SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of April ___,
2005 by and among Bravo! Foods International Corp., a Delaware corporation (the
"Company"), and Alpha Capital Aktiengesellschaft ("Subscriber").
WHEREAS, the Company and the Subscriber are executing and delivering this
Agreement in reliance upon an exemption from securities registration afforded by
the provisions of Section 4(2), Section 4(6) and/or Regulation D ("Regulation
D") as promulgated by the United States Securities and Exchange Commission (the
"SEC" or "Commission") under the Securities Act of 1933, as amended (the "1933
Act").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Subscriber,
as provided herein, and the Subscriber, in the aggregate, shall purchase
$300,000 (the "Purchase Price") of principal amount of promissory notes of the
Company ("Note" or "Notes") convertible into shares of the Company's common
stock, $.001 par value (the "Common Stock") at a per share conversion price
equal to $0.20 ("Conversion Price"). The Conversion Price is subject to
adjustment as described in the Note and this Agreement. The Notes and shares of
Common Stock issuable upon conversion of the Notes (the "Shares") are
collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes contemplated
hereby shall be held in escrow pursuant to the terms of a Funds Escrow Agreement
to be executed by the parties (the "Escrow Agreement").
NOW, THEREFORE, in consideration of the mutual covenants and other
agreements contained in this Agreement the Company and the Subscriber hereby
agree as follows:
1. Conditions to Closing. Subject to the satisfaction or waiver of
the terms and conditions of this Agreement, on the Closing Date (as hereinafter
defined), Subscriber shall purchase and the Company shall sell to Subscriber a
Note in the principal amount designated on the signature page hereto. The
aggregate amount of the Notes to be purchased by the Subscriber on the Closing
Date shall, in the aggregate, be equal to the Purchase Price. The Closing Date
shall be the date that subscriber funds representing the net amount due the
Company from the Purchase Price of the Offering is transmitted by wire transfer
or otherwise to or for the benefit of the Company.
2. Closing. The consummation of the transactions contemplated herein
("Closing") shall take place at the offices of Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the satisfaction of all
conditions to Closing set forth in this Agreement ("Closing Date").
3. Escrow Arrangements; Form of Payment. Upon execution hereof by
the parties and pursuant to the terms of the Escrow Agreement, Subscriber agrees
to make the deliveries required of such Subscriber as set forth in the Escrow
Agreement annexed hereto as Exhibit A and the Company agrees to make the
deliveries required of the Company as set forth in the Escrow Agreement.
4. Subscriber's Representations and Warranties. Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
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(a) Information on Company. The Subscriber has been furnished
with or has obtained from the XXXXX Website of the Commission the Company's Form
10-KSB for the year ended December 31, 2004 as filed with the Commission,
together with all subsequently filed Forms 10-QSB, 8-K, and filings made with
the Commission available at the XXXXX website (hereinafter referred to
collectively as the "Reports"). In addition, the Subscriber has received in
writing from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested in writing
(such other information is collectively, the "Other Written Information"), and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is, and will be
at the time of the conversion of the Notes, an "accredited investor", as such
term is defined in Regulation D promulgated by the Commission under the 1933
Act, is experienced in investments and business matters, has made investments of
a speculative nature and has purchased securities of United States
publicly-owned companies in private placements in the past and, with its
representatives, has such knowledge and experience in financial, tax and other
business matters as to enable the Subscriber to utilize the information made
available by the Company to evaluate the merits and risks of and to make an
informed investment decision with respect to the proposed purchase, which
represents a speculative investment. The Subscriber has the authority and is
duly and legally qualified to purchase and own the Securities. The Subscriber is
able to bear the risk of such investment for an indefinite period and to afford
a complete loss thereof. The information set forth on the signature page hereto
regarding the Subscriber is accurate.
(c) Purchase of Notes. On Closing Date, the Subscriber will
purchase the Notes as principal for its own account and not with a view to any
distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933 Act or
any applicable state securities laws, by reason of their issuance in a
transaction that does not require registration under the 1933 Act (based in part
on the accuracy of the representations and warranties of Subscriber contained
herein), and that such Securities must be held indefinitely unless a subsequent
disposition is registered under the 1933 Act or any applicable state securities
laws or is exempt from such registration. In any event, and subject to
compliance with applicable securities laws, the Subscriber may enter into
hedging transactions with third parties, which may in turn engage in short sales
of the Securities in the course of hedging the position they assume and the
Subscriber may also enter into short positions or other derivative transactions
relating to the Securities, or interests in the Securities, and deliver the
Securities, or interests in the Securities, to close out their short or other
positions or otherwise settle short sales or other transactions, or loan or
pledge the Securities, or interests in the Securities, to third parties that in
turn may dispose of these Securities.
(e) Shares Legend. The Shares shall bear the following or
similar legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH
REGISTRATION IS NOT REQUIRED."
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(f) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BRAVO! FOODS
INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Communication of Offer. The offer to sell the Securities
was directly communicated to the Subscriber by the Company. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.
(h) Authority; Enforceability. This Agreement and other
agreements delivered together with this Agreement or in connection herewith have
been duly authorized, executed and delivered by the Subscriber and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and Subscriber has full corporate
power and authority necessary to enter into this Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Subscriber relating hereto.
(i) Correctness of Representations. Subscriber represents as
to such Subscriber that the foregoing representations and warranties are true
and correct as of the date hereof and will be true and correct as of each
closing date and unless a Subscriber otherwise notifies the Company prior to any
closing date, shall be true and correct as of such closing dates. The foregoing
representations and warranties shall survive the Closing Date for a period of
three years.
(j) Survival. The foregoing representations and warranties
shall survive the Closing Date for a period of two years.
5. Company Representations and Warranties. The Company represents
and warrants to and agrees with Subscriber that:
(a) Due Incorporation. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and except as described on
the Disclosure Schedule annexed hereto as Exhibit B, each of its subsidiaries is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or financial condition of the Company.
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(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement, the Notes, the
Escrow Agreement and any other agreements delivered together with this Agreement
or in connection herewith (collectively "Transaction Documents") have been duly
authorized, executed and delivered by the Company and are valid and binding
agreements enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity. The Company has full corporate power and
authority necessary to enter into and deliver the Transaction Documents and to
perform its obligations thereunder.
(d) Additional Issuances. There are no outstanding agreements
or preemptive or similar rights affecting the Company's common stock or equity
and no outstanding rights, warrants or options to acquire, or instruments
convertible into or exchangeable for, or agreements or understandings with
respect to the sale or issuance of any shares of common stock or equity of the
Company or other equity interest in any of the subsidiaries of the Company
except as described on Schedule 5(d), or the Reports.
(e) Consents. No consent, approval, authorization or order of
any court, governmental agency or body or arbitrator having jurisdiction over
the Company, or any of its affiliates, the American Stock Exchange, the National
Association of Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC
Bulletin Board ("Bulletin Board") nor the Company's shareholders is required for
the execution by the Company of the Transaction Documents and compliance and
performance by the Company of its obligations under the Transaction Documents,
including, without limitation, the issuance and sale of the Securities.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Section 4 are true and correct, except as
described on the Disclosure Schedule, neither the issuance and sale of the
Securities nor the performance of the Company's obligations under this Agreement
and all other agreements entered into by the Company relating thereto by the
Company will:
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or the lapse
of time or both would be reasonably likely to constitute a default) under (A)
the articles or certificate of incorporation, charter or bylaws of the Company,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company of any court, governmental
agency or body, or arbitrator having jurisdiction over the Company or any of its
subsidiaries or over the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any other evidence of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or any
of its affiliates or subsidiaries is a party, by which the Company or any of its
affiliates or subsidiaries is bound, or to which any of the properties of the
Company or any of its affiliates or subsidiaries is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or similar agreement to
which the Company, or any of its affiliates or subsidiaries is a party except
the violation, conflict, breach, or default of which would not have a material
adverse effect on the Company; or
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(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets of the Company,
its subsidiaries or any of its affiliates; or
(iii) result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
creditor or equity holder of the Company, nor result in the acceleration of the
due date of any obligation of the Company; or
(iv) result in the activation of any piggy-back
registration rights of any person or entity holding securities of the Company or
having the right to receive securities of the Company.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to restrictions upon
transfer under the 1933 Act and any applicable state securities laws;
(ii) have been, or will be, duly and validly authorized
and on the date of conversion of the Notes and the Shares will be duly and
validly issued, fully paid and nonassessable (and if registered pursuant to the
1933 Act, and if resold pursuant to an effective registration statement will be
free trading and unrestricted, provided that Subscriber complies with the
prospectus delivery requirements of the 1933 Act);
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any securities of the
Company except as described on the Disclosure Schedule; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge
of the Company, threatened action, suit, proceeding or investigation before any
court, governmental agency or body, or arbitrator having jurisdiction over the
Company, or any of its affiliates that would affect the execution by the Company
or the performance by the Company of its obligations under this Agreement, and
all other agreements entered into by the Company relating hereto. Except as
disclosed in the Reports, there is no pending or, to the best knowledge of the
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates which litigation if adversely determined could have a
material adverse effect on the Company.
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and has a class of
common shares registered pursuant to Section 12(g) of the 1934 Act. Pursuant to
the provisions of the 1934 Act, the Company has timely filed all reports and
other materials required to be filed thereunder with the Commission during the
preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and
will not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or manipulation of
the price of the common stock of the Company to facilitate the sale or resale of
the Securities or affect the price at which the Securities may be issued or
resold.
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(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and financial
condition as of their respective dates which information is required to be
disclosed therein. Since the date of the financial statements included in the
Reports, and except as modified in the Other Written Information or in the
Schedules hereto, there has been no material adverse change in the Company's
business, financial condition or affairs not disclosed in the Reports. The
Reports do not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances when made.
(l) Stop Transfer. The Securities, when issued, will be
restricted securities. The Company will not issue any stop transfer order or
other order impeding the sale, resale or delivery of any of the Securities,
except as may be required by any applicable federal or state securities laws and
unless contemporaneous notice of such instruction is given to the Subscriber.
(m) Defaults. The Company is not in violation of its Articles
of Incorporation or ByLaws. The Company is (i) not in default under or in
violation of any other material agreement or instrument to which it is a party
or by which it or any of its properties are bound or affected, which default or
violation would have a material adverse effect on the Company, (ii) not in
default with respect to any order of any court, arbitrator or governmental body
or subject to or party to any order of any court or governmental authority
arising out of any action, suit or proceeding under any statute or other law
respecting antitrust, monopoly, restraint of trade, unfair competition or
similar matters, or (iii) to its knowledge in violation of any statute, rule or
regulation of any governmental authority which violation would have a material
adverse effect on the Company.
(n) No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offer of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
the Bulletin Board. Nor will the Company or any of its affiliates or
subsidiaries take any action or steps that would cause the offer of the
Securities to be integrated with other offerings. The Company will not conduct
any offering other than the transactions contemplated hereby that will be
integrated with the offer or issuance of the Securities.
(o) No General Solicitation. Neither the Company, nor any of
its affiliates, nor to its knowledge, any person acting on its or their behalf,
has engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D under the 0000 Xxx) in connection with the offer or
sale of the Securities.
(p) Listing. The Company's common stock is quoted on the
Bulletin Board. The Company has not received any oral or written notice that its
common stock is not eligible nor will become ineligible for quotation on the
Bulletin Board nor that its common stock does not meet all requirements for the
continuation of such quotation and the Company satisfies and as of the Closing
Date, the Company will satisfy all the requirements for the continued quotation
of its common stock on the Bulletin Board.
(q) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate, which are
not disclosed in the Reports and Other Written Information, other than those
incurred in the ordinary course of the Company's businesses since December 31,
2004 and which, individually or in the aggregate, would reasonably be expected
to have a material adverse effect on the Company's financial condition, other
than as set forth in Schedule 5(q).
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(r) No Undisclosed Events or Circumstances. Since December 31,
2004, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the Reports.
(s) Capitalization. The authorized and outstanding capital
stock of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 5(s). Except as set forth in the Reports and Other Written
Information and Schedule 5(d), there are no options, warrants, or rights to
subscribe to securities, rights or obligations convertible into or exchangeable
for or giving any right to subscribe for any shares of capital stock of the
Company. All of the outstanding shares of Common Stock of the Company have been
duly and validly authorized and issued and are fully paid and nonassessable.
(t) Dilution. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have a potential dilutive effect on the equity holdings
of other holders of the Company's equity or rights to receive equity of the
Company. The board of directors of the Company has concluded, in its good faith
business judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the Shares
upon conversion of the Note is binding upon the Company and enforceable, except
as otherwise described in this Subscription Agreement or the Note, regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company or parties entitled to receive equity of the
Company.
(u) No Disagreements with Accountants and Lawyers. There are
no material disagreements of any kind presently existing, or reasonably
anticipated by the Company to arise, between the accountants and lawyers
formerly or presently employed by the Company, including but not limited to
disputes or conflicts over payment owed to such accountants and lawyers.
(v) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the 0000 Xxx) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(w) Correctness of Representations. The Company represents
that the foregoing representations and warranties are true and correct as of the
date hereof and will be true and correct as of each closing date, and unless the
Company otherwise notifies the Subscriber prior to any closing date, shall be
true and correct as of such closing dates. The foregoing representations and
warranties shall survive the Closing Date for a period of three years.
(x) Survival. The foregoing representations and warranties
shall survive the Closing Date for a period of two years.
6. Regulation D Offering. The offer and issuance of the Securities
to the Subscriber is being made pursuant to the exemption from the registration
provisions of the 1933 Act afforded by Section 4(2) or Section 4(6) of the 1933
Act and/or Rule 506 of Regulation D promulgated thereunder. On the Closing Date,
the Company will provide an opinion reasonably acceptable to Subscriber from the
Company's legal counsel opining on the availability of an exemption from
registration under the 1933 Act as it relates to the offer and issuance of the
Securities and other matters reasonably requested by Subscriber. A form of the
legal opinion is annexed hereto as Exhibit C. The Company will provide, at the
Company's expense, such other legal opinions in the future as are reasonably
necessary for the resale of the Common Stock.
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7.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the
Company shall, at its own cost and expense, take all necessary action, including
obtaining and delivering, an opinion of counsel to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
common stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that, unless waived by the
Subscriber, the Shares will be free-trading, and freely transferable, and will
not contain a legend restricting the resale or transferability of the Shares
provided the Shares are being sold pursuant to an effective registration
statement covering the Shares or are otherwise exempt from registration.
(b) Subscriber will give notice of its decision to exercise
its right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed to Exhibit A to the
Note) to the Company via confirmed telecopier transmission or otherwise pursuant
to Section 13(a) of this Agreement. The Subscriber will not be required to
surrender the Note until the Note has been fully converted or satisfied. Each
date on which a Notice of Conversion is telecopied to the Company in accordance
with the provisions hereof shall be deemed a Conversion Date. The Company will
itself or cause the Company's transfer agent to transmit the Company's Common
Stock certificates representing the Shares issuable upon conversion of the Note
to the Subscriber via express courier for receipt by such Subscriber within
three (3) business days after receipt by the Company of the Notice of Conversion
(the "Delivery Date"). In the event the Shares are electronically transferable,
then delivery of the Shares must be made by electronic transfer provided request
for such electronic transfer has been made by the Subscriber. A Note
representing the balance of the Note not so converted will be provided by the
Company to the Subscriber if requested by Subscriber, provided the Subscriber
delivers an original Note to the Company. To the extent that a Subscriber elects
not to surrender a Note for reissuance upon partial payment or conversion, the
Subscriber hereby indemnifies the Company against any and all loss or damage
attributable to a third-party claim in an amount in excess of the actual amount
then due under the Note.
(c) The Company understands that a delay in the delivery of
the Shares in the form required pursuant to Section 7 hereof, or the Mandatory
Redemption Amount described in Section 7.2 hereof, beyond the Delivery Date or
Mandatory Redemption Payment Date (as hereinafter defined) could result in
economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay to the Subscriber for late issuance of Shares in
the form required pursuant to Section 7 hereof upon Conversion of the Note in
the amount of $100 per business day after the Delivery Date for each $10,000 of
Note principal amount being converted, of the corresponding Shares which are not
timely delivered. The Company shall pay any payments incurred under this Section
in immediately available funds upon demand. Furthermore, in addition to any
other remedies which may be available to the Subscriber, in the event that the
Company fails for any reason to effect delivery of the Shares by the Delivery
Date or make payment by the Mandatory Redemption Payment Date, the Subscriber
will be entitled to revoke all or part of the relevant Notice of Conversion or
rescind all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the Subscriber
shall each be restored to their respective positions immediately prior to the
delivery of such notice, except that late payment charges described above shall
be payable through the date notice of revocation or rescission is given to the
Company.
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(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
7.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note or in this Agreement) or for any reason other than pursuant
to the limitations set forth in Section 7.3 hereof, then at the Subscriber's
election, the Company must pay to the Subscriber ten (10) business days after
request by the Subscriber or on the Delivery Date (if requested by the
Subscriber) at the Subscriber's election, a sum of money determined by (i)
multiplying up to the outstanding principal amount of the Note designated by the
Subscriber by 130%, or (ii) multiplying the number of Shares otherwise
deliverable upon conversion of an amount of Note principal and/or interest
designated by the Subscriber (with the date of giving of such designation being
a Deemed Conversion Date) at the then Conversion Price that would be in effect
on the Deemed Conversion Date by the highest closing price of the Common Stock
on the principal market for the period commencing on the Deemed Conversion Date
until the day prior to the receipt of the Mandatory Redemption Payment,
whichever is greater, together with accrued but unpaid interest thereon
("Mandatory Redemption Payment"). The Mandatory Redemption Payment must be
received by the Subscriber on the same date as the Company Shares otherwise
deliverable or within ten (10) business days after request, whichever is sooner
("Mandatory Redemption Payment Date"). Upon receipt of the Mandatory Redemption
Payment, the corresponding Note principal and interest will be deemed paid and
no longer outstanding.
7.3. Maximum Conversion. The Subscriber shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of common stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of common stock of the Company on such Conversion Date.
For the purposes of the provision to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99% and aggregate conversions by the Subscriber may exceed
9.99%. The Subscriber may void the conversion limitation described in this
Section 7.3 upon and effective after 61 days prior written notice to the
Company. The Subscriber may allocate which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% amount
described above and which shall be allocated to the excess above 9.99%.
7.4. Injunction - Posting of Bond. In the event a Subscriber shall
elect to convert a Note or part thereof, the Company may not refuse conversion
or exercise based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or for
any other reason, unless, an injunction from a court, on notice, restraining and
or enjoining conversion of all or part of said Note shall have been sought and
obtained and the Company has posted a surety bond for the benefit of such
Subscriber in the amount of 130% of the amount of the Note, which are subject to
the injunction, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment.
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7.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In. The delivery date by which
Common Stock must be delivered pursuant to this Section 7.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.
7.6 Adjustments. The Conversion Price and amount of Shares issuable
upon conversion of the Notes shall be adjusted to offset the effect of stock
splits, stock dividends, pro rata distributions of property or equity interests
to the Company's shareholders.
7.7. Optional Redemption. Provided an Event of Default (as defined
in this Agreement and the Note) has not occurred, whether or not such Event of
Default has been cured, the Company will have the option of prepaying the
outstanding principal amount of the Note ("Optional Redemption"), in whole or in
part, together with the interest accrued thereon, by paying to the Subscriber a
sum of money equal to one hundred percent (100%) of the Principal Amount to be
redeemed ("Redemption Factor"), together with accrued but unpaid interest
thereon and interest that will accrue until the actual repayment date and any
and all other sums due, accrued or payable to the Subscriber arising under the
Note, the Subscription Agreement or any Transaction Document (the "Redemption
Amount") on the day written notice of redemption (the "Notice of Redemption") is
given to the Subscriber. The Notice of Redemption shall specify the date for
such Optional Redemption (the "Redemption Payment Date"), which date shall be
not less than thirty (30) business days after the date of the Notice of
Redemption (the "Redemption Period"). A Notice of Redemption shall not be
effective with respect to any portion of the Note for which the Subscriber has a
pending election to convert, or for Conversion notices given by the Subscriber
prior to the Redemption Payment Date. On the Redemption Payment Date, the
Redemption Amount shall be paid in good funds to the Subscriber. In the event
the Company fails to pay the Redemption Amount on the Redemption Payment Date as
set forth herein, then (i) such Notice of Redemption will be null and void, (ii)
Company will have no further right to deliver another Notice of Redemption, and
(iii) Company's failure may be deemed by Subscriber to be a non-curable Event of
Default. In the event the average closing price for the Common Stock for the
five trading days preceding the date of the Notice of Redemption is given is
$0.20 or higher, then the Redemption Factor shall be 130%.
8. Legal Fee/Escrow Agent and Finder's Fee.
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(a) Legal Fee/Escrow Agent. The Company shall pay to Grushko &
Xxxxxxx, P.C., a fee of $7,500 ("Legal Fees") as reimbursement for services
rendered in connection with this Agreement and the purchase and sale of the
Notes (the "Offering") and acting as Escrow Agent for the Offering. The Legal
Fees will be payable out of funds held pursuant to the Escrow Agreement.
(b) Finder's Fee. The Company on the one hand, and Subscriber
(for himself only) on the other hand, agree to indemnify the other against and
hold the other harmless from any and all liabilities to any persons claiming
brokerage commissions or finder's fees other than Libra Finance, S.A. ("Finder")
on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions. Anything to the
contrary in this Agreement notwithstanding, Subscriber is providing
indemnification only for such Subscriber's own actions and not for any action of
any other Subscriber. Subscriber's liability hereunder is several and not joint.
The Company agrees that it will pay the Finder a fee equal to $15,000 ("Finder's
Fees") payable in Common Stock to be valued at market on the day preceding the
Closing Date ("Finder's Fee Shares"). The Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments in
connection with the Offering except the Finder. All the representations,
covenants, warranties, undertakings, remedies, liquidated damages,
indemnification, and other rights including but not limited to registration
rights made or granted to or for the benefit of the Subscriber are hereby also
made and granted to the Finder in respect of the Finder's Fee Shares. References
to Shares shall include the Finder's Fee Shares.
9. Covenants of the Company. The Company covenants and agrees with
the Subscriber as follows:
(a) Stop Orders. The Company will advise the Subscriber,
promptly after it receives notice of issuance by the Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the Common Stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of
the shares of Common Stock upon each national securities exchange, or automated
quotation system upon which they are or become eligible for listing (subject to
official notice of issuance) and shall maintain such listing. The Company will
maintain the listing of its Common Stock on the American Stock Exchange, Nasdaq
SmallCap Market, Nasdaq National Market System, Bulletin Board, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock (the "Principal Market")), and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscriber copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common Stock
from any Principal Market. As of the date of this Agreement and the Closing
Date, the Bulletin Board is and will be the Principal Market.
(c) Market Regulations. The Company shall notify the
Commission, the Principal Market and applicable state authorities, in accordance
with their requirements, of the transactions contemplated by this Agreement, and
shall take all other necessary action and proceedings as may be required and
permitted by applicable law, rule and regulation, for the legal and valid
issuance of the Securities to the Subscriber and promptly provide copies thereof
to Subscriber.
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(d) Reporting Requirements. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares have been resold or transferred by all the Subscriber pursuant to
the Registration Statement or pursuant to Rule 144, without regard to volume
limitation, the Company will (v) cause its Common Stock to continue to be
registered under Section 12(b) or 12(g) of the 1934 Act, (x) comply in all
respects with its reporting and filing obligations under the 1934 Act, (y)
comply with all reporting requirements that are applicable to an issuer with a
class of shares registered pursuant to Section 12(b) or 12(g) of the 1934 Act,
as applicable, and (z) comply with all requirements related to any registration
statement filed pursuant to this Agreement. The Company will use its best
efforts not to take any action or file any document (whether or not permitted by
the 1933 Act or the 1934 Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said acts until two (2) years after the Closing Date. Until
the earlier of the resale of the Common Stock by Subscriber, the Company will
use its best efforts to continue the listing or quotation of the Common Stock on
the Principal Market or other market with the reasonable consent of Subscriber
holding a majority of the Shares, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the Principal Market. The Company agrees to file a Form D with respect to the
Securities as required under Regulation D and to provide a copy thereof to
Subscriber promptly after such filing.
(e) Use of Proceeds. The Company undertakes to use the
proceeds of the Subscriber' funds for working capital.
(f) Reservation. The Company undertakes to reserve, pro rata
on behalf of each holder of a Note, from its authorized but unissued common
stock, at all times that Notes remain outstanding, a number of common shares
equal to not less than 150% of the amount of common shares necessary to allow
each such holder at all times to be able to convert all such outstanding Notes.
Failure to have sufficient shares reserved pursuant to this Section 9(f) for
three consecutive business days or ten days in the aggregate shall be an Event
of Default under the Note.
(g) Taxes. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscriber pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will promptly pay and discharge, or cause to be paid
and discharged, when due and payable, all lawful taxes, assessments and
governmental charges or levies imposed upon the income, profits, property or
business of the Company; provided, however, that any such tax, assessment,
charge or levy need not be paid if the validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company shall have
set aside on its books adequate reserves with respect thereto, and provided,
further, that the Company will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscriber pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep its assets which are of an insurable
character insured by financially sound and reputable insurers against loss or
damage by fire, explosion and other risks customarily insured against by
companies in the Company's line of business, in amounts sufficient to prevent
the Company from becoming a co-insurer and not in any event less than one
hundred percent (100%) of the insurable value of the property insured; and the
Company will maintain, with financially sound and reputable insurers, insurance
against other hazards and risks and liability to persons and property to the
extent and in the manner customary for companies in similar businesses similarly
situated and to the extent available on commercially reasonable terms.
12
(i) Books and Records. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares have been resold or transferred by all the Subscriber pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company will keep true records and books of account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and affairs in accordance with generally accepted
accounting principles applied on a consistent basis.
(j) Governmental Authorities. From the date of this Agreement
and until the sooner of (i) two (2) years after the Closing Date, or (ii) until
all the Shares have been resold or transferred by all the Subscriber pursuant to
the Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company shall duly observe and conform in all material respects
to all valid requirements of governmental authorities relating to the conduct of
its business or to its properties or assets.
(k) Intellectual Property. From the date of this Agreement and
until the sooner of (i) two (2) years after the Closing Date, or (ii) until all
the Shares have been resold or transferred by all the Subscriber pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitations, the Company shall maintain in full force and effect its corporate
existence, rights and franchises and all licenses and other rights to use
intellectual property owned or possessed by it and reasonably deemed to be
necessary to the conduct of its business.
(l) Properties. From the date of this Agreement and until the
sooner of (i) two (2) years after the Closing Date, or (ii) until all the Shares
have been resold or transferred by all the Subscriber pursuant to the
Registration Statement or pursuant to Rule 144, without regard to volume
limitation, the Company will keep its properties in good repair, working order
and condition, reasonable wear and tear excepted, and from time to time make all
necessary and proper repairs, renewals, replacements, additions and improvements
thereto; and the Company will at all times comply with each provision of all
leases to which it is a party or under which it occupies property if the breach
of such provision could reasonably be expected to have a material adverse
effect.
(m) Confidentiality/Public Announcement. From the date of this
Agreement and until the sooner of (i) two (2) years after the Closing Date, or
(ii) until all the Shares have been resold or transferred by all the Subscriber
pursuant to the Registration Statement or pursuant to Rule 144, without regard
to volume limitations, except as may be required in connection with a
registration statement filed on behalf of the Subscriber pursuant to Section 11
of this Agreement or on Form 8-K, the Company agrees that it will not disclose
publicly or privately the identity of the Subscriber unless expressly agreed to
in writing by a Subscriber or only to the extent required by law and then only
upon ten days prior notice to Subscriber. In any event and subject to the
foregoing, the Company undertakes to file a form 8-K or make a public
announcement describing the Offering not later than the Closing Date. In the
form 8-K or public announcement, the Company will specifically disclose the
amount of common stock outstanding immediately after the Closing.
(n) Reduction of Exercise Price of Class B Common Stock
Purchase Warrant. In connection with the Class B Common Stock Purchase Warrant
issued by the Company on June 30, 2004 and exercisable at a per share purchase
price of $2.00, the Company agrees to reduce the exercise price of the Class B
Warrants to $0.125 and take all necessary action, including but not limited to
amending the registration statement, if necessary, to reflect this reduction of
the exercise price.
13
10. Covenants of the Company and Subscriber Regarding
Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend the Subscriber, the Subscriber' officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon the Subscriber or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or other agreement
delivered pursuant hereto; or (ii) after any applicable notice and/or cure
periods, any breach or default in performance by the Company of any covenant or
undertaking to be performed by the Company hereunder, or any other agreement
entered into by the Company and Subscriber relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse
and defend the Company and each of the Company's officers, directors, agents,
affiliates, control persons against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company or any such person which results, arises
out of or is based upon (i) any material misrepresentation by such Subscriber in
this Agreement or in any Exhibits or Schedules attached hereto, or other
agreement delivered pursuant hereto; or (ii) after any applicable notice and/or
cure periods, any breach or default in performance by such Subscriber of any
covenant or undertaking to be performed by such Subscriber hereunder, or any
other agreement entered into by the Company and Subscribes relating hereto.
(c) In no event shall the liability of any Subscriber or
permitted successor hereunder or under any other agreement delivered in
connection herewith be greater in amount than the dollar amount of the net
proceeds received by such Subscriber upon the sale of Registrable Securities (as
defined herein) giving rise to such indemnification obligation.
(d) The procedures set forth in Section 11.6 shall apply to
the indemnifications set forth in Sections 10(a) and 10(b) above.
11.1. Registration Rights. If the Company at any time proposes to
register any of its securities under the 1933 Act for sale to the public,
whether for its own account or for the account of other security holders or
both, except with respect to registration statements on Forms X-0, X-0 or
another form not available for registering the Shares issuable upon conversion
of the Note and Finder's Fee Shares ("Registrable Securities") for sale to the
public, provided the Registrable Securities are not otherwise registered for
resale by the Subscriber or Holder pursuant to an effective registration
statement, each such time it will give at least 15 days' prior written notice to
the record holder of the Registrable Securities of its intention so to do. Upon
the written request of the holder, received by the Company within 10 days after
the giving of any such notice by the Company, to register any of the Registrable
Securities not previously registered, the Company will cause such Registrable
Securities as to which registration shall have been so requested to be included
with the securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the holder of such
Registrable Securities (the "Seller"). In the event that any registration
pursuant to this Section 11.1 shall be, in whole or in part, an underwritten
public offering of common stock of the Company, the number of shares of
Registrable Securities to be included in such an underwriting may be reduced by
the managing underwriter if and to the extent that the Company and the
underwriter shall reasonably be of the opinion that such inclusion would
adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the foregoing provisions, or Section 11.4
hereof, the Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 11.1 without thereby incurring any
liability to the Seller.
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11.2. Registration Procedures. If and whenever the Company is
required by the provisions of Section 11.1 to effect the registration of any
shares of Registrable Securities under the 1933 Act, the Company will, as
expeditiously as possible:
(a) subject to the timelines provided in this Agreement,
prepare and file with the Commission a registration statement required by
Section 10, with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of the Registrable Securities copies of all filings and
Commission letters of comment including a notification by confirmed telecopier
to Subscriber and Grushko & Xxxxxxx, P.C. within twenty-four (24) hours of
declaration of effectiveness or that there will be a no review by the Commission
of the registration statement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until such registration statement has been effective for a period of two (2)
years, and comply with the provisions of the 1933 Act with respect to the
disposition of all of the Registrable Securities covered by such registration
statement in accordance with the Seller's intended method of disposition set
forth in such registration statement for such period;
(c) furnish to the Seller, at the Company's expense, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller, provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) if applicable, list the Registrable Securities covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify the Seller when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and
(g) provided same would not be in violation of the provision
of Regulation FD under the 1934 Act, make available for inspection by the
Seller, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement.
11.3. Provision of Documents. In connection with each registration
described in this Section 11, the Seller will furnish to the Company in writing
such information and representation letters with respect to itself and the
proposed distribution by it as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws.
15
11.4. Non-Registration Events. The Company and the Subscriber agree
that the Seller will suffer damages if any registration statement required under
Section 11.1 is not filed within 60 days after written request and declared
effective by the Commission within 120 days after such request, and maintained
in the manner and within the time periods contemplated by Section 11 hereof, and
it would not be feasible to ascertain the extent of such damages with precision.
Accordingly, if (i) if the registration statement described in Section 11.1 is
not filed within 60 days after such written request, or is not declared
effective within 120 days after such written request, or (ii) any registration
statement described in Section 11.1 is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year or more than 20
consecutive days (defined as a period of 365 days commencing on the date the
Registration Statement is declared effective) (each such event referred to in
clauses (i) and (ii) of this Section 11.4 is referred to herein as a
"Non-Registration Event"), then the Company shall deliver to the holder of
Registrable Securities, as Liquidated Damages, an amount equal to one percent
(1%) for the first thirty days or part thereof, and two percent (2%) for each
thirty days or part thereof thereafter, of the Purchase Price of the Notes
remaining unconverted and purchase price of Shares issued upon conversion of the
Notes and Finder's Fee Shares for the Registrable Securities owned of record by
such holder as of and during the pendency of such Non-Registration Event which
are subject to such Non-Registration Event. Payments to be made pursuant to this
Section 11.4 shall be payable in cash and due and payable within ten (10)
business days after the end of each thirty (30) day period or part thereof.
11.5. Expenses. All expenses incurred by the Company in complying
with Section 11, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including reasonable
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of insurance and
fee of one counsel for all Sellers are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any additional
counsel to the Seller, are called "Selling Expenses". The Company will pay all
Registration Expenses in connection with the registration statement under
Section 11. Selling Expenses in connection with each registration statement
under Section 11 shall be borne by the Seller and may be apportioned among the
Sellers in proportion to the number of shares sold by the Seller relative to the
number of shares sold under such registration statement or as all Sellers
thereunder may agree.
11.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable
Securities under the 1933 Act pursuant to Section 11, the Company will, to the
extent permitted by law, indemnify and hold harmless the Seller, each officer of
the Seller, each director of the Seller, each underwriter of such Registrable
Securities thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
the Seller to the extent that any such damages arise out of or are based upon an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus delivered by the
Company to the Seller with or prior to the delivery of written confirmation of
the sale by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (iii) to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller, or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
16
(b) In the event of a registration of any of the Registrable
Securities under the 1933 Act pursuant to Section 11, each Seller severally but
not jointly will, to the extent permitted by law, indemnify and hold harmless
the Company, and each person, if any, who controls the Company within the
meaning of the 1933 Act, each officer of the Company who signs the registration
statement, each director of the Company, each underwriter and each person who
controls any underwriter within the meaning of the 1933 Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Securities were
registered under the 1933 Act pursuant to Section 11, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and each such
officer, director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information pertaining to
such Seller, as such, furnished in writing to the Company by such Seller
specifically for use in such registration statement or prospectus, and provided,
further, however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 11.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 11.6(c), except and only if and to the extent the indemnifying
party is prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 11.6(c) for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified parties, as a group, shall have the right to select one
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
17
(d) In order to provide for just and equitable contribution in
the event of joint liability under the 1933 Act in any case in which either (i)
a Seller, or any controlling person of a Seller, makes a claim for
indemnification pursuant to this Section 11.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 11.6 provides for indemnification in such case, or (ii)
contribution under the 1933 Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
not provided under this Section 11.6; then, and in each such case, the Company
and the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (y) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (z) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the 0000
Xxx) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
11.7. Delivery of Unlegended Shares.
(a) Within three (3) business days (such third business day,
the "Unlegended Shares Delivery Date") after the business day on which the
Company has received (i) a notice that Registrable Securities have been sold
either pursuant to the Registration Statement or Rule 144 under the 1933 Act,
(ii) a representation that the prospectus delivery requirements, or the
requirements of Rule 144, as applicable, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver, to its transfer agent (with copies
to Subscriber) an appropriate instruction and opinion of such counsel, for the
delivery of shares of Common Stock without any legends including the legends set
forth in Sections 4(e) and 4(g) above, issuable pursuant to any effective and
current registration statement described in Section 11 of this Agreement or
pursuant to Rule 144 under the 1933 Act (the "Unlegended Shares"); and (z) cause
the transmission of the certificates representing the Unlegended Shares together
with a legended certificate representing the balance of the unsold shares of
Common Stock, if any, to the Subscriber at the address specified in the notice
of sale, via express courier, by electronic transfer or otherwise on or before
the Unlegended Shares Delivery Date.
(b) In lieu of delivering physical certificates representing
the Unlegended Shares, if the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of a Subscriber, so long as the certificates therefore do not bear
a legend and the Subscriber is not obligated to return such certificate for the
placement of a legend thereon, the Company shall cause its transfer agent to
electronically transmit the Unlegended Shares by crediting the account of
Subscriber's prime Broker with DTC through its Deposit Withdrawal Agent
Commission system. Such delivery must be made on or before the Unlegended Shares
Delivery Date.
18
(c) The Company understands that a delay in the delivery of
the Unlegended Shares pursuant to Section 11 hereof beyond the Unlegended Shares
Delivery Date could result in economic loss to a Subscriber. As compensation to
a Subscriber for such loss, the Company agrees to pay late payment fees (as
liquidated damages and not as a penalty) to the Subscriber for late delivery of
Unlegended Shares in the amount of $100 per business day after the Delivery Date
for each $10,000 of purchase price of the Unlegended Shares subject to the
delivery default. If during any 360 day period, the Company fails to deliver
Unlegended Shares as required by this Section 11.7 for an aggregate of thirty
(30) days, then Subscriber or assignee holding Securities subject to such
default may, at its option, require the Company to purchase all or any portion
of the Shares subject to such default at a price per share equal to 130% of the
Purchase Price of such Shares. The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.
(d) In addition to any other rights available to a Subscriber,
if the Company fails to deliver to a Subscriber Unlegended Shares within ten
(10) calendar days after the Unlegended Shares Delivery Date and the Subscriber
purchases (in an open market transaction or otherwise) shares of common stock to
deliver in satisfaction of a sale by such Subscriber of the shares of Common
Stock which the Subscriber anticipated receiving from the Company (a "Buy-In"),
then the Company shall pay in cash to the Subscriber (in addition to any
remedies available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any) for
the shares of common stock so purchased exceeds (B) the aggregate purchase price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, together with interest thereon at a rate of 15% per annum,
accruing until such amount and any accrued interest thereon is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber $1,000,
plus interest. The Subscriber shall provide the Company written notice
indicating the amounts payable to the Subscriber in respect of the Buy-In.
12. (a) Favored Nations Provision. Except in connection with (i)
employee stock options or compensation plans, (ii) as full or partial
consideration in connection with any merger, consolidation or purchase of
substantially all of the securities or assets of any corporation or other
entity, or (iii) as has been described in the Reports or Other Written
Information filed or delivered prior to the Closing Date (collectively "Excepted
Issuances"), if at any time the Notes are outstanding the Company shall offer,
issue or agree to issue any common stock or securities convertible into or
exercisable for shares of common stock (or modify any of the foregoing which may
be outstanding at any time prior to the Closing Date) to any person or entity at
a price per share or conversion or exercise price per share which shall be less
than the Conversion Price of the Notes, without the consent of Subscriber
holding Notes or Shares, then the Company shall issue, for each such occasion,
additional shares of Common Stock to Subscriber and Finder so that the average
per share purchase price of the shares of Common Stock issued to the Subscriber
(of only the Common Stock still owned by the Subscriber) is equal to such other
lower price per share and the Conversion Price shall be reduced to such other
lower amount. The delivery to the Subscriber of the additional shares of Common
Stock shall be not later than the closing date of the transaction giving rise to
the requirement to issue additional shares of Common Stock. The Subscriber is
granted the registration rights described in Section 11 hereof in relation to
such additional shares of Common Stock except that the Filing Date and Effective
Date vis-a-vis such additional common shares shall be, respectively, the
sixtieth (60th) and one hundred and twentieth (120th) date after the closing
date giving rise to the requirement to issue the additional shares of Common
Stock. For purposes of the issuance and adjustment described in this paragraph,
the issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in the issuance of the additional shares of
Common Stock upon the issuance of such convertible security, warrant, right or
option and again upon any subsequent issuances of shares of Common Stock upon
exercise of such conversion or purchase rights if such issuance is at a price
lower than the Conversion Price then in effect. The rights of the Subscriber set
forth in this Section 12 are in addition to any other rights the Subscriber has
pursuant to this Agreement and any other agreement referred to or entered into
in connection herewith. This provision shall only apply retroactively and
prospectively upon the occurrence of an Event of Default.
19
(b) Maximum Exercise of Rights. In the event the exercise of
the rights described in Section 12(a) would result in the issuance of an amount
of common stock of the Company that would exceed the maximum amount that may be
issued to a Subscriber as described in Section 7.3 of this Agreement, then the
issuance of such other Common Stock or Common Stock equivalents of the Company
to such Subscriber will be deferred in whole or in part until such time as such
Subscriber is able to beneficially own such Common Stock or Common Stock
equivalents without exceeding the maximum amount set forth in Section 7.3. The
determination of when such Common Stock or Common Stock equivalents may be
issued shall be made by Subscriber as to only such Subscriber.
13. Miscellaneous.
(a) Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company, to: Bravo! Foods
International Corp., 00000 X.X. Xxxxxxx 0, Xxxxx 000, Xxxxx Xxxx Xxxxx, Xxxxxxx
00000, Attn: Xxx X. Xxxxxx, Xx., Esq., telecopier: (000) 000-0000, (ii) if to
the Subscriber, to: the address and telecopier number indicated on the signature
page hereto, with a copy by telecopier only to: Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (212)
697-3575, and (iii) if to the Finder, to: Libra Finance, S.A., X.X. Xxx 0000,
Xxxxxx, Xxxxxxxxxxx, telecopier: 000-000-000-0000.
(b) Entire Agreement; Assignment. This Agreement and other
documents delivered in connection herewith represent the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties. Neither the Company nor the
Subscriber have relied on any representations not contained or referred to in
this Agreement and the documents delivered herewith. No right or obligation of
either party shall be assigned by that party without prior notice to and the
written consent of the other party.
20
(c) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(d) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
without regard to principles of conflicts of laws. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. The parties and the individuals
executing this Agreement and other agreements referred to herein or delivered in
connection herewith on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be entitled
to recover from the other party its reasonable attorney's fees and costs. In the
event that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement.
(e) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 13(d) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(f) Independent Nature of Subscriber. The Company acknowledges
that the obligations of Subscriber under the Transaction Documents are several
and not joint with the obligations of any other Subscriber, and no Subscriber
shall be responsible in any way for the performance of the obligations of any
other Subscriber under the Transaction Documents. The Company acknowledges that
the decision of Subscriber to purchase Securities has been made by such
Subscriber independently of any other Subscriber and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company which may have been made or
given by any other Subscriber or by any agent or employee of any other
Subscriber, and no Subscriber or any of its agents or employees shall have any
liability to any Subscriber (or any other person) relating to or arising from
any such information, materials, statements or opinions. The Company
acknowledges that nothing contained in any Transaction Document, and no action
taken by any Subscriber pursuant hereto or thereto (including, but not limited
to, the (i) inclusion of a Subscriber in the Registration Statement and (ii)
review by, and consent to, such Registration Statement by a Subscriber) shall be
deemed to constitute the Subscriber as a partnership, an association, a joint
venture or any other kind of entity, or create a presumption that the Subscriber
are in any way acting in concert or as a group with respect to such obligations
or the transactions contemplated by the Transaction Documents. The Company
acknowledges that Subscriber shall be entitled to independently protect and
enforce its rights, including without limitation, the rights arising out of the
Transaction Documents, and it shall not be necessary for any other Subscriber to
be joined as an additional party in any proceeding for such purpose. The Company
acknowledges that it has elected to provide all Subscriber with the same terms
and Transaction Documents for the convenience of the Company and not because
Company was required or requested to do so by the Subscriber. The Company
acknowledges that such procedure with respect to the Transaction Documents in no
way creates a presumption that the Subscriber are in any way acting in concert
or as a group with respect to the Transaction Documents or the transactions
contemplated thereby.
21
(g) Equitable Adjustment. The Securities and the purchase
prices of Securities shall be equitably adjusted to offset the effect of stock
splits, stock dividends, and distributions of property or equity interests of
the Company to its shareholders.
[THIS SPACE INTENTIONALLY LEFT BLANK]
22
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT (A)
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
BRAVO! FOODS INTERNATIONAL CORP.
A Delaware Corporation
By:_________________________________
Name:
Title:
Dated: April _____, 2005
--------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE
-------------------------------------------- -----------------------------------
$300,000.00
_____________________________________
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
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LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Escrow Agreement
Exhibit B Disclosure Schedule
Exhibit C Form of Legal Opinion
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 11.1 Other Securities to be Registered
