GMTH?
5-Aug-2005
Sale of Equity, Financial Statements and Exhibits
ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES
On August 1, 2005, we entered into a Securities Purchase Agreement with MacNab LLC ("MacNab") pursuant to which we sold a nonnegotiable 2% secured convertible promissory note (the "Note") with an aggregate principal amount of $170,000, and a common stock purchase warrant to purchase up to 6,800,000 shares of our common stock, $.0001 par value per share (the "Warrant"), for an aggregate purchase price of $170,000. We intend to use the proceeds for working capital.
THE NOTE
The Note bears interest at a fixed rate of 2% per annum computed on the unpaid principal balance, which is payable upon maturity. The Note matures on August 1, 2007, at which time all remaining principal of the Note is due and payable in full.
The Note is convertible at any time, at the option of the holder, into shares of our common stock at a conversion price of $0.02 per share. MacNab may require us to repurchase some or all of its note if the market price of our common stock falls below $0.03 per share for
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ten (10) consecutive trading days, at a repurchase price equal to 140% of the principal amount of the note.
We have secured the payment of the note with a subordinated security interest in our accounts, general intangibles, inventories, and other collateral. In addition, in the event we propose to register securities under the Securities Act of 1933, as amended, we are required to notify MacNab in advance of such registration and, at its request (subject to limited exceptions), include the shares of our common stock underlying the note and warrant on the registration statement filed in connection with such registration (and assume any expenses associated therewith).
The Securities Purchase Agreement and the Note contain customary events of default, including non-payment of principal or make-whole amount, interest, fees or other amounts; violation of covenants; inaccuracy of representations and warranties and certain bankruptcy events. In the event we default under the terms of the note, the entire outstanding principal (and any outstanding interest accrued thereon) shall become immediately due and payable, and the interest rate will rise to 18% per annum.
THE WARRANT
Under the terms of the Warrant, MacNab may purchase, at any time, up to four-million (6,800,000) shares of our common stock at an exercise price of $0.025 per share. The Warrant has an expiration date of August 1, 2010. The Warrant contains a cashless exercise provision whereby the holder may pay the exercise price associated with any exercise by having us withhold a number of shares otherwise issuable upon such exercise having a fair market value equal to the applicable aggregate exercise price. In the event such provision is used with respect to an exercise, we would receive no proceeds upon such exercise.
Adjustments to the exercise price of the warrant must be made in the event that we pay a dividend in common stock or securities convertible to common stock, or if we subdivide, split or combine our shares of outstanding common stock. In the event that any of the foregoing occur, then the number of shares issuable pursuant to the Warrant shall be adjusted so that MacNab may thereafter receive the number of shares of common stock it would have owned immediately following such action if it had exercised the warrants immediately prior to the transaction. The exercise price on the Warrant shall be adjusted to reflect the proportionate increase or decrease in the number of shares.
We are obligated to pay placement fees in connection with this private placement consisting of cash and non-cash consideration with an the aggregate estimated fair value of $17,000. The private placement was exempt from registration under Section 4(2) of the Securities Act of 1933, as amended.
The discussion in this current report is only a summary and is qualified in its entirety by reference to the Note, the Warrant and the Securities Purchase Agreement, which are included as Exhibits 4.1, 4.2, and 10.1, respectively, to this current report on Form 8-K and are incorporated by reference in this Current Report.
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