Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-QSB

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended January 31, 2008

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number: 002-31909

 

 

SYNTHETIC BLOOD INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

New Jersey   33-0112644

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

3189 Airway Avenue, Building C, Costa Mesa, California 92626

(Address of Principal Executive Office)

714-427-6363

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   x     NO   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES   ¨     NO   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of March 15, 2008: 143,431,894 shares of common stock, par value $0.01.

 

 

 


Table of Contents

FORM 10-QSB

SYNTHETIC BLOOD INTERNATIONAL, INC.

INDEX

 

          Page

PART I.

   FINANCIAL INFORMATION   
  

Item 1. Financial Statements

  
  

Balance Sheets as of January 31, 2008 (unaudited) and April 30, 2007

   3
  

Statements of Operations for the Three and Nine Months Ended January 31, 2008 and 2007, and for the Period From May 26, 1967 (inception) to January 31, 2008 (unaudited)

   4
  

Statements of Cash Flows for the Nine Months Ended January 31, 2008 and 2007, and for the Period From May 26, 1967 (inception) to January 31, 2008 (unaudited)

   5
  

Notes to Condensed Financial Statements

   7
  

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

   12
  

Item 3. Controls and Procedures

   16

PART II.

   OTHER INFORMATION   
  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

   17
  

Item 3. Defaults Upon Senior Securities

   17
  

Item 6. Exhibits

   18
  

Signatures

   18

 

** Items 1,4 and 5 of Part II have been omitted because they are not applicable for the period.


Table of Contents

Part I-Financial Information

 

ITEM 1. FINANCIAL STATEMENTS.

SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

BALANCE SHEETS

 

     January 31,
2008
    April 30,
2007
 
     (Unaudited)        
ASSETS     

CURRENT ASSETS

    

Cash and cash equivalents

   $ 940,239     $ 16,234  

Debt issuance costs, net of accumulated amortization of $0 and $921,678, respectively

     132,256       1,403,806  

Prepaid expenses

     118,061       63,308  
                

Total current assets

     1,190,556       1,483,348  

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $579,218 and $531,003

     148,451       194,216  

DEBT ISSUANCE COSTS, net of accumulated amortization of $0

     529,024       —    

PATENTS, net

     133,500       144,958  
                
   $ 2,001,531     $ 1,822,522  
                
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

CURRENT LIABILITIES

    

Accounts payable

   $ 27,112     $ 391,627  

Amounts due to former officer

     39,500       —    

Accrued debt issuance costs

     2,090,280       —    

Other accrued liabilities

     187,524       183,866  

Notes payable, net of unamortized discount of $0 and $370,423, respectively

     75,863       1,145,025  

Convertible debentures, net of unamortized discount of $0 and $4,884, respectively

     —         125,116  
                

Total current liabilities

     2,420,279       1,845,634  

LONG TERM PORTION of convertible debentures, net of unamortized discount of $9,340,824 and $0, repsectively

     39,499       —    
                

Total liabilities

     2,459,778       1,845,634  
                

COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)

    

STOCKHOLDERS’ DEFICIT

    

Preferred stock, undesignated, authorized 10,000,000 shares; none issued or outstanding

     —         —    

Common stock, par value $.01 per share; authorized 200,000,000 shares; issued and outstanding 142,196,306 and 139,854,859, respectively

     1,421,963       1,398,549  

Additional paid-in capital

     33,424,529       29,598,533  

Deficit accumulated during the development stage

     (35,304,739 )     (31,020,194 )
                

Total stockholders’ deficit

     (458,247 )     (23,112 )
                
   $ 2,001,531     $ 1,822,522  
                

See accompanying condensed notes to financial statements.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

 

     Period From
May 26, 1967
(inception) to

January 31,
2008
    Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
       2008     2007     2008     2007  
     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  

EXPENSES

          

Research and development

     11,909,952       222,142       157,689       492,505       567,917  

General and administrative

     17,932,858       635,915       319,994       1,028,029       818,952  

Interest

     6,086,249       1,238,903       437,735       2,569,244       970,765  
                                        

Total expenses

     35,929,059       2,096,960       915,418       4,089,778       2,357,634  

LOSS ON EXTINGUISHMENT OF DEBT

     250,097       250,097       —         250,097       —    

OTHER INCOME

     (874,417 )     (21,678 )     (24,131 )     (55,330 )     (59,962 )
                                        

NET LOSS

   $ (35,304,739 )   $ (2,325,379 )   $ (891,287 )   $ (4,284,545 )   $ (2,297,672 )
                                        

NET LOSS PER SHARE, basic and diluted

     $ (0.016 )   $ (0.006 )   $ (0.030 )   $ (0.017 )
                                  

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, basic and diluted

       141,460,300       138,736,978       140,699,818       137,829,180  
                                  

See accompanying condensed notes to financial statements.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

 

     Period From
May 26, 1967
(inception) to
January 31,
2008
    Nine Months Ended
January 31,
 
       2008     2007  
     (Unaudited)     (Unaudited)     (Unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES

      

Net loss

   $ (35,304,739 )   $ (4,284,545 )   $ (2,297,672 )

Adjustments to reconcile net loss to net cash used in operating activities

      

Depreciation and amortization

     1,344,891       25,347       102,089  

Amortization of deferred compensation

     336,750       —         15,831  

Interest on debt instruments

     5,696,158       2,479,109       905,308  

Loss on debt settlement and extinguishment

     163,097       250,097       —    

Loss on disposal and write down of property and equipment and other assets

     219,305       —         —    

Issuance of compensatory stock options and warrants

     2,453,038       161,575       47,000  

Issuance of stock below market value

     695,248       —         —    

Issuance of stock for services rendered

     1,265,279       —         —    

Issuance of note payable for services rendered

     120,000       —         —    

Contributions of capital through services rendered by stockholders

     216,851       —         —    

Changes in operating assets and liabilities

      

Prepaid expenses and other assets

     49,798       113,106       (16,500 )

Accounts payable and accrued liabilities

     430,231       (360,855 )     268,006  
                        

Net cash used in operating activities

     (22,314,093 )     (1,616,166 )     (975,938 )
                        

CASH FLOWS FROM INVESTING ACTIVITIES

      

Purchase of property and equipment

     (1,086,352 )     (2,450 )     —    

Purchase of other assets

     (713,329 )     (13,890 )     (15,847 )
                        

Net cash used in investing activities

     (1,799,681 )     (16,340 )     (15,847 )
                        

CASH FLOWS FROM FINANCING ACTIVITIES

      

Proceeds from sale of common stock and exercise of stock options and warrants, net of related expenses

     18,615,519       —         —    

Repayments of amounts due stockholders

     (121,517 )     —         —    

Proceeds from stockholder notes payable

     977,692       —         —    

Proceeds from former officer loans

     39,500       39,500       —    

Proceeds from issuance of notes payable, net of issuance costs

     2,138,225       265,638       1,013,501  

Proceeds from convertible debentures and other obligations, net of issuance costs

     4,236,654       2,295,154       —    

Payments on notes - current

     (540,751 )     (43,781 )     —    

Payments on notes - long term

     (291,309 )     —         —    
                        

Net cash provided by financing activities

     25,054,013       2,556,511       1,013,501  
                        

Net change in cash and cash equivalents

     940,239       924,005       21,716  

Cash and cash equivalents, beginning of period

     —         16,234       382  
                        

Cash and cash equivalents, end of period

   $ 940,239     $ 940,239     $ 22,098  
                        

Cash paid for:

      

Interest

   $ 247,823     $ 96,103     $ 2,524  
                        

Income taxes

   $ 20,554     $ 581     $ 1,148  
                        

See accompanying condensed notes to financial statements.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS - CONTINUED

Non-cash financing activities during the nine months ended January 31, 2008:

 

  (1) In connection with the issuance of $282,055 of two-year notes payable, the Company recorded discounts on notes payable related to the original issue discount of $16,417, and additional discounts of $70,282 related to the relative fair value of 2,820,550 warrants issued in the transaction.

 

  (2) The Company made principal payments on its convertible notes payable of $130,000 through the issuance of 1,228,381 shares of common stock.

 

  (3) The Company recorded debt issue costs of $542,820 of which $408,973 was non-cash through the issuance of 5,320,550 warrants for capital raising services.

 

  (4) The Company issued 1,113,066 shares of common stock in a cashless exercise of 6,590,903 warrants.

 

  (5) In November and December 2007, the Company received $1,000,000 from the issuance of short term bridge loans to fund operations and other working capital needs. The notes are unsecured and pay interest at 10% per year. In addition, the Company issued 5-year warrants to purchase 2,500,000 shares of common stock at $0.245 per share to investors. An additional discount of $288,750 was recorded for the relative fair value of the warrants (see (6)).

 

  (6) In December 2007, the Company exchanged its $1,000,000 bridge loans (see (5)) for 5 year convertible debentures with a face amount of $2,222,222. The notes are unsecured and were issued with a 55% original issue discount totaling $1,222,222. In addition, the Company issued 5-year warrants to purchase 4,498,426 shares of common stock at $0.247 per share to investors. Additional discounts of $703,554 and $296,446 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively.

 

  (7) In January 2008, the Company exchanged its remaining outstanding short term loans for 5 year convertible debentures with a face amount of $3,982,545. The notes are unsecured and were issued with a 55% original issue discount totaling $2,190,400. In addition, the Company issued 5-year warrants to purchase 8,061,831 shares of common stock at $0.247 per share to investors. Additional discounts of $1,035,945 and $756,200 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this refinancing transaction, the Company recorded a debt extinguishment loss of $250,097.

 

  (8) The Company financed the prepayment of certain insurance premiums with a short-term note totaling $119,644. The Company repaid a total of $43,781 on this note during the nine months ended January 31, 2008.

 

  (9) As of January 31, 2008, the Company had received a total of $1,429,000 towards the $6,075,000 convertible notes (Note 3). On a pro rata basis, the Company has recorded the 55% original issue discount of $1,746,556 and accrued debt issuance costs totaling $2,090,280 in connection with proceeds received. This accrual consists of the fair value of the 6,428,250 investor warrants ($1,051,662) and a beneficial conversion feature ($377,338) which have been recorded as discounts to the related notes payable, plus $661,280 for capital raising services. The accrued costs of the capital raising services consist a of $100,030 cash finders’ fee, plus $176,420 for the fair value of 588,066 restricted shares of common stock, plus $384,830 for the fair value of 2,352,263 finders’ warrants that are exercisable at $0.247 per share. All of the accrued warrants on these transactions will not be issued until the full $6,075,000 is received by the Company.

Non-cash financing activities during the nine months ended January 31, 2007:

 

  (1) In connection with the issuance of $935,890 of one-year notes payable, the Company recorded aggregate discounts on notes payable of $570,976. These discounts related to the original issue discount of $50,690 and $520,286 for 19,356,703 warrants issued in the transactions.

 

  (2) The Company made principal payments on its convertible notes payable of $268,071 through the issuance of 2,544,148 shares of common stock.

 

  (3) The Company recorded debt issue costs of $1,308,244 through the issuance of 11,683,593 warrants for capital raising services.

See accompanying condensed notes to financial statements.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of January 31, 2008, and the results of its operations for the three months and nine months ended January 31, 2008 and 2007, and for the period from May 26, 1967 (inception) to January 31, 2008, and its cash flows for the nine months ended January 31, 2008 and 2007, and for the period from May 26, 1967 (inception) to January 31, 2008. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2007 filed with the Commission on August 14, 2007.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at January 31, 2008, has an accumulated deficit of $35,304,739, continues to sustain operating losses on a monthly basis, and expects to incur operating losses for the foreseeable future. Since the Company is in the pre-clinical and clinical trial stages of its products, these products must undergo considerable development and testing prior to submission to the FDA for approval to market the products. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing sufficient to fund the required additional development and testing and to meet its obligations on a timely basis. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern for a reasonable period of time.

2. STOCK-BASED COMPENSATION

The fair value of the Company’s stock options is determined using a Black-Scholes option pricing model, consistent with the provisions of SFAS No. 123R (“Share-Based Payment”) and Securities and Exchange Commission Staff Accounting Bulletin No. 107 (“SAB 107”). The fair value of stock options granted is recognized to expense over the requisite service period. Compensation expense for all share-based payment awards is recognized using the straight-line single-option method. Effective May 1, 2006, the Company adopted SFAS No 123R, using a modified prospective application. Prior to May 1, 2006, the Company measured employee and board member compensation cost under the intrinsic method provided by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) whereby compensation expense is recognized for the excess, if any, of the fair value of the Company’s common stock over the option price on the date the option is granted.

The Company uses the historical stock price volatility to value stock options under SFAS 123R. The expected term of stock options represents the period of time options are expected to be outstanding and is based on observed historical exercise patterns for the Company, which management believes are indicative of future exercise behavior. For the risk free interest rate, the Company uses the observed interest rates appropriate for the term of time options are expected to be outstanding.

The Company’s net loss for the three months ended January 31, 2008 and 2007 includes approximately $137,500 and $13,000 and $161,600 and $47,000 for the nine months ended January 31, 2008 and 2007 of non-cash stock-based compensation costs. As of January 31, 2008, there was approximately $99,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

3. NOTES PAYABLE

In December 2007, the Company exchanged its $1,000,000 bridge loans for 5 year convertible debentures with a face amount of $2,222,222. The notes are unsecured, convertible into shares of common stock at $0.247 per share, and were issued with a 55% original issue discount totaling $1,222,222. In addition, the Company issued 5-year warrants to purchase 4,498,426 shares of common stock at $0.247 per share to investors. Additional discounts of $703,554 and $296,446 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively.

In January 2008, the Company exchanged its remaining outstanding short term loans for 5 year convertible debentures with a face amount of $3,982,545. The notes are unsecured, convertible into shares of common stock at $0.247 per share, and were issued with a 55% original issue discount totaling $2,190,400. In addition, the Company issued 5-year warrants to purchase 8,061,831 shares of common stock at $0.247 per share to investors. Additional discounts of $1,035,945 and $756,200 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this exchange transaction, the Company recorded a debt extinguishment loss of $250,097.

The Company is in the process of issuing five year convertible debentures with a total face amount of $13,500,000, discounted at 55%, with total net proceeds of $6,075,000. The debentures are convertible at any time prior to maturity into a total of 54,655,870 shares of common stock, or $0.247 per share. In addition, the Company will issue 5-year warrants to purchase 27,327,935 shares of common stock at $0.247 per share to investors.

As of January 31, 2008, the Company had received cash proceeds of $1,429,000 towards the $6,075,000 cash proceeds expected from the convertible notes. On a pro rata basis, the Company has recorded the 55% original issue discount of $1,746,556 and accrued debt issuance costs totaling $2,090,280 in connection with proceeds received. This accrual consists of the fair value of the 6,428,250 investor warrants of $1,051,662 and a beneficial conversion feature of $377,338 which have been recorded as discounts to the related notes payable, plus $661,280 for capital raising services. The accrued costs of the capital raising services consist of a $100,030 cash finders’ fee, plus $176,420 for the fair value of 588,066 restricted shares, plus $384,830 for the fair value of 2,352,263 finders’ warrants that are exercisable at $0.247 per share. All of the accrued warrants on these transactions will not be issued until the full $6,075,000 is received by the Company.

As overall consideration for capital raising services in connection with above $6,075,000 financing, the Company will pay a cash fee of 7% of the funds received from non-US investors, issue 2,063,580 restricted shares of common stock, plus issue 8,254,321 five year common stock purchase warrants with an exercise price of $0.247. These fees are payable upon receipt of the full $6,075,000 proceeds by the Company.

4. STOCKHOLDERS’ EQUITY

During the three months ended January 31, 2008:

 

  (1) In November and December 2007, the Company received $1,000,000 from the issuance of short term bridge loans to fund operations and other working capital needs. The notes are unsecured and pay interest at 10% per year. In addition, the Company issued 5-year warrants to purchase 2,500,000 shares of common stock at $0.245 per share to investors. An additional discount of $288,750 was recorded for the relative fair value of the warrants.

 

  (2) In connection with the above $1,000,000 bridge loans, the Company issued 2,500,000 warrants for capital raising services and recorded debt issue cost of $288,750 which represents the fair value of these warrants estimated using the Black-Scholes valuation model. The warrants are exercisable at a price of $0.245 per share. In addition, the Company paid $100,000 in cash for capital raising services.

 

  (3) The Company made principal payments on its debentures of $58,000 through the issuance of 339,045 shares of common stock.

 

  (4) The Company issued 1,113,066 shares of common stock in a cashless exercise of 6,590,903 warrants that were previously granted.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

4. STOCKHOLDERS’ EQUITY - CONTINUED

The following table summarizes the Company’s stock warrant information during the quarter ended January 31, 2008:

 

     The Quarter Ended
January 31, 2008
     Warrants     Weighted
Average
Exercise
Price

Outstanding as of October 31, 2007

   77,048,155     $ 0.255

Granted

   17,560,257       0.246

Exercised

   (6,590,903 )     0.242

Forfeited

   (2,884,337 )     0.275
            

Outstanding as of January 31, 2008

   85,133,172     $ 0.254
            

The effect of potentially issuable shares of common stock was not included in the calculation of diluted loss per share given that the effect would be anti-dilutive.

5. RELATED PARTY TRANSACTIONS

During the nine months ended January 31, 2008, the Company borrowed $39,500 from its former President and Chief Executive Officer (Note 7). The loan is not collateralized, has no stated maturity date, does not have a stated interest rate and no repayments have been made.

6. INCOME TAXES

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.” Interpretation No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The evaluation of a tax position in accordance with interpretation No. 48 involves determining whether it is more likely than not that a tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. If a tax position does not meet the more-likely-than-not recognition threshold, the financial statements do not recognize a benefit for that position.

As required, the Company adopted Interpretation No. 48 during the quarter ended July 31, 2007. The adoption did not result in a material impact to the Company’s results of operations or its financial condition.

The Company is subject to taxation in the U.S. and a small number of state jurisdictions. The material jurisdictions subject to potential examination by taxing authorities include the U.S. and California.

From time to time, the Company may be assessed interest or penalties by its tax jurisdictions, although any such assessments historically have been minimal and immaterial to the Company’s financial results. In the event the Company has received an assessment for interest and/or penalties, it has been classified in the financial statements as general and administrative expense.

The utilization of net operating loss carryforwards will likely be limited based on past and future issuances of common and preferred stock due to the ownership change provisions of Internal Revenue Code Section 382.

 

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SYNTHETIC BLOOD INTERNATIONAL, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES

Effective November 20, 2007, Robert W. Nicora, the Company’s President, Chief Executive Officer and Chief Financial Officer resigned from all officer positions and from his directorship. Mr. Nicora will receive a total amount of $378,233 which includes accrued salaries, repayment of advances and severance payments. A total of $201,500 was paid on this obligation during the quarter ended January 31, 2008.

Effective November 20, 2007, the Company elected two individuals to its Board of Directors, one of which was also elected as interim President and Chief Executive Officer. The Director and interim President and Chief Executive Officer is paid an annual salary of $120,000, $550 per month car allowance, reimbursement for housing costs while in California during his term as an officer and options to purchase 30,000 shares of common stock for each month of service. The stock option is exercisable for three years following the issuance at a price equal to the market price on the date of each monthly issuance. The second Director is paid a monthly consulting fee of $15,000 and options to purchase 1,000,000 common shares as of November 20, 2007 at an exercise price of $0.245 per share expiring three years from the date of grant. Additionally, if the Company enters into a license agreement or is sold, it will issue to the second Director an option to purchase 4,000,000 common shares at an exercise price of $0.245 per share expiring three years from the date of grant.

Warrants totaling 17,560,257 and convertible notes issued during the three months ended January 31, 2008 are subject to a requirement that the Company file a registration statement with the SEC to register the underlying shares, and that it be declared effective on or before January 9, 2009. In the event that the Company does not have an effective registration statement as of that date, or if at some future date the registration ceases to be effective, then the Company is obligated to pay liquidated damages to each holder in the amount of 1% of the aggregate market value of the stock, as measured on January 9, 2009 or at the date the registration statement ceases to be effective. As an additional remedy for non-registration of the shares, the holders would also receive the option of a cashless exercise of their warrant or conversion shares (see Note 8).

8. SUBSEQUENT EVENTS

In February and March 2008, the Company received the remaining cash proceeds of $4,646,000 on its five year convertible debentures (described in Note 3). A total of 20,889,685 warrants will be issued to the investors, valued at approximately $4,441,147. As consideration for capital raising services in connection with above financing, the Company will pay a cash fee of 7% of the $3,585,500 funds received from the non-US investors, issue 1,475,514 restricted shares, plus issue 5,902,058 five year warrants with an exercise price of $0.247.

The agreement underlying issue the above warrants (“Warrant Agreement”) asserts that, prior to September 30, 2008, the Company is required to take action to submit to the shareholders of the Company a proposal to amend the Company’s articles of incorporation to increase the number of authorized shares of common stock by such amount as is necessary to reserve for issuance the maximum aggregate number of warrant shares then issued or potentially issuable in the future upon exercise of the Warrant Agreement. The number of potentially issuable common shares under the Company’s options, warrants, and convertible debt instruments is subject to a downward adjustment in the event of a cashless exercise of warrant or conversion shares (see Note 7).

In connection with the convertible debenture financing described above, the Company will issue a total of 6,000,000 two year warrants to Aventis Invest and Horizon Financial Capital Group Ltd. (3,000,000 to each) at an exercise price of $0.20 as additional consideration for capital raising services. The issuance of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.

In connection with the convertible debenture financing described above, the Company will extend a total of 2,500,000 warrants to PS Capital for an additional three years at an exercise price of $0.28 as additional consideration for capital raising services. The extension of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.

In connection with the convertible debenture financing described above, the Company will extend a total of 5,000,000 warrants to Mr. Ivan Bergamin and Maylands Investment Corp. (2,500,000 each) for an additional two years at an exercise price of $0.247 as additional consideration for capital raising services. The extension of these warrants was conditional on receiving the full $6,075,000 proceeds from the convertible debentures.

 

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From February 1, 2008 through March 15, 2008, the Company received $7,500 and issued 50,000 common shares pursuant to the exercise of options. The Company also issued 170,000 additional common shares in a cashless exercise of options during this period.

In March 2008, the Company issued a total of 910,082 common shares in two cashless exercises of warrants, and issued an additional 105,506 shares in the conversion of a $26,060 note.

In February 2008, the United States Department of Defense approved the award of a $1.9 million grant to the Company’s principal traumatic brain injury (TBI) investigator at the University of Miami Miller School of Medicine.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Synthetic Blood International, Inc. is a New Jersey corporation that, since 1990, has pursued the development of medical products based on perfluorocarbon technology. Since 1993, Synthetic Blood has also pursued development of a glucose biosensor implant on a limited basis.

Perfluorocarbons are biologically inert compounds containing carbon and fluorine. The chemical composition of perfluorocarbons allows them to readily absorb and give up oxygen and carbon dioxide. This property creates opportunities for developing blood substitutes that act as oxygen carriers for human tissue and fluids that carry oxygen to the lungs for remedial uses.

Synthetic Blood developed Oxycyte as a synthetic blood substitute and therapeutic oxygen carrier. We received approval of our Investigational New Drug application filed with the U.S. Food and Drug Administration (FDA) in 2003 and completed a Phase I safety study in normal volunteers in December 2003. The results of the Phase I study were in line with our expectations for the performance of Oxycyte.

Enrollment started in 2005 in a Phase II orthopedic surgery trial, and five study sites have been qualified and approved to participate in this study. In this first Phase II trial we are evaluating both efficacy and safety in the prevention of tissue hypoxia (the effects of reduced oxygen levels) in hip surgery patients who experience mild to moderate blood loss during surgery. While blood transfusions are typically not given during such procedures, blood loss may result in postoperative complications caused by tissue hypoxia. Three study sites have enrolled 12 patients in this study. This is less than expected, so enrollment has been temporarily put on hold so resources can be refocused on shorter term Phase II trials. Additional financing will be required to restart enrollment, and a completion date cannot be projected at this time.

An eight patient proof of concept Phase II Oxycyte study in patients with brain ischemia due to severe head injury has been completed and the results were considered within expectations and favorable. A 20 patient proof of concept Phase II Oxycyte trial in patients with sickle cell anemia was put on clinical hold by the FDA for requested protocol changes before enrollment could begin. It is not known at this time if or when enrollment in this study might begin. In addition to these studies, our future clinical development plans include testing Oxycyte in acute myocardial ischemia, high blood loss surgery, coronary bypass surgery, stroke, myocardial infarction, malignant tumors and decompression sickness.

We expect to commit a substantial portion of our financial and business resources over the next 3 years to testing Oxycyte and advancing this product to licensing and commercial distribution.

Fluorovent is an oxygen exchange fluid and surfactant for facilitating the treatment of lung conditions, which the Company has been developing. We have not filed any applications on this product with the FDA and do not expect we will do so while we are focusing on Oxcyte clinical trials or until we obtain additional financing.

Our biosensor product uses an enzyme process for measuring the glucose level in the blood stream of a diabetic patient. It is a subcutaneous implant programmed to measure the glucose level and transmit the results to a wearable receiver. We do not expect we will file any applications with the FDA for at least the next 2 years.

In February 2008, the United States Department of Defense approved the award of a $1.9 million grant to the Company’s principal traumatic brain injury (TBI) investigator at the University of Miami Miller School of Medicine. With this grant, the TBI investigator will be able to double the planned enrollment in the Phase IIb trial to 200 TBI patients, providing a large statistical basis for evaluating Oxycyte’s effectiveness.

We have announced other US Government Military grants totaling in excess of $7 million to researchers that are ordering Oxycyte for these additional pre-clinical studies, where the results of these studies will help support additional clinical testing applications to the FDA. While these grants are not to the Company, they have all been approved for testing our Oxycyte product in a variety of situations, such as Sickle Cell Disease, Decompression Sickness, Blast Traumatic Brain Injury, Spinal Cord Injury, CPR, and Brain Ischemia.

RESULTS OF OPERATIONS

Three months ended January 31, 2008 and 2007

Research and Development expenses for the three months ended January 31, 2008 were $222,142, compared to $157,689 for the same period in the prior year. Due to the financing we obtained during the current quarter, we were able to resume funding of our Phase II clinical trials and increase our lab personnel and related expenses. Phase II expenses totaled $14,359 for the quarter ended January 31, 2008, compared to $0 for the quarter ended January 31, 2007. Lab salaries and benefits totaled $86,827 during the quarter ended January 31, 2008, compared to $76,820 during the quarter ended January 31, 2007. Lab supplies totaled $30,929 during the quarter ended January 31, 2008, compared to $2,201 during the quarter ended January 31, 2007. Because of the nature of our ongoing research and development activities and depending on our cash flow levels, accounting periods may reflect significant changes in expenses resulting from the timing of research related to our developmental products.

 

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General and Administrative expenses for the three months ended January 31, 2008 were $635,915, compared to $319,994 for the same period in the prior year. During the current quarter we incurred compensation expense from the issuance of stock options (and extensions of terms of certain existing options) that totaled approximately $137,500, compared to $13,000 for the same period in the prior year. In addition, during the quarter ended January 31, 2008 we incurred approximately $240,000 of additional payroll expenses for a severance package for our former President, pursuant to his resignation in November 2007. Our outside consulting and contract management costs in total were approximately $58,000 lower during the current quarter compared to the same period in the prior year.

The net loss for the three months ended January 31, 2008 was $2,325,379 compared to a net loss of $891,287 for the same period in the prior year. Total expenses, excluding interest expense and loss on debt extinguishment, increased $380,374 during the three months ended January 31, 2008 over the comparable period in 2007. In addition to the items noted above, interest expense increased $801,168. This increase during the current quarter was due to the interest costs associated with the notes and debentures payable and related amortization of associated debt discounts, and the significant additional financing costs related to the exchange of our short-term notes for 5 year convertible debentures during the current quarter. During the quarter ended January 31, 2008, we also incurred a debt extinguishment loss of $250,097 related to the exchange of our short-term notes for 5 year convertible debentures. The extinguishment was recognized in accordance with EITF 96-19 and results principally from the write off of unamortized debt discounts and debt issue costs. Additionally, other income, consisting principally of sub-rental income decreased $2,453 in the quarter ended January 31, 2008 compared to the same period ended January 31, 2007.

Nine months ended January 31, 2008 and 2007

Research and Development expenses for the nine months ended January 31, 2008 were $492,505, compared to $567,917 for the same period in the prior year. During the nine months ended January 31, 2007 we concentrated our research activities on our Oxycyte product that included Phase II clinical trials, while during the nine months ended January 31, 2008 we curtailed some of our research activities, especially with Phase II clinical trials, due to constraints of cash flow.

General and Administrative expenses for the nine months ended January 31, 2008 were $1,028,029, compared to $818,952 for the same period in the prior year. In October 2006, the Company decided to temporarily cease operations and lay-off exiting employees. The reduced levels of operations, due to limited working capital sources, continued during the nine months ended January 31, 2008. However, during the nine months January 31, 2008 our payroll expenses increased approximately $263,000 which was primarily due to the costs of a severance package for our former President, pursuant to his resignation in November 2007. We also incurred compensation expense from the issuance of stock options (and extensions of terms of certain existing options) that totaled approximately $162,000 during the nine months ended January 31, 2008, compared to approximately $47,000 for the same period in the prior year. Significant decreases in our general and administrative costs during the nine months ended January 31, 2008 included consulting and contract management expenses (decrease of approximately $120,000) and investor relations (decrease of approximately $55,000).

The net loss for the nine months ended January 31, 2008 was $4,284,545 compared to a net loss of $2,297,672 for the same period in the prior year. Total expenses, excluding interest expense and loss on debt extinguishment, increased $133,665 during the nine months ended January 31, 2008 over the comparable period in 2007. Interest expense increased $1,795,337 due to the interest costs associated with the notes and debentures payable and related amortization of associated debt discounts, and the significant additional financing costs related to the exchange of our short-term notes for 5 year convertible debentures during the quarter ended January 31, 2008. During the nine months ended January 31, 2008, we also incurred a debt extinguishment loss of $250,097 related to the exchange of our short-term notes for 5 year convertible debentures. The extinguishment was recognized in accordance with EITF 96-19 and results principally from the write off of unamortized debt discounts and debt issue costs. Additionally, other income, consisting principally of sub-rental income decreased $4,632 in the nine months ended January 31, 2008 compared to the same period in 2007.

LIQUIDITY AND CAPITAL RESOURCES

Synthetic Blood has financed its operations since September 1990 through the issuance of debt and equity securities and loans from stockholders. As of January 31, 2008, we had $1,190,556 of total current assets and a working capital deficit of $1,229,723. Our current liabilities include a total of $2,090,280 noncash debt issuance costs we incurred on the partial proceeds received on our $6,075,000 convertible notes. Our working capital deficit at the end of the current quarter is a result of this noncash liability. This liability will be extinguished in the quarter ended April 30, 2008 through the issuance of warrants to the related investors and finders. Our practice is to invest excess cash, where available, in short-term money market investment instruments.

Since receiving the full remaining proceeds of $6,075,000 on our five year convertible notes in February and March 2008, we believe we have adequate cash through the next 18 months for operations and planned clinical testing. The Department of Defense grant of $1.9 million to our principal Traumatic Brain Injury (TBI) investigator allows us to increase our planned enrollment in our Phase IIb trial from 100 to 200 patients. The only incremental costs involved in this clinical testing should be the cost of supplying additional Oxycyte and data management, thus enabling us to double the enrollment size without substantially increasing our costs.

 

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We have announced other US Government Military grants totaling in excess of $7 million to researchers that are ordering Oxycyte for these additional pre-clinical studies, where the results of these studies will help support additional clinical testing applications to the FDA. While these grants are not to the Company, they have all been approved for testing our Oxycyte product in a variety of situations, such as Sickle Cell Disease, Decompression Sickness, Blast Traumatic Brain Injury, Spinal Cord Injury, CPR, and Brain Ischemia.

We anticipate a significant amount of new capital through the conversion of options and warrants to common stock after our current quarter recapitalization because, at the present time, our stock price exceeds the option and warrant strike prices. These funds will be used as received for additional pre-clinical animal testing for other conditions where Oxycyte may provide a benefit.

In February and March 2008, the Company received the remaining proceeds of $4,646,000 on its five year convertible debentures (described in Note 3). A total of 20,889,685 warrants will be issued to the investors, valued at approximately $4,441,147. As consideration for capital raising services in connection with above $4,646,000 financing, the Company will pay a cash fee of 7% of the funds received from the non-US investors, issue 1,475,514 restricted shares, plus issue 5,902,058 five year warrants with an exercise price of $0.247.

We are in the pre-clinical and clinical trial stages in the development of our products. Under an Investigational New Drug application filed with the FDA, we completed a Phase I clinical study on Oxycyte in December 2003. The results of the Phase I study were in line with our expectations for the performance of Oxycyte. Phase II clinical testing started in 2005. Even if we are successful with our Phase II studies, we must then conduct Phase III clinical studies and, if they are successful, file with the FDA and obtain approval of a Biologics License Application to begin commercial distribution, all of which will take more time and funding to complete. Our other products, Fluorovent and the glucose biosensor, must undergo further development and testing prior to submission to the FDA for approval to initiate clinical trials, which also requires additional funding. Management is actively pursuing private and institutional financing, as well as strategic alliances and/or joint venture agreements to obtain the necessary additional financing and reduce the cost burden related to the development and commercialization of our products. We expect our primary focus will be on funding the continued testing of Oxycyte, since this product is the furthest along in the regulatory review process. Our ability to continue to pursue testing and development of our products depends on obtaining outside financial resources, and there is no assurance we will succeed in obtaining the necessary resources.

Although we believe we have adequate cash through the next 18 months for operations and planned clinical testing, we are in the development stage, have an accumulated deficit of $35,304,739, continue to sustain operating losses on a monthly basis, and expect to incur operating losses for the foreseeable future. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern for a reasonable period of time.

Cash used in operating activities during the nine months ended January 31, 2008 was $1,616,166, compared to $975,938 used for the comparable period of the prior year. Operating activities consisted primarily of product research and development and the general operation of our corporate office. Cash used in operating activities is primarily dependent on the timing and extent of our research and development activities and our available liquidity.

Cash used in investing activities during the nine months ended January 31, 2008 was $16,340 compared to $15,847 for the comparable period of the prior year. Investing activities consisted primarily of expenditures related to our patent rights and capital assets. Synthetic Blood does not anticipate significant future capital expenditures in the near term.

Cash provided by financing activities during the nine months ended January 31, 2008 was $2,556,511 compared to cash provided by financing activities of $1,013,501 for the comparable period of the prior year. Cash provided by financing activities consists primarily of the proceeds from the sale of debentures, short term notes payable and advances from officers.

RISK FACTORS

Under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended April 30, 2007, we describe a number of risks associated with our business and our financial condition. Those factors continue to be meaningful for your evaluation of Synthetic Blood and we urge you to review and consider the risk factors presented in the Annual Report.

 

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CRITICAL ACCOUNTING POLICIES

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

Share-Based Payment - SFAS No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. The standard requires the expensing of all share-based compensation, including options and warrants, using the fair value-based method. We adopted the new standard effective May 1, 2006.

Long-Lived Assets - Our intangible assets consist of patents related to our various technologies. These assets are amortized on a straight-line method over their estimated useful life, which ranges from eight to ten years. We review these intangible assets for impairment on a quarterly basis in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).

FASB Interpretation No. 48 - In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109.” Interpretation No. 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The calculation of a tax position in accordance with Interpretation No. 48 involves determining whether it is more likely than not that a tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. If a tax position does not meet the more-likely-than-not recognition threshold, the financial statements do not recognize a benefit for that position.

As required, the Company adopted Interpretation No. 48 during the quarter ended July 31, 2007. The adoption did not result in a material impact to the Company’s results of operations or its financial condition.

Convertible Debentures - If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio, and EITF Issue No. 00-27, Application of EITF Issue No. 98-5 to Certain Convertible Instruments. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

Registration Payment Arrangements - In connection with prior private placements of our common stock and warrants to purchase shares of our common stock, we entered into agreements that committed us to timely register the shares of common stock purchased as well as the shares underlying the issued warrants. Those registration agreements specified potential cash penalties if we did not timely register the related shares with the SEC.

In accordance with EITF 00-19, “Accounting for Derivative Financial Instruments Indexed To, and Potentially Settled In a Company’s Own Stock,” when the potential cash penalties were included in registration payment arrangements, the estimated fair value of the warrants would be recorded as a liability, with an offsetting reduction to additional paid-in capital received from the private placement. The fair value of the warrants would be estimated using the Black-Scholes option pricing model.

Under EITF 00-19, the estimated fair value of the warrants would be re-measured at each reporting date and on the date of effectiveness of the related registration statement, with the increase in fair value recorded as other expense in our Statement of Operations. As of the date of effectiveness of the registration statement, the warrant liability would be reclassified to additional paid-in capital, evidencing the non-impact of these adjustments on our financial position and business operations.

In December 2006, the FASB issued FASB Staff Position, or FSP, EITF No. 00-19-2, “Accounting for Registration Payment Arrangements.” This FSP specifies that companies that enter into agreements to register securities will be required to recognize a liability if a payment to investors for failing to fulfill the agreement is probable and can be reasonably estimated. This accounting differs from the guidance in EITF 00-19, which required a liability to be recognized and measured at fair value, regardless of probability.

EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that we enter into or modify after the date of issuance of this FSP. For our registration payment arrangements and financial instruments subject to those arrangements that were entered prior to the issuance of this FSP, the guidance was effective beginning January 1, 2007.

FORWARD LOOKING STATEMENTS

Except for the historical information contained herein, the discussion and information presented in this report contain forward-looking statements that involve risks and uncertainties. Synthetic Blood’s actual results could differ materially from those presented in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section and those discussed in the Synthetic Blood’s Annual Report on Form 10-K for the year ended April 30, 2007 and subsequent filings made with the Securities and Exchange Commission.

 

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Although Synthetic Blood believes that the expectations reflected in the forward-looking statements are reasonable, Synthetic Blood cannot guarantee future results, levels of performance or achievements. Moreover, neither Synthetic Blood nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Synthetic Blood is under no obligation to update any of the forward-looking statements after the filing of this report to conform such statements to actual results or changes in expectations.

 

ITEM 3. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer who also serves as our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, including our Principal Executive Officer and our Principal Financial Officer, does not expect that our disclosure controls or procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation or controls can provide absolute assurance that all control issues and instances of fraud, if any, within Synthetic Blood have been detected.

We carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarterly period covered by this report. Based on the foregoing, our Principal Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting. However, on November 20, 2007 our President, Chief Executive Officer and Chief Financial Officer terminated his services. We have appointed an interim President, Chief Executive Officer and Chief Financial Officer and we are currently performing a search to replace the Chief Financial Officer.

 

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Part II-Other Information

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In December 2007, the Company exchanged its $1,000,000 bridge loans for 5 year convertible debentures with a face amount of $2,222,222. The notes are unsecured, convertible into shares of common stock at $0.247, and were issued with a 55% original issue discount totaling $1,222,222. In addition, the Company issued 5-year warrants to purchase 4,498,426 shares of common stock at $0.247 per share to investors. Additional discounts of $703,554 and $296,446 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. The securities were issued to fund the current working capital requirements of the Company and were sold in reliance on the exemptions or exclusions from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

In January 2008, the Company exchanged its remaining outstanding short term loans for 5 year convertible debentures with a face amount of $3,982,545. The notes are unsecured, convertible into shares of common stock at $0.247, and were issued with a 55% original issue discount totaling $2,190,400. In addition, the Company issued 5-year warrants to purchase 8,061,831 shares of common stock at $0.247 per share to investors. Additional discounts of $1,035,945 and $756,200 were recorded for the relative fair values of the warrants and beneficial conversion feature, respectively. Pursuant to this exchange transaction, the Company recorded a debt extinguishment loss of $250,097. The securities were issued to fund the current working capital requirements of the Company and were sold in reliance on the exemptions or exclusions from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

In March 2008, the Company closed the offering of five year convertible debentures with a total face amount of $13,500,000, discounted at 55%, with total proceeds of $6,075,000. The debentures are convertible at any time prior to maturity into a total of 54,655,870 shares of common stock. In addition, the Company issued 5-year warrants to purchase 27,327,935 shares of common stock at $0.247 per share to investors. As consideration for capital raising services in connection with above financing, the Company will pay a cash fee of 7% of the $3,585,500 funds received from the non-US investors ($250,985), issue 1,475,514 restricted shares, plus issue 5,902,058 five year warrants with an exercise price of $0.247. In addition, the Company will issue a total of 6,000,000 two year warrants to Aventis Invest and Horizon Financial Capital Group Ltd. (3,000,000 to each) at an exercise price of $0.20 as additional consideration for capital raising services. Also, the Company will extend a total of 2,500,000 warrants to PS Capital for an additional three years at an exercise price of $0.28 as additional consideration for capital raising services. Finally, the Company will extend a total of 5,000,000 warrants to Mr. Ivan Bergamin and Maylands Investment Corp. (2,500,000 each) for an additional two years at an exercise price of $0.247 as additional consideration for capital raising services. The securities were issued to fund the current working capital requirements of the Company and were sold in reliance on the exemptions or exclusions from registration set forth in Section 4(2) of the Securities Act of 1933 and Regulation S adopted thereunder.

From February 1, 2008 through March 15, 2008, the Company received $7,500 and issued 50,000 common shares pursuant to the exercise of options. The Company also issued 170,000 additional common shares in a cashless exercise of options during this period. In March 2008, the Company issued a total of 910,082 common shares in two cashless exercises of warrants, and issued an additional 105,506 shares in the conversion of a $26,060 note. The securities were issued in reliance on the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of October 31, 2007, the Company was past due on certain notes payable which had a due date of one year from date of issuance in the approximate amount of $846,000 plus accrued and unpaid interest. The Company was able to become current on these obligations through the exchange of the short term notes for 5 year convertible debentures in January 2008.

 

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ITEM 6. EXHIBITS.

 

  (a) Exhibits:

 

  4.1    Form of Convertible Note
  4.2    Form of Warrant
10.1    Form of Purchase Agreement – US Purchase (without the exhibits which are included as separate exhibits to this report)
10.2    Form of Purchase Agreement – Non-US Purchase (without the exhibits which are included as separate exhibits to this report)
10.3    Form of Purchase Agreement – US Note Exchange (without the exhibits which are included as separate exhibits to this report)
10.4    Form of Purchase Agreement – Non-US Exchange (without the exhibits which are included as separate exhibits to this report)
31.1    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1    Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    SYNTHETIC BLOOD INTERNATIONAL, INC.
March 21, 2008     /s/ Robert J. Larsen
    Robert J. Larsen
    President, Chief Executive Officer and Chief Financial Officer

 

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EXHIBIT 4.1

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. IF THIS INSTRUMENT IS ISSUED IN RELIANCE ON REGULATION S, NO OFFER OR SALE OF THIS INSTRUMENT OR ANY SECURITIES UNDERLYING THIS INSTRUMENT CAN BE MADE WITHOUT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF RULE 903 OF REGULATION S.

 

Original Issue Date: January __, 2008     Note No.             
Original Conversion Price (subject to adjustment herein): $0.247     $                                 

SYNTHETIC BLOOD INTERNATIONAL, INC.

CONVERTIBLE NOTE

DUE JANUARY 2013

THIS CONVERTIBLE NOTE is one of a series of duly authorized and issued Convertible Notes of Synthetic Blood International Inc., a New Jersey corporation, having a principal place of business at 3189 Airway Avenue, Building C, Costa Mesa, California 92626 (the “ Company ”), designated as the Convertible Notes Due January 2013 (this Note, the “ Note ” and collectively with the other such series of Notes, the “ Notes ”). The Notes are being issued by the Company in connection with an unregistered private placement of the Notes in the aggregate principal amount of up to $13.5 million. The Notes are being issued to the Holder pursuant to a purchase agreement by which the Holder agreed to purchase Notes and Warrants.

FOR VALUE RECEIVED, the Company promises to pay to                                      or its registered assigns (the “ Holder ”), or shall have paid pursuant to the terms hereunder, the principal sum of $                              by January __, 2013, or such earlier date as this Note is required or permitted to be repaid as provided hereunder (the “ Maturity Date ”). The outstanding principal amount of the Note is repayable by the Company in forty eight (48) equal installments, commencing on the date that is one year from the Original Issue Date. The Note is payable by the Company at its election in the form of either (i) payment of cash or (ii) issuance of shares of Common Stock to the Holder with shares valued at the then effective Conversion Price. The Company may elect to pay the Note using shares of Common Stock only if the shares issued can be resold by the Holder without restriction either pursuant to Rule 144, or under an effective registration statement of the Company.


This Note is subject to the following additional provisions:

Section 1 . Definitions . For the purposes hereof, the following terms shall have the following meanings:

Alternate Consideration ” shall have the meaning set forth in Section 5(d).

Base Conversion Price ” shall have the meaning set forth in Section 5(b).

Business Day ” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of California are authorized or required by law or other government action to close.

California Courts ” shall have the meaning set forth in Section 8(d).

Common Stock ” means the common stock, par value $0.01 per share, of the Company and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into.

Common Stock Equivalents ” means all shares of Common Stock or any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock (including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock), whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, at an effective price per share which is less than the Conversion Price then in effect. If the Company issues any securities convertible or exchangeable into Common Stock, the maximum number of shares of Common Stock issuable thereunder shall be deemed to be Common Stock Equivalents issued as of the time of such issue, if the consideration per share of such Common Stock Equivalents (as hereinafter determined) is less than the Conversion Price then in effect. Common Stock Equivalents, however, shall not include Exempt Issuances.

Conversion Date ” shall have the meaning set forth in Section 4(a).

Conversion Price ” shall have the meaning set forth in Section 4(b).

Conversion Shares ” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof, either as a result of election by the Holder to convert or election by the Company to repay any installment hereunder in shares of Common Stock.


Dilutive Issuance ” shall have the meaning set forth in Section 5(b).

Dilutive Issuance Notice ” shall have the meaning set forth in Section 5(b).

Event of Default ” shall have the meaning set forth in Section 8.

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities and/or securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, (c) securities upon the exercise or exchange of or conversion of any securities of like form and tenor to the Securities issued by the Company on or before March 31, 2008, (d) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (e) any warrant or other security issued or issuable to Aventis Invest Ltd. or Horizon Finance Capital Group, Ltd.

Fundamental Transaction ” shall have the meaning set forth in Section 5(d).

Note Register ” shall mean a register setting forth each holder of the series of Notes indicating the owner and the principal amount of the Notes held.

Notice of Conversion ” shall have the meaning set forth in Section 4(a).

Original Issue Date ” shall mean the date of the first issuance of the Notes regardless of the number of transfers of any Note and regardless of the number of instruments which may be issued to evidence such Note.

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


Securities ” means the Note, the Warrants, the Conversion Shares, and the shares issuable on exercise of the Warrants.

Share Delivery Date ” shall have the meaning set forth in Section 4(d).

Trading Day ” means a day on which the Common Stock is traded on any of the Nasdaq Stock Market, the American Stock Exchange, the New York Stock Exchange, or the OTC Bulletin Board.

Transaction Documents ” shall mean this Note and the Warrants.

Warrants ” shall mean the Warrants issued to all Persons by the Company in connection with the offer and sale of the Convertible Notes.

Section 2 . Interest.

a) No Payment of Interest . This Note was issued for an Original Issue Discount. No interest payments shall be due and payable to the Holder hereunder.

b) Prepayment . Except as otherwise set forth in this Note, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3 . Registration of Transfers and Exchanges.

a) Different Denominations . This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration of transfer or exchange.

b) Investment Representations . This Note has been issued subject to certain investment representations of the original Holder set forth in the purchase agreement and may be transferred or exchanged only in compliance with the purchase agreement and applicable federal and state securities laws and regulations. As a condition to effect any transfer, the Company may require (i) that the Holder or transferee of this Note, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, and (ii) that the holder or transferee execute and deliver to the Company a representation letter regarding compliance with the Securities Act in form and substance acceptable to the Company.


c) Reliance on Note Register . Prior to due presentment to the Company for transfer of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4 . Conversion.

a) Voluntary Conversion . At any time commencing after the Original Issue Date until this Note is no longer outstanding, this Note may be converted into shares of Common Stock at the option of the Holder, at any time and from time to time. The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (a “ Notice of Conversion ”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (a “ Conversion Date ”). Any partial conversion shall be for increments of $1,000 in principal amount, unless the Holder is converting the entire remaining principal amount of this Debenture. If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note thereon has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this in an amount equal to the applicable conversion. The Holder and the Company shall maintain records in the Note Register showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within 1 Business Day of receipt of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

b) Conversion Price . The conversion price shall be equal to $0.247 per share of Common Stock (the “ Conversion Price ”), subject to adjustment as set forth herein.

c) Mechanics of Conversion

i. Conversion Shares Issuable Upon Conversion of Principal Amount . The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted by (y) the Conversion Price.


ii. Delivery of Certificate Upon Conversion . Not later than three (3) Trading Days after any Conversion Date (the “ Share Delivery Date ”), the Company shall deliver or cause to be delivered to the Holder a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those required by law) representing the number of shares of Common Stock being acquired upon the conversion of this Note. The Company shall, if available and if allowed under applicable securities laws, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.

iii. Failure to Deliver Certificates . If in the case of any Notice of Conversion such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificates representing the principal amount of this Note tendered for conversion.

iv. Reservation of Shares Issuable Upon Conversion . Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares then issued or potentially issuable in the future upon the conversion of the outstanding principal amount of this Note. If, on any date after the articles of incorporation of the Company are amended to increase the number of authorized shares of Common Stock, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the number of Conversion Shares issuable hereunder, then the board of directors of the Company shall use commercially reasonable efforts to amend the Company’s articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the maximum number of Conversion Shares issuable upon conversion of the then outstanding principal of this Note as soon as possible and in any event not later than the 75th day after such date. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable.

v. Fractional Shares . Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Closing Price at such time. If the Company elects not, or is unable, to make such a cash payment, the Holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.


vi. Transfer Taxes . The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates 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.

Section 5 . Certain Adjustments .

a) Stock Dividends and Stock Splits . If the Company, at any time while this Note is outstanding: (A) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Note), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b) Subsequent Equity Sales . If the Company at any time while this Note is outstanding, sells or grants any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then in effect Conversion Price (such lower price, the “Base Conversion Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such


Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Business Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

c) Pro Rata Distributions . If the Company, at any time while this Note is outstanding, shall distribute to all holders of Common Stock (and not to the holders of the Notes) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one (1) outstanding share of the Common Stock as determined by the Board of Directors of the Company in good faith. In either case the adjustments shall be described in a statement delivered to the Holder describing the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d) Fundamental Transaction . If, at any time while this Note is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one transaction or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “ Fundamental Transaction ”), then upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one (1) share of Common Stock (the “ Alternate Consideration ”). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration


based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new Note consistent with the foregoing provisions and evidencing the Holder’s right to convert such Note into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (d) and insuring that this Note (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

e) Calculations . All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares of the Company) issued and outstanding.

f) Notice to the Holder .

i. Adjustment to Conversion Price . Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly mail to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii. Notice to Allow Conversion by Holder . If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be mailed to the Holder at its last address as it shall appear upon the Note Register, at least 20


calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided , that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. The Holder is entitled to convert this Note or any portion thereof at any time through during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice in order for such converted Conversion Shares to be treated as Common Stock as of the record date of the applicable record or effective date of the event triggering such notice.

Section 6 . Registration of Conversion Shares . The Company shall file a registration statement with the Securities and Exchange Commission (the “Commission”) under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Conversion Shares, and shall use its best efforts to keep such registration statement continuously effective under the Securities Act until all such shares covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Conversion Shares that have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Conversion Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Conversion Shares for which it is required to be effective, or the Holder is not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Conversion Shares that are not so registered or cannot be sold under an effective registration statement. The Holder shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations


promulgated thereunder. The failure of the Holder for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Conversion Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Conversion Shares and the Company shall have no liability to the Holder with respect to the liquidated damages stated above.

Section 7 . Events of Default.

a) “ Event of Default ”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i. any default in the payment of the principal amount of this Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default under clause (B) above, is not cured, within 3 Trading Days;

ii. the Company shall fail to observe or perform any other covenant or agreement contained in this Note or any other Note (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such default sent by the Holder or by any other Holder and (B)10 Trading Days after the Company shall become or should have become aware of such failure;

iii. (i) the Company shall commence a case, as debtor, or there shall be commenced against the Company, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or (ii) there is commenced against the Company any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or (iii) the Company is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or (iv) the Company suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or (v) the Company makes a general assignment for the benefit of creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company thereof for the purpose of effecting any of the foregoing;


b) Remedies Upon Event of Default . If any Event of Default occurs, the full principal amount of this Note, together with other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Note holder until such time, if any, as the full payment under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 8 . Miscellaneous .

a) Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number (714) 427-6361, Attn: Robert J. Larsen,. President, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder 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 prior to 5:30 p.m. (California time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (California time) on any date and earlier than 11:59 p.m. (California time) on such date, (iii) the second 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.

b) Absolute Obligation . Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of this Note at the time, place, and rate, and with the consideration, herein prescribed. This Note is a direct debt obligation of the Company.


c) Lost or Mutilated Note . If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

d) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Note 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. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of Costa Mesa, California (the “ California Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the California Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such California Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

e) Waiver . Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note. Any waiver must be in writing.


f) Severability . If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g) Next Business Day . Whenever any delivery, payment or other obligation hereunder shall be due on a day other than a Business Day, such delivery, payment or obligation shall be made or performed on the next succeeding Business Day.

h) Headings . The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

i) Assumption . Any successor to the Company or surviving entity in a Fundamental Transaction shall (i) assume in writing all of the obligations of the Company under this Note and the other Transaction Documents pursuant to written agreements in form and substance satisfactory to the Holder (such approval not to be unreasonably withheld or delayed) prior to such Fundamental Transaction and (ii) to issue to the Holder a new Note of such successor entity evidenced by a written instrument substantially similar in form and substance to this Note, including, without limitation, having a principal amount and interest rate equal to the principal amounts and the interest rates of the Notes held by the Holder and having similar ranking to this Note, and satisfactory to the Holder (any such approval not to be unreasonably withheld or delayed). The provisions of this Section 8(i) shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations of this Note.

*********************


IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

SYNTHETIC BLOOD INTERNATIONAL INC.
By:    
  Name:   Robert J. Larsen
  Title:   President


ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Convertible Note of Synthetic Blood International Inc., a New Jersey corporation (the “ Company ”), into shares of common stock, par value $0.01 per share (the “ Common Stock ”), of the Company according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Note to be Converted:

Number of shares of Common Stock to be issued:

Signature:

Name:

Address:


Schedule 1

CONVERSION SCHEDULE

The Convertible Notes in the aggregate principal amount of $                      issued by Synthetic Blood International Inc., a New Jersey corporation. This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.

Dated:

 

Date of Conversion

(or for first entry,
Original Issue Date)

 

Amount of Conversion

 

Aggregate Principal Amount
Remaining Subsequent to Conversion

(or original Principal Amount)

 

Company Attest

             
             
             
             
             
             
             
             
             

EXHIBIT 4.2

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. IF THIS WARRANT IS ISSUED IN RELIANCE ON REGULATION S, NO OFFER OR SALE OF THIS WARRANT, OR ANY SECURITIES UNDERLYING THIS WARRANT AND NO EXERCISE OF THIS WARRANT CAN BE MADE WITHOUT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF RULE 903 OF REGULATION S.

COMMON STOCK PURCHASE WARRANT

To Purchase              Shares of Common Stock of

SYNTHETIC BLOOD INTERNATIONAL INC.

THIS COMMON STOCK PURCHASE WARRANT (the “ Warrant ”) certifies that, for value received,                      (the “ Holder ”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “ Initial Exercise Date ”) and on or prior to the close of business on the three year anniversary of the Initial Exercise Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Synthetic Blood International Inc., a New Jersey corporation (the “ Company ”), up to                      shares (the “ Warrant Shares ”) of Common Stock, par value $0.01 per share, of the Company (the “ Common Stock ”). The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1. Definitions . For the purposes hereof, the following terms shall have the following meanings:

Alternate Consideration ” shall have the meaning set forth in Section 3(d).

Base Share Price ” shall have the meaning set forth in Section 3(b).

Business Day ” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of California are authorized or required by law or other government action to close.


Common Stock ” means the common stock, par value $0.01 per share, of the Company and stock of any other class of securities into which such securities may hereafter have been reclassified or changed into.

Common Stock Equivalents ” means all shares of Common Stock or any securities of the Company which would entitle the holder thereof to acquire at any time Common Stock (including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock), whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, at an effective price per share which is less than the Exercise Price then in effect. If the Company issues any securities convertible or exchangeable into Common Stock, the maximum number of shares of Common Stock issuable thereunder shall be deemed to be Common Stock Equivalents issued as of the time of such issue, if the consideration per share of such Common Stock Equivalents (as hereinafter determined) is less than the Exercise Price then in effect. Common Stock Equivalents, however, shall not include Exempt Issuances.

Dilutive Issuance ” shall have the meaning set forth in Section 3(b).

Dilutive Issuance Notice ” shall have the meaning set forth in Section 3(b).

Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Exempt Issuance ” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any Securities and/or securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, (c) securities upon the exercise or exchange of or conversion of any securities of like form and tenor to the Securities issued by the Company on or before March 31, 2008, (d) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (e) any warrant or other security issued or issuable to Aventis Invest Ltd. or Horizon Finance Capital Group, Ltd.


Exercise Price ” shall have the meaning set forth in Section 2(b).

Fundamental Transaction ” shall have the meaning set forth in Section 3(d).

Person ” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Securities ” means all of the Company’s Convertible Notes due January 2013, the shares issuable on conversion of the Convertible Notes due January 2013, all of the Warrants issued by the Company in connection with the offering of the Convertible Notes due January 2013, and the shares issuable upon exercise of such Warrants.

Trading Day ” means a day on which the Common Stock is traded on any of the Nasdaq Stock Market, the American Stock Exchange, the New York Stock Exchange, or the OTC Bulletin Board.

Warrant Share Delivery Date ” shall have the meaning set forth in Section 2(d).

Section 2 . Exercise .

a) Exercise of Warrant . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); provided , however , within 5 Trading Days of the date said Notice of Exercise Form is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank.

b) Exercise Price . The exercise price of the Common Stock under this Warrant shall be $0.247, subject to adjustment hereunder (the “ Exercise Price ”).


c) Cashless Exercise . If at any time after one year from the date of issuance of this Warrant there is not, as required by the terms hereof, an effective registration statement registering, or no current prospectus available for, the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

 

  (A) = the closing bid price on the Trading Day immediately preceding the date of such election;

 

  (B) = the Exercise Price of this Warrant, as adjusted; and

 

  (X) = the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

d) Mechanics of Exercise .

i. Authorization of Warrant Shares . The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

ii. Delivery of Certificates Upon Exercise . Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of all of (A) the Notice of Exercise Form, (B) surrender of this Warrant, and (C) the date payment of the aggregate Exercise Price as set forth above made by wire transfer is credited to the Company’s account or the date (or if such date is not a Trading Day, the next Trading Day) on which the Company receives a cashier’s check drawn on a United States bank (“ Warrant Share Delivery Date ”). The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vii) prior to the issuance of such shares, have been paid. The Company shall, if available and if allowed under applicable securities laws, use its best efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.

iii. Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.


iv. Rescission Rights . If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

v. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

vi. Charges, Taxes and Expenses . Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

vii. Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3 . Certain Adjustments .

a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Warrant), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event and the number of shares issuable upon exercise of this


Warrant shall be proportionately adjusted. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.

b) Subsequent Equity Sales . If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “ Base Share Price ” and such issuances collectively, a “ Dilutive Issuance ”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then, the Exercise Price shall be reduced and only reduced to equal the Base Share Price and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustments shall be made, paid or issued under this Section 3(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms (such notice the “ Dilutive Issuance Notice ”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.

c) Pro Rata Distributions . If the Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then per share fair market value at such record date of the portion of such


assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d) Fundamental Transaction . If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event or (b) if the Company is acquired in an all cash transaction, cash equal to the value of this Warrant as determined in accordance with the Black-Scholes option pricing formula. For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this Section 3(d) and insuring that this Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.


e) Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

f) Voluntary Adjustment By Company . The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

g) Notice to Holders . If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided , 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 Holder is entitled to exercise this Warrant during the 20-day period commencing on the date of such notice to the effective date of the event triggering such notice.

Section 4 . Transfer of Warrant .

a) Transferability . Subject to compliance with any applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or


Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b) New Warrants . This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

c) Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d) Transfer Restrictions . If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope acceptable to counsel for the Company) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, and (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company.

Section 5 . Miscellaneous .

a) Title to Warrant . Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed. The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

b) No Rights as Shareholder Until Exercise . This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.


c) Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

d) Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

e) Authorized Shares .

Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Warrant Shares then issued or potentially issuable in the future upon the exercise of this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the trading market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any 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 of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.


Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

f) Registration of Warrant Shares . The Company shall file a registration statement with the Securities and Exchange Commission (the “Commission”) under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Warrant Shares, and shall use its best efforts to keep such registration statement continuously effective under the Securities Act until all such shares covered by such registration statement have been sold or the Warrant Shares (or the Warrant Shares issuable through exercise under Section 2(c)) may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Warrant Shares that have been sold or any Warrant Shares (or Warrant Shares issuable through exercise under Section 2(c)) may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Warrant Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Warrant Shares for which it is required to be effective, or the Holder is not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Warrant Shares that are not so registered or cannot be sold under an effective registration statement. The Holder shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the Holder for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Warrant Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Warrant Shares and the Company shall have no liability to the Holder with respect to the liquidated damages stated above.


g) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Warrant 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. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of Costa Mesa, California (the “ California Courts ”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the California Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such California Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Warrant or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney’s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

h) Restrictions . The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

i) Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date. If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.


j) Notices . Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number (714) 427-6361, Attn: Robert J. Larsen,. President, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to the Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder 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 prior to 5:30 p.m. (California time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (California time) on any date and earlier than 11:59 p.m. (California time) on such date, (iii) the second 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.

k) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

l) Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

m) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

n) Next Business Day . Whenever any delivery, payment or other obligation hereunder shall be due on a day other than a Business Day, such delivery, payment or obligation shall be made or performed on the next succeeding Business Day.

o) Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************


IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated: January __, 2008

 

SYNTHETIC BLOOD INTERNATIONAL INC.
By:    
  Name:   Robert J. Larsen
  Title:   President


NOTICE OF EXERCISE

 

TO: SYNTHETIC BLOOD INTERNATIONAL INC.

(1) The undersigned hereby elects to purchase              Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2) Payment shall take the form of (check applicable box):

¨ in lawful money of the United States; or

¨ the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

______________________________________

The Warrant Shares shall be delivered to the following:

______________________________________

______________________________________

______________________________________

(4) Accredited Investor . If Regulation D or Section 4(2) of the Securities Act applies to this exercise, the undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

(5) Non-US Person . If Regulation S adopted under the Securities Act applies to this exercise, the undersigned certifies it is not a U.S. Person as defined in Regulation S and the undersigned is not exercising the Warrant on behalf of a U.S. Person. The undersigned agrees that the Warrant Shares will not be issued unless this exercise is an “offshore transaction” as defined in Regulation S or the Warrant Shares are registered under the Securities Act or issued under an exemption from registration.

[SIGNATURE OF HOLDER]

Name of Investing Entity:  ________________________________________________________________________________

Signature of Authorized Signatory of Investing Entity :  __________________________________________________________

Name of Authorized Signatory: ____________________________________________________________________________

Title of Authorized Signatory: _____________________________________________________________________________

Date:  ________________________________________________________________________________________________


ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________________whose address is

____________________________________________________________________.

____________________________________________________________________

Dated:              ,         

Holder’s Signature: __________________________

Holder’s Address: ___________________________

Signature Guaranteed: __________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

EXHIBIT 10.1

SECURITIES PURCHASE AGREEMENT

TO PURCHASE

CONVERTIBLE NOTES

AND

COMMON STOCK PURCHASE WARRANTS

 

 

SYNTHETIC BLOOD INTERNATIONAL, INC.

 

 

The Securities, as described herein, have not been registered with the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), and are being offered in reliance on exemptions from registration provided in Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

The Securities and any other rights pursuant to this Agreement cannot be sold, transferred, assigned, or otherwise disposed of for value, except in compliance with applicable federal and state securities laws.

The Securities have not been approved or disapproved by the Commission or any state or other regulatory authority, nor has the Commission or any state or other regulatory authority passed on the accuracy or adequacy of any offering information provided. Any representation to the contrary is a criminal offense.

 

 

Subject to the terms and conditions set forth herein, this SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of January __, 2008, by and between SYNTHETIC BLOOD INTERNATIONAL, INC., a New Jersey corporation (the “ Company ”), and the undersigned investor (the “ Investor ”), shall constitute the irrevocable offer of the undersigned to purchase securities of the Company.

On the terms and subject to the conditions set forth in this Agreement, the Company wishes to sell to the Investor for cash, (A) one or more Convertible Notes in the form attached hereto as Exhibit A (the “ Note ” or “ Notes ”) and (B) one or more Warrants in the form attached hereto as Exhibit B (each, a “ Warrant ” and, collectively, the “ Warrants ”). The shares of Common Stock into which the Notes are convertible are referred to herein as the “ Conversion Shares ” and the shares of Common Stock into which the Warrants are exercisable are referred to herein as the “ Warrant Shares ”. The Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “ Securities ”.

The Notes are being issued at a 55% original issue discount, meaning that the principal face amount of the Notes issued to Investor will be discounted by 55% to equal the amount of cash paid for the investment. The Notes will be convertible into Common Stock to receive the number of shares equal to the Principal Amount divided by the Conversion Price (initially $0.247 per share of Common Stock). The Principal Amount and the Purchase Price are set forth on the signature page of this Agreement.


The Warrants issued to Investor will be exercisable at any time for a period of five years from issuance, subject to the terms and conditions set forth in the Warrants. The Warrants entitle the Investor to purchase a number of Warrant Shares equal to one-half the number of shares issuable upon conversion of the Notes purchased (without regard to any restrictions on such conversion), at an exercise price initially equal to the Conversion Price, or $0.247 per each Warrant Share (the “ Warrant Exercise Price ”).

In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS .

1.1 Subscription and Closing . Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and the Investor agrees to purchase

 

  (i) a Note with a principal amount equal to the Principal Amount set forth on the signature page to this Agreement, such Note being convertible into shares of Common Stock at the Conversion Price, and

 

  (ii) a Warrant entitling the Investor to purchase shares of Common Stock at the Warrant Exercise Price, exercisable to purchase one-half the number of shares of Common Stock that the Note is convertible into at the Conversion Price.

The date on which the closing of such purchase and sale occurs (the “ Closing ”) is hereinafter referred to as the “ Closing Date ”. The Closing will be deemed to occur when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and the Investor, (B) each of the conditions to the Closing described herein has been satisfied or waived as specified therein and (C) full payment of the Investor’s Purchase Price (as defined below) payable with respect to the Note and Warrant has been made to the Company by the Investor in cash.

1.2 Certain Definitions . When used herein, the following terms shall have the respective meanings indicated:

Affiliate ” means, as to any Person (the “ subject Person ”), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes of this definition, “ control ” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.


Business Day ” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks in the State of California are required or authorized by law to be closed.

Closing ” is defined in Section 1.1.

Closing Date ” is defined in Section 1.1.

Commission ” means the United States Securities and Exchange Commission.

Common Stock ” means the common stock, par value $0.01 per share, of the Company.

Conversion Price ” has the meaning specified in the Notes and shall initially be $0.247 per share of Common Stock.

Execution Date ” means the date of this Agreement.

Exchange Act ” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto).

Governmental Authority ” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization.

Governmental Requirement ” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

FINRA ” means the Financial Industry Regulatory Authority.

Original Issue Discount Percentage ” shall mean 55%, representing the sum of 11% per annum multiplied by five years.

Person ” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.


Principal Amount ” means the principal face amount of the Notes to be issued to Investor, which amount will be equal to the Purchase Price divided by the difference between 100% and the Original Issue Discount Percentage (55%), or 45%. By way of example, if the Purchase Price is $100, then the Principal Amount is equal to $100 divided by 0.45 ($222.22).

Purchase Price ” means, with respect to a Note and Warrant purchased at a Closing, cash in the amount set forth on the signature page to this Agreement.

Rule 144 ” means Rule 144 under the Securities Act or any successor provision.

Securities ” has the meaning specified in the preamble to this Agreement.

Transaction Documents ” means, collectively, this Agreement, the Notes and Warrants, and all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or the Investor at the Closing.

1.3 Other Definitional Provisions . All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR .

The Investor hereby represents and warrants to the Company that, as of the Execution Date:

2.1 Authorization; Enforceability . This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which the Investor is a party will constitute, the Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity. The Investor further understands and acknowledges that this Agreement is and shall be irrevocable except that the Investor shall have no obligations hereunder in the event that this Agreement is for any reason rejected by the Company.

2.2 Accredited Investor . The Investor is an “accredited investor” as that term is defined in Rule 501 of Regulation D, as checked below:

(i) Any bank as defined in Section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Exchange Act; any insurance company as defined in Section 2(13) of the Securities Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any small business investment company licensed by the U. S. Small Business Administration


under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are Accredited Investors;

¨   Yes     ¨   No

(ii) Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

¨   Yes     ¨   No

(iii) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

¨   Yes     ¨   No

(iv) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

¨   Yes     ¨   No

(v) Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his or her purchase exceeds $1,000,000;

¨   Yes     ¨   No

For purposes of category (v), the term “net worth” means the excess of total assets over total liabilities. In computing net worth for the purposes of category (v) above, the undersigned’s principal residence must be valued either at (A) cost, including the cost of improvements, net of current encumbrances upon the property or (B) the appraised value of the property as determined upon a written appraisal used by an institutional lender making a loan to the individual secured by the property, including the cost of subsequent improvements, net of current encumbrances upon the property.

(vi) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

¨   Yes     ¨   No


In determining income, the undersigned should add to his or her adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, alimony payments, and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income.

(vii) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Section 230.506(b)(2)(ii) of Regulation D; and

¨   Yes     ¨   No

(viii) Any entity in which all of the equity owners are Accredited Investors.

¨   Yes     ¨   No

2.3 Investment Considerations . The Investor is acquiring the Securities solely for Investor’s own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act and/or sales registered under the Securities Act. The Investor can bear the economic risk of a total loss of its investment in the Securities and has such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.

2.4 Information . The Company has, prior to the Execution Date, provided the Investor with information regarding the business, operations and financial condition of the Company (including the Company’s annual report on Form 10-K for the year ended April 30, 2007, as filed with the Commission, and each report filed by the Company with the Commission since said annual report was filed) and has, prior to the Execution Date, granted to the Investor the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Notes and Warrants hereunder, in order for the Investor to make an informed decision with respect to its investment in the Notes and Warrants. Neither such information nor any other investigation conducted by the Investor or any of its representatives shall modify, amend or otherwise affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

2.5 Limitations on Disposition . The Investor acknowledges that none of the Securities have been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. The Investor agrees that neither it nor any Person acting on its behalf or at its direction will engage in any transactions in securities of the Company prior to the time that the transactions contemplated by this Agreement are publicly disclosed.


2.6 Legend . The Investor is aware that any transfer of the Securities is restricted by federal and state securities laws. The Investor understands that the certificates representing any of the Securities may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request.

2.7 Reliance on Exemptions . The Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of the Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

2.8 Non-Affiliate Status; Common Stock Ownership . The Investor is not an Affiliate of the Company. The Investor’s investment in Notes and Warrants is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

2.9 Fees . The Investor is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.

2.10 No Governmental Review . The Investor understands that no United States federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.


3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby represents and warrants to the Investor, and agrees with the Investor that, as of the Execution Date:

3.1 Organization, Good Standing and Qualification . The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted.

3.2 Authorization; Consents . The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The Company has the requisite corporate power and authority to issue and sell the Notes and the Warrants to the Investor in accordance with the terms hereof and thereof, to issue the Conversion Shares upon conversion of the Notes and to issue the Warrant Shares upon exercise of the Warrants; provided, however, that the Company does not have a sufficient number of authorized shares of Common Stock to effect all such conversions and exercises so the Company must amend its articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, its Board of Directors, stockholders, any Governmental Authority or organization (other than amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock as noted above), or any other person or entity is required (pursuant to any rule of FINRA or otherwise).

3.3 Enforcement . On execution and delivery by the Company, this Agreement has been and, at or prior to Closing, each other Transaction Document to be delivered at Closing will be, duly executed and delivered by the Company. On execution and delivery by the Company, each Transaction Document constitutes the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) general principles of equity, and (iii) amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.

3.4 No Conflict . The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not result in any violation of any provisions of the Company’s Articles of Incorporation, Bylaws or any other governing document or in a default under any provision of any instrument or contract to which it is a party, or in violation of any provision of any Governmental Requirement that, in either such case, has not had or would not reasonably be expected to have a material adverse effect.


3.5 Fees . The Company is not obligated to pay any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless the Investor from and against any claim by any person or entity alleging that the Investor is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby.

4. COVENANTS OF THE COMPANY AND THE INVESTOR .

4.1 Limitations on Disposition . The Investor shall not sell, transfer, assign or dispose of any Securities, unless:

(a) there is then in effect an effective registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) the Investor has notified the Company in writing of any such disposition, has received the Company’s written consent (which consent will not be unreasonably withheld) to such disposition and furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act; provided, however , that no such consent or opinion of counsel will be required (A) if the sale, transfer or assignment is made to an Affiliate of the Investor, (B) if the sale, transfer or assignment is made pursuant to Rule 144 and the Investor provides the Company with evidence reasonably satisfactory to the Company that the proposed transaction satisfies the requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or other financial institution or the sale of any such Securities by such broker-dealer or other financial institution following the Investor’s default under such margin arrangement.

4.2 Indemnification of Company . Investor agrees to indemnify and hold Company harmless from any loss, damage, liability or expense, including reasonable attorneys’ fees and other legal expenses, to which Company may become subject arising out of or relating to any act or omission of Investor or any person connected, affiliated or associated with Investor which is or is alleged to be a violation of the Securities Act, the Exchange Act or rules promulgated under the securities statutes (including Regulation D) or any other domestic or foreign statutes, laws or regulations or arising from Investor’s or such person’s alleged negligence or willful misconduct. Investor will indemnify and hold Company harmless from any loss, which Company may sustain as a result of errors made by Investor.

4.3 Amendment of Articles of Incorporation . Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.


4.4 Registration . The Company shall file a registration statement with the Commission under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Conversion Shares and Warrant Shares, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Conversion Shares or Warrant Shares that have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Conversion Shares or Warrant Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Conversion Shares and Warrant Shares for which it is required to be effective, or the Holders are not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Conversion Shares or Warrant Shares that are not so registered or cannot be sold under an effective registration statement. The holder of the Securities shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the holder of any of the Securities for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Conversion Shares or Warrant Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Securities and the Company shall have no liability to such holder with respect to the liquidated damages stated above.

5. MISCELLANEOUS .

5.1 Survival; Severability . The representations, warranties, covenants and indemnities made by the parties herein and in the other Transaction Documents shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties.


5.2 Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Investor may assign the Investor’s rights and obligations hereunder, in connection with any private sale or transfer of the Notes or Warrants in accordance with the terms hereof, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign its rights or obligations under this Agreement.

5.3 Governing Law; Jurisdiction . This Agreement shall be governed by and construed under the laws of the State of California applicable to contracts made and to be performed entirely within the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts in California for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

5.4 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission.

5.5 Headings . The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.6 Notices . Any notice, demand or request required or permitted to be given by the Company or the Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company :

3189 Airway Avenue, Building C

Costa Mesa, California 92626

Attn: Robert J. Larsen


and if to the Investor, to such address for the Investor as shall appear on the signature page hereof, or as shall be designated by the Investor in writing to the Company in accordance with this Section 5.6 .

5.7 Expenses . The Company and the Investor shall bear their own costs and expenses in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents.

5.8 Entire Agreement; Amendments . This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the Investor, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

 

   
(Signature of Investor)
   
(Print Name of Investor)
Address:
   
   
   

 

Amount of Cash:    $___________________
Principal Amount of Notes to be Issued:    $___________________

 

Accepted by
SYNTHETIC BLOOD INTERNATIONAL, INC.
By:    
  Robert J. Larsen, President

EXHIBIT 10.2

SECURITIES PURCHASE AGREEMENT

TO PURCHASE

CONVERTIBLE NOTES

AND

COMMON STOCK PURCHASE WARRANTS

 

 

SYNTHETIC BLOOD INTERNATIONAL, INC.

 

 

The securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons (other than distributors) unless the securities are registered under the Securities Act of 1933, or an exemption from the registration requirements of the Securities Act of 1933 is available.

The Securities and any other rights pursuant to this Agreement cannot be sold, transferred, assigned, or otherwise disposed of for value, except in compliance with applicable federal and state securities laws.

The Securities have not been approved or disapproved by the Commission or any state or other regulatory authority, nor has the Commission or any state or other regulatory authority passed on the accuracy or adequacy of any offering information provided. Any representation to the contrary is a criminal offense.

 

 

Subject to the terms and conditions set forth herein, this SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of January __, 2008, by and between SYNTHETIC BLOOD INTERNATIONAL, INC., a New Jersey corporation (the “ Company ”), and the undersigned investor (the “ Investor ”), shall constitute the irrevocable offer of the undersigned to purchase securities of the Company.

On the terms and subject to the conditions set forth in this Agreement, the Company wishes to sell to the Investor for cash, (A) one or more Convertible Notes in the form attached hereto as Exhibit A (the “ Note ” or “ Notes ”) and (B) one or more Warrants in the form attached hereto as Exhibit B (each, a “ Warrant ” and, collectively, the “ Warrants ”). The shares of Common Stock into which the Notes are convertible are referred to herein as the “ Conversion Shares ” and the shares of Common Stock into which the Warrants are exercisable are referred to herein as the “ Warrant Shares ”. The Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “ Securities ”.

The Notes are being issued at a 55% original issue discount, meaning that the principal face amount of the Notes issued to Investor will be discounted by 55% to equal the amount of the cash paid for the investment. The Notes will be convertible into Common Stock to receive the number of shares equal to the Principal Amount divided by the Conversion Price (initially $0.247 per share of Common Stock). The Principal Amount and the Purchase Price are set forth on the signature page of this Agreement.


The Warrants issued to Investor will be exercisable at any time for a period of five years from issuance, subject to the terms and conditions set forth in the Warrants. The Warrants entitle the Investor to purchase a number of Warrant Shares equal to one-half the number of shares issuable upon conversion of the Notes purchased (without regard to any restrictions on such conversion), at an exercise price initially equal to the Conversion Price, or $0.247 per each Warrant Share (the “ Warrant Exercise Price ”).

In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS .

1.1 Subscription and Closing . Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and the Investor agrees to purchase

 

  (i) a Note with a principal amount equal to the Principal Amount set forth on the signature page to this Agreement, such Note being convertible into shares of Common Stock at the Conversion Price, and

 

  (ii) a Warrant entitling the Investor to purchase shares of Common Stock at the Warrant Exercise Price, exercisable to purchase one-half the number of shares of Common Stock that the Note is convertible into at the Conversion Price.

The date on which the closing of such purchase and sale occurs (the “ Closing ”) is hereinafter referred to as the “ Closing Date ”. The Closing will be deemed to occur when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and the Investor, (B) each of the conditions to the Closing described herein has been satisfied or waived as specified therein and (C) full payment of the Investor’s Purchase Price (as defined below) payable with respect to the Note and Warrant has been made to the Company by the Investor in cash.

1.2 Certain Definitions . When used herein, the following terms shall have the respective meanings indicated:

Affiliate ” means, as to any Person (the “ subject Person ”), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject Person. For the purposes of this definition, “ control ” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.


Business Day ” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks in the State of California are required or authorized by law to be closed.

Closing ” is defined in Section 1.1.

Closing Date ” is defined in Section 1.1.

Commission ” means the United States Securities and Exchange Commission.

Common Stock ” means the common stock, par value $0.01 per share, of the Company.

Conversion Price ” has the meaning specified in the Notes and shall initially be $0.247 per share of Common Stock.

Execution Date ” means the date of this Agreement.

Exchange Act ” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto).

Governmental Authority ” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization.

Governmental Requirement ” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

FINRA ” means the Financial Industry Regulatory Authority.

Original Issue Discount Percentage ” shall mean 55%, representing the sum of 11% per annum multiplied by five years.

Person ” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.

Principal Amount ” means the principal face amount of the Notes to be issued to Investor, which amount will be equal to the Purchase Price divided by the difference between 100% and the Original Issue Discount Percentage (55%), or 45%. By way of example, if the Purchase Price is $100, then the Principal Amount is equal to $100 divided by 0.45 ($222.22).


Purchase Price ” means, with respect to a Note and Warrant purchased at a Closing, cash in the amount set forth on the signature page to this Agreement.

Rule 144 ” means Rule 144 under the Securities Act or any successor provision.

Securities ” has the meaning specified in the preamble to this Agreement.

Transaction Documents ” means, collectively, this Agreement, the Notes and Warrants, and all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or the Investor at the Closing.

1.3 Other Definitional Provisions . All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR .

The Investor hereby represents and warrants to the Company that, as of the Execution Date:

2.1 Authorization; Enforceability . This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which the Investor is a party will constitute, the Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity. The Investor further understands and acknowledges that this Agreement is and shall be irrevocable except that the Investor shall have no obligations hereunder in the event that this Agreement is for any reason rejected by the Company.

2.2 Investor Status . The Investor represents and warrants as follows:

(a) Investor is not a U.S. Person and Investor was not formed for the purpose of investing in the Securities, which have not been registered under the 1933 Act in reliance upon Regulation S, by or for the benefit of a U.S. person.

(b) At the time the buy order was originated, Investor was outside the United States.

(c) No offer to sell or purchase the Securities was made in the United States.

(d) Investor has not engaged in nor will engage in any “Directed Selling Efforts,” i.e., any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Securities being purchased by the Investor.


(e) Investor is purchasing the Securities for its own account and for investment purposes and not with the view towards distribution or for the account of a U.S. Person.

(f) All subsequent offers and sales of the Securities shall be made in compliance with Regulation S and/or pursuant to registration of the Securities under the 1933 Act or pursuant to an exemption from registration under the 1933 Act. Unless registered for sale under the 1933 Act, the Securities will not be resold to U.S. Persons or within the United States until after the end of a one year restricted period (or such shorter period as may be hereafter stated in Regulation S) commencing on the date of closing of the purchase of the Securities and otherwise in compliance with Rule 904 of Regulation S.

(g) The Securities are being offered and sold to Investor in reliance on Regulation S and the Company is relying upon the truth and accuracy of Investor’s representations and warranties in order to justify such reliance in connection with the sale of the Securities to Investor.

(h) Investor has received and reviewed the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2006, quarterly reports on Form 10-Q for the interim periods ended July 31, 2006, and October 2006, and current reports on Form 8-K dated October 10, 2006 and August 30, 2006 as filed with the Securities and Exchange Commission, and has had an opportunity to ask questions of and receive information from the Company and its executive officers and has availed itself of such opportunity to the fullest extent desired by Investor.

2.3 Investment Considerations . The Investor is acquiring the Securities solely for Investor’s own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act and/or sales registered under the Securities Act. The Investor can bear the economic risk of a total loss of its investment in the Securities and has such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.

2.4 Information . The Company has, prior to the Execution Date, provided the Investor with information regarding the business, operations and financial condition of the Company (including the Company’s annual report on Form 10-K for the year ended April 30, 2007, as filed with the Commission, and each report filed by the Company with the Commission since said annual report was filed) and has, prior to the Execution Date, granted to the Investor the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Notes and Warrants hereunder, in order for the Investor to make an informed decision with respect to its investment in the Notes and Warrants. Neither such information nor any other investigation conducted by the Investor or any of its representatives shall modify, amend or otherwise affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.


2.5 Limitations on Disposition . The Investor acknowledges that none of the Securities have been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. The Investor agrees that neither it nor any Person acting on its behalf or at its direction will engage in any transactions in securities of the Company prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

2.6 Legend . The Investor is aware that any transfer of the Securities is restricted by federal and state securities laws. The Investor understands that the certificates representing any of the Securities may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request.

2.7 Reliance on Exemptions . The Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of the Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

2.8 Non-Affiliate Status; Common Stock Ownership . The Investor is not an Affiliate of the Company. The Investor’s investment in Notes and Warrants is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

2.9 Fees . The Investor is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.


2.10 No Governmental Review . The Investor understands that no United States federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby represents and warrants to the Investor, and agrees with the Investor that, as of the Execution Date:

3.1 Organization, Good Standing and Qualification . The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted.

3.2 Authorization; Consents . The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The Company has the requisite corporate power and authority to issue and sell the Notes and the Warrants to the Investor in accordance with the terms hereof and thereof, to issue the Conversion Shares upon conversion of the Notes and to issue the Warrant Shares upon exercise of the Warrants; provided, however, that the Company does not have a sufficient number of authorized shares of Common Stock to effect all such conversions and exercises so the Company must amend its articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, its Board of Directors, stockholders, any Governmental Authority or organization (other than amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock as noted above), or any other person or entity is required (pursuant to any rule of FINRA or otherwise).

3.3 Enforcement . On execution and delivery by the Company, this Agreement has been and, at or prior to Closing, each other Transaction Document to be delivered at Closing will be, duly executed and delivered by the Company. On execution and delivery by the Company, each Transaction Document constitutes the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) general principles of equity, and (iii) amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.


3.4 No Conflict . The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not result in any violation of any provisions of the Company’s Articles of Incorporation, Bylaws or any other governing document or in a default under any provision of any instrument or contract to which it is a party, or in violation of any provision of any Governmental Requirement that, in either such case, has not had or would not reasonably be expected to have a material adverse effect.

3.5 Fees . The Company is not obligated to pay any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless the Investor from and against any claim by any person or entity alleging that the Investor is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby.

4. COVENANTS OF THE COMPANY AND THE INVESTOR .

4.1 Limitations on Disposition . The Investor shall not sell, transfer, assign or dispose of any Securities, unless:

(a) there is then in effect an effective registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) the Investor has notified the Company in writing of any such disposition, has received the Company’s written consent (which consent will not be unreasonably withheld) to such disposition and furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act; provided, however , that no such consent or opinion of counsel will be required (A) if the sale, transfer or assignment is made to an Affiliate of the Investor, (B) if the sale, transfer or assignment is made pursuant to Rule 144 and the Investor provides the Company with evidence reasonably satisfactory to the Company that the proposed transaction satisfies the requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or other financial institution or the sale of any such Securities by such broker-dealer or other financial institution following the Investor’s default under such margin arrangement.

4.2 Indemnification of Company . Investor agrees to indemnify and hold Company harmless from any loss, damage, liability or expense, including reasonable attorneys’ fees and other legal expenses, to which Company may become subject arising out of or relating to any act or omission of Investor or any person connected, affiliated or associated with Investor which is or is alleged to be a violation of the Securities Act, the Exchange Act or rules promulgated under the securities statutes (including Regulation D) or any other domestic or foreign statutes, laws or regulations or arising from Investor’s or such person’s alleged negligence or willful misconduct. Investor will indemnify and hold Company harmless from any loss, which Company may sustain as a result of errors made by Investor.


4.3 Amendment of Articles of Incorporation . Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.

4.4 Registration . The Company shall file a registration statement with the Commission under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Conversion Shares and Warrant Shares, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the Conversion Shares and Warrant Shares covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Conversion Shares or Warrant Shares that have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Conversion Shares or Warrant Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Conversion Shares and Warrant Shares for which it is required to be effective, or the Holders are not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Conversion Shares or Warrant Shares that are not so registered or cannot be sold under an effective registration statement. The holder of the Securities shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the holder of any of the Securities for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Conversion Shares or Warrant Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Securities and the Company shall have no liability to such holder with respect to the liquidated damages stated above.

4.5 Issuance of Securities . The Company will deliver or cause to be delivered to the Investor upon receipt of this Agreement and the subscription payment certificates and instruments representing the Securities in the name of Investor. All certificates and instruments shall bear appropriate restrictive legends to the effect that no transfer of the Securities may be made except in compliance with the provisions of Regulation S. The Company and Investor agree that the Company’s transfer agent is hereby directed and authorized to refuse to register any transfer of the Securities that is not made in accordance with the provisions of Regulation S.


5. MISCELLANEOUS .

5.1 Survival; Severability . The representations, warranties, covenants and indemnities made by the parties herein and in the other Transaction Documents shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties.

5.2 Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Investor may assign the Investor’s rights and obligations hereunder, in connection with any private sale or transfer of the Notes or Warrants in accordance with the terms hereof, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign its rights or obligations under this Agreement.

5.3 Governing Law; Jurisdiction . This Agreement shall be governed by and construed under the laws of the State of California applicable to contracts made and to be performed entirely within the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts in California for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

5.4 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission.


5.5 Headings . The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.6 Notices . Any notice, demand or request required or permitted to be given by the Company or the Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company :

3189 Airway Avenue, Building C

Costa Mesa, California 92626

Attn: Robert J. Larsen

and if to the Investor, to such address for the Investor as shall appear on the signature page hereof, or as shall be designated by the Investor in writing to the Company in accordance with this Section 5.6 .

5.7 Expenses . The Company and the Investor shall bear their own costs and expenses in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents.

5.8 Entire Agreement; Amendments . This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the Investor, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

 

   
(Signature of Investor)
   
(Print Name of Investor)
Address:
   
   
   

 

Amount of Cash:    $________________________
Principal Amount of Notes to be Issued:    $________________________

 

Accepted by
SYNTHETIC BLOOD INTERNATIONAL, INC.
By:    
  Robert J. Larsen, President

EXHIBIT 10.3

SECURITIES PURCHASE AGREEMENT

TO PURCHASE

CONVERTIBLE NOTES

AND

COMMON STOCK PURCHASE WARRANTS

 

 

SYNTHETIC BLOOD INTERNATIONAL, INC.

 

 

The Securities, as described herein, have not been registered with the United States Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”), and are being offered in reliance on exemptions from registration provided in Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

The Securities and any other rights pursuant to this Agreement cannot be sold, transferred, assigned, or otherwise disposed of for value, except in compliance with applicable federal and state securities laws.

The Securities have not been approved or disapproved by the Commission or any state or other regulatory authority, nor has the Commission or any state or other regulatory authority passed on the accuracy or adequacy of any offering information provided. Any representation to the contrary is a criminal offense.

 

 

Subject to the terms and conditions set forth herein, this SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of January __, 2008, by and between SYNTHETIC BLOOD INTERNATIONAL, INC., a New Jersey corporation (the “ Company ”), and the undersigned investor (the “ Investor ”), shall constitute the irrevocable offer of the undersigned to purchase securities of the Company.

The Investor presently holds certain promissory notes issued by the Company in the aggregate amount indicated on the signature page hereto, including any principal and accrued but unpaid interest (the “Existing Indebtedness”) . On the terms and subject to the conditions set forth in this Agreement, the Company wishes to sell to the Investor, in exchange for the cancellation of the Existing Indebtedness, (A) one or more Convertible Notes in the form attached hereto as Exhibit A (the “ Note ” or “ Notes ”) and (B) one or more Warrants in the form attached hereto as Exhibit B (each, a “ Warrant ” and, collectively, the “ Warrants ”). The shares of Common Stock into which the Notes are convertible are referred to herein as the “ Conversion Shares ” and the shares of Common Stock into which the Warrants are exercisable are referred to herein as the “ Warrant Shares ”. The Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “ Securities ”.


The Notes are being issued at a 55% original issue discount, meaning that the principal face amount of the Notes issued to Investor will be discounted by 55% to equal the amount of the Existing Indebtedness being canceled. The Notes will be convertible into Common Stock to receive the number of shares equal to the Principal Amount divided by the Conversion Price (initially $0.247 per share of Common Stock). The Principal Amount and the Purchase Price are set forth on the signature page of this Agreement.

The Warrants issued to Investor will be exercisable at any time for a period of five years from issuance, subject to the terms and conditions set forth in the Warrants. The Warrants entitle the Investor to purchase a number of Warrant Shares equal to one-half the number of shares issuable upon conversion of the Notes purchased (without regard to any restrictions on such conversion), at an exercise price initially equal to the Conversion Price, or $0.247 per each Warrant Share (the “ Warrant Exercise Price ”).

In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS .

1.1 Subscription and Closing . Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and the Investor agrees to purchase

 

  (i) a Note with a principal amount equal to the Principal Amount set forth on the signature page to this Agreement, such Note being convertible into shares of Common Stock at the Conversion Price, and

 

  (ii) a Warrant entitling the Investor to purchase shares of Common Stock at the Warrant Exercise Price, exercisable to purchase one-half the number of shares of Common Stock that the Note is convertible into at the Conversion Price.

The date on which the closing of such purchase and sale occurs (the “ Closing ”) is hereinafter referred to as the “ Closing Date ”. The Closing will be deemed to occur when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and the Investor, (B) each of the conditions to the Closing described herein has been satisfied or waived as specified therein and (C) full payment of the Investor’s Purchase Price (as defined below) payable with respect to the Note and Warrant has been made to the Company by the Investor tendering to the Company the original instruments evidencing the Exisiting Indebtedness and canceling the Existing Indebtedness in an amount equal to the Purchase Price, which includes all principal and accrued but unpaid interest attributable to the Existing Indebtedness.

1.2 Certain Definitions . When used herein, the following terms shall have the respective meanings indicated:

Affiliate ” means, as to any Person (the “ subject Person ”), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject


Person. For the purposes of this definition, “ control ” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.

Business Day ” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks in the State of California are required or authorized by law to be closed.

Closing ” is defined in Section 1.1.

Closing Date ” is defined in Section 1.1.

Commission ” means the United States Securities and Exchange Commission.

Common Stock ” means the common stock, par value $0.01 per share, of the Company.

Conversion Price ” has the meaning specified in the Notes and shall initially be $0.247 per share of Common Stock.

Execution Date ” means the date of this Agreement.

Exchange Act ” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto).

Governmental Authority ” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization.

Governmental Requirement ” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

FINRA ” means the Financial Industry Regulatory Authority.

Original Issue Discount Percentage ” shall mean 55%, representing the sum of 11% per annum multiplied by five years.


Person ” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.

Principal Amount ” means the principal face amount of the Notes to be issued to Investor, which amount will be equal to the Purchase Price divided by the difference between 100% and the Original Issue Discount Percentage (55%), or 45%. By way of example, if the Purchase Price is $100, then the Principal Amount is equal to $100 divided by 0.45 ($222.22).

Purchase Price ” means, with respect to a Note and Warrant purchased at a Closing, the aggregate principal and accrued interest of the Existing Indebtedness.

Rule 144 ” means Rule 144 under the Securities Act or any successor provision.

Securities ” has the meaning specified in the preamble to this Agreement.

Transaction Documents ” means, collectively, this Agreement, the Notes and Warrants, and all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or the Investor at the Closing.

1.3 Other Definitional Provisions . All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR .

The Investor hereby represents and warrants to the Company that, as of the Execution Date:

2.1 Authorization; Enforceability . This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which the Investor is a party will constitute, the Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity. The Investor further understands and acknowledges that this Agreement is and shall be irrevocable except that the Investor shall have no obligations hereunder in the event that this Agreement is for any reason rejected by the Company.

2.2 Accredited Investor . The Investor is an “accredited investor” as that term is defined in Rule 501 of Regulation D, as checked below:

(i) Any bank as defined in Section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Exchange Act; any insurance company as defined in Section 2(13) of the Securities


Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any small business investment company licensed by the U. S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are Accredited Investors;

¨   Yes     ¨   No

(ii) Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

¨   Yes     ¨   No

(iii) Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

¨   Yes     ¨   No

(iv) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

¨   Yes     ¨   No

(v) Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his or her purchase exceeds $1,000,000;

¨   Yes     ¨   No

For purposes of category (v), the term “net worth” means the excess of total assets over total liabilities. In computing net worth for the purposes of category (v) above, the undersigned’s principal residence must be valued either at (A) cost, including the cost of improvements, net of current encumbrances upon the property or (B) the appraised value of the property as determined upon a written appraisal used by an institutional lender making a loan to the individual secured by the property, including the cost of subsequent improvements, net of current encumbrances upon the property.


(vi) Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

¨   Yes     ¨   No

In determining income, the undersigned should add to his or her adjusted gross income any amounts attributable to tax exempt income received, losses claimed as a limited partner in any limited partnership, deductions claimed for depletion, contributions to an IRA or Keogh retirement plan, alimony payments, and any amount by which income from long-term capital gains has been reduced in arriving at adjusted gross income.

(vii) Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Section 230.506(b)(2)(ii) of Regulation D; and

¨   Yes     ¨   No

(viii) Any entity in which all of the equity owners are Accredited Investors.

¨   Yes     ¨   No

2. 3 Investment Considerations . The Investor is acquiring the Securities solely for Investor’s own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act and/or sales registered under the Securities Act. The Investor can bear the economic risk of a total loss of its investment in the Securities and has such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.

2.4 Information . The Company has, prior to the Execution Date, provided the Investor with information regarding the business, operations and financial condition of the Company (including the Company’s annual report on Form 10-K for the year ended April 30, 2007, as filed with the Commission, and each report filed by the Company with the Commission since said annual report was filed) and has, prior to the Execution Date, granted to the Investor the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Notes and Warrants hereunder, in order for the Investor to make an informed decision with respect to its investment in the Notes and Warrants. Neither such information nor any other investigation conducted by the Investor or any of its representatives shall modify, amend or otherwise affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.


2.5 Limitations on Disposition . The Investor acknowledges that none of the Securities have been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. The Investor agrees that neither it nor any Person acting on its behalf or at its direction will engage in any transactions in securities of the Company prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

2.6 Legend . The Investor is aware that any transfer of the Securities is restricted by federal and state securities laws. The Investor understands that the certificates representing any of the Securities may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request.

2.7 Reliance on Exemptions . The Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of the Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

2.8 Non-Affiliate Status; Common Stock Ownership . The Investor is not an Affiliate of the Company. The Investor’s investment in Notes and Warrants is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

2.9 Fees . The Investor is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.

2.10 No Governmental Review . The Investor understands that no United States federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.


3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby represents and warrants to the Investor, and agrees with the Investor that, as of the Execution Date:

3.1 Organization, Good Standing and Qualification . The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted.

3.2 Authorization; Consents . The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The Company has the requisite corporate power and authority to issue and sell the Notes and the Warrants to the Investor in accordance with the terms hereof and thereof, to issue the Conversion Shares upon conversion of the Notes and to issue the Warrant Shares upon exercise of the Warrants; provided, however, that the Company does not have a sufficient number of authorized shares of Common Stock to effect all such conversions and exercises so the Company must amend its articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, its Board of Directors, stockholders, any Governmental Authority or organization (other than amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock as noted above), or any other person or entity is required (pursuant to any rule of FINRA or otherwise).

3.3 Enforcement . On execution and delivery by the Company, this Agreement has been and, at or prior to Closing, each other Transaction Document to be delivered at Closing will be, duly executed and delivered by the Company. On execution and delivery by the Company, each Transaction Document constitutes the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) general principles of equity, and (iii) amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.

3.4 No Conflict . The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not result in any violation of any provisions of the Company’s Articles of Incorporation, Bylaws or any other governing document or in a default under any provision of any instrument or contract to which it is a party, or in violation of any provision of any Governmental Requirement that, in either such case, has not had or would not reasonably be expected to have a material adverse effect.


3.5 Fees . The Company is not obligated to pay any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless the Investor from and against any claim by any person or entity alleging that the Investor is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby.

4. COVENANTS OF THE COMPANY AND THE INVESTOR .

4.1 Limitations on Disposition . The Investor shall not sell, transfer, assign or dispose of any Securities, unless:

(a) there is then in effect an effective registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) the Investor has notified the Company in writing of any such disposition, has received the Company’s written consent (which consent will not be unreasonably withheld) to such disposition and furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act; provided, however , that no such consent or opinion of counsel will be required (A) if the sale, transfer or assignment is made to an Affiliate of the Investor, (B) if the sale, transfer or assignment is made pursuant to Rule 144 and the Investor provides the Company with evidence reasonably satisfactory to the Company that the proposed transaction satisfies the requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or other financial institution or the sale of any such Securities by such broker-dealer or other financial institution following the Investor’s default under such margin arrangement.

4.2 Indemnification of Company . Investor agrees to indemnify and hold Company harmless from any loss, damage, liability or expense, including reasonable attorneys’ fees and other legal expenses, to which Company may become subject arising out of or relating to any act or omission of Investor or any person connected, affiliated or associated with Investor which is or is alleged to be a violation of the Securities Act, the Exchange Act or rules promulgated under the securities statutes (including Regulation D) or any other domestic or foreign statutes, laws or regulations or arising from Investor’s or such person’s alleged negligence or willful misconduct. Investor will indemnify and hold Company harmless from any loss, which Company may sustain as a result of errors made by Investor.

4.3 Amendment of Articles of Incorporation . Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.


4.4 Registration . The Company shall file a registration statement with the Commission under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Conversion Shares and Warrant Shares, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Conversion Shares or Warrant Shares that have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Conversion Shares or Warrant Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Conversion Shares and Warrant Shares for which it is required to be effective, or the Holders are not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Conversion Shares or Warrant Shares that are not so registered or cannot be sold under an effective registration statement. The holder of the Securities shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the holder of any of the Securities for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Conversion Shares or Warrant Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Securities and the Company shall have no liability to such holder with respect to the liquidated damages stated above.

5. MISCELLANEOUS .

5.1 Survival; Severability . The representations, warranties, covenants and indemnities made by the parties herein and in the other Transaction Documents shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties.


5.2 Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Investor may assign the Investor’s rights and obligations hereunder, in connection with any private sale or transfer of the Notes or Warrants in accordance with the terms hereof, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign its rights or obligations under this Agreement.

5.3 Governing Law; Jurisdiction . This Agreement shall be governed by and construed under the laws of the State of California applicable to contracts made and to be performed entirely within the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts in California for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.

5.4 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission.

5.5 Headings . The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.6 Notices . Any notice, demand or request required or permitted to be given by the Company or the Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company :

3189 Airway Avenue, Building C

Costa Mesa, California 92626

Attn: Robert J. Larsen


and if to the Investor, to such address for the Investor as shall appear on the signature page hereof, or as shall be designated by the Investor in writing to the Company in accordance with this Section 5.6 .

5.7 Expenses . The Company and the Investor shall bear their own costs and expenses in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents.

5.8 Entire Agreement; Amendments . This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the Investor, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

 

 
(Signature of Investor)
 
(Print Name of Investor)
Address:
 
 
 

 

Amount of Existing Indebtedness:   $                                          
Principal Amount of Notes to be Issued:   $                                          

Accepted by

SYNTHETIC BLOOD INTERNATIONAL, INC.
By:    
  Robert J. Larsen, President

EXHIBIT 10.4

SECURITIES PURCHASE AGREEMENT

TO PURCHASE

CONVERTIBLE NOTES

AND

COMMON STOCK PURCHASE WARRANTS

 

 

SYNTHETIC BLOOD INTERNATIONAL, INC.

 

 

The securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons (other than distributors) unless the securities are registered under the Securities Act of 1933, or an exemption from the registration requirements of the Securities Act of 1933 is available.

The Securities and any other rights pursuant to this Agreement cannot be sold, transferred, assigned, or otherwise disposed of for value, except in compliance with applicable federal and state securities laws.

The Securities have not been approved or disapproved by the Commission or any state or other regulatory authority, nor has the Commission or any state or other regulatory authority passed on the accuracy or adequacy of any offering information provided. Any representation to the contrary is a criminal offense.

 

 

Subject to the terms and conditions set forth herein, this SECURITIES PURCHASE AGREEMENT (this “ Agreement ”), dated as of January __, 2008, by and between SYNTHETIC BLOOD INTERNATIONAL, INC., a New Jersey corporation (the “ Company ”), and the undersigned investor (the “ Investor ”), shall constitute the irrevocable offer of the undersigned to purchase securities of the Company.

The Investor presently holds certain promissory notes issued by the Company in the aggregate amount indicated on the signature page hereto, including any principal and accrued but unpaid interest (the “Existing Indebtedness”). On the terms and subject to the conditions set forth in this Agreement, the Company wishes to sell to the Investor, in exchange for the cancellation of the Existing Indebtedness, (A) one or more Convertible Notes in the form attached hereto as Exhibit A (the “ Note ” or “ Notes ”) and (B) one or more Warrants in the form attached hereto as Exhibit B (each, a “ Warrant ” and, collectively, the “ Warrants ”). The shares of Common Stock into which the Notes are convertible are referred to herein as the “ Conversion Shares ” and the shares of Common Stock into which the Warrants are exercisable are referred to herein as the “ Warrant Shares ”. The Notes, the Conversion Shares, the Warrants and the Warrant Shares are collectively referred to herein as the “ Securities ”.

The Notes are being issued at a 55% original issue discount, meaning that the principal face amount of the Notes issued to Investor will be discounted by 55% to equal the amount of the Existing Indebtedness being canceled. The Notes will be convertible into Common Stock to receive the number of shares equal to the Principal Amount divided by the Conversion Price (initially $0.247 per share of Common Stock). The Principal Amount and the Purchase Price are set forth on the signature page of this Agreement.


The Warrants issued to Investor will be exercisable at any time for a period of five years from issuance, subject to the terms and conditions set forth in the Warrants. The Warrants entitle the Investor to purchase a number of Warrant Shares equal to one-half the number of shares issuable upon conversion of the Notes purchased (without regard to any restrictions on such conversion), at an exercise price initially equal to the Conversion Price, or $0.247 per each Warrant Share (the “ Warrant Exercise Price ”).

In consideration of the mutual promises made herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:

1. PURCHASE AND SALE OF NOTES AND WARRANTS .

1.1 Subscription and Closing . Upon the terms and subject to the satisfaction or waiver of the conditions set forth herein, the Company agrees to sell and the Investor agrees to purchase

 

  (i) a Note with a principal amount equal to the Principal Amount set forth on the signature page to this Agreement, such Note being convertible into shares of Common Stock at the Conversion Price, and

 

  (ii) a Warrant entitling the Investor to purchase shares of Common Stock at the Warrant Exercise Price, exercisable to purchase one-half the number of shares of Common Stock that the Note is convertible into at the Conversion Price.

The date on which the closing of such purchase and sale occurs (the “ Closing ”) is hereinafter referred to as the “ Closing Date ”. The Closing will be deemed to occur when (A) this Agreement and the other Transaction Documents (as defined below) have been executed and delivered by the Company and the Investor, (B) each of the conditions to the Closing described herein has been satisfied or waived as specified therein and (C) full payment of the Investor’s Purchase Price (as defined below) payable with respect to the Note and Warrant has been made to the Company by the Investor tendering to the Company the original instruments evidencing the Existing Indebtedness and canceling the Existing Indebtedness in an amount equal to the Purchase Price, which includes all principal and accrued but unpaid interest attributable to the Existing Indebtedness.

1.2 Certain Definitions . When used herein, the following terms shall have the respective meanings indicated:

Affiliate ” means, as to any Person (the “ subject Person ”), any other Person (a) that directly or indirectly through one or more intermediaries controls or is controlled by, or is under direct or indirect common control with, the subject Person, (b) that directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting equity of the subject Person, or (c) ten percent (10%) or more of the voting equity of which is directly or indirectly beneficially owned or held by the subject


Person. For the purposes of this definition, “ control ” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, through representation on such Person’s board of directors or other management committee or group, by contract or otherwise.

Business Day ” means any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange is closed or on which banks in the State of California are required or authorized by law to be closed.

Closing ” is defined in Section 1.1.

Closing Date ” is defined in Section 1.1.

Commission ” means the United States Securities and Exchange Commission.

Common Stock ” means the common stock, par value $0.01 per share, of the Company.

Conversion Price ” has the meaning specified in the Notes and shall initially be $0.247 per share of Common Stock.

Execution Date ” means the date of this Agreement.

Exchange Act ” means the Securities Exchange Act of 1934, as amended (or any successor act), and the rules and regulations thereunder (or respective successors thereto).

Governmental Authority ” means any nation or government, any state, provincial or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any stock exchange, securities market or self-regulatory organization.

Governmental Requirement ” means any law, statute, code, ordinance, order, rule, regulation, judgment, decree, injunction, franchise, license or other directive or requirement of any federal, state, county, municipal, parish, provincial or other Governmental Authority or any department, commission, board, court, agency or any other instrumentality of any of them.

FINRA ” means the Financial Industry Regulatory Authority.

Original Issue Discount Percentage ” shall mean 55%, representing the sum of 11% per annum multiplied by five years.


Person ” means any individual, corporation, trust, association, company, partnership, joint venture, limited liability company, joint stock company, Governmental Authority or other entity.

Principal Amount ” means the principal face amount of the Notes to be issued to Investor, which amount will be equal to the Purchase Price divided by the difference between 100% and the Original Issue Discount Percentage (55%), or 45%. By way of example, if the Purchase Price is $100, then the Principal Amount is equal to $100 divided by 0.45 ($222.22).

Purchase Price ” means, with respect to a Note and Warrant purchased at a Closing, the aggregate principal and accrued interest of the Existing Indebtedness.

Rule 144 ” means Rule 144 under the Securities Act or any successor provision.

Securities ” has the meaning specified in the preamble to this Agreement.

Transaction Documents ” means, collectively, this Agreement, the Notes and Warrants, and all other agreements, documents and other instruments executed and delivered by or on behalf of the Company or the Investor at the Closing.

1.3 Other Definitional Provisions . All definitions contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words “hereof”, “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement.

2. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR .

The Investor hereby represents and warrants to the Company that, as of the Execution Date:

2.1 Authorization; Enforceability . This Agreement constitutes, and upon execution and delivery thereof, each other Transaction Document to which the Investor is a party will constitute, the Investor’s valid and legally binding obligation, enforceable in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) general principles of equity. The Investor further understands and acknowledges that this Agreement is and shall be irrevocable except that the Investor shall have no obligations hereunder in the event that this Agreement is for any reason rejected by the Company.

2.2 Investor Status . The Investor represents and warrants as follows:

(a) Investor is not a U.S. Person and Investor was not formed for the purpose of investing in the Securities, which have not been registered under the 1933 Act in reliance upon Regulation S, by or for the benefit of a U.S. person.


(b) At the time the buy order was originated, Investor was outside the United States.

(c) No offer to sell or purchase the Securities was made in the United States.

(d) Investor has not engaged in nor will engage in any “Directed Selling Efforts,” i.e., any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for any of the Securities being purchased by the Investor.

(e) Investor is purchasing the Securities for its own account and for investment purposes and not with the view towards distribution or for the account of a U.S. Person.

(f) All subsequent offers and sales of the Securities shall be made in compliance with Regulation S and/or pursuant to registration of the Securities under the 1933 Act or pursuant to an exemption from registration under the 1933 Act. Unless registered for sale under the 1933 Act, the Securities will not be resold to U.S. Persons or within the United States until after the end of a one year restricted period (or such shorter period as may be hereafter stated in Regulation S) commencing on the date of closing of the purchase of the Securities and otherwise in compliance with Rule 904 of Regulation S.

(g) The Securities are being offered and sold to Investor in reliance on Regulation S and the Company is relying upon the truth and accuracy of Investor’s representations and warranties in order to justify such reliance in connection with the sale of the Securities to Investor.

(h) Investor has received and reviewed the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2006, quarterly reports on Form 10-Q for the interim periods ended July 31, 2006, and October 2006, and current reports on Form 8-K dated October 10, 2006 and August 30, 2006 as filed with the Securities and Exchange Commission, and has had an opportunity to ask questions of and receive information from the Company and its executive officers and has availed itself of such opportunity to the fullest extent desired by Investor.

2. 3 Investment Considerations . The Investor is acquiring the Securities solely for Investor’s own account and not with a present view to the public resale or distribution of all or any part thereof, except pursuant to sales that are registered under, or exempt from the registration requirements of, the Securities Act and/or sales registered under the Securities Act. The Investor can bear the economic risk of a total loss of its investment in the Securities and has such knowledge and experience in business and financial matters so as to enable it to understand the risks of and form an investment decision with respect to its investment in the Securities.


2.4 Information . The Company has, prior to the Execution Date, provided the Investor with information regarding the business, operations and financial condition of the Company (including the Company’s annual report on Form 10-K for the year ended April 30, 2007, as filed with the Commission, and each report filed by the Company with the Commission since said annual report was filed) and has, prior to the Execution Date, granted to the Investor the opportunity to ask questions of and receive answers from representatives of the Company, its officers, directors, employees and agents concerning the Company and materials relating to the terms and conditions of the purchase and sale of the Notes and Warrants hereunder, in order for the Investor to make an informed decision with respect to its investment in the Notes and Warrants. Neither such information nor any other investigation conducted by the Investor or any of its representatives shall modify, amend or otherwise affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

2.5 Limitations on Disposition . The Investor acknowledges that none of the Securities have been and are not being registered under the Securities Act and may not be transferred or resold without registration under the Securities Act or unless pursuant to an exemption therefrom. The Investor agrees that neither it nor any Person acting on its behalf or at its direction will engage in any transactions in securities of the Company prior to the time that the transactions contemplated by this Agreement are publicly disclosed.

2.6 Legend . The Investor is aware that any transfer of the Securities is restricted by federal and state securities laws. The Investor understands that the certificates representing any of the Securities may bear at issuance a restrictive legend in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and may not be offered or sold unless a registration statement under the Securities Act and applicable state securities laws shall have become effective with regard thereto, or an exemption from registration under the Securities Act and applicable state securities laws is available in connection with such offer or sale.”

Notwithstanding the foregoing, it is agreed that, as long as (A) the resale or transfer (including without limitation a pledge) of any of the Securities is registered pursuant to an effective registration statement, (B) such Securities have been sold pursuant to Rule 144, subject to receipt by the Company of customary documentation reasonably acceptable to the Company in connection therewith, or (C) such Securities are eligible for resale under Rule 144(k) or any successor provision, such Securities shall be issued without any legend or other restrictive language and, with respect to Securities upon which such legend is stamped, the Company shall issue new certificates without such legend to the holder upon request.

2.7 Reliance on Exemptions . The Investor understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of the representations and warranties of the Investor set forth in this Section 2 in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.


2.8 Non-Affiliate Status; Common Stock Ownership . The Investor is not an Affiliate of the Company. The Investor’s investment in Notes and Warrants is not for the purpose of acquiring, directly or indirectly, control of, and it has no intent to acquire or exercise control of, the Company or to influence the decisions or policies of the Board of Directors.

2.9 Fees . The Investor is not obligated to pay any compensation or other fee, cost or related expenditure to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby.

2.10 No Governmental Review . The Investor understands that no United States federal or state agency or any other Governmental Authority has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby represents and warrants to the Investor, and agrees with the Investor that, as of the Execution Date:

3.1 Organization, Good Standing and Qualification . The Company is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all requisite power and authority to carry on its business as now conducted.

3.2 Authorization; Consents . The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The Company has the requisite corporate power and authority to issue and sell the Notes and the Warrants to the Investor in accordance with the terms hereof and thereof, to issue the Conversion Shares upon conversion of the Notes and to issue the Warrant Shares upon exercise of the Warrants; provided, however, that the Company does not have a sufficient number of authorized shares of Common Stock to effect all such conversions and exercises so the Company must amend its articles of incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants. All corporate action on the part of the Company by its officers, directors and stockholders necessary for the authorization, execution and delivery of, and the performance by the Company of its obligations under, the Transaction Documents has been taken, and no further consent or authorization of the Company, its Board of Directors, stockholders, any Governmental Authority or organization (other than amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock as noted above), or any other person or entity is required (pursuant to any rule of FINRA or otherwise).

3.3 Enforcement . On execution and delivery by the Company, this Agreement has been and, at or prior to Closing, each other Transaction Document to be delivered at Closing will be, duly executed and delivered by the Company. On execution and delivery by the Company, each Transaction Document constitutes the valid and legally binding obligation of the Company, enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other similar laws of general application relating to or affecting the enforcement of creditors’ rights generally, (ii) general principles of equity, and (iii) amendment of the Company’s Articles of Incorporation to increase the number of authorized shares of Common


Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.

3.4 No Conflict . The (i) execution, delivery and performance of this Agreement and the other Transaction Documents and (ii) consummation of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Notes and the Warrants and the reservation for issuance and issuance of the Conversion Shares and the Warrant Shares) will not result in any violation of any provisions of the Company’s Articles of Incorporation, Bylaws or any other governing document or in a default under any provision of any instrument or contract to which it is a party, or in violation of any provision of any Governmental Requirement that, in either such case, has not had or would not reasonably be expected to have a material adverse effect.

3.5 Fees . The Company is not obligated to pay any brokers, finders or financial advisory fees or commissions to any underwriter, broker, agent or other representative in connection with the transactions contemplated hereby. The Company will indemnify and hold harmless the Investor from and against any claim by any person or entity alleging that the Investor is obligated to pay any such compensation, fee, cost or related expenditure in connection with the transactions contemplated hereby.

4. COVENANTS OF THE COMPANY AND THE INVESTOR .

4.1 Limitations on Disposition . The Investor shall not sell, transfer, assign or dispose of any Securities, unless:

(a) there is then in effect an effective registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) the Investor has notified the Company in writing of any such disposition, has received the Company’s written consent (which consent will not be unreasonably withheld) to such disposition and furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such Securities under the Securities Act; provided, however , that no such consent or opinion of counsel will be required (A) if the sale, transfer or assignment is made to an Affiliate of the Investor, (B) if the sale, transfer or assignment is made pursuant to Rule 144 and the Investor provides the Company with evidence reasonably satisfactory to the Company that the proposed transaction satisfies the requirements of Rule 144 or (C) in connection with a bona fide pledge or hypothecation of any Securities under a margin arrangement with a broker-dealer or other financial institution or the sale of any such Securities by such broker-dealer or other financial institution following the Investor’s default under such margin arrangement.


4.2 Indemnification of Company . Investor agrees to indemnify and hold Company harmless from any loss, damage, liability or expense, including reasonable attorneys’ fees and other legal expenses, to which Company may become subject arising out of or relating to any act or omission of Investor or any person connected, affiliated or associated with Investor which is or is alleged to be a violation of the Securities Act, the Exchange Act or rules promulgated under the securities statutes (including Regulation D) or any other domestic or foreign statutes, laws or regulations or arising from Investor’s or such person’s alleged negligence or willful misconduct. Investor will indemnify and hold Company harmless from any loss, which Company may sustain as a result of errors made by Investor.

4.3 Amendment of Articles of Incorporation . Prior to September 30, 2008, the Company shall take all action required by law to submit to the shareholders of the Company a proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of Common Stock by such amount as is necessary to reserve for issuance the maximum aggregate number of Conversion Shares and Warrant Shares then issued or potentially issuable in the future upon the exercise of the conversion rights under the Notes and exercise rights under the Warrants.

4.4 Registration . The Company shall file a registration statement with the Commission under the Securities Act for the purpose of registering on or before January 9, 2009, resale of the Conversion Shares and Warrant Shares, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until the Conversion Shares and Warrant Shares covered by such registration statement have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. The Company shall not be obligated to file a registration statement with respect to any Conversion Shares or Warrant Shares that have been sold or may be sold without restriction pursuant to Rule 144 as determined by the counsel to the Company pursuant to a written opinion letter to such effect. If: (i) a registration statement is not effective with respect to any Conversion Shares or Warrant Shares the Company is obligated to register for resale on or before the date specified above; or (ii) after the effective date a registration statement ceases for any reason to remain continuously effective for all Conversion Shares and Warrant Shares for which it is required to be effective, or the Holders are not permitted to utilize the prospectus therein to resell such shares for 20 consecutive trading days, but no more than an aggregate of 40 trading days during any 12-month period (which need not be consecutive trading days) (any such failure or breach being referred to as an “ Event ”, and for purposes of clause (i) the date on which such Event occurs, or for purposes of clause (ii) the date on which such 20 or 40 trading day period, as applicable, is exceeded being referred to as “ Event Date ”), then within 10 days following each such Event Date and within 10 days following each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such monthly anniversary date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% of the aggregate market value on the Event Date of the Conversion Shares or Warrant Shares that are not so registered or cannot be sold under an effective registration statement. The holder of the Securities shall provide to the Company in writing all information reasonably required by the Company to comply with its disclosure obligations in the registration statement imposed by the Securities Act and the regulations promulgated thereunder. The failure of the holder of any of the Securities for any reason to provide such information at least five Business Days prior to the filing of the registration statement covering the Conversion Shares or Warrant Shares shall effect a termination of any obligation of the Company to file any registration statement pertaining to the Securities and the Company shall have no liability to such holder with respect to the liquidated damages stated above.


4.5 Issuance of Securities . The Company will deliver or cause to be delivered to the Investor upon receipt of this Agreement and the subscription payment certificates and instruments representing the Securities in the name of Investor. All certificates and instruments shall bear appropriate restrictive legends to the effect that no transfer of the Securities may be made except in compliance with the provisions of Regulation S. The Company and Investor agree that the Company’s transfer agent is hereby directed and authorized to refuse to register any transfer of the Securities that is not made in accordance with the provisions of Regulation S.

5. MISCELLANEOUS .

5.1 Survival; Severability . The representations, warranties, covenants and indemnities made by the parties herein and in the other Transaction Documents shall survive the Closing notwithstanding any due diligence investigation made by or on behalf of the party seeking to rely thereon. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that in such case the parties shall negotiate in good faith to replace such provision with a new provision which is not illegal, unenforceable or void, as long as such new provision does not materially change the economic benefits of this Agreement to the parties.

5.2 Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Investor may assign the Investor’s rights and obligations hereunder, in connection with any private sale or transfer of the Notes or Warrants in accordance with the terms hereof, as long as, as a condition precedent to such transfer, the transferee executes an acknowledgment agreeing to be bound by the applicable provisions of this Agreement, in which case the term “Investor” shall be deemed to refer to such transferee as though such transferee were an original signatory hereto. The Company may not assign its rights or obligations under this Agreement.

5.3 Governing Law; Jurisdiction . This Agreement shall be governed by and construed under the laws of the State of California applicable to contracts made and to be performed entirely within the State of California. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts in California for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.


5.4 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. This Agreement may be executed and delivered by facsimile transmission.

5.5 Headings . The headings used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.6 Notices . Any notice, demand or request required or permitted to be given by the Company or the Investor pursuant to the terms of this Agreement shall be in writing and shall be deemed delivered (i) when delivered personally or by verifiable facsimile transmission, unless such delivery is made on a day that is not a Business Day, in which case such delivery will be deemed to be made on the next succeeding Business Day, (ii) on the next Business Day after timely delivery to an overnight courier and (iii) on the Business Day actually received if deposited in the U.S. mail (certified or registered mail, return receipt requested, postage prepaid), addressed as follows:

If to the Company :

3189 Airway Avenue, Building C

Costa Mesa, California 92626

Attn: Robert J. Larsen

and if to the Investor, to such address for the Investor as shall appear on the signature page hereof, or as shall be designated by the Investor in writing to the Company in accordance with this Section 5.6 .

5.7 Expenses . The Company and the Investor shall bear their own costs and expenses in connection with the negotiation, execution, delivery and performance of this Agreement or the other Transaction Documents.

5.8 Entire Agreement; Amendments . This Agreement and the other Transaction Documents constitute the entire agreement between the parties with regard to the subject matter hereof and thereof, superseding all prior agreements or understandings, whether written or oral, between or among the parties. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended except pursuant to a written instrument executed by the Company and the Investor, and no provision hereof may be waived other than by a written instrument signed by the party against whom enforcement of any such waiver is sought. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

[Signature Page to Follow]


IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first-above written.

 

 
(Signature of Investor)
 
(Print Name of Investor)
Address:
 
 
 

 

Amount of Existing Indebtedness:   $    
Principal Amount of Notes to be Issued:   $    

 

Accepted by
SYNTHETIC BLOOD INTERNATIONAL, INC.
By:    
  Robert J. Larsen, President

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Robert J. Larsen, certify that:

I have reviewed this quarterly report on Form 10-QSB for the quarter ended January 31, 2008 of Synthetic Blood International, Inc.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

March 21, 2008     /s/ Robert J. Larsen
    Robert J. Larsen
    President and Chief Executive Officer and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Synthetic Blood International, Inc. (the “Company”) on Form 10-QSB for the period ended January 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert J. Larsen, President and Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

  1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

March 21, 2008     /s/ Robert J. Larsen
    Robert J. Larsen
    President and Chief Executive Officer and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Synthetic Blood International, Inc. and will be retained by Synthetic Blood International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.