WARRANT TO PURCHASE COMMON STOCK
(CONVERSION WARRANTS)
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED NEITHER THE WARRANT NOR THE SHARES MAY BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT
MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION
PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN THIS WARRANT
OR THE SHARES ISSUABLE HEREUNDER.
Issuer: Thinka Weight-Loss Corporation
Class of Stock: Common Stock
Issue Date: January 29, 2003
Expiration Date: January 29, 2006
THIS WARRANT TO PURCHASE COMMON STOCK is being issued pursuant to that
certain Securities Purchase Agreement dated as of the date hereof (the "Purchase
Agreement") between Thinka Weight-Loss Corporation, a Nevada corporation (the
"Company") and La Jolla Cove Investors, Inc. ("Holder").
The Company hereby grants to Holder the right to purchase that number of
shares of the Company's Common Stock (the "Shares" or "Warrant Shares") equal to
five (5) times the number of shares of Common Stock issued to Holder from time
to time pursuant to the conversion of the Debenture (as such term is defined in
the Purchase Agreement). For avoidance of doubt, this Warrant may be exercised
concurrently with or subsequent to the issuance of a Conversion Notice under the
Debenture. The date that the Holder issues a Conversion Notice under the
Debenture is hereafter referred to as the "Conversion Date." Defined terms not
defined herein shall have the meanings ascribed to them in the Debenture or the
Purchase Agreement.
This Warrant shall expire and Holder shall no longer be able to purchase
the Warrant Shares on January 29, 2006.
ARTICLE 1
EXERCISE
--------
1.1 Method of Exercise. Holder may exercise this Warrant by delivering
------------------
a duly executed Warrant Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company, along with a check payable to
----------
the Company for the aggregate Exercise Price for the Shares being purchased.
1
1.2 Delivery of Certificate and New Warrant. As promptly as
--------------------------------------------
practicable after the receipt of the Warrant Notice of Exercise, but in any
event not more than three (3) Business Days after the Company's receipt of the
Warrant Notice of Exercise, the Company shall issue the Shares and cause to be
mailed for delivery by overnight courier, or if a Registration Statement
covering the Shares has been declared effective by the SEC cause to be
electronically transferred, to Holder a certificate representing the Shares
acquired and, if this Warrant has not been fully exercised and has not expired,
a new Warrant substantially in the form of this Warrant representing the right
to acquire the portion of the Shares not so acquired.
1.3 Replacement of Warrants. On receipt of evidence reasonably
-------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the ease of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.4 Exercise Price. As to the Warrants associated with $250,000
---------------
Principal Amount of the Debenture, the Exercise Price of this Warrant shall be
the lesser of (a) $1.00; or (b) eighty percent (80%) of the lowest Market Price
during the twenty (20) Trading Days prior to Holder's election to exercise
("Discount Multiplier"); and as to the Warrants associated with $50,000
Principal Amount of the Debenture, the Exercise Price shall be the lesser of (c)
$0.20; or (d) eighty percent (80%) of the lowest Market Price during the twenty
(20) Trading Days prior to Holder's election to exercise ("Discount
Multiplier"), provided, that in the event that the Registration Statement has
not been declared effective by the SEC by the Deadline, then the Discount
Multiplier shall decrease by three percent (3%) for each month or partial month
occurring after the Deadline that the Registration Statement has not been
declared effective by the SEC. It shall be at Holder's sole discretion as to
which portion of the Warrants are exercised at any particular time.
1.5 Certification of Buyer. Unless a registration statement is
------------------------
effective for the issuance of the Warrant Shares on the Conversion Date, then
Buyer shall deliver to the Company, upon request, a certification that the
representations and warranties set forth in this Warrant are true as of the
Conversion Date.
ARTICLE 2
ADJUSTMENT TO THE SHARES
------------------------
The number of Shares purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment form time to time upon the
occurrence of certain events, as follows:
2.1 Reclassification. In case of any reclassification or change of
----------------
outstanding securities of the class issuable upon exercise of this Warrant then,
and in any such case, the Holder, upon the exercise hereof at any time after the
consummation of such reclassification or change, shall be entitled to receive in
lieu of each Share theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money and/or property
2
received upon such reclassification or change by a holder of one Share. The
provisions of this Section 2.1 shall similarly apply to successive
reclassifications or changes.
2.2 Subdivision or Combination of Shares. If the Company at any time
--------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Shares, the Exercise Price shall be proportionately decreased in the case of
a subdivision or increased in the case of a combination.
2.3 Stock Dividends. If the Company, at any time while this Warrant is
---------------
outstanding shall pay a dividend with respect to its Shares payable in Shares,
or make any other distribution of Shares with respect to Shares (except any
distribution specifically provided for in Section 2.1 and Section 2.2 above),
then the Exercise Price shall be adjusted, effective from and after the date of
determination of shareholders entitled to received such dividend or
distribution, to that price determined by multiplying the Exercise Price in
effect immediately prior to such date of determination by a fraction. (a) the
numerator of which shall be the total number of Shares outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of Shares outstanding immediately after such dividend or
distribution.
2.4 Non-Cash Dividends. If the Company at any time while this Warrant
-------------------
is outstanding shall pay a dividend with respect to Shares payable in securities
other than Shares or other non-cash property, or make any other distribution of
such securities or property with respect to Shares (except any distribution
specifically provided for in Section 2.1 and Section 2.2 above), then this
Warrant shall represent the right to acquire upon exercise of this Warrant such
securities or property which a holder of Shares would have been entitled to
receive upon such dividend or distribution, without the payment by the Holder of
any additional consideration for such securities or property.
2.5 Effect of Reorganization and Asset Sales. If any (i)
---------------------------------------------
reorganization or reclassification of the Common Stock (ii) consolidation or
merger of the Company with or into another corporation, or (iii) sale or all or
substantially all of the Company's operating assets to another corporation
followed by a liquidation of the Company (any such transaction shall be followed
by a liquidation of the Company (any such transaction shall be referred to
herein as an "Event", is effected in such a way that holders of Common Stock are
entitled to receive securities and/or assets as a result of their Common Stock
ownership, the Holder, upon exercise of this Warrant, shall be entitled to
receive such shares of stock securities or assets which the Holder would have
received had it fully exercised this Warrant on or prior to the record date for
such Event. The Company shall not merge into or consolidate with another
corporation or sell all of its assets to another corporation for a consideration
consisting primarily of securities of such corporation, unless the successor or
acquiring corporation, as the case may be, shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed or observed by the Company and all of the
obligations and liabilities hereunder, subject to such modification as shall be
necessary to provide for adjustments which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 2. The foregoing
provisions shall similarly apply to successive mergers, consolidations or sales
of assets.
3
2.6 Adjustment of Number of Shares. Upon each adjustment in the
----------------------------------
Exercise Price, the number of Shares shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of Shares, purchasable
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.
2.7 No Impairment. The Company shall not, by amendment of its articles
-------------
of incorporation or through a 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 under this Warrant by the Company, but shall at all times
in good faith assist in carrying out all of the provisions of this Warrant and
in taking all such action as may be reasonably necessary or appropriate to
protect ▇▇▇▇▇▇'s rights hereunder against impairment. If the Company takes any
action affecting its Common Stock other than as described above that adversely
affects Holder's rights under this Warrant, the Exercise Price shall be adjusted
downward and the number of Shares issuable upon exercise of this Warrant shall
be adjusted upward in such a manner that the aggregate Exercise Price of this
Warrant is unchanged.
2.8 Fractional Shares. No fractional Shares shall be issuable upon the
------------------
exercise of this Warrant, and the number of Shares to be issued shall be rounded
down to the nearest whole Share.
2.9 Certificate as to Adjustments. Upon any adjustment of the Exercise
-----------------------------
Price, the Company, at its expense, shall compute such adjustment and furnish
Holder with a certificate of its Chief Financial Officer setting forth such
adjustment and the facts upon which such adjustment is based. The Company shall,
upon written request, furnish Holder a certificate setting forth the Exercise
Price in effect upon the date thereof and the series of adjustments leading to
such Exercise Price.
2.10 No Rights of Shareholders. This Warrant does not entitle Holder
---------------------------
to any voting rights or any other rights as a shareholder of the Company prior
to the exercise of Holder's right to purchase Shares as provided herein.
ARTICLE 3
REPRESENTATIONS AND COVENANTS OF THE COMPANY
--------------------------------------------
3.1 Representations and Warranties. The Company hereby represents and
--------------------------------
warrants to Holder that all Shares which may be issued upon the exercise of the
purchase right represented by this Warrant, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances.
3.2 Notice of Certain Events. If the company proposes at any time (a)
--------------------------
to declare any dividend or distribution upon its Common Stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or
4
series or other rights; (c) to effect any reclassification or recapitalization
of Common Stock; (d) to merge or consolidate with or into any other corporation,
or sell, lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the Company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of Common Stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of Common
Stock will be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 Information Rights. So long as Holder holds this Warrant and/or
------------------
any of the Shares, the company shall deliver to Holder promptly after mailing,
copies of all notices or other written communications to the shareholders of the
Company.
3.4 Reservation of Warrant Shares. The Company has reserved and will
--------------------------------
keep available, out of the authorized and unissued shares of Common Stock, the
full number of shares sufficient to provide for the exercise of the rights of
purchase represented by this Warrant.
3.5 Registration Rights. If Holder exercises this Warrant and
-------------------
purchases some or all of the Shares, Holder shall have the Registration Rights
set forth in that certain Registration Rights Agreement executed concurrently
therewith.
ARTICLE 4
REPRESENTATIONS AND COVENANTS OF THE HOLDER
-------------------------------------------
4.1 Private Issue. Holder understands (i) that the Shares issuable
--------------
upon exercise of Holder's rights contained in the Warrant are not registered
under the Act or qualified under applicable state securities laws on the ground
that the issuance contemplated by the Warrant will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on Holder's representations
set forth in this Article 4.
4.2 Financial Risk. Holder has such knowledge and experience in
---------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment and has the ability to bear the economic risks of its
investment.
4.3 Risk of No Registration. Holder understands that if the Company
--------------------------
does not register with the Securities and Exchange Commission pursuant to
Section 12 of the Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the Act is not in effect when it desires to sell
(i) the right to purchase Shares pursuant to the Warrant, or (ii) the Shares
issuable upon
5
exercise of the right to purchase, it may be required to hold such securities
for an indefinite period.
4.4 Accredited Investor. Holder is and shall be on the Conversion Date
--------------------
an "accredited investor," as such term is defined in Regulation D promulgated
pursuant to the Act.
4.5 Incorporation of Representations and Warranties. Holder hereby
---------------------------------------------------
acknowledges, affirms and renews Holder's representations and warranties set
forth in Article II of the Securities Purchase Agreement and its related
subsections.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Term. This Warrant is exercisable, in whole or in part, at any
----
time and from time to time on or after the Conversion Date and on or before the
Expiration Date set forth above.
5.2 Compliance with Securities Laws on Transfer. This Warrant may not
---------------------------------------------
be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company) and without the prior written
consent of Company, which consent shall not be unreasonably withheld.
5.3 Transfer Procedure. Holder agrees that unless there is in effect a
-------------------
registration statement under the Act covering the proposed transfer of all or
part of this Warrant, prior to any such proposed transfer the Holder shall give
written notice thereof to the Company (a "Transfer Notice"). Each Transfer
Notice shall describe the manner and circumstances of the proposed transfer in
reasonable detail and, if the company so requests, shall be accompanied by an
opinion of legal counsel, in a form reasonably satisfactory to the Company, to
the effect that the proposed transfer may be effected without registration under
the Act; provided that the Company will not require opinions of counsel for
transactions involving transfers to affiliates or pursuant to Rule 144
promulgated by the Securities and Exchange Commission under the Act, except in
unusual circumstances.
5.4 Notices, etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be delivered personally, or
sent by telecopier machine or by a nationally recognized overnight courier
service, and shall be deemed given when so delivered personally, or by
telecopier machine or overnight courier service as follows:
6
if to the Company, to:
Thinka Weight-Loss Corporation
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
if to the Holder, to:
La Jolla Cove Investors, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
or at such other address as the Company shall have furnished to the Holder.
Each such notice or other communication shall for all purposes of this agreement
be treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or five days
after the same has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
5.5 Counterparts. This agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument. Facsimile execution shall be deemed originals.
5.6 Waiver. This Warrant and any term hereof may be changed, waived,
------
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 Attorneys Fees. In the event of any dispute between the parties
---------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys fees.
7
5.8 Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of California, without giving
effect to its principles regarding conflicts of law. Each of the parties hereto
consents to the jurisdiction of the federal courts whose districts encompass any
part of the City of San Diego or the state courts of the State of California
sitting in the City of San Diego in connection with any dispute arising under
this Warrant 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.
IN WITNESS WHEREOF, the parties hereto have duly caused this Warrant to
Purchase Common Stock to be executed and delivered on the date first above
written.
Thinka Weight-Loss Corporation La Jolla Cove Investors, Inc.
By: _____________________ By: _____________________
Title: _____________________ Title: _____________________
8