On March 28, 2008, we entered into a share exchange agreement, or the Share Exchange Agreement, with Willsky Development, a British Virgin Islands company, and the shareholder of Willsky Development, Eternal International Holding Group Ltd., a Hong Kong corporation, or Eternal International. Pursuant to the Share Exchange Agreement, on March 28, 2008 Eternal International transferred all of the shares of the capital stock of Willsky Development held by it, constituting all of the issued and outstanding stock of Willsky Development, in exchange for 94,908,650 newly issued shares of our common stock that constituted 94.9% of our issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of such exchange and after giving effect to the Redemption Agreement described below. Simultaneous with the consummation of the Share Exchange Agreement, Eternal International distributed 85,417,785 shares of our common stock to its shareholders as a dividend. Accordingly, following this distribution, Eternal International beneficially owns approximately 9.49% of our outstanding capital stock. As a result of this transaction and the related Redemption Agreement, 100,000,000 shares of our common stock are currently issued and outstanding.
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On March 28, 2008, we also entered into a redemption agreement, or the Redemption Agreement, with Fountainhead Capital Management Limited, or Fountainhead, and La Pergola Investments Limited, or La Pergola, whereby Fountainhead and La Pergola surrendered an aggregate of 2,000,000 shares of our common stock for redemption, or Redemption, in exchange for our issuance of a convertible promissory note to each, or the Notes, in the aggregate principal amount of six hundred sixty thousand dollars $660,000 in favor of Fountainhead and La Pergola. The Notes bear interest at the rate of two and one-half percent (2.5%) per annum computed on the basis of a 360 day year. Pursuant to the terms of the Notes, we also agreed to pay all costs of collection, including reasonable attorneys’ fees, incurred by either Fountainhead or La Pergola, or by any other holder of the Notes in any action to collect the Notes, whether or not suit is brought. The principal and accrued interest of the Notes is payable on September 30, 2008, except that the Notes shall accelerate and become payable upon the our consummation of a private placement transaction in which we sell or issue shares of our common stock in a manner that is exempt from the registration requirements of the Securities Act, where our gross proceeds are at least $1,000,000. If the principal and accrued interest on the Notes is not paid in full at maturity or upon the acceleration described above, or upon an Event of Default (as defined in the Note), then the Notes shall become convertible into a number of shares of our common stock that is equal to and aggregate of fifteen percent (15%) of our outstanding common stock on a fully-diluted, post-issuance basis.
Concurrent with the consummation of the Share Exchange Agreement, and in connection with the Redemption, we also entered into anti-dilution agreements, or Anti-Dilution Agreements, with each of Fountainhead and La Pergola. Pursuant to the Anti-Dilution Agreements, if we complete a private placement transaction in which we sell or issue securities in a manner that is exempt from the registration requirements of the Securities Act, where our gross proceeds are at least $8,000,000 within twenty-four (24) months of the consummation of the Share Exchange Agreement, the total number of shares of our common stock held by Fountainhead and La Pergola will be adjusted (i.e., either we will issue additional shares to Fountainhead and La Pergola or they will each tender shares back to us for cancellation) such that the total value (based upon the valuation attributable to us by the investors in the private placement) of all such shares held by Fountainhead is equal to $637,500 and the total value (based upon the valuation attributable to us by the investors in the private placement) of all such shares held by La Pergola is equal to $112,500.
In connection with consummation of the transactions contemplated by the Share Exchange Agreement, we issued warrants, or Warrants, to each of Fountainhead and La Pergola for the purchase of a number of shares of our common stock equal to an aggregate of two percent (2%) of our issued and outstanding common stock as of immediately after the closing of our next private placement transaction in which we receive gross proceeds of at least $8,000,000 million. If no such private placement transaction has been consummated on or before September 30, 2008, then the Warrants shall become exercisable by Fountainhead and La Pergola for an aggregate total of 3,500,000 shares of our common stock. The term of the Warrants is 5 years and each has an exercise price equal to 150% of the purchase price per share paid by the investors in such private placement transaction, provided that (i) if securities other than the shares of common stock are issued in such private placement transaction, then the exercise price shall be 150% of the price attributable to a share of common stock at the valuation attributable to us in the transaction on “post-money” basis, and (ii) if such private placement transaction is not consummated on or before September 30, 2008, then the exercise price per share of Common Stock shall be 150% of the price attributable to a share of our common stock at a valuation attributable to us of $15,000,000.
On March 28, 2008, in connection with the Share Exchange Agreement, we entered into a piggyback registration rights agreement, or Registration Rights Agreement, with Fountainhead and La Pergola, pursuant to which we granted piggyback registration rights to each of Fountainhead and La Pergola to include all shares of our common stock held by each of Fountainhead and La Pergola, including all shares of our common stock issueable to each of Fountainhead and La Pergola upon the exercise, conversion or exchange of other securities held by Fountainhead and La Pergola, as of the date of the execution of the Share Exchange Agreement.
The foregoing description of the terms of the Share Exchange Agreement, Redemption Agreement, Notes, Anti-Dilution Agreements, Warrants and Registration Rights Agreement is qualified in its entirety by reference to the provisions of those documents filed as Exhibits 2.1 and 4.1-4.8 to this report, which are incorporated by reference herein.
