On June 16, 2011, Global Health Ventures Inc. (the "Company") entered into a private transaction with one investor (the "Investor"), pursuant to which the Company issued a secured convertible promissory note to the Investor in the amount of $4,338,833 (the "Note") with a 25% original issue discount in exchange for $3,250,000, consisting of $250,000 paid in cash and 12 secured convertible promissory notes in the amount of $250,000 each (the "Investor Notes"). The Note matures in 48 months, bears interest at a rate of 6% per annum and may be prepaid by the Company in whole or in part upon five trading days' written notice to the Investor so long as no event of default has occurred and the Company has a sufficient number of shares of its common stock authorized to accommodate conversion of the Note's outstanding balance. Upon the occurrence of an event of default, the outstanding balance of the Note will accrue interest at the rate of 12% per annum compounding daily.
The Note is secured by a security agreement between the Company and the Investor listing each of the Investor Notes as security for the Company's obligations under the various transaction documents. The Investor Notes each mature in 50 months, bear interest at the rate of 5% per annum, are pre-payable by the Investor at any time prior to their respective maturity dates and are secured by an irrevocable standby letter of credit subject to the terms and conditions of a Letter of Credit Agreement between the Company and the Investor. When issued, the Letter of Credit will be held in escrow in accordance with the terms of an escrow agreement between the Company, the Investor and an escrow agent (the "Escrow Agent").
The Investor has the right to convert the outstanding balance of the Note, in whole or in part, into shares of the Company's common stock in tranches consisting of the initial tranche and 12 subsequent tranches corresponding to the Investor Notes. The right of the Investor to convert any of the subsequent tranches is conditional upon the Investor paying to the Company the Investor Note corresponding to such tranche. The shares of the Company's common stock into which the outstanding balance of the Note, or the applicable portion thereof, is converted will be valued at the Market Price (as defined in the Note) at the time of such conversion.
As part of this financing, the Investor also acquired warrants to purchase shares of the Company's common stock equal to $250,000 divided by 100% of the average of the three lowest closing bid prices of the common stock reported by Bloomberg LP during the 20 trading days preceding June 16, 2011, exercisable until June 30, 2016. The warrants are evidenced by a warrant in the form attached hereto as Exhibit 10.3 (the "Warrant"), which contains full ratchet anti-dilution provisions as to the exercise price for the full term of the Warrant. In the event the Investor decides to effect a cashless exercise of the Warrant, or any portion thereof, the Investor is entitled to receive the number of shares of the Company's common stock equal to the excess of the current market value of such stock over the aggregate exercise price of the portion then being exercised, divided by the adjusted price of the common stock. The terms "current market value", "exercise price" and "adjusted price of the common stock" are each defined in the Warrant.
The Company issued the Note and the Warrant to the Investor in reliance upon the exemption from registration provided by Rule 506 of Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended (the "Securities Act"). The Company's reliance on Rule 506 of Regulation D was based on the fact that the sale of the shares did not involve a "public offering", as defined in
Section 4(2) of the Securities Act, due to the number of investors and the manner of the offering.
The foregoing description of the Note, the Warrant and the Investor Notes is not intended to be complete and is qualified in its entirety by the complete text of the form of the agreements attached as exhibits to this current report on Form 8-K.
On June 15, 2011, the Company entered into a debt conversion agreement with Hassan Salari, its President, Chief Executive Officer, Secretary, Treasurer and director, pursuant to which Dr. Salari converted $54,000 worth of debt into 1,800,000 shares of the Company's Series "A" Preferred Stock at a price of $0.03 per share. The Company issued the 1,800,000 shares in reliance upon the exemption from registration provided by Rule 903 of Regulation S under the Securities Act ("Regulation S").
The Company's reliance on Rule 903 of Regulation S was based on the fact that the shares were sold in an "offshore transaction", as defined in Rule 902(h) of Regulation S. The Company did not engage in any directed selling efforts in the United States in connection with the sale of the shares, and Dr. Salari is not a U.S. person and did not acquire the shares for the account or benefit of any U.S. person.
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Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
On June 15, 2011, the Company filed a Certificate of Designation with the Nevada Secretary of State to designate 10,000,000 shares of the Company's authorized but unissued preferred stock as Series "A" Preferred Stock.
On June 16, 2011, the holders of a majority of the Company's issued and outstanding stock approved an amendment to the Company's bylaws (the "Bylaw Amendment") and an increase in the Company's authorized capital from 196,000,000 shares of common stock, par value $0.0001, to 1,000,000,000 shares of common stock, par value $0.0001 (the "Authorized Capital Increase"). The number of shares of preferred stock the Company is authorized to issue did not change as a result of the Authorized Capital Increase.
The purpose of the Bylaw Amendment was to update the Company's bylaws and make them more comprehensive, while the purpose of the Authorized Capital Increase was to reorganize the capital structure of the Company in connection with the financing described in Items 1.01 and 3.02 above.
The Company formally effected the Bylaw Amendment on June 16, 2011 and the Authorized Capital Increase on June 17, 2011 by filing a Certificate of Amendment with the Nevada Secretary of State.
