EXHIBIT 99.2
EXHIBIT A
THIS OPTION AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE THEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS A (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT RELATED THERETO, (II) AN OPINION OF
COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, (III) RECEIPT OF A NO-ACTION LETTER(S) FROM THE
APPROPRIATE GOVERNMENTAL AUTHORITY(IES), OR (IV) UNLESS PURSUANT TO AN EXEMPTION
THEREFROM UNDER RULE 144 OF THE ACT.
NUTRA PHARMA CORP.
OPTION TO PURCHASE
13,600,000 SHARES OF COMMON STOCK
OPTION NO. 2005-1 DATED JUNE 1, 2005
NUTRA PHARMA CORP., a California corporation (the "Company"), hereby
certifies that, for value received, Doherty & Company, LLC, or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to an aggregate of Thirteen Million Six Hundred
Thousand (13,600,000) whole shares of Common Stock, par value $0.001 per share
(the "Common Stock"), of the Company (each such share, a "Option Share" and all
such shares, the "Option Shares") at an exercise price equal to $0.27 per share
(the "Exercise Price"), at any time and from time to time through the Expiration
Date, and subject to the following terms and conditions:
1. Registration of Option. The Company shall register this Option, in
the books of the Company to be maintained for that purpose (the "Option
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Option as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Piggyback Registration Rights.
(a) Right to Piggyback . Whenever the Company proposes to
register any of its securities under the Securities Act (other than on a
registration on Form S-4 or any successor form) on a registration form which may
be used for the registration of any Option Shares (a "Piggyback Registration"),
the Company will give prompt written notice to Holder of its intention to effect
such a registration and will include in such registration all Option Shares (in
accordance with the priorities set forth in Sections 2(a) and 2(b) below) with
respect to which the Company has received written requests for inclusion within
fifteen (15) days after the delivery of the Company's notice.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can reasonably be sold in such offering, the Company
will include in such registration first, the securities that the Company
proposes to sell; second, the securities that any holder of registration rights
issued prior to May 31, 2005 proposes to sell; and third, the Option Shares
requested to be included in such registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities other than a demand registration and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can reasonably be sold in such offering, the Company will include in such
registration first, the securities that any holder of registration rights issued
prior to May 31, 2005 proposes to sell; and second, the Option Shares requested
to be included therein by the Holder.
(d) Other Registrations. If the Company has previously filed a
registration statement with respect to Option Shares pursuant to this Section 2,
and if such previous registration has not been withdrawn or abandoned, the
Company will not file or cause to be effected any other registration of any of
its equity securities or securities convertible or exchangeable into or
exercisable for its equity securities under the Securities Act (except on Form
S-4 or any successor form), whether on its own behalf or at the request of any
holder or holders of such securities, until a period of at least 90 days has
elapsed from the effective date of such previous registration.
(e) Selection of Underwriters. In connection with any Piggyback
Registration in which Holder has elected to include Option Shares, the Company
shall have the right to select the managing underwriters to administer any
offering of the Company's securities in which the Company participates.
3. Registration of Transfers and Exchanges.
(a) No Holder may transfer any Option without the prior written
consent of the Company, which consent may be granted or denied in the sole
discretion of the Company provided that Holder may transfer all or any portion
of this Option to any of its employees, including Michael Doherty. Should such
consent be granted or not required, the Options so transferred shall continue to
be bound by this restriction in the hands of a subsequent Holder, and the
Company shall not be required to recognize any attempted transfer of the Options
in violation of this Agreement.
(b) Subject to the terms hereof, the Options shall be
transferable only on the Option Register maintained at its principal office upon
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. Upon any registration of transfer, the
person to whom such transfer is made shall receive a new Option or Options as to
the portion of the Option
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transferred, and the Holder of such Option shall be
entitled to receive a new Option or Options from the Company as to the portion
thereof retained. The Company may require the payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
such transfer.
4. Duration and Exercise of Options.
(a) The term of this Option shall be the period commencing May
31, 2005 and ending on May 31, 2010 (the "Expiration Date").
(b) This Option shall be exercisable by 50% commencing on May 31,
2006, provided the Company has raised at least $500,000 of additional equity,
debt or equity-linked financing prior to October 31, 2005, and the balance shall
be exercisable in twelve equal monthly installments thereafter by the registered
Holder on any business day through the Expiration Date before 5:00 P.M., Los
Angeles time. Notwithstanding the foregoing, this Option to the extent not
exercisable shall become immediately exercisable upon (i) a termination of the
Letter Agreement dated as of an even date herewith among the Company, Doherty &
Company LLC and Michael Doherty by the Company prior to the second anniversary
thereof (other than as a result of the death or disability of Mr. Doherty or for
cause in accordance with such Letter Agreement) or (ii) a Change of Control. At
5:00 P.M., Los Angeles time on the Expiration Date, the portion of this Option
not exercised prior thereto shall be and become void and of no value.
(c) Subject to Sections 4(b), 6 and 9, upon surrender of this
Option, with the Form of Election to Purchase attached hereto duly completed and
executed, to the Company at its office at 1829 Corporate Drive, Boynton, Florida
33426, Attention: Chief Executive Officer, or at such other address as the
Company may specify in writing to the then registered Holder, and upon payment
of the Exercise Price multiplied by the number of Option Shares that the Holder
intends to purchase hereunder, in lawful money of the United States of America,
in cash or by certified or official bank check or checks (subject to the
Conversion Right in accordance with Section 5), all as specified by the Holder
in the Form of Election to Purchase, the Company shall promptly (but in no event
later than five (5) business days after the date of exercise) issue or cause to
be issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Option Shares issuable upon such exercise.
(d) For purposes hereof, a "Change of Control" shall mean (i) a
sale, lease or other disposition of all or substantially all of the assets of
the Company; (ii) a merger or consolidation in which the Company is not the
surviving corporation; (iii) a reverse merger in which the Company is the
surviving corporation but the shares of common stock of the Company outstanding
immediately preceding the merger (a) are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, or (b)
represent less than 50% of the combined voting power of the Company outstanding
immediately after such merger; (iv) the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any comparable successor
provision (excluding any employee benefit plan, or related trust, sponsored by
the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act or any comparable successor rule) of
securities of the Company representing at
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least 50% of the combined voting power of the Company entitled to vote in the
election of directors; or (v) the stockholders of the Company approve a plan of
liquidation or dissolution of the Company.
(e) Any person so designated by the Holder to receive Option
Shares shall be deemed to have become holder of record of such Option Shares as
of the Date of Exercise of this Option. For purposes of this Section 4, an
"Exercise Date" means the date on which the Company shall have received (i) this
Option (or any new Option, as applicable), with the Form of Election to Purchase
attached hereto (or attached to such new Option) appropriately completed and
duly executed, and (ii) payment of the Exercise Price for the number of Option
Shares so indicated by the holder hereof to be purchased.
(f) This Option shall be exercisable, either in its entirety or,
from time to time, for a portion of the number of whole Option Shares so long as
at least one hundred (100) Option Shares are purchased in any one exercise or,
if less, all of the Option Shares which may be purchased under this Option. If
less than all of the Option Shares which may be purchased under this Option are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a new Option evidencing the right to purchase the remaining number of
Option Shares for which no exercise has been evidenced by this Option.
(g) This Option shall only be exercisable if, and shall be only
exercisable to the extent, it is legal to do so because, among other things, the
Option Shares are registered pursuant to a registration statement which has been
declared effective by the Securities and Exchange Commission, and which is still
effective on the applicable date of exercise, or the issuance of such Option
Shares is exempt from the registration requirements of the Securities Act of
1933, as amended.
5. Cashless Exercise Alternative. In addition to and without limiting
the rights of the Holder under the terms of this Option, Holder shall have the
right in lieu of paying the exercise price to convert this Option or any portion
thereof (the "Conversion Right") into Option Shares as provided in this Section
5 at any time or from time to time through the Expiration Date by delivering
notice in accordance with Section 4(c). Upon exercise of the Conversion Right
with respect to all or a specified portion of shares subject to this Option (the
"Pre-Converted Option Shares"), the Company shall deliver to Holder that number
of Option Shares equal to the quotient obtained by dividing (i) the value of
this Option (or the specified portion hereof) on the Exercise Date (as defined
in Section 4(e)), which value shall be equal to (A) the aggregate Fair Market
Value (as defined below) of the Pre-Converted Option Shares issuable upon
exercise of this Option on the Exercise Date less (B) the aggregate Exercise
Price of such Pre-Converted Option Shares immediately prior to the exercise of
the Conversion Right by (ii) the fair market value of one (1) Option Share on
the Exercise Date.
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Expressed as a formula, such conversion shall be computed as follows:
X = (A-B)
---
Y
where X = the number of Option Shares to be issued to the Holder pursuant
to this Section 5.
Y = the Fair Market Value (as defined below) of one (1) Option Share.
A = the aggregate fair market value of the Pre-Converted Option
Shares at the time the Conversion Right is elected pursuant to
this Section 5 (i.e., Fair Market Value (as defined below) per
Option Share x Pre-Converted Option Shares).
B = aggregate the Exercise Price of the Pre-Converted Option Shares
(i.e., Exercise Price x Pre-Converted Option Shares).
For purposes of the provisions of this Option requiring a determination
in accordance with this Section 5, "Fair Market Value" as of a particular date
(the "Determination Date") shall mean (i) for any security if such security is
traded on a national securities exchange (an "Exchange"), the weighted average
(based on daily trading volume) of the mid-point between the daily high and low
trading prices of the security on each of the last ten (10) trading days prior
to the Determination Date reported on such Exchange, (ii) for any security that
is not traded on an Exchange but which is quoted on the Nasdaq Stock Market
("NASDAQ") or other electronic quotation system, the weighted average (based on
daily trading volume) of the mid-point between the daily high and low trading
prices reported on NASDAQ on each of the last ten (10) trading days (or if the
relevant price or quotation did not exist on any of such days, the relevant
price or quotation on the next preceding business day on which there was such a
price or quotation, for a total of five trading days) prior to the Determination
Date, or (iii) for any security or any other asset, if no price can be
determined on the basis of the above methods of valuation, then the judgment of
valuation shall be determined in good faith by the Board of Directors of the
Company, which determination shall be described in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary.
6. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Option Shares upon the exercise of this Option;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the registration of any
certificates for Option Shares or Options in a name other than that of the
Holder, and the Company shall not be required to issue or cause to be issued or
deliver or cause to be delivered the certificates for Option Shares unless or
until the person or persons requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid. The Holder shall be responsible for
all other tax liability that may arise as a result of holding or transferring
this Option or receiving Option Shares upon exercise hereof.
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7. Replacement of Option. If this Option is mutilated, lost, stolen or
destroyed, the Company may, in its discretion, issue or cause to be issued in
exchange and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Option, a new Option, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a new Option under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Adjustments
(a) For Changes in Common Stock. If the Company, at any time and
from time to time while this Option is outstanding, (i) pays a stock dividend on
its Common Stock or otherwise makes a distribution on any class of capital stock
that is payable in shares of Common Stock, (ii) subdivides its outstanding
shares of Common Stock into a larger number of shares, or (iii) combines its
outstanding shares of Common Stock into a smaller number of shares, then, and in
each such case, the Exercise Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding
immediately before such event and of which the denominator shall be the number
of shares of Common Stock outstanding immediately after such event.
Simultaneously with any adjustment to the Exercise Price pursuant to this
Section 8, the number of Option Shares shall be proportionately increased (in
the case of a subdivision described in clauses (i) and (ii) above), or
proportionately decreased (in the case of a combination described in clause (ii)
above) to become effective immediately after the day upon which such subdivision
or combination becomes effective. The Company shall give written notice of each
adjustment or readjustment of the number of Option Shares or other securities
issuable upon exercise of this Option; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice. The notice shall describe the adjustment or readjustment and show in
reasonable detail the facts on which the adjustment or readjustment is based.
(b) Merger, Sale or Reclassification. In case of any (i)
consolidation or merger (including a merger in which the Company is the
surviving entity), (ii) sale or other disposition of all or substantially all of
the Company's assets or distribution of property to shareholders (other than
distributions payable out of earnings or retained earnings), or (iii)
reclassification, change or conversion of securities of the class issuable upon
exercise of this Option (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination), Holder shall thereafter have the right to receive upon exercise
of this Option, the kind and amount of shares of stock, other securities, money
and property receivable upon such consolidation, merger, sale or other
disposition, reclassification, change or conversion by a holder of the number of
Option Shares then purchasable under this Option. The provisions of this Section
8(b) shall similarly apply to successive reclassifications, changes and
conversions. The Company shall give written notice of each event described in
this Section 8(b); provided, however, that the failure to mail such notice or
any defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. The notice shall
describe the event and describe in reasonable detail the effect on the rights of
Holder pursuant to this Option.
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9. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Option Shares on the exercise of this Option. The
number of full Option Shares which shall be issuable upon the exercise of this
Option shall be computed on the basis of the aggregate number of Option Shares
purchasable on exercise of this Option so presented. If any fraction of a Option
Share would be issuable on the exercise of this Option, such fractional share
shall be disregarded and the number of shares of Common Stock issuable upon
exercise shall, on an aggregate basis, be rounded down to the nearest whole
number of shares.
10. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section 10 prior to 5:00 P.M. (Los Angeles time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section 10 later than 5:00 P.M. (Los Angeles time) on any date and earlier than
11:59 P.M. (Los Angeles time) on such date, (iii) the business day following the
date of mailing, if sent by nationally recognized overnight courier service, or
(iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
Nutra Pharma Corp., 1829 Corporate Drive, Boynton, Florida 33426, Attention:
Chief Financial Officer, or to facsimile no. (866) 744-3655, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the Option
Register or such other address or facsimile number as the Holder may provide to
the Company in accordance with this Section 10.
11. Stockholder Rights. Until the valid exercise of this Option, the
Holder shall not be entitled to any of the rights of a stockholder of the
Company.
12. Reservation of Option Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Option Shares upon exercise of this Option as herein
provided, the number of Option Shares which are then issuable and deliverable
upon the exercise of this entire Option, free from preemptive rights or any
other contingent purchase rights of Persons other than the Holder (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Option Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable.
13. Miscellaneous.
(a) This Option shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Option may be amended only in writing signed by the Company and the Holder.
(b) Nothing in this Option shall be construed to give to any
person or entity other than the Company and the Holder any legal or equitable
right, remedy or cause under this Option; this Option shall be for the sole and
exclusive benefit of the Company and the Holder.
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(c) This Option and the Option Shares (and the securities
issuable, directly or indirectly, upon conversion of the Option Shares, if any),
shall be imprinted with one or all of the following legends:
(i) "THIS OPTION AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
UNLESS THERE IS A (I) AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT RELATED THERETO, (II)
AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, (III) RECEIPT OF A
NO-ACTION LETTER(S) FROM THE APPROPRIATE
GOVERNMENTAL AUTHORITY(IES), OR (IV) UNLESS
PURSUANT TO AN EXEMPTION THEREFROM UNDER RULE
144 OF THE ACT."
(ii) any legend required by applicable state
securities laws;
(iii) any legend required by the Company's certificate
of incorporation or certificate of
determination; and/or
(iv) any legend required by any applicable
shareholders' agreement.
(d) This Option shall be governed by and construed and enforced
in accordance with the internal laws of the State of California without regard
to the principles of conflicts of law thereof.
(e) The headings herein are for convenience only, do not
constitute a part of this Option and shall not be deemed to limit or affect any
of the provisions hereof.
(f) In case any one or more of the provisions of this Option
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Option shall not in
any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Option.
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IN WITNESS WHEREOF, the Company has caused this Option to be duly
executed by its authorized officer as of the date first written above.
NUTRA PHARMA CORP.,
A CALIFORNIA CORPORATION
By: /s/ Rik J Deitsch
Name: Rik J Deitsch
Title: President
Acknowledged and agreed to:
DOHERTY & COMPANY, LLC
By: /s/ Michael Doherty
Name: Michael Doherty
Title: President
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FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Option)
To Nutra Pharma Corp.:
[CHECK PARAGRAPH THAT APPLIES]
_________ In accordance with the Option enclosed with this Form of
Election to Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of Common Stock, par value $0.001 per share (the "Common
Stock"), of Nutra Pharma Corp. and encloses herewith $________ in cash or
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Option) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Option.
- OR -
__________ In accordance with the Option enclosed with this Form of
Election to Purchase, the undersigned hereby irrevocably elects to convert such
Option into ___________ shares of Common Stock by cashless exercise pursuant to
Section 5 of the Option. Also enclosed is documentation supporting the
calculation of such number of shares of Common Stock to which this Form of
Election to Purchase relates.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name
of___________________________.
PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
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(Please print name and address)
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If the number of shares of Common Stock issuable upon this exercise shall not be
all of the shares of Common Stock which the undersigned is entitled to purchase
in accordance with the enclosed Option, the undersigned requests that a new
Option evidencing the right to purchase the shares of Common Stock not issuable
pursuant to the exercise evidenced hereby be issued in the name of and delivered
to:
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(Please print name and address)
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Dated:________________, _____ Name of Holder:
(Print)
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(By:)
---------------------------------
(Name:)
-------------------------------
(Title:)
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(Signature must conform in all
respects to name of holder as
specified on the face of the Option)
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[TO BE COMPLETED AND EXECUTED ONLY UPON TRANSFER OF OPTION]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within Option
to purchase ____________ shares of Common Stock, par value $0.001 per share, of
Nutra Pharma Corp. to which the within Option relates and appoints
________________ attorney to transfer said right on the books of Nutra Pharma
Corp. with full power of substitution in the premises.
Dated:
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(Signature must conform in all
respects to name of holder as
specified on the face of the Option)
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Address of Transferee
In the presence of:
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