible Debenture
March 3, 2008
No. 1 US$275,000
This Secured Debenture (the "Debenture") is issued on March 3, 2008
(the "Closing Date") by Galea Life Sciences, Inc. a Florida corporation (the
"Company"), to Trafalgar Capital Specialized Investment Fund, Luxembourg
(together with its permitted successors and assigns, the "Holder") pursuant to
exemptions from registration under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, the Company
hereby promises to pay to the order of the Holder on March 3, 2010 in lawful
money of the United States of America and in immediately available funds the
principal sum of Two Hundred Seventy-Five Thousand U.S. Dollars (US$275,000)
together with interest on the unpaid principal of this Debenture at the rate of:
(a) twelve percent (12%) per annum compounded monthly from the date hereof until
the date the registration statement (the "Registration Statement") is filed with
the United States Securities and Exchange Commission ("SEC"), (b) ten percent
(10%) per annum, compounded monthly from the date the Registration Statement is
filed with the SEC until the earlier of (i) the date the Registration Statement
is declared Effective by the SEC and (ii) the date the Conversion Shares, as
defined below, are eligible for resale pursuant to Rule 144, and (c) eight
percent (8%) per annum, compounded monthly from the earlier of (i) the date the
Registration Statement is declared Effective by the SEC and (ii) the date the
Conversion Shares, as defined below, are eligible for resale pursuant to Rule
144. Interest shall be computed on the basis of a 360-day year and the actual
26
days elapsed and the Holder shall deduct the first two (2) interest payments at
the Closing (as defined in the Securities Purchase Agreement). In no event shall
the Holder be entitled to convert this Debenture for a number of shares of
Common Stock in excess of that number of shares of Common Stock which, upon
giving effect to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such conversion.
Section 1.02 Optional Conversion. The Holder is entitled, at its
option, to convert, and sell on the same day or at any subsequent time, at any
time and from time to time commencing sixty (60) days from the Closing, until
payment in full of this Debenture, all or any part of the principal amount of
the Debenture, plus accrued interest, into shares (the "Conversion Shares") of
the Company's common stock, par value US$.0001 per share ("Common Stock"), at
the price per share (the "Conversion Price") equal to: the lesser of (a) an
amount equal to $0.19 (the "Fixed Price") , or (b) an amount equal to eighty
percent (80%) of the lowest daily closing bid price of the Company's Common
Stock, as quoted by Bloomberg, LP, for the five (5) trading days immediately
preceding the Conversion Date (as defined herein). Subparagraphs (a) and (b)
above are individually referred to as a "Conversion Price". As used herein,
"Principal Market" shall mean The National Association of Securities Dealers
Inc.'s Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American
Stock Exchange. If the Common Stock is not traded on a Principal Market, the
Closing Bid Price shall mean, the reported Closing Bid Price for the Common
Stock, as furnished by the National Association of Securities Dealers, Inc., for
the applicable periods. No fraction of shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. To convert this Debenture, the Holder hereof
shall deliver written notice thereof, substantially in the form of Exhibit "A"
to this Debenture, with appropriate insertions (the "Conversion Notice"), to the
Company at its address as set forth herein. The date upon which the conversion
shall be effective (the "Conversion Date") shall be deemed to be the date set
forth in the Conversion Notice. Within three (3) days of receipt of a Conversion
Notice from the Holder, the Company may redeem any conversion for cash in lieu
of issuing the Conversion Shares at using the Redemption Amount.
Section 1.03 Reservation of Common Stock. The Company shall reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of this Debenture, such number of
shares of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall file a preliminary proxy statement with the Securities and
Exchange Commission within ten (10) business day after such occurrence and shall
call and hold a special meeting of its stockholders as soon as practicable after
such occurrence for the sole purpose of increasing the number of authorized
shares of Common Stock.
Section 1.04 [Reserved]
Section 1.05 Mandatory Redemption. The Company shall begin redeeming on
this Debenture monthly beginning on the four (4) month anniversary following the
Closing by making payments over the remaining twenty (20) months by the Company
making monthly principal and interest payments at a twelve and one-half percent
(12.5%) redemption premium on the principal redeemed each month.
27
Section 1.06 Interest Payments. Holder shall deduct the first two (2)
interest payments at the First Closing and shall deduct the next two (2)
interest payments due on the date of the subsequent Closings from the subsequent
Closing on the then outstanding balance. At the time such interest is payable,
the Holder, in its sole discretion, may elect to receive the interest in cash
(via wire transfer or certified funds) or in the form of Common Stock. In the
event of default, as described in Article III Section 3.01 hereunder, the Holder
may elect that the interest be paid in cash (via wire transfer or certified
funds) or in the form of Common Stock. If paid in the form of Common Stock, the
amount of stock to be issued will be calculated as follows: the value of the
stock shall be the Closing Bid Price on: (i) the date the interest payment is
due; or (ii) if the interest payment is not made when due, the date the interest
payment is made. A number of shares of Common Stock with a value equal to the
amount of interest due shall be issued. No fractional shares will be issued;
therefore, in the event that the value of the Common Stock per share does not
equal the total interest due, the Company will pay the balance in cash.
Section 1.07 Paying Agent and Registrar. Initially, the Company will
act as paying agent and registrar. The Company may change any paying agent,
registrar, or Company-registrar by giving the Holder not less than ten (10)
business days' written notice of its election to do so, specifying the name,
address, telephone number and facsimile number of the paying agent or registrar.
The Company may act in any such capacity.
Section 1.08 Secured Nature of Debenture. This Debenture is secured by
all of the assets and property of the Company as set forth on Exhibit A to the
Security Agreement dated the date hereof between the Company and the Holder (the
"Security Agreement"). As set forth in the Security Agreement, Holder's security
interest shall terminate upon the occurrence of an Expiration Event as defined
in the Security Agreement.
Section 1.08 Currency Exchange Rate Protections.
(a) "Closing Date Exchange Rate" means the Euro to US dollar
spot exchange rate as quoted in the London edition of the Financial
Times on the Closing Date.
(b) "Repayment Exchange Rate" means in relation to each date
of a Conversion Notice or date of a Redemption Notice, the Euro to US
dollar spot exchange rate as quoted by in the London edition of the
Financial Times on such date.
(c) If on the date of any Conversion Notice or Redemption
Notice, the Repayment Exchange Rate is less than the Closing Date
Exchange Rate then the number of Shares to be issued shall be increased
by the same percentage as results from dividing the Closing Date
Exchange Rate by the relevant Repayment Exchange Rate. By way of
example, if the number of Shares to be issued in respect of a
particular Conversion Notice or Redemption Notice would, but for this
Section 1.08, be 1,000 and if the Closing Date Exchange Rate is 1.80
and the relevant Repayment Exchange Rate is 1.75, then 1,029 Shares
will be issued in relation to that Conversion Notice or Redemption
Notice, as the case may be.
28
(d) If on the Repayment Date or any Interest Repayment Date,
the Cash Payment Date Exchange Rate, as defined below is less than the
Closing Date Exchange Rate then the amount of cash required to satisfy
the amounts due at such time shall be increased by the same percentage
as results from dividing the Closing Date Exchange Rate by the relevant
Cash Payment Date Exchange Rate. "Cash Payment Date Exchange Rate"
means in relation to each Repayment Date or Interest Repayment Date the
Euro to US dollar spot exchange rate as quoted in the London edition of
the Financial Times on such date. By way of example, if the amount of
cash required to repay all amounts due on such date would, but for this
Section 1.08, be $1,000 and if the Closing Date Exchange Rate is 1.80
and the relevant Repayment Date Exchange Rate is 1.75 then the amount
of cash from the Cash Payment required to repay all amounts due on such
date will be $1,028.57.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be
amended. Notwithstanding the above, without the consent of the Holder, the
Debenture may be amended to cure any ambiguity, defect or inconsistency, or to
provide for assumption of the Company obligations to the Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as
follows: (a) failure by the Company to pay amounts due hereunder within fifteen
(15) days of the date of maturity of this Debenture; (b) failure by the Company
to comply with the terms of the Irrevocable Transfer Agent Instructions attached
to the Securities Purchase Agreement; (c) after the Registration Statement has
been declared effective, failure by the Company's transfer agent to issue freely
tradeable Common Stock (including Common Stock tradeable under Rule 144) to the
Holder within five (5) days of the Company's receipt of the attached Notice of
Conversion from Holder; (d) failure by the Company for ten (10) days after
notice to it to comply with any of its other agreements in the Debenture; (e)
events of bankruptcy or insolvency; (f) a breach by the Company of its
obligations under the Securities Purchase Agreement which is not cured by the
Company within ten (10) days after receipt of written notice thereof or (g) any
attempts, actions or inactions taken by or under the direction of the Company
made with the intention of rescinding, cancelling or modifying in any matter the
Irrevocable Transfer Agent Instructions executed on the date hereof. Upon the
occurrence of an Event of Default, the Holder may, in its sole discretion,
accelerate full repayment of all debentures outstanding and accrued interest
thereon or may, notwithstanding any limitations contained in this Debenture
and/or the Securities Purchase Agreement dated the date hereof between the
Company and Trafalgar Capital Specialized Investment Fund, Luxembourg (the
"Securities Purchase Agreement"), convert all debentures outstanding and accrued
interest thereon into shares of Common Stock pursuant to Section 1.02 herein.
29
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated
in Article III Section 3.01, a breach by the Company of its obligations under
the Securities Purchase Agreement shall be deemed an Event of Default, which if
not cured within five (5) days, shall entitle the Holder to accelerate full
repayment of the Debentures together with accrued interest thereon or,
notwithstanding any limitations contained in this Debenture and/or the
Securities Purchase Agreement, to convert all amounts outstanding under the
Debentures together with accrued interest thereon into shares of Common Stock
pursuant to Section 1.02 herein. The Company acknowledges that failure to honor
a Notice of Conversion except as set forth herein, shall cause irreparable harm
to the Holder.
ARTICLE IV.
Section 4.01 Re-issuance of Debenture. When the Holder elects to
convert a part of the Debenture, then the Company shall reissue a new Debenture
in the same form as this Debenture to reflect the new principal amount.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any
time subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security
Interests. Except for the Securities Purchase Agreement dated the date hereof
between the Company and Trafalgar Capital Specialized Investment Fund,
Luxembourg, so long as any of the principal of or interest on this Debenture
remains unpaid and unconverted, the Company shall not, without the prior consent
of the Holder, issue or sell (i) any Common Stock or Preferred Stock without
consideration or for a consideration per share less than the bid price of the
Common Stock determined immediately prior to its issuance, (ii) issue or sell
any Preferred Stock, warrant, option, right, contract, call, or other security
or instrument granting the holder thereof the right to acquire Common Stock
without consideration or for a consideration per share less than such Common
Stock's bid price value determined immediately prior to its issuance, (iii)
enter into any security instrument granting the holder a security interest in
any of the assets of the Company, or (iv) file any registration statement on
Form S-8.
30
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to
the parties at the following addresses, unless a party notifies the other
parties, in writing, of a change of address:
If to the Company, to: Galea Life Sciences, Inc.
000 XX 0xx Xxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxxxxx, President
Telephone
Facsimile:
With a copy to: Xxxxxxxx X. Xxxxxxxx, PA
000 XX 0xx Xxx., Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
=========
Facsimile: (000) 000-0000
=========
If to the Holder: Trafalgar Capital Specialized Investment Fund
0-00 Xxx Xxxxxxx Xxxxx
XX 0000
X-0000 Xxxxxxxxxx
Attention: Xxxxxx Xxxxx, Chairman of the Board of
Facsimile: 011-44-207-405-0161 and
001-786-323-1651
With a copy to: Xxxxx X. Xxxxxxx XX, P.A.
0000 Xxxxxxxx Xxx
Xxxx Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Section 6.02 Governing Law. This Debenture shall be deemed to be made
under and shall be construed in accordance with the laws of the State of Florida
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of Florida or the state courts of the State of
Florida sitting in Broward County, Florida in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens to
the bringing of any such proceeding in such jurisdictions.
31
Section 6.03 Severability. The invalidity of any of the provisions of
this Debenture shall not invalidate or otherwise affect any of the other
provisions of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents
the entire agreement between the parties hereto with respect to the subject
matter hereof and there are no representations, warranties or commitments,
except as set forth herein. This Debenture may be amended only by an instrument
in writing executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
GALEA LIFE SCIENCES, INC.
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: President
32
EXHIBIT "A"
-----------
NOTICE OF CONVERSION
--------------------
(To be executed by the Holder in order to Convert the Debenture)
TO:
The undersigned hereby irrevocably elects to convert US$ of the
principal amount of the above Debenture into Shares of Common Stock of Galea
Life Sciences, Inc., according to the conditions stated therein, as of the
Conversion Date written below.
Conversion Date: _____________________________________________
Applicable Conversion Price: _____________________________________________
Signature: _____________________________________________
Name: _____________________________________________
Address: _____________________________________________
Amount to be converted: US$__________________________________________
Amount of Debenture
unconverted: US$__________________________________________
Conversion Price per share: US$__________________________________________
Number of shares of Common
Stock to be issued: _____________________________________________
Please issue the shares of
Common Stock in the following
name and to the
following address: _____________________________________________
Issue to:
Authorized Signature: _____________________________________________
Name: _____________________________________________
Title: _____________________________________________
Phone Number: _____________________________________________
Broker DTC Participant Code: _____________________________________________
Account Number: _____________________________________________
A-1
WARRANT
-------
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN A FORM REASONABLY
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT. NOTWITHSTANDING THE FOREGOING, THIS WARRANT MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT.
GALEA LIFE SCIENCES, INC.
Warrant To Purchase Common Stock
Warrant No.: 1 Number of Shares: 275,000
Date of Issuance: Xxxxx 0, 0000
Xxxxx Life Sciences, Inc. a Florida corporation (the "Company"), hereby
certifies that, for Ten United States Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Trafalgar Capital Specialized Investment Fund, Luxembourg,
("Trafalgar"), the registered holder hereof or its permitted assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
upon surrender of this Warrant, at any time or times on or after the date
hereof, but not after 11:59 P.M. Eastern Time on the Expiration Date (as defined
herein) Two Hundred Seventy-Five Thousand (275,000) fully paid and nonassessable
shares of Common Stock (as defined herein) of the Company (the "Warrant Shares")
at the exercise price per share provided in Section 1(b) below or as
subsequently adjusted; provided, however, that in no event shall the holder be
entitled to exercise this Warrant for a number of Warrant Shares in excess of
that number of Warrant Shares which, upon giving effect to such exercise, would
cause the aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates to exceed 4.99% of the outstanding shares of the
Common Stock following such exercise, except within sixty (60) days of the
Expiration Date. For purposes of the foregoing proviso, the aggregate number of
shares of Common Stock beneficially owned by the holder and its affiliates shall
include the number of shares of Common Stock issuable upon exercise of this
Warrant with respect to which the determination of such proviso is being made,
but shall exclude shares of Common Stock which would be issuable upon (i)
exercise of the remaining, unexercised Warrants beneficially owned by the holder
and its affiliates and (ii) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company beneficially owned by
the holder and its affiliates (including, without limitation, any convertible
notes or preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall
33
be calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock a holder may rely on the number of
outstanding shares of Common Stock as reflected in (1) the Company's most recent
Form 10-QSB or Form 10-KSB, as the case may be, (2) a more recent public
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such notice,
confirm in writing to any such holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the exercise of Warrants (as defined below)
by such holder and its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported.
Section 1.
(a) This Warrant is the common stock purchase warrant (the
"Warrant") issued pursuant to a Securities Purchase Agreement dated March 3,
2008 by and between the Company and Trafalgar (the "Purchase Agreement").
(b) Definitions. The following words and terms as used in this
Warrant shall have the following meanings:
(i) "Approved Stock Plan" means any employee benefit
plan which has been approved by the Board of Directors of the Company, pursuant
to which the Company's securities may be issued to any employee, consultant,
officer or director for services provided to the Company.
(ii) "Business Day" means any day other than
Saturday, Sunday or other day on which commercial banks in the City of New York
are authorized or required by law to remain closed.
(iii) "Closing Bid Price" means the closing bid price
of Common Stock as quoted on the Principal Market (as reported by Bloomberg
Financial Markets ("Bloomberg") through its "Volume at Price" function).
(iv) "Common Stock" means (i) the Company's common
stock, par value $.01 per share, and (ii) any capital stock into which such
Common Stock shall have been changed or any capital stock resulting from a
reclassification of such Common Stock.
(v) "Excluded Securities" means, provided such
security is issued at a price which is greater than or equal to the arithmetic
average of the Closing Bid Prices of the Common Stock for the ten (10)
consecutive trading days immediately preceding the date of issuance, any of the
following: (a) shares of Common Stock and options, warrants or other rights to
purchase Common Stock issued to employees, officers or directors of, or
consultants or advisors to the Corporation or any subsidiary pursuant to
34
restricted stock purchase agreements, stock option plans or similar arrangements
(as adjusted for any stock dividend, stock split, combination of shares,
reorganization, recapitalization, reclassification or other similar event. (a
"Recapitalization")); (b) shares of Common Stock issued upon the exercise or
conversion of options or convertible securities outstanding as of the date of
this Warrant; (c) shares of Common Stock issued or issuable pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets or other reorganization or to a joint venture
agreement, provided, that such issuances are approved by the Board of Directors;
(vi) "Expiration Date" means March 3, 2011 or, if
such date falls on a Saturday, Sunday or other day on which banks are required
or authorized to be closed in the City of New York or the State of New York or
on which trading does not take place on the Principal Exchange or automated
quotation system on which the Common Stock is traded (a "Holiday"), the next
date that is not a Holiday.
(vii) "Issuance Date" means the date hereof.
(viii) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(ix) "Other Securities" means (i) those options and
warrants of the Company issued prior to, and outstanding on, the Issuance Date
of this Warrant, (ii) the shares of Common Stock issuable on exercise of such
options and warrants, provided such options and warrants are not amended after
the Issuance Date of this Warrant and (iii) the shares of Common Stock issuable
upon exercise of this Warrant.
(x) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xi) "Principal Market" means the New York Stock
Exchange, the American Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market, whichever is at the time the principal trading exchange or
market for such security, or the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg or, if no bid or sale
information is reported for such security by Bloomberg, then the average of the
bid prices of each of the market makers for such security as reported in the
"pink sheets" by the National Quotation Bureau, Inc.
(xii) "Securities Act" means the Securities Act of
1933, as amended.
(xiii) "Warrant" means this Warrant and all Warrants
issued in exchange, transfer or replacement thereof.
(xiv) "Warrant Exercise Price" shall be $0.19 or as
subsequently adjusted as provided in Section 8 hereof.
(xv) "Warrant Shares" means the shares of Common
Stock issuable at any time upon exercise of this Warrant.
35
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all references
herein (A) to the Company shall be deemed to include the Company's successors
and (B) to any applicable law defined or referred to herein shall be deemed
references to such applicable law as the same may have been or may be amended or
supplemented from time to time.
(ii) When used in this Warrant, the words "herein", "hereof",
and "hereunder" and words of similar import, shall refer to this Warrant as a
whole and not to any provision of this Warrant, and the words "Section",
"Schedule", and "Exhibit" shall refer to Sections of, and Schedules and Exhibits
to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
Section 2. Exercise of Warrant. Subject to the terms and conditions
hereof, this Warrant may be exercised by the holder hereof then registered on
the books of the Company, pro rata as hereinafter provided, at any time on any
Business Day on or after the opening of business on such Business Day,
commencing with the first day after the date hereof, and prior to 11:59 P.M.
Eastern Time on the Expiration Date, by (i) delivery of a written notice, in the
form of the subscription notice attached as Exhibit A hereto (the "Exercise
Notice"), of such holder's election to exercise this Warrant, which notice shall
specify the number of Warrant Shares to be purchased, (ii) payment to the
Company of an amount equal to the Warrant Exercise Price(s) applicable to the
Warrant Shares being purchased, multiplied by the number of Warrant Shares (at
the applicable Warrant Exercise Price) as to which this Warrant is being
exercised (plus any applicable issue or transfer taxes) (the "Aggregate Exercise
Price"): (a) in cash or wire transfer of immediately available funds, (b) by
delivery of a written notice of Net Exercise, as set forth in the following
paragraph and (iii) the surrender of this Warrant (or an indemnification
undertaking with respect to this Warrant in the case of its loss, theft or
destruction) to a common carrier for overnight delivery to the Company as soon
as practicable following such date. In the event of any exercise of the rights
represented by this Warrant in compliance with this Section 2(a), the Company
shall on the fifth (5th) Business Day following the date of receipt of the
Exercise Notice, the Aggregate Exercise Price and this Warrant (or an
indemnification undertaking with respect to this Warrant in the case of its
loss, theft or destruction) and the receipt of the representations of the holder
specified in Section 6 hereof, if requested by the Company (the "Exercise
Delivery Documents"), and if the Common Stock is DTC eligible credit such
aggregate number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with The Depository Trust
Company; provided, however, if the holder who submitted the Exercise Notice
36
requested physical delivery of any or all of the Warrant Shares, or, if the
Common Stock is not DTC eligible then the Company shall, on or before the fifth
(5th) Business Day following receipt of the Exercise Delivery Documents, issue
and surrender to a common carrier for overnight delivery to the address
specified in the Exercise Notice, a certificate, registered in the name of the
holder, for the number of shares of Common Stock to which the holder shall be
entitled pursuant to such request. Upon delivery of the Exercise Notice and
Aggregate Exercise Price referred to in clause (ii) above the holder of this
Warrant shall be deemed for all corporate purposes to have become the holder of
record of the Warrant Shares with respect to which this Warrant has been
exercised. In the case of a dispute as to the determination of the Warrant
Exercise Price, the Closing Sale Price or the arithmetic calculation of the
Warrant Shares, the Company shall promptly issue to the holder the number of
Warrant Shares that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one (1) Business
Day of receipt of the holder's Exercise Notice. If the holder and the Company
are unable to agree upon the determination of the Warrant Exercise Price or
arithmetic calculation of the Warrant Shares within one (1) day of such disputed
determination or arithmetic calculation being submitted to the holder, then the
Company shall immediately submit via facsimile (i) the disputed determination of
the Warrant Exercise Price or the Closing Bid Price to an independent, reputable
investment banking firm or (ii) the disputed arithmetic calculation of the
Warrant Shares to its independent, outside accountant. The Company shall cause
the investment banking firm or the accountant, as the case may be, to perform
the determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment banking firm's or
accountant's determination or calculation, as the case may be, shall be deemed
conclusive absent manifest error.
If an Exercise Notice is delivered at a time when a registration
statement permitting the Holder to resell the Warrant Shares is not then
effective or the prospectus forming a part thereof is not then available to the
Holder for the resale of the Warrant Shares, then the Holder may notify the
Company in an Exercise Notice of its election to utilize cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X= Y(A-B)
------
A
Where X = the number of shares of Common Stock to be issued to the holder
Y = the number of shares of Common Stock purchasable under this
Warrant or, if only a portion of this Warrant is being
exercised, the portion of this Warrant being exercised (at
the date of such calculation)
A = the Fair Market Value of one share of the Company's Common Stock
(at the date of such calculation)
B = the Exercise Price per share (as adjusted to the date of such
calculation).
(a) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in no event later than five (5) Business Days after any exercise
and at its own expense, issue a new Warrant identical in all respects to this
Warrant exercised except it shall represent rights to purchase the number of
Warrant Shares purchasable immediately prior to such exercise under this Warrant
exercised, less the number of Warrant Shares with respect to which such Warrant
is exercised.
37
(b) No fractional Warrant Shares are to be issued upon any pro
rata exercise of this Warrant, but rather the number of Warrant Shares issued
upon such exercise of this Warrant shall be rounded up or down to the nearest
whole number.
(c) If the Company or its Transfer Agent shall fail for any
reason or for no reason to issue to the holder within ten (10) days of receipt
of the Exercise Delivery Documents , a certificate for the number of Warrant
Shares to which the holder is entitled or to credit the holder's balance account
with The Depository Trust Company for such number of Warrant Shares to which the
holder is entitled upon the holder's exercise of this Warrant, the Company
shall, in addition to any other remedies under this Warrant or otherwise
available to such holder, pay as additional damages in cash to such holder on
each day the issuance of such certificate for Warrant Shares is not timely
effected an amount equal to 0.025% of the product of (A) the sum of the number
of Warrant Shares not issued to the holder on a timely basis and to which the
holder is entitled, and (B) the Closing Bid Price of the Common Stock for the
trading day immediately preceding the last possible date which the Company could
have issued such Common Stock to the holder without violating this Section 2.
(d) If within ten (10) days after the Company's receipt of the
Exercise Delivery Documents, the Company fails to deliver a new Warrant to the
holder for the number of Warrant Shares to which such holder is entitled
pursuant to Section 2 hereof, then, in addition to any other available remedies
under this Warrant, or otherwise available to such holder, the Company shall pay
as additional damages in cash to such holder on each day after such tenth (10th)
day that such delivery of such new Warrant is not timely effected in an amount
equal to 0.25% of the product of (A) the number of Warrant Shares represented by
the portion of this Warrant which is not being exercised and (B) the Closing Bid
Price of the Common Stock for the trading day immediately preceding the last
possible date which the Company could have issued such Warrant to the holder
without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby covenants
and agrees as follows:
(a) This Warrant is, and any Warrants issued in substitution
for or replacement of this Warrant will upon issuance be, duly authorized and
validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
(c) If at any time after the date hereof the Company shall
file a registration statement, the Company shall include the Warrant Shares
issuable to the holder, pursuant to the terms of this Warrant and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Warrant Shares from time to time issuable upon the exercise of
this Warrant; and the Company shall so list on each national securities exchange
or automated quotation system, as the case may be, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
38
(d) The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. The Company will not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the Warrant
Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(e) This Warrant will be binding upon any entity succeeding to
the Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets.
Section 4. Taxes. The Company shall pay any and all taxes, except any
applicable withholding, which may be payable with respect to the issuance and
delivery of Warrant Shares upon exercise of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as otherwise
specifically provided herein, no holder, as such, of this Warrant shall be
entitled to vote or receive dividends or be deemed the holder of shares of
capital stock of the Company for any purpose, nor shall anything contained in
this Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of this
Warrant. In addition, nothing contained in this Warrant shall be construed as
imposing any liabilities on such holder to purchase any securities (upon
exercise of this Warrant or otherwise) or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors of the
Company. Notwithstanding this Section 5, the Company will provide the holder of
this Warrant with copies of the same notices and other information given to the
stockholders of the Company generally, contemporaneously with the giving thereof
to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution of
this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations herein, the holder does not agree to hold this Warrant or any of
the Warrant Shares for any minimum or other specific term and reserves the right
to dispose of this Warrant and the Warrant Shares at any time in accordance with
or pursuant to a registration statement or an exemption under the Securities
39
Act. The holder of this Warrant further represents, by acceptance hereof, that,
as of this date, such holder is an "accredited investor" as such term is defined
in Rule 501(a)(1) of Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act (an "Accredited Investor"). Upon exercise of
this Warrant the holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Warrant Shares so purchased are
being acquired solely for the holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale
and that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of this Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
assure the Company that the issuance of its securities upon exercise of this
Warrant shall not violate any United States or state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company may
treat the person in whose name any Warrant is registered on the register as the
owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with
the terms of this Warrant.
Section 8. Adjustment of Warrant Exercise Price and Number of Shares.
The Warrant Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted from time to time as follows:
(a) Adjustment of Warrant Exercise Price and Number of Shares
upon Issuance of Common Stock. If and whenever on or after the Issuance Date of
this Warrant, the Company issues or sells, or is deemed to have issued or sold,
any shares of Common Stock (other than (i) Excluded Securities and (ii) shares
of Common Stock which are issued or deemed to have been issued by the Company in
connection with an Approved Stock Plan or upon exercise or conversion of the
Other Securities) for a consideration per share less than a price (the
"Applicable Price") equal to the Warrant Exercise Price in effect immediately
prior to such issuance or sale, then immediately after such issue or sale the
Warrant Exercise Price then in effect shall be reduced to an amount equal to
such consideration per share. Upon each such adjustment of the Warrant Exercise
Price hereunder, the number of Warrant Shares issuable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of Warrant Shares issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product thereof by the Warrant
Exercise Price resulting from such adjustment.
(b) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Section 8(a)
above, the following shall be applicable:
40
(i) Issuance of Options. If after the date hereof,
the Company in any manner grants any Options (other than Excluded Issuances) and
the lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange of any
convertible securities issuable upon exercise of any such Option is less than
the Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share. For purposes of this
Section 8(b)(i), the lowest price per share for which one share of Common Stock
is issuable upon exercise of such Options or upon conversion or exchange of such
Convertible Securities shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to any
one share of Common Stock upon the granting or sale of the Option, upon exercise
of the Option or upon conversion or exchange of any convertible security
issuable upon exercise of such Option. No further adjustment of the Warrant
Exercise Price shall be made upon the actual issuance of such Common Stock or of
such convertible securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such convertible
securities.
(ii) Issuance of Convertible Securities. If the
Company in any manner issues or sells any convertible securities (other than
Excluded Issuances) and the lowest price per share for which one share of Common
Stock is issuable upon the conversion or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
issuance or sale of such convertible securities for such price per share. For
the purposes of this Section 8(b)(ii), the lowest price per share for which one
share of Common Stock is issuable upon such conversion or exchange shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock upon the
issuance or sale of the convertible security and upon conversion or exchange of
such convertible security. No further adjustment of the Warrant Exercise Price
shall be made upon the actual issuance of such Common Stock upon conversion or
exchange of such convertible securities, and if any such issue or sale of such
convertible securities is made upon exercise of any Options for which adjustment
of the Warrant Exercise Price had been or are to be made pursuant to other
provisions of this Section 8(b), no further adjustment of the Warrant Exercise
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion.
If the purchase price provided for in any Options, the additional consideration,
if any, payable upon the issue, conversion or exchange of any convertible
securities, or the rate at which any convertible securities are convertible into
or exchangeable for Common Stock changes at any time, the Warrant Exercise Price
in effect at the time of such change shall be adjusted to the Warrant Exercise
Price which would have been in effect at such time had such Options or
convertible securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares issuable upon
exercise of this Warrant shall be correspondingly readjusted. For purposes of
this Section 8(b)(iii), if the terms of any Option or convertible security that
was outstanding as of the Issuance Date of this Warrant are changed in the
manner described in the immediately preceding sentence, then such Option or
convertible security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change. No adjustment pursuant to this Section 8(b) shall be made
if such adjustment would result in an increase of the Warrant Exercise Price
then in effect.
41
(c) Effect on Warrant Exercise Price of Certain Events. For
purposes of determining the adjusted Warrant Exercise Price under Sections 8(a)
and 8(b), the following shall be applicable:
(i) Calculation of Consideration Received. If any
Common Stock, Options or convertible securities are issued or sold or deemed to
have been issued or sold for cash, the consideration received therefore will be
deemed to be the net amount received by the Company therefore. If any Common
Stock, Options or convertible securities are issued or sold for a consideration
other than cash, the amount of such consideration received by the Company will
be the fair value of such consideration, except where such consideration
consists of marketable securities, in which case the amount of consideration
received by the Company will be the market price of such securities on the date
of receipt of such securities. If any Common Stock, Options or convertible
securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefore will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or convertible securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of Warrants representing at least
two-thirds (b) of the Warrant Shares issuable upon exercise of the Warrants then
outstanding. If such parties are unable to reach agreement within ten (10) days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five (5) Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of Warrants
representing at least two-thirds (b) of the Warrant Shares issuable upon
exercise of the Warrants then outstanding. The determination of such appraiser
shall be final and binding upon all parties and the fees and expenses of such
appraiser shall be borne jointly by the Company and the holders of Warrants.
(ii) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
(iii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(iv) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
convertible securities or (2) to subscribe for or purchase Common Stock, Options
or convertible securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
42
(d) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, any Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced and
the number of shares of Common Stock obtainable upon exercise of this Warrant
will be proportionately increased. If the Company at any time after the date of
issuance of this Warrant combines (by combination, reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, any Warrant Exercise Price in effect immediately prior
to such combination will be proportionately increased and the number of Warrant
Shares issuable upon exercise of this Warrant will be proportionately decreased.
Any adjustment under this Section 8(d) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(e) Distribution of Assets. If the Company shall declare or
make any dividend, or other distribution, of its assets (or rights to acquire
its assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:
(i) any Warrant Exercise Price in effect immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Warrant Exercise Price by a fraction of which (A) the
numerator shall be the Closing Sale Price of the Common Stock on the trading day
immediately preceding such record date minus the value of the Distribution (as
determined in good faith by the Company's Board of Directors) applicable to one
share of Common Stock, and (B) the denominator shall be the Closing Sale Price
of the Common Stock on the trading day immediately preceding such record date;
and
(ii) either (A) the number of Warrant Shares
obtainable upon exercise of this Warrant shall be increased to a number of
shares equal to the number of shares of Common Stock obtainable immediately
prior to the close of business on the record date fixed for the determination of
holders of Common Stock entitled to receive the Distribution multiplied by the
reciprocal of the fraction set forth in the immediately preceding clause (i), or
(B) in the event that the Distribution is of common stock of a company whose
common stock is traded on a national securities exchange or a national automated
quotation system, then the holder of this Warrant shall receive an additional
warrant to purchase Common Stock, the terms of which shall be identical to those
of this Warrant, except that such warrant shall be exercisable into the amount
of the assets that would have been payable to the holder of this Warrant
pursuant to the Distribution had the holder exercised this Warrant immediately
prior to such record date and with an exercise price equal to the amount by
which the exercise price of this Warrant was decreased with respect to the
Distribution pursuant to the terms of the immediately preceding clause (i).
43
(f) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 8 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Warrant Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided, except as set forth in section 8(d),that no such adjustment
pursuant to this Section 8(f) will increase the Warrant Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 8.
(g) Notices.
(i) Immediately upon any adjustment of the Warrant
Exercise Price, the Company will give written notice thereof to the holder of
this Warrant, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(ii) The Company will give written notice to the
holder of this Warrant at least ten (10) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Organic Change (as defined below), dissolution or
liquidation, provided that such information shall be made known to the public
prior to or in conjunction with such notice being provided to such holder.
(iii) The Company will also give written notice to
the holder of this Warrant at least ten (10) days prior to the date on which any
Organic Change, dissolution or liquidation will take place, provided that such
information shall have been made known to the public.
Section 9. Purchase Rights; Reorganization, Reclassification,
Consolidation, Merger or Sale.
(a) In addition to any adjustments pursuant to Section 8
above, if at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
"Purchase Rights"), then the holder of this Warrant will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete exercise of this Warrant
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(b) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction in each case which is effected in such a
44
way that holders of Common Stock are entitled to receive (either directly or
upon subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change." Prior to
the consummation of any Organic Change following which the Company is not a
surviving entity, the Company will secure from the Person purchasing such assets
or the successor resulting from such Organic Change (in each case, the
"Acquiring Entity") a written agreement (in form and substance satisfactory to
the holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding) to deliver to each
holder of Warrants in exchange for such Warrants, a security of the Acquiring
Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant and satisfactory to the holders of the Warrants
(including an adjusted warrant exercise price equal to the value for the Common
Stock reflected by the terms of such consolidation, merger or sale, and
exercisable for a corresponding number of shares of Common Stock acquirable and
receivable upon exercise of the Warrants without regard to any limitations on
exercise, if the value so reflected is less than any Applicable Warrant Exercise
Price immediately prior to such consolidation, merger or sale). Prior to the
consummation of any other Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the holders of Warrants
representing a majority of the Warrant Shares issuable upon exercise of the
Warrants then outstanding) to insure that each of the holders of the Warrants
will thereafter have the right to acquire and receive in lieu of or in addition
to (as the case may be) the Warrant Shares immediately theretofore issuable and
receivable upon the exercise of such holder's Warrants (without regard to any
limitations on exercise), such shares of stock, securities or assets that would
have been issued or payable in such Organic Change with respect to or in
exchange for the number of Warrant Shares which would have been issuable and
receivable upon the exercise of such holder's Warrant as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the exercisability of this Warrant).
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall promptly, on
receipt of an indemnification undertaking (or, in the case of a mutilated
Warrant, the Warrant), issue a new Warrant of like denomination and tenor as
this Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this Warrant
must be in writing and will be deemed to have been delivered: (i) upon receipt,
when delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of receipt is received by the sending party transmission is
mechanically or electronically generated and kept on file by the sending party);
or (iii) one Business Day after deposit with a nationally recognized overnight
delivery service, in each case properly addressed to the party to receive the
same. The addresses and facsimile numbers for such communications shall be:
45
If to Trafalgar: Trafalgar Capital Specialized Investment Fund
0-00 Xxx Xxxxxxx Xxxxx
XX 0000
X-0000 Xxxxxxxxxx
Attention: Xxxxxx Xxxxx, Chairman of the Board of
Trafalgar Capital Sarl, General Partner
Facsimile: 011-44-207-405-0161 and
001-786-323-1651
With Copy to: Xxxxx X. Xxxxxxx XX, P.A.
0000 Xxxxxxxx Xxx
Xxxx Xxxxx, XX 00000
Attention: Xxxxx Xxxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Company, to: Galea Life Sciences, Inc.
000 XX 0xx Xxx, Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xx. Xxxx Xxxxxxxx, President
Telephone
Facsimile:
With a copy to: Xxxxxxxx X. Xxxxxxxx, PA
000 XX 0xx Xxx., Xxxxx 0000
Xxxx Xxxxxxxxxx, XX 00000
Attention: Xxxxxxxx Xxxxxxxx
Telephone: (000) 000-0000
=========
Facsimile: (000) 000-0000
=========
If to a holder of this Warrant, to it at the address and facsimile number set
forth on Exhibit C hereto, with copies to such holder's representatives as set
forth on Exhibit C, or at such other address and facsimile as shall be delivered
to the Company upon the issuance or transfer of this Warrant. Each party shall
provide five days' prior written notice to the other party of any change in
address or facsimile number. Written confirmation of receipt (A) given by the
recipient of such notice, consent, facsimile, waiver or other communication, or
(B) provided by a nationally recognized overnight delivery service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from a
nationally recognized overnight delivery service in accordance with clause (i),
(ii) or (iii) above, respectively.
Section 12. Date. The date of this Warrant is set forth on page 1
hereof. This Warrant, in all events, shall be wholly void and of no effect after
the close of business on the Expiration Date, except that notwithstanding any
other provisions hereof, the provisions of Section 8(b) shall continue in full
force and effect after such date as to any Warrant Shares or other securities
issued upon the exercise of this Warrant.
46
Section 13. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
holders of Warrants representing at least two-thirds of the Warrant Shares
issuable upon exercise of the Warrants then outstanding; provided that, except
for Section 8(d), no such action may increase the Warrant Exercise Price or
decrease the number of shares or class of stock obtainable upon exercise of any
Warrant without the written consent of the holder of such Warrant.
Section 14. Descriptive Headings; Governing Law. The descriptive
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporate
laws of the State of Florida shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal laws of the State of Florida without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Florida or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Florida Each party hereby
irrevocably submits to the exclusive jurisdiction of the state courts sitting in
Broward County, Florida and the United States District Court for the Southern
District of Florida for the adjudication of any dispute hereunder or in
connection herewith or therewith, or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Section 15. Waiver of Jury Trial. AS A MATERIAL INDUCEMENT FOR EACH
PARTY HERETO TO ENTER INTO THIS WARRANT, THE PARTIES HERETO HEREBY WAIVE ANY
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
WARRANT AND/OR ANY AND ALL OF THE OTHER DOCUMENTS ASSOCIATED WITH THIS
TRANSACTION.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed as
of the date first set forth above.
GALEA LIFE SCIENCES, INC.
By: /s/ Xxxx Xxxxxxxx
Name: Xxxx Xxxxxxxx
Title: President
47
EXHIBIT A TO WARRANT
--------------------
EXERCISE NOTICE
---------------
TO BE EXECUTED
BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
GALEA LIFE SCIENCES The undersigned holder hereby exercises the right
to purchase ______________ of the shares of Common Stock ("Warrant Shares") of
Galea Life Sciences, Inc. a Florida corporation (the "Company"), evidenced by
the attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Warrant Exercise Price. The Holder intends that payment of
the Warrant Exercise Price shall be made as a "Cash Exercise" with respect to
______________ Warrant Shares.
2. Payment of Warrant Exercise Price. The holder shall pay the sum of
$______________ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder
_________ Warrant Shares in accordance with the terms of the Warrant.
Date: _______________ __, ______
Name of Registered Holder
By:_____________________________
Name:___________________________
Title:__________________________
A-1
EXHIBIT B TO WARRANT
--------------------
FORM OF WARRANT POWER
---------------------
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of Galea Life Sciences, Inc. a Florida
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does hereby
irrevocably constitute and appoint ______________, attorney to transfer the
warrants of said corporation, with full power of substitution in the premises.
Dated:_____________________________ ________________________________
By:_____________________________
Name:___________________________
Title:__________________________
B-1
