EXHIBIT 10.2
SHARE EXCHANGE AND NOTE MODIFICATION AGREEMENT
This SHARE EXCHANGE AND NOTE MODIFICATION AGREEMENT ("AGREEMENT") is
made this ____ day of January, 2003, by and between XXXXXXX XXXXXXXX, an
individual ("XXXXXXXX"), TANGIBLE ASSET GALLERIES, INC., a Nevada corporation
("COMPANY") and STANFORD VENTURE CAPITAL HOLDINGS, INC., a Delaware corporation
("STANFORD"), with reference to the following facts:
R E C I T A L S
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X. XxXxxxxx owns seven thousand (7,000) shares of the Series C $100
Redeemable Convertible Preferred Stock of the Company (the "SERIES C PREFERRED
STOCK"), constituting all of the outstanding shares of such series.
X. XxXxxxxx also holds a promissory note dated April 10, 2002, in the
original principal amount of One Million Dollars ($1,000,000) from the Company
(the "NOTE"). The current principal balance of the Note is $1,000,000 and there
is accrued and unpaid interest of approximately $50,000
C. Further, XxXxxxxx holds: (1) four million (4,000,000) warrants to
purchase common stock of the Company, warrant nos. 2002-002-A, 2002-002-B and
2002-002-C; (2) one million five hundred thousand (1,500,000) warrants issued
July 6, 2001 to purchase common stock of the Company at $0.39 per share and (3)
one million four hundred two thousand (1,402,000) warrants issued July 6, 2001
to purchase common stock of the Company at $0.21 per share. The parties desire,
as compensation for XxXxxxxx'x continued guaranty of certain loans to the
Company, to reduce the exercise price on the foregoing warrants (the "WARRANTS")
to $0.0005 (i.e., five thousandths of a cent) per share. The six million nine
hundred two thousand (6,902,000) shares of common stock issuable upon exercise
of the Warrants are referred to herein as the "WARRANT SHARES." The Warrants
will be exercised at the "Closing" as such term is defined below.
D. The Company is preparing to issue Series D Preferred Stock for an
aggregate purchase price of Two Million Dollars ($2,000,000) to Stanford
pursuant to that certain Series D Preferred Stock Purchase and Warrant Exercise
Agreement dated as of even date herewith (the "SERIES D PURCHASE AGREEMENT").
For purposes hereof, the terms "CLOSING" refers to the closing of the issuance
of the Series D Preferred Stock to Stanford on the First Closing Date (as such
term is used in the Series D Purchase Agreement), and the term "REVERSE STOCK
SPLIT" has the meaning given it in the Series D Purchase Agreement.
E. The parties desire that at the Closing, XxXxxxxx exchange his shares
of Series C Preferred Stock for Common Stock of the Company, that he modify the
Note as described herein, and that his Warrants be modified and exercised as set
forth herein.
A G R E E M E N T
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NOW THEREFORE, in consideration of the foregoing recitals and the
agreements of the parties set forth herein, the parties do hereby agree as
follows:
1. EXCHANGE.
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Effective at the Closing, and without further action on the part of
XxXxxxxx, XxXxxxxx agrees that all of his 7000 shares of Series C Preferred
Stock shall be exchanged for a total of 11,666,667 shares of the Company's
common stock (the "COMMON STOCK"). The Series C Preferred Stock shall thereupon
be retired and cancelled by the Company. At the Closing, XxXxxxxx shall tender
to the Company the original certificate(s) representing the Series C Preferred
Stock, duly endorsed to the Company, as required by the Company.
2. AMENDMENT OF NOTE.
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Effective at the Closing and without further action on the part of
XxXxxxxx, XxXxxxxx also agrees that the Note shall be modified to provide that
the principal balance thereof shall be repaid in 20 equal quarterly payments of
$50,000, with each such principal payment due on the last day of each calendar
quarter, commencing September 30, 2003. Accrued interest shall be paid at the
end of each month, commencing with February 2003. At the Closing XxXxxxxx shall
deliver his original Note for cancellation, and the Company shall execute and
deliver a new note, in the form attached hereto as Exhibit A.
3. AMENDMENT AND EXERCISE OF WARRANTS.
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The Company hereby reduces the exercise price for all the shares of the
Common Stock covered by the Warrants to $0.001 per share effective immediately.
If the Reverse Stock Split occurs, the exercise price of the Warrants following
such Reverse Stock Split shall remain at $0.001 per combined share. At the
Closing, XxXxxxxx shall deliver to the Company the Warrant Exercise Forms
attached to the Warrants, pursuant to which he shall exercise all the Warrants,
such exercise to be effective concurrently with the Reverse Stock Split, at
$0.001 per combined share. The exercise price under the Warrants (an aggregate
of Three Hundred Forty-Five Dollars and 10/100 ($345.10), after giving effect to
the Reverse Stock Split) shall be paid by XxXxxxxx by personal check delivered
to the Company. Immediately upon the effectiveness of the Reverse Stock Split,
the Company shall issue an aggregate of 345,100 post-split shares (the "WARRANT
STOCK") of the Common Stock to XxXxxxxx. Notwithstanding anything to the
contrary in the Company's Certificate of Designation of Series B $1.00
Convertible Preferred Stock (the "SERIES B PREFERRED STOCK") or Certificate of
Designation of Series C $100 Redeemable 9% Convertible Preferred Stock (the
"SERIES C PREFERRED STOCK"), XxXxxxxx, as holder of all of the issued and
outstanding shares of the Series C Preferred Stock and of 400,000 shares of the
Series B Preferred Stock, and Stanford, as holder of all the remaining issued
and outstanding shares of the Series B Preferred Stock, hereby agree that
neither the "Conversion Price" nor "Conversion Rate" (as such terms are used in
such certificates of designations) shall be adjusted as a result of the
reduction of the exercise price of the Warrants hereunder.
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4. REPRESENTATIONS AND WARRANTIES BY XXXXXXXX.
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XxXxxxxx represents and warrants to the Company and Stanford that:
(a) he is purchasing the Common Stock and Warrant Shares for
investment, and not for the purpose of or with a view to the unregistered resale
or distribution thereof;
(b) he understands that the Common Stock and Warrant Shares issuable to
him hereunder shall be "RESTRICTED SECURITIES" under the Securities Act of 1933,
as amended (the "ACT"), and may not be resold, transferred, pledged, or
hypothecated unless registered under the Act;
(c) he understands that until such time as the Common Stock and Warrant
Shares shall have been registered under the Act or he demonstrates to the
reasonable satisfaction of the Company and its counsel that such registration
shall no longer be required, such securities may be subject to a stop-transfer
order placed against the transfer of such securities, and such securities shall
bear a restrictive legend restricting the transfer thereof;
(d) he is (i) experienced in making investments of the kind described
in this Agreement and the related documents, (ii) able, by reason of his
business and financial experience, to protect his own interests in connection
with the transactions described in this Agreement and the related documents,
(iii) able to afford the entire loss of its investment in the Common Stock and
Warrant Shares, and (iv) an "ACCREDITED INVESTOR" as defined in Rule 501(a) of
Regulation D promulgated under the Act, and knows of no reason to anticipate any
material change in his financial condition for the foreseeable future;
(e) in his capacity as an officer and director of the Company, he has
had complete and unrestricted access to information regarding the Company and
understands the risks involved in investing in its securities, including,
without limitation, the possibility that he could lose his entire investment;
(f) the shares of Series C Preferred Stock being transferred by him to
the Company at the Closing are free and clear of all liens, claims and
encumbrances, and any voting, proxy or other similar agreements;
(g) the transactions contemplated by this Agreement do not and will not
violate any agreement by which he is bound or to which any of the Company's
securities are subject.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
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The Company represents and warrants to XxXxxxxx that:
(a) The Common Stock and Warrant Shares issuable to XxXxxxxx hereunder
have been, and at the Closing will be, duly authorized and validly issued, fully
paid and nonassessable.
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(b) The transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of the Company, and this Agreement
constitutes the valid and binding agreement of the Company and is enforceable in
accordance with its terms.
6. LEGAL REPRESENTATION.
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XxXxxxxx acknowledges that the firm of Xxxxx & Xxxxxx, LLP has acted
solely as counsel to the Company in connection with this transaction, and has
not represented or provided legal advice to him. XxXxxxxx has been advised to
seek, and has had the opportunity to obtain, tax and legal advice from
independent legal counsel regarding the transactions contemplated hereby.
7. MISCELLANEOUS.
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(a) ENTIRE AGREEMENT. This Agreement and the Exhibit hereto constitutes
the entire agreement between the parties relating to the subject matter hereof,
is intended as a complete and exclusive statement of the terms of the agreement
among the parties with respect thereto and supersedes all prior agreements,
representations and understandings, whether written or oral, concerning such
subject matter.
(b) COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may be
executed simultaneously in two counterparts, each of which shall be deemed an
original but both of which together shall constitute one and the same
instrument. Facsimile transmission of any signed original document or
retransmission of any signed facsimile transmission will be deemed the same as
the delivery of an original. At the request of any party, the parties will
confirm facsimile transmission by signing a duplicate original document.
(c) FURTHER ASSURANCES. The parties shall at their own cost and expense
execute and deliver such further documents and instruments and shall take such
other actions as may be reasonably required or appropriate to carry out the
intent and purposes of this Agreement.
(d) STANFORD AS BENEFICIARY. The parties acknowledge that (i)
XxXxxxxx'x agreements hereunder are a material inducement for Stanford to
purchase the Series D Preferred Stock, (ii) Stanford would not purchase the
Series D Preferred Stock unless XxXxxxxx agreed to the terms of this Agreement
and (iii) Stanford is a third-party beneficiary under this Agreement with full
right to seek enforcement of this Agreement against the parties hereto. No
provisions of this Agreement may be amended, modified, waived, cancelled or
terminated without the express advance written approval of Stanford.
(e) GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of California, provided, however, that matters pertaining to the
issuance of stock shall be governed by the laws of the State of Nevada.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
XXXXXXXX: /s/ Xxxxxxx XxXxxxxx
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XXXXXXX XXXXXXXX
COMPANY TANGIBLE ASSET GALLERIES, INC.,
a Nevada corporation
By: /s/ Xxxxxxx XxXxxxxx
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XXXXXXXX XXXXXXXX VENTURE CAPITAL HOLDINGS, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxx
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EXHIBIT A
PROMISSORY NOTE
$1,000,000 Newport Beach, California
February 10, 2003
FOR VALUE RECEIVED, TANGIBLE ASSET GALLERIES, INC., a Nevada
corporation (hereinafter referred to as "OBLIGOR"), promises to pay to XXXXXXX
XXXXXXXX (hereinafter referred to as "HOLDER"), the principal sum of $1,000,000,
together with simple interest, which shall accrue at a rate of 9.0% per annum
from the date hereof, on the principal sum of this Note from time to time
outstanding.
1. Obligor shall pay principal installments in an amount of $50,000.00
each, on the last day of each calendar quarter, commencing September 30, 2003,
until paid in full.
(a) All interest as accrues on the unpaid balance of this Note
shall be paid on a monthly basis, on the last day of each month after
the date hereof.
(b) A late fee of 2.0% of the installment due shall be imposed
if such installment is not timely paid in accordance herewith.
(c) Notwithstanding the foregoing, upon the occurrence and
continuance of a failure to pay an installment on this Note when due
(an "EVENT OF DEFAULT"), this Note shall, at the option of the Holder
of this Note, become immediately due and payable upon written notice to
Obligor during the continuance of such event of Default and, in such
event, the Holder of this Note shall have and may exercise any and all
of the rights and remedies he may have under the laws of the State of
California.
2. All payments on this Note shall be made in lawful money of the
United States of America, and all notices by Obligor to the Holder shall be sent
by first class mail and if so sent shall be deemed received by Holder 72 hours
after being deposited in the U.S. mails if addressed to Holder, at 00000 Xxxxxxx
Xxxxx Xxxxxxx, Xxxxxx Xxxxx, Xxxxxxxxxx 00000 or at such other place as the
Holder shall have designated hereafter to Obligor in writing. Obligor shall have
the right to prepay any outstanding indebtedness hereunder in whole or in part,
at any time.
3. To secure the payment of this Note and of all other indebtedness now
owing or hereafter incurred by Obligor to Holder, Obligor hereby grants to
Holder a first priority security interest in Obligor's inventory and accounts
receivable, and reconfirms that all obligations hereunder are secured
obligations as set forth in Section 3 of the Loan and Security Agreement between
Obligor and Holder dated as of April 3, 2002.
4. The security interest created hereby shall in no way be impaired or
otherwise affected by or on account of any indulgence, forbearance, renewal, or
extension of this Note or of any other indebtedness created hereby. Obligor
hereby waives presentment and notice with respect to the maturity of its
obligations under this Note and any other such debts, and hereby agrees that
Holder may foreclose its security interest in the Collateral without first
filing suit to collect this Note.
5. Upon failure to pay the indebtedness secured hereby in full
maturity, whether stated or by acceleration, Holder is authorized and empowered
to sell the whole or any part of the Collateral then held by him in such manner,
subject to the security interests of First Bank & Trust and KSH Investment Fund
I, LP, as Holder sees fit and is consistent with applicable law. Sale of part of
the Collateral shall not exhaust Holder's power of sale, but sales may be made
from time to time until all the Collateral is sold, or until the debts hereby
secured are paid in full. Holder shall receive the proceeds of such sale or
sales and shall apply those proceeds in the order stipulated in the relevant
provisions of the California Commercial Code. If this Note is placed in the
hands of an attorney for collection or is collected in whole or in part through
any judicial or arbitral proceedings, Obligor agrees to pay Holder's attorney's
fees and costs.
6. This Note, together with Holder's interest in the Collateral, may
not be transferred or assigned by Holder without Obligor's express written
consent, and any attempted assignment without such consent shall be void.
7. This Note shall be governed by and construed in accordance with the
laws of the State of California without regard to its conflict of laws
principles. Notwithstanding anything to the contrary contained herein, no
provision of this Note shall require or permit the charging, payment, or
collection of interest at a rate in excess of the maximum lawful rate permitted
under California law. If any interest in excess of the lawful rate is provided
in this Note, or shall be adjudicated to be so provided, the provisions of this
paragraph shall govern and prevail, and Obligor shall not be obligated to pay
the excess amount of such interest. If any interest in excess of such maximum
lawful rate is paid to or collected by Holder, the full amount of such excess
shall be applied toward reduction of the outstanding principal balance or
refunded to Obligor, as appropriate, so that in no event shall Holder charge,
receive or collect interest at a rate higher than the maximum rate permitted by
California law.
Dated: February 10, 2003 TANGIBLE ASSET GALLERIES, INC.
By:
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Xxxx Biberkraut, Chief Financial Officer
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