BRAVO! BRANDS INC. - SB-2 - 20040604 - OPERATING_EXPENSES
CONSOLIDATED OPERATING EXPENSES
The Company incurred selling expenses of $253,038 for the period ended
March 31, 2004, all of which the Company incurred in its United States
operations. The Company's selling expense for this period decreased by $108,037,
a 29.92% decrease compared to selling expense of $361,075 for the same period in
2003. The decrease in selling expenses in the current period was due to
decreased freight and promotional charges associated with the Company's
transition away from its Looney Tunes(TM) product line and the development of
four new product lines by the Company, utilizing newly licensed and directly
owned branded trademarks.
16
The Company incurred general and administrative expenses for the period
ended March 31, 2004 of $700,966, all of which the Company incurred in its
United States business operations. The Company's general and administrative
expenses for this period decreased by $71,504, a 9.3% decrease compared to
$772,470 for the same period in 2003, $709,535 of which the Company incurred in
its United states operations and $62,935 in China in 2003. The decrease of
$71,504 in general and administrative expenses for the current period in 2004 is
the result of a continued reduction in overhead expenses, including management
salaries, travel and other cost saving measures.
As a percentage of total revenue, the Company's general and administrative
expenses decreased from 194.4% in the period ended March 31, 2003, to 160% for
the current period in 2004. The Company anticipates a continued reduction of
these expenses through cost cutting efforts and the refinement of business
operations.
INTEREST EXPENSE
The Company incurred interest expense for the period ended March 31, 2004
of $31,685. The Company's interest expense increased by $29,641, a 1450%
increase compared to approximately $2,044 for the same period in 2003. The
increase was due to additional loans in 2003.
LOSS PER SHARE
The Company accrued dividends payable of $93,468 to various series of
preferred stock during the period ended March 31, 2004. The Company's accrued
dividends decreased for this period by $257,645, or 73.3%, from $351,113 for the
same period in 2003. The increase in net loss before accrued dividends of
$62,234, from $819,015 for the period ended March 31, 2003 to $881,249 for the
current period, was offset by the 73.3% decrease in accrued dividends, resulting
in a decrease in the Company's current period loss per share from $0.05 for the
same period in 2003, compared to loss per share of $0.03 for the current period.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
CONSOLIDATED REVENUE
We had annual revenues in 2003 of $1,200,142, with a cost of goods sold of
$192,498, resulting in a gross profit of $1,007,644. Of the $1,200,142, $989,721
was generated in the U.S. and $21,314 from sales recognized by our wholly owned
subsidiary, China Premium Food Corp (Shanghai) Co., Ltd in China. Our revenue in
2003 decreased by $572,828, a 32.31% decrease compared to revenue of $1,772,970
in 2002, which consisted of $1,515,117 in the U.S. and $55,128 in China. This
decrease is the result of the reduction and ultimate cessation of the
penetration and distribution of Looney Tunes(TM) flavored milk products, as well
as the negotiation of new third party licenses to support the development of new
branded milk products, both domestically and internationally. In addition, our
China business experienced continuing difficulties with market penetration of
its Looney(TM) branded products, including what we perceived to be the
licensor's continuing overall lack of brand support in China.
In 2003, we combined gross margin of $1,007,644 decreased by $485,971, or
32.5%, from $1,493,615 in 2002.
CONSOLIDATED COST OF GOODS SOLD
We incurred cost of goods sold of $192,498 in 2003, consisting of $127,647
in its U.S operations and $55,650 in Mexico and Canada. Our cost of goods sold
in 2003 decreased by $86,857, a 31% decrease compared to $279,355 in 2002, of
which $184,022 was incurred in the U.S. and $42,291 was incurred in the Canada
and Mexico. The decrease in our cost of good sold resulted from decreased sales
in 2003.
17
In Mexico, Canada, China and the United States, our revenue is generated
in part by the sale of kits to dairy processors. Each kit consists of flavor
ingredients for our Slammers(R) Looney Tunes(TM) flavored milks and production
rights to manufacture and sell the milks. In line with our revenue recognition
policies, we recognized the full invoiced kit price as revenue and credits the
processor dairies with the cost of the raw flavor ingredients, which our records
as cost of goods sold. In addition to kit sales revenue, in the United States we
are responsible for the sale of finished Slammers(R) Looney Tunes(TM) flavored
milk (referred to as "units sales") to retail outlets. For these unit sales, we
also recognizes as revenue the difference between the prices charged by the
processor dairies to produce the milks and the price that we charges to the
retail outlets that purchase the milks directly from the processor dairies.
Since we benefit from only the difference between two prices, it does not record
any costs of goods sold against this revenue event.
Segmented revenues and costs of goods sold (2003 and 2002)
The following table presents revenue by source and type against costs of
goods sold, as well as combined gross revenues and gross margins. China sales
are attributed to the Company's wholly owned Chinese subsidiary, China Premium
Food Corp (Shanghai) Co., Ltd.; our North America operations generated the
remaining revenue. Revenues from Canada are generated by kit sales to Farmers
Dairy, a Halifax dairy processor. Revenues from Mexico are generated from kit
sales to Neolac, a dairy processor in central Mexico. In the United States,
revenues are generated by kit sales to Parmalat, which is responsible for
marketing and sales and kit sales to two dairy processors that produce extended
shelf life and aseptic long life Slammers(R) Looney Tunes(TM) product. Revenues
from these sales are recorded under "US Kit Sales" on the accompanying tables,
and our revenue from the sale of ESL and aseptic is recorded as "Unit Sales" on
the following table:
United
2003 States Canada Mexico China Total Company
------------ ----------- ----------- ----------- --------------
Revenue - unit sales $ 356,985 $ - $ - $ - $ 356,985
Revenue - net kit sales 2,737 - - - 2,737
Revenue - gross kit sales 629,999 43,745 145,362 21,314 840,420
------------ ----------- ----------- ----------- --------------
Total revenue 989,721 43,745 145,362 21,314 1,200,142
Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
------------ ----------- ----------- ----------- --------------
Gross margin $ 862,074 $ 33,342 $ 100,115 $ 12,113 $ 1,007,644
------------ ----------- ----------- ----------- --------------
United
2002 States Canada Mexico China Total Company
------------ ----------- ----------- ----------- --------------
Revenue -unit sales $ 232,595 $ - $ - $ - $ 232,595
Revenue -net kit sales 433,118 - - - 433,118
Revenue -gross kit sales 849,404 112,700 90,025 55,128 1,107,257
------------ ----------- ----------- ----------- --------------
Total revenue 1,515,117 112,700 90,025 55,128 1,772,970
Cost of goods sold (184,022) (23,511) (18,780) (53,042) (279,355)
------------ ----------- ----------- ----------- --------------
Gross margin $ 1,331,095 $ 89,189 $ 71,245 $ 2,086 $ 1,493,615
------------ ----------- ----------- ----------- --------------
UNITED STATES (JASPER, SHAMROCK AND PARMALAT SALES)
Revenues in 2003 from kit sales in the United States decreased 50% from
approximately $1,282,500 in 2002 to approximately $632,700 in 2003. In addition
to kit sales, in 2003 we had revenues of approximately $357,000 from selling
finished product unit sales to retail outlets, a 53.5% increase of $124,390 from
$232,595 in 2002. The decrease in revenues from kit sales was the result of two
factors:
18
o the reduction and ultimate cessation of the penetration and
distribution of Looney Tunes(TM) flavored milk products, which resulted
from the increasing weakness of the Looney Tunes(TM) brand, and
o our transition away from Looney Tunes(TM) to the development of other
branded flavored milk products, which resulted in a period during which
processors did not purchase kits owing to our decrease in and ultimate
cessation of sales activities for the Looney Tunes(TM) product, while
generating marketing interest in the new product line.
The increase in unit sales in 2003 was the result of the implementation of
greater efficiencies in the production and distribution of the branded flavored
milk and the reduced necessity to pay "slotting fees" to already established
wholesale customers. In 2002, certain production/distribution costs and entry
level slotting fees reduced the gross revenue reported by the Company for unit
sales owing to "contra-revenue" accounting considerations.
In 2003, our gross margin for U.S. sales of $862,074 decreased by
$469,021, or by 35.2%, from $1,331,095 in 2002. The decrease in gross profit was
the result of the decrease in overall sales, as discussed above.
MEXICO AND CANADA
Revenues in 2003 from kit sales in Mexico increased 61% from approximately
$90,000 in 2002 to approximately $145,300 in 2003. The increase was the result
of greater market penetration and brand awareness in Mexico. The Company
incurred cost of goods sold of approximately $45,000 in 2003 in connection with
its Mexico sales, a 141% increase from approximately $19,000 in 2002. This
increase is consistent with the increase in sales volume.
In 2003, our gross profit of approximately $100,000 for kit sales in
Mexico increased by $29,000, or 41%, from approximately $71,000 in 2002. The
increase in gross profit is consistent with the increase in sales volume.
Canada sales decreased 61% from approximately $113,000 in 2002 to
approximately $44,000. The decrease in sales was the result of lower margins
experienced by the Canadian processor, with commensurately fewer resources
available for marketing efforts directed at brand growth. We incurred cost of
goods sold of approximately $10,400 in 2003 in connection with its Canada sales,
a 56% decrease from approximately $23,500 in 2002. This decrease is consistent
with the decrease in sales volume.
In 2003, our gross profit of approximately $ 33,300 for kit sales in
Canada decreased by $55,700, or 63%, from approximately $89,000 in 2002. The
decrease in gross profit is consistent with the decrease in sales volume.
CHINA
Revenues in 2002 from kit sales in China decreased 61% from approximately
$55,000 in 2002 to approximately $21,300 in 2003. The decrease was the result of
the lack of sales in the retail area owing to competition, poor brand support
and production issues related to SARS. We incurred costs of goods sold of
approximately $9,200 in 2003 in connection with its China sales, an 83% decrease
from approximately $53,000 in 2002. This decrease is consistent with the
decrease in sales volume.
In 2003, our gross profit of approximately $12,000 for sales in China
increased by approximately $10,000, or 481%, from a gross profit of
approximately $2,000 in 2002.
CONSOLIDATED OPERATING EXPENSE
We incurred selling expenses in 2003 of approximately $1,740,000. Our
selling expense increased in 2003 by approximately $964,000, a 124% increase
compared to selling expense of approximately $776,000 in 2002. The increase in
selling expenses in 2003 was due in part to the fact that we continue to
implement its refined business plan in the U.S. with respect to unit sales,
where the majority of the selling expenses are incurred. Of the increase of
$964,000, approximately $232,000 was incurred for freight and delivery expense,
approximately $35,000 was related to marketing, approximately $380,000 for
various reclamation costs and approximately $320,000 for the write off of
product packaging costs resulting from the discontinuance of the Warner Bros.
Looney(TM) Tunes branded products. As a percentage of total revenue, our selling
expense increased from approximately 44% of total revenue in 2002 to
approximately 145% of total revenue in 2003. The increase was in part due to the
increase in reclamation costs in 2003.
19
We incurred product development costs in 2003 of approximately $5,500.
Product development expenses in 2003 decreased by approximately $233,728, or 98%
compared to approximately $239,000 in 2002. The decrease was mainly the result
of developing two new products and corresponding new packaging designs in 2002.
We incurred general and administrative expenses in 2003 of approximately
$2,250,000 consisting of $2,133,400 in its North America Bravo! operations and
$116,278 in its China operations. Our general and administrative expenses in
2003 decreased by approximately $1,366,000, a 38% decrease compared to
approximately $3,616,000 in 2002, of which approximately $3,424,000 was incurred
in our North America Bravo! operations and approximately $192,000 was incurred
in China. The decrease of approximately $1,290,000 in general and administrative
expenses in our North America Bravo! operations in 2003 is the result of a
reduction in expenses, including management salaries and the reclassification of
certain expense items as selling expenses that were reported for a portion of
2002 as general and administrative expenses. At the end of the first quarter
2003, two members of senior management left our company and were not replaced,
and in the last two quarters of 2003, three management personnel took an average
7% voluntary reduction in salary. As a percentage of total revenue, our general
and administrative expenses decreased from 204% in 2002 to 187% in 2003 due to
the reduction of 2003 expenses.
INTEREST EXPENSE
We incurred net interest expense in 2003 of approximately $29,500. Our
interest expense increased by approximately $6,500, a 29% increase, compared to
approximately $23,000 in 2002. The increase of $6,500 was due to outstanding and
additional loans in 2003.
LOSS PER SHARE
We recorded accrued dividends for approximately $902,000, including deemed
dividends, to various series of preferred stock during 2003. Compared to the
total accrued dividends on a consistent basis, we accrued dividends decreased by
approximately $110,000 due primarily to the conversion of preferred stock in
2003. With the decrease in net loss before accrued dividends of approximately
$143,000, our current year loss per share was $0.15 per share. Compared to loss
per share of $0.23 in 2002, the loss per share in 2003 decreased by $0.08, a 35%
decrease, mainly due to the increase of common stock in 2003 by 8,275,373 shares
in the weighted average number of common shares outstanding.
Liquidity and Capital Resources
As of March 31, 2004, we reported that net cash used in operating
activities was $772,250, net cash provided by financing activities was $800,000
and net cash used in investing activities was $1,133. We had a negative working
capital of $ 3,107,738 as of March 31, 2004.
Compared to $551,316 of net cash used in operating activities in the
period ended March 31, 2003, our current year net cash used in operating
activities increased by $220,934 to $772,250 due to the fact that we did not use
our equity to pay service providers in lieu of cash payments in this current
period. Included in the net loss in this current period were depreciation and
amortization and stock compensation of $149,100, compared to $54,202 for the
same period in 2003.
Changes in accounts receivable in this current period in 2004 resulted in
a cash increase of $5,877, compared to a cash increase in receivables of $65,187
for the same period in 2003, having a net result of a decrease of $59,310. The
changes in accounts payable and accrued liabilities in the period ended March
31, 2003 contributed to a cash increase of $158,340, whereas the changes in
accounts payable and accrued liabilities for the current period in 2004 amounted
to an increase of $409,736. We have adopted and will keep implementing cost
cutting measures to lower our costs and expenses and to pay our accounts payable
and accrued liabilities by using cash and equity instruments. Our cash flow
generated through operating activities was inadequate to cover all of our cash
disbursement needs in the period ended March 31, 2004, and we had to rely on
equity financing to cover expenses.
20
Our cash used in 2004 in investing activities for furniture and equipment
was $1,133 for computer equipment in the U.S. Compared to disbursements in the
same period in 2003, the $1,133 expenditure was insignificant.
Our net cash provided by financing activities for the period ended March
31, 2004 was $800,000. New cash provided by financing activities for the same
period in 2003 was $401,665, for a net increase of $3,98,335. The increase was
due to issuing Series K preferred stock with total proceeds of approximately
$800,000 in this current period.
We used the proceeds of the Series K issue for working capital purposes.
Notwithstanding total cash proceeds of $800,000, we owed approximately $917,000
as of March 31, 2004 for the note to Jasper Products.
Going forward, our primary requirements for cash consist of (1) the
continued development of the Company's business model in the United States and
on an international basis; (2) general overhead expenses for personnel to
support the new business activities; and (3) development, launch and marketing
costs for the our line of new aseptic branded flavored milk products. Our
estimates that we need for financing to meet cash needs for operations will
continue to the fourth quarter of 2004, when cash supplied by operating
activities will approach the anticipated cash requirements for operation
expenses. We anticipate the need for additional financing in 2004 to reduce our
liabilities, assist in marketing and to improve shareholders' equity status. No
assurances can be given that we will be able to obtain additional financing or
that operating cash flows will be sufficient to fund our operations.
We currently have monthly working capital needs of approximately $220,000.
Our company will continue to incur significant selling and other expenses in
2004 in order to derive more revenue in retail markets, through the introduction
and ongoing support of our new products. Certain of these expenses, such as
slotting fees and freight charges, will be reduced as a function of unit sales
costs as we expand our sales markets and increase our sales within established
markets. Freight charges will be reduced as we are able to ship more full
truck-loads of product given the reduced per unit cost associated with full
truck loads versus less than full truck loads. Similarly, slotting fees, which
are paid to warehouses or chain stores as initial set up or shelf space fees,
are essentially one-time charges per new customer. We believe that along with
the increase in our unit sales volume, the average unit selling expense and
associated costs will decrease, resulting in gross margins sufficient to
mitigate our cash needs. In addition, we are actively seeking additional
financing to support our operational needs and to develop an expanded
promotional program for our products.
We are continuing to explore new points of sale for our branded flavored
milk. Presently, we are aggressively pursuing the school and vending market
through trade/industry shows and individual direct contacts. The implementation
of such a school base program, if viable, could have an impact on the level of
our revenue during 2004. Similarly, we expect that the greater control over
sales resulting from our refined business model and the anticipated expansion
into bodega stores as well as national chains, such as 7-Eleven, will have a
positive impact on revenues in the second quarter of 2004.
In the third quarter 2003, we commenced an analysis of the Looney
Tunes(TM) brand performance within the context of the possible renewal of its
Warner Bros. licenses for United States, Mexico, China and Canada. In the fourth
quarter 2003, we concluded that, as a function of the sales of flavored milks,
the Looney Tunes(TM) brand has not supported the guaranteed royalty structure
required by Warner Bros. for our licenses. In the fourth quarter 2003, the
Company decided not to renew its license agreements with Warner Bros., and began
to develop new products in anticipation of the consummation of other license
relationships with Marvel Comics and MoonPie for co-branded flavored milk, as
well as a new single Slammers(R) brand. We have developed new aseptic products
in anticipation of these licenses and our own singular brand. We plan to launch
the following new products in the second quarter 2004.
BRAND MARVEL-SLAMMERS MOON PIE-SLAMMERS SLIM SLAMMERS PRO-SLAMMERS
------------------- --------------------------- ------------------------- --------------------- ----------------------
Item Ultimate Milkshake Flavored milk; reduced Low calorie, no Protein Shake
fat 2% milk sugar added, low
carb 1% milk
------------------- --------------------------- ------------------------- --------------------- ----------------------
Licensed Property Marvel Super Hero comic MoonPie logo and trade Slim Slammers Extreme Sports
book characters and dress, and Slammers trademark (owned by athletes, and Pro
Slammers mark (owned by mark (owned by Bravo! Bravo! Foods) Slammers mark (owned
Bravo! Foods) Foods) by Bravo! Foods)
------------------- --------------------------- ------------------------- --------------------- ----------------------
Packaging 16 oz bottles; 11.2 oz 16 oz bottles; 11.2 oz 16 oz bottles 16 oz bottles; 11.2
Tetra Prisma Tetra Prisma oz Tetra Prisma
------------------- --------------------------- ------------------------- --------------------- ----------------------
Description Whole milk shake; 5 Chocolate and banana Chocolate Fudge and Double protein
flavors; vitamin flavors; fortified with French Vanilla; shake; 4 flavors;
fortification matches 10 essential vitamins calcium added fortified with 10
Marvel Super Hero powers essential vitamins
------------------- --------------------------- ------------------------- --------------------- ----------------------
Coincident with these new licenses, we executed a production agreement
with Saudia Dairy & Foodstuff Company (SADAFCO), one of the largest Middle East
dairy processors, headquartered in Jeddah, Saudi Arabia. SADAFCO will process
our Slammers (R) branded flavored milks, including the Marvel line, for
distribution in nine Middle East countries. SADAFCO has the capacity to process
our branded milk products for distribution throughout the European Community.
Our international business is facilitated by AsheTrade, our international agent,
with offices in Miami, FL and Jeddah, Saudi Arabia.
DEBT STRUCTURE
As of March 31, 2004, we held two licenses for Looney Tunes(TM) characters
and names from Warner Bros. Our company accounts for the guaranteed royalty
payments under these licenses as debt and licensing rights as assets. The
following is a summary of the balances owed as of March 31, 2004 and the license
expiration dates:
Amount
LICENSE Guaranty Balance Due Past Due Expiration Date
---------------------------------------------------------------------------------------------------------
U.S. License $ 500,000 $ - $ - 12/31/03
U.S. TAZ $ 250,000 $ - $ N/A
China $ 400,000 $ 147,115 $ 147,115 10/29/03
Mexico $ 145,000 $ $ 05/31/04
Canada $ 32,720 $ - $ - 03/31/04
The China license had been extended to October 29, 2003 by agreement of
the parties, and we did not seek another license from Warner Bros. for China.
This decision was based upon the lack of sales in our China markets and what we
perceived to be the licensor's continuing overall lack of brand support in
China. Our company and Warner Bros. dispute the contractual necessity of the
payment of the balance owed on the China license as a result of the above
circumstances.
INTERNATIONAL PAPER
During the process of acquiring from American Flavors China, Inc. the 52%
of equity interest in Hangzhou Meilijian, we issued an unsecured promissory note
to assume the American Flavors' debt owed to a supplier, International Paper.
The face value of that note was $282,637 at an interest rate of 10.5% per annum,
without collateral. The note had 23 monthly installment payments of $7,250 with
a balloon payment of $159,862 at the maturity date of July 15, 2000. On July 6,
2000, International Paper agreed to extend the note to July 1, 2001, and the
principal amount was adjusted due to a different interest calculation.
International Paper imposed a charge of $57,000 to renegotiate the note owing to
the failure of Hangzhou Meilijian to pay for certain packing material, worth
more than $57,000 made to order in 1999. The current outstanding balance on this
note is $187,743. We are delinquent in our payments under this note.
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INDIVIDUAL LOANS
On November 6 and 7, 2001, respectively, we received the proceeds of two
loans aggregating $100,000 from two offshore lenders. The two promissory notes,
one for $34,000 and the other for $66,000, were payable February 1, 2002 and
bear interest at the annual rate of 8%. These loans are secured by a general
security interest in all our assets. On February 1, 2002, the parties agreed to
extend the maturity dates until the completion of the anticipated Series H
financing. On June 18, 2002, the respective promissory note maturity dates were
extended by agreement of the parties to December 31, 2002. On June 18, 2002, we
agreed to extend the expiration dates of warrants issued in connection with our
Series D and F preferred until June 17, 2005 and to reduce the exercise price of
certain of those warrants to $1.00, in partial consideration for the maturity
date extension. The holders of these notes have agreed to extend the maturity
dates and the notes are now payable on a demand basis.
On August 27, 2003, we received the proceeds of a loan from Mid-Am
Capital, L.L.C., in the amount of $150,000. The note was payable November 25,
2003 and bears interest at the annual rate of 10%. This loan is secured by a
general security interest in all our assets. On April 2, 2004, this note was
paid and cancelled.
On January 28, 2004, we converted accounts payable in the amount of
$1,128,385 by the issuance of a 10% short term promissory note to Jasper
Products, LLC, dated January 1, 2004, in the principal amount of $1,128,385 for
amounts owed to Jasper in connection with Jasper's processing and sale of our
products. As of March 31, 2004, we paid $200,000 in principal and was credited
an additional $11,350. On April 20, 2004, we paid an additional $200,000. On May
7, 2004, we paid $718,368 in full payment of the note's principal and accrued
interest.
On May 6, 2004, we issued a secured promissory note to Mid-Am Capital LLC
in the principal amount of $750,000. The note provides for 8% interest and has a
maturity date of September 4, 2004. We issued warrants to purchase 3,000,000
shares of our common stock to Mid-Am in connection with this promissory note.
The warrants are exercisable for one year from issue at an exercise price of
$0.25 per share. We used the proceeds of this promissory note to pay the
promissory note issued to Jasper Products in January 2004.
CONVERTIBLE DEBENTURES
To obtain funding for our ongoing operations, we entered into the two
financing transactions.
NOVEMBER 2003
In November 2003, we entered into a Subscription Agreement with two
accredited investors in for the sale of (i) $400,000 in convertible debentures,
(ii) class A warrants to buy 2,000,000 shares of our common stock and (iii)
class B warrants to buy 10,000,000 shares of common stock. In connection with
this financing, we paid a fee, which included (i) 400,000 shares of common
stock, (ii) class A warrant to purchase 2,000,000 shares of common stock and
(iii) 10% of the proceeds received by us in connection with the exercise of the
class B warrants, which is payable in shares of common stock at the rate of one
share of common stock for every ten shares of common stock actually issued upon
exercise of the class B warrants.
The debentures issued in connection with the November 2003 financing bear
interest at 8%, mature on two years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.05 or (ii) 75% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 30 trading
days before but not including the conversion date. However, during the six
months after the issuance of the convertible debenture, the conversion price
shall not be less than $.03 per share unless an event of default exists. The
conversion floor price of $.03 per share shall be extended indefinitely, if
during the six months after the issuance of the convertible debenture (i) the
closing trading price of our common stock for any consecutive 15 day trading
period is $.20 or higher, (ii) the daily trading volume for each such 15 trading
days is 300,000 or more shares of common stock and (iii) the registration
statement registering the shares issuable under the convertible debenture is
effective for each such 15 trading days, unless an event of default exists.
Accordingly, if the above factors are not satisfied, there is in fact no limit
on the number of shares into which the debentures may be converted. As of April
30, 2004, the average of the three lowest intraday trading prices for our common
stock during the preceding 30 trading days as reported on the Over-The-Counter
Bulletin Board was $.14 and, therefore, the conversion price for the convertible
debentures was $.05. Based on this conversion price, the $400,000 convertible
debentures, excluding interest, were convertible into 8,000,000 shares of our
common stock.
22
The selling stockholders have contractually agreed to restrict their
ability to convert or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock. See the "Selling Stockholders"
and "Risk Factors" sections for a complete description of the convertible
debentures.
This prospectus relates to the resale of the shares of common stock and
the common stock underlying these convertible debentures and warrants.
APRIL 2004
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. In connection with
this financing, we paid a fee, which included an aggregate of convertible
debentures in the amount of $50,000.
The debentures issued in connection with the April 2004 financing bear
interest at 10%. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. On October 1, 2005, all
principal and interest shall become due. In the event that our common stock has
a closing price in excess of $.20 for the five days preceding the monthly
payment, then, within our discretion, the monthly payment may be deferred. The
notes are convertible into our common stock at $0.10 per share. Based on this
conversion price, the $550,000 convertible debentures, excluding interest, were
convertible into 5,500,000 shares of our common stock.
The selling stockholders have contractually agreed to restrict their
ability to convert or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock. See the "Selling Stockholders"
and "Risk Factors" sections for a complete description of the convertible
debentures.
EFFECTS OF INFLATION
We believe that inflation has not had any material effect on its net sales
and results of operations.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
Our Shanghai subsidiary is located in China. We buy and sell products in
China using Chinese renminbi as the functional currency. Based on Chinese
government regulation, all foreign currencies under the category of current
account are allowed to freely exchange with hard currencies. During the past two
years of operation, there were no significant changes in exchange rates.
However, there is no assurance that there will be no significant change in
exchange rates in the near future.
23
BUSINESS
OUR COMPANY
Our company is a Delaware corporation, which was formed on April 27, 1996. Our
company formerly owned the majority interest in two Sino-American joint ventures
in China, known as Green Food Peregrine Children's Food Co. Ltd. and Hangzhou
Meilijian Dairy Products Co., Ltd. These two joint ventures processed milk
products for local consumption in the areas of Shanghai and Hangzhou, China,
respectively. We closed Green Food Peregrine in December 1999 and sold its
interest in Hangzhou Meilijian Dairy in December 2000.
In December 1999, we obtained Chinese government approval for the
registration of a new wholly owned subsidiary in the Wai Gao Qiao "free trade
zone" in Shanghai, China. We formed this import-export company to import, export
and distribute food products on a wholesale level in China. In addition, China
Premium (Shanghai) is our legal presence in China with respect to contractual
arrangements for the development, marketing and distribution of branded food
products. We have ceased all business activities of this Chinese subsidiary in
the first quarter of 2003, owing to low sales volume and insufficient financial
or logistic resources to market our products profitably in mainland China.
In December of 1999, we formed Bravo! Foods, Inc., a wholly owned Delaware
subsidiary, which we utilized to advance the promotion and distribution of
branded Looney Tunes(TM) products in the United States, through production
agreements with local dairy processors. At the end of 2001, we assumed this
business, and our U.S. subsidiary ceased functioning as an operating company at
that time.
On February 1, 2000, we changed our name from China Peregrine Food
Corporation to China Premium Food Corporation, and on March 16, 2001 we changed
our name to Bravo! Foods International Corp.
THE BUSINESS
Our business involves the development and marketing of our owned
Slammers(R) trademarked brand, the obtaining of license rights from third party
holders of intellectual property rights to other trademarked brands, logos and
characters and the granting of production and marketing rights to processor
dairies to produce branded flavored milk utilizing our intellectual property. We
generate revenue primarily through the sale of "kits" to these processors. In
the United States, we also generates revenue from the unit sales of finished
branded flavored milks to retail consumer outlets.
"Kits" sold to processors consist of flavor ingredients that are developed
and refined by us and the grant of production rights to processors to produce
the flavored milks. The consideration paid to us under these production
contracts consists of fees charged for our grant of production rights for the
branded flavored milks plus a charge for flavor ingredients. The fees charged by
us for the production rights have been formulated to match our royalty costs for
our intellectual property licenses.
WARNER BROS. LICENSES
In January 1999, we commenced a licensing agreement with Warner Bros.
Consumer Products, permitting us to produce and distribute a line of high
quality, flavored milks branded with the Warner Bros. Looney TunesJ logos,
characters and names in the Shanghai and Hangzhou greater metropolitan areas. To
obtain this license, we agreed to pay 3% royalty fees of net invoiced price of
each licensed product with a minimum guaranteed royalty of $300,000. In the
summer of 2000, we agreed to pay an additional $100,000 for an expanded license
for all of mainland China and an extension of the expiration date to June 2003.
Thereafter, the parties agreed to extend the license to October 29, 2003, at
which time the license expired.
On July 27, 2000, we executed a licensing agreement with Warner Bros. to
use Looney TunesJ characters and names on milk products in the United States.
This licensing agreement obligated us to pay a guaranteed royalty of $500,000,
and granted us the right to use the cartoon characters of Bugs Bunny, Tweety,
Tasmanian Devil, Road Runner, Wile E Coyote, Lola Bunny, Marvin the Martian,
Sylvester and Daffy Duck on milk products for sale in specified retail outlets
in the fifty United States, Puerto Rico and the United States Virgin Islands.
The initial term of the agreement was for 3 years, from January 1, 2000 through
December 31, 2002. In early 2002, the parties agreed to extend the term of this
license for an additional year to December 31, 2003. This extension was part of
a promotional license for the Warner Bros. "Taz Atti-Tour" for the period March
13, 2002 to December 31, 2002, for which we paid an additional $250,000
guaranteed royalty.
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On November 7, 2001, we executed a licensing agreement with Warner Bros.
to use Looney TunesJ characters and names on milk products in Mexico. This
licensing agreement grants us the right to use the Warner Bros. cartoon
characters on milk products for sale in specified retail outlets throughout
Mexico. The initial term of the agreement is for 3 years, from June 1, 2001
through May 31, 2004.
On May 28, 2002, we executed a licensing agreement with Warner Bros. to
use Looney TunesJ characters and names on milk products in Canada. This
licensing agreement grants us the right to use the Warner Bros. cartoon
characters on milk products for sale in specified retail outlets throughout
Canada. The initial term of the agreement was for 25 months, from March 1, 2002
through March 31, 2004.
All of our licensing agreements recognize that we will use third party
production agreements for the processing of flavored milk products, and that the
milk products will be produced and may be sold directly by those processors. Our
responsibilities under its third party production agreements are to design and
provide Warner Bros. approved packaging artwork, to help determine the best
tasting flavors for the particular market and to assist in the administration,
promotion and expansion of the Looney TunesJ branded milk program. Ingredients
for the flavored milks are formulated to the Company's specifications and
supplied on an exclusive basis by Givaudan Roure. In the United States, the
Company assumes the responsibility for sales and marketing of the Looney TunesJ
flavored milks produced by Jasper Products and Shamrock Farms.
Under our United States license, we agreed to a royalty rate of 5% on the
amount invoiced to the producer dairies for "kits". In Mexico, we agreed to a
sliding scale royalty rate initially equal to 5% on the amount invoiced, with
rate increases to 5% and 7%, respectively for the second and third contract
years. We agreed to a 5% royalty rate on the amount invoiced to the producers in
Canada and a 3% royalty rate in China.
NON-RENEWAL OF WARNER BROS. LICENSES.
The history of our company with all of the Warner Bros. licenses, as a function
of sales of the flavored milks, has not supported the guaranteed royalty
structure required by Warner Bros. for its licenses. As a result, we developed
our own Slammers(R)brand in 2003 and executed licenses with Marvel Comics and
Moon Pie in 2004. For these reasons, in the fourth quarter 2003, we decided not
to seek the renewal for the China license and not accept the offer of Warner
Bros. to renew the U.S. license. In addition, we decided not to renew our
licenses with Warner Bros. for Canada and Mexico.
PRODUCTION CONTRACTS
Prior to 2000, our company's business primarily involved the production and
distribution of milk in China. In the third quarter of 2000, our company began
to refocus our company's business away from the production - distribution aspect
of the value chain by implementing a business model that involved the branding,
marketing, packaging design and promotion of flavored fresh milk in the United
States, branded with Looney Tunes(tm) characters. During the middle of 2001,
this refocused business was implemented in China, in December 2001 in Mexico,
and in the third quarter of 2002 in Canada.
United States
The initial dairy processors with which we had production contracts were members
of Quality Chekd Dairies, Inc., a national cooperative with over 40 member
dairies that process fresh milk on a regional basis. This business, while
viable, proved to have limited sales expansion capabilities in the US owing to
the inherent regional distribution limitations of a "fresh" milk product with a
short shelf life.
25
The advent of extended shelf life (ESL) and aseptic long life milk presented us
with the opportunity to dramatically increase sales on a national basis. In the
third quarter of 2001 and the first quarter of 2002, we entered into production
contracts with Shamrock Farms, located in Phoenix, Arizona and Jasper Products,
of Joplin, Missouri, and began to market branded ESL and aseptic flavored milks
to large national chain accounts.
Significantly, with ESL and aseptic milks, we are no longer dependent upon
regional processor dairies to promote the sale of our branded flavored milks.
Since distribution issues do not limit ESL and aseptic milk sales to the
accounts of regional dairy processors, we have assumed responsibility for
promoting sales either directly or through food brokers who represent us with
both national and regional accounts. This business model, coupled with the
production capacity of these two ESL dairy processors, allowed us to seek
national accounts in an aggressive fashion, resulting in arrangements to supply
flavored milk products to over 11,000 stores nationally at the end of 2002.
Under our current U.S. business model, our revenue source is derived not
only from "kit" sales, but also from the differential between the cost to our
company of producing the ESL and long life aseptic products and the wholesale
price to our accounts for unit sales of the finished Looney Tunes(TM) flavored
milks.
In June 2002, we entered into a production contract with a division of
Parmalat USA Corp. to produce, market and sell the Looney Tunes(TM) brand
flavored milks. Under this agreement, Parmalat is the exclusive producer and
distributor of Bravo! Foods' new Looney Tunes(TM) brand fortified aseptic milk,
packaged in Tetra-Brik(TM) format under our Slammers Fortified Reduced Fat
Milk(TM) logo in the United States. Our agreement with Parmalat gives us an
expanded presence in supermarkets through the use of shelf stable aseptic milk
that is processed, sold and distributed by Parmalat. In addition, under this
agreement we retained responsibility for aseptic product sales in the food
service sector, either directly or through food brokers who represented us with
both national and regional accounts. Our agreement with Parmalat expired with
the non-renewal of the Warner Bros. license for the United States.
Mexico
In December 2001, we commenced our contractual relationship with Neolac
S.A, a national dairy processor located in central Mexico. We sell kits to
Neolac, including production rights for its branded flavored milk for all of
Mexico. Our responsibilities are to design and provide approved packaging
artwork, to help determine the best tasting flavors for the particular market
and to assist in the administration, promotion and expansion of the branded
flavored milk program. Ingredients for the flavored milks are formulated to our
specifications and supplied on an exclusive basis by Givaudan Roure. We do not
have any responsibility for or participation in sales or distribution in Mexico.
Canada
In April 2002, we commenced our contractual relationship with Farmers
Dairy, a dairy processor located in Halifax, Nova Scotia, Canada. We sell kits
to Farmers Dairy, including production rights for the branded flavored milk
products. Our responsibilities are to design and provide approved packaging
artwork, to help determine the best tasting flavors for the particular market
and to assist in the administration, promotion and expansion of the branded
flavored milk program. Ingredients for the flavored milks are formulated to the
Company's specifications and supplied on an exclusive basis by Givaudan Roure.
We do not have any responsibility for or participation in sales or distribution
in Canada.
China
Our withdrawal from milk production in China in 2000 resulted in the
signing of supply agreements with Hangzhou Meilijian and Huai Nan Dairy to
produce branded traditional white and flavored milks, which the Company sold in
Shanghai, Hangzhou, Ningbo, Nanjing, Fuzhou, Wuxi and Suzhou. The administration
of supply, distribution, marketing and sales of the branded flavored milk
products in China was the responsibility of China Premium Food Corp Shanghai)
Co, Ltd., our wholly owned Chinese registered subsidiary.
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In October 2001, China Premium Food Corp (Shanghai) Co, Ltd .began to
implement the Bravo! "kit sales" model with the execution of a production
contract with Kunming Xuelan Dairy, located in Kunming City in Southwest China.
From October 2001, through the third quarter 2002, Kunming Dairy produced the
Company's branded flavored milks in 250ml single serve gable top packaging. In
January 2002, Heilongjiang Wan Shan Dairy (Wonder Sun Dairy) began producing the
vanilla Looney Tunes(TM) flavored milk. This dairy is located in Harbin City in
Northeast China and has distribution rights to Heilongjiang, Jilin, Liaoning and
Hebei provinces as well as Beijing and Tianjin municipalities.
As of December 31, 2003, China Premium Food Corp (Shanghai) Co, Ltd.
ceased business activities in China. We closed all operations of this subsidiary
in the first quarter of 2004.
PRODUCTS
Commencing in September of 2000, we implemented the "kit" sales program
with third party dairy processors in the United States, for the production and
sale of fresh branded flavored milk in single serve plastic bottles. This
product, as with all of our U.S. products up to September 2000, had a limited
shelf life of, generally, 21 days.
In early 2002, we developed branded extended shelf life and aseptic long
life flavored milk products. The extended shelf life product was sold in 11.5oz
single serve plastic bottles and must be refrigerated. The shelf life of this
product is 90 days. Our aseptic product does not require refrigeration and has a
shelf life of 8 months. This product is packaged in an 11.2oz Tetra Pak
Prisma(TM) sterile paper container. Both of these products were introduced to
the public in the second and third quarters of 2002.
Commencing in May 2002, we developed a new branded fortified flavored milk
product under the "Slammers Fortified Reduced Fat Milk(R)" brand name. Our
Slammers brand is used in conjunction with our licensed third party trademarks.
Slammers(R) is made from 2 percent fat milk and is fortified with 11 essential
vitamins. The introduction of this new product and the phase out of our
"regular" branded milks occurred in the fourth quarter of 2002. Our Slammers(R)
flavored milks are sold in the United States in single serve extended shelf life
11.5 oz plastic bottles, as well as the long life 11.2oz aseptic Tetra Pak
Prisma(TM) package. Our Slammers(R) flavored milks are sold in Mexico and Canada
in single serve extended shelf life 11.5 oz plastic bottles.
In October 2002, Parmalat introduced Looney Tunes(TM) brand fortified
aseptic milk, packaged in an 8oz Tetra-Brik(TM) format under our Slammers
Fortified Reduced Fat Milk(R) logo pursuant to a production agreement with us
executed in June 2002. The 8oz Tetra Brik Slammers(R) does not require
refrigeration and has a shelf life of 6 months. Currently, this product is no
longer available.
In November 2002, we introduced Slim Slammers Fortified Milk(R), a low
calorie version of our Slammers Fortified Reduced Fat Milk(R). Slim Slammers
Fortified Milk(R) has no sugar added and is sweetened with sucralose, a natural
sweetener made from sugar. Slim Slammers Fortified Milk(R) is made from 1
percent fat milk, is fortified with 11 essential vitamins and is available in
the same flavors as our Slammers(R) brand. We will reintroduce this product in
the United States with a new package and formulation in 2004.
NEW PRODUCTS
In the third quarter 2003, we commenced an analysis of the Looney
Tunes(TM) brand performance within the context of the possible renewal of its
Warner Bros. licenses for United States, Mexico, China and Canada. In the fourth
quarter 2003, we concluded that, as a function of the sales of flavored milks,
the Looney Tunes(TM) brand has not supported the guaranteed royalty structure
required by Warner Bros. for its licenses. In the fourth quarter 2004, we
decided not to renew our license agreements with Warner Bros. and began to
develop new products in anticipation of the consummation of other license
relationships for co-branded flavored milk with Marvel Comics and MoonPie, as
well as a new single Slammers(R) brand. We plan to launch these products in the
second quarter 2004 on a co-branded basis with Marvel Comics and a separate
co-branded line with MoonPie.
INDUSTRY TRENDS
The dairy industry in the western world is a very mature industry with
slow growth and, to a large extent, commodity like margins. The "got milk"
campaign has helped heighten awareness of the nutritional benefits of dairy
products but, even with this promotion, the US consumption of milk was basically
flat two years ago.
27
Flavored milk was the only area of growth in the past two years and, when
promoted aggressively, the sales of flavored milk actually increased the sales
of traditional white milk. The International Dairy Foods Association reported
that flavored milks represent the only category for price and margin gains. As a
result, Nestles, Dean's, Hershey and Borden all promote their brand of
refreshment drinks. Sales of flavored milks for the last two years continued to
have a 7% gain in product volume and a 12% increase in sales measured in
dollars. Growth of this nature is welcome to this industry and validates the
interest by the trade in products like the Company's Slammers brand Looney
Tunes(TM) milk. The Beverage Marketing Corp. projects that growth in white milk
will be flat to .5%, with growth in flavored milks from 4% to 8% per year over
the next five years. Growth in the distribution of single serve milk products is
projected by this research group at from 10% to 20%.
MARKET ANALYSIS
The flavored milk business is a relatively new category in the dairy
field. The flavored "refreshment" segment is both the fastest growing and most
profitable category in the industry and is receiving the most attention in the
industry today. Pioneered by Nestle with the NesQuik line and Dean Foods with
the Chug brand, this "good for you" segment is in demand both in the U.S. and
internationally.
The International Dairy Foods Association reports that, although flavored
milk currently amounts to only 5 to 6 percent of milk sales, it represents over
59% of the growth in milk sales. With the total milk category exceeding $9.3
billion in 2002, the flavored segment was approximately $496 million.
Statistically, as the flavored segment grows, the entire category grows as well.
Selling more flavored milks has resulted in more sales of white milk as well.
In addition, the International Dairy Foods Association and Dairy
Management Inc. have reported on studies suggesting that dairy products may help
in weight loss efforts when coupled with a reduced calorie diet, based on data
associating adequate calcium intake with lower body weight and reduced body fat.
We continue to develop a niche in the single serve flavored milk business
by utilizing strong, national branding as part of the promotion of our
Slammers(R) and Slim Slammers(R) products. This niche has as its focus the
increased demand for single serve, healthy and refreshing drinks.
Market segment strategy
The Bravo! model addresses a very clear and concise target market. We know
from experience that the largest retailers of milk products are demanding new
and more diverse refreshment drinks, specifically in the dairy area in response
to consumer interest and demand. To that end, we have and will continue to
differentiate our products from those of our competitors through innovative
product formulations and packaging designs, such as those implemented in our
Slammers fortified milk product line and our Slim Slammers(R) low calorie, no
sugar added products.
Our Slammers(R) milk products have had promising results penetrating this
arena as consumers continue to look for healthy alternatives to carbonated
beverages. The positioning of our products as a healthy, fun and great tasting
alternative refreshment drink at competitive prices to more traditional
beverages creates value for the producer and the retailer alike. This "profit
orientation" for the trade puts old-fashioned milk products in a whole new
light. The consumer is happy, the retailer is happy and the producer is able to
take advantage of the value added by the brand and the resulting overall
increase in milk sales.
We have been and continue to pursue a strategic goal of placing our
Slammers(R) milks in elementary, middle and high schools through ala carte lunch
programs and vending facilities in school cafeterias and are promoting our Slim
Slammers milks as low calorie, non-sugar added alternatives to traditional soft
drinks Penetration of this market segment has been limited by logistic and
economic concerns of school administrators in the push to remove traditional
carbonated soft drinks from schools in favor of milk and milk based products.
28
COMPETITION
There are definite differences in the various competitors approach to this
new segment. The differences address packaging, processing, marketing and
distribution. Bravo! has taken the course of least resistance while producing a
product that is positioned to reward all involved economically.
Dean Foods based their market entrance five years ago on a new package
called the Chug. This was an innovative new way to market milk in a format that
made it convenient to drink milk "on the fly". The "chug" bottle was introduced
in 8 oz and 16 oz plastic milk bottles. These bottles have a wide mouth opening
and a very attractive screw top for convenience of sealing. The graphic label on
the bottle was a full wrap and was introduced in both white and chocolate
flavors. Currently, Dean is producing a flavored milk line under a license from
Hershey's.
Nestle launched their new line of flavored milks approximately four years
ago with a shaped bottle, the Nestle "bunny" and a broad line of flavors.
Nestle, branding Nesquick as a new name distinct from Nestle Quick, produces a
sterile aseptic product, which has long-life characteristics enabling fast
national penetration. This long shelf life configuration offers considerable
economic advantages in terms of shipping, storage, returns and production
economies but significantly impacts product quality and taste.
We have settled on the effort to develop and promote a taste tested ultra
quality fresh product, while enjoying the instant recognition of international
brands. We have sought and utilized what are believed to be well recognized
families of intellectual properties in the form of cartoon/comic book
characters. We have been able to enter into production contracts with several
national and international dairies and has moved from fresh milk to ESL and
aseptic long shelf life products to expand the market for our branded products.
Our resources for promotions have been limited, and we run significantly
less promotional activities in comparison to our competitors. Where we are in
direct competition with Nestles and Hershey's, however, we have been able to
maintain competitive sales levels.
Employees
We have seven full time employees located at our North Palm Beach
corporate offices. China Premium Food Corp (Shanghai) Co. Ltd., ceased
operations and does not maintain any employees in China.
DESCRIPTION OF PROPERTY
Neither our company nor our subsidiaries currently own any real property. As of
February 1, 1999, we moved our corporate offices from West Palm Beach to 11300
US Highway 1, Suite 202, North, Palm Beach, Florida, pursuant to a lease with
HCF Realty, Inc., having an initial term of five years. The term of this lease
has been extended for five years to May 31, 2009, at a 25% reduction in base
rent. The current monthly rent amounts to approximately $6,393.
We do not have a policy to acquire property for possible capital gains or
income generation. In addition, we do not invest in securities of real estate
entities or developed or underdeveloped properties.
29
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors, executive officers and significant employees/advisors are as of
April 30, 2004, as follows. Our directors serve for staggered terms of two years
or until their successors are elected.
On March 6, 2003, the Board voted to reduce the board positions by one to
nine.
NAME OF OFFICER AND AGE POSITION WITH THE COMPANY YEAR
APPOINTED
-------------------------------------------------------------------------------------------------------
Bravo! Foods International Corp.
Stanley A. Hirschman 57 Chairman and Director 2000
Roy G. Warren 48 Director, Chief Executive Officer 1997/1999
Tommy E. Kee 55 Chief Financial Officer, Treasurer 2003
Roy D. Toulan, Jr. 58 Vice President, Corporate Secretary, General Counsel 2003
Michael Edwards 44 Vice President Sales 2000
Benjamin Patipa 48 Vice President, Schools/Vending 2002
Arthur W. Blanding 76 Director 1999
Robert Cummings 61 Director 1997
Paul Downes 42 Director 1997
John McCormack 45 Director 1997
Phillip Pearce 73 Director 1997
China Premium Food Corp (Shanghai) Co., Ltd. - Chinese subsidiary
Roy G. Warren 47 Director , Chairman 1999
Roy D. Toulan, Jr. 58 Director 2003
Michael Edwards 44 Director 2003
The experience and background of the Company's executive officers follow:
Mr. Stanley A. Hirschman - Chairman and Director since September 2000
Mr. Hirschman is president of CPointe Associates, Inc., an executive
management and consulting firm specializing in solutions for emerging companies
with technology-based products. CPointe was formed in 1996. In addition, he is a
director of Redwood Grove Capital Management, LLC, Global Marketing Partners,
Inc. and AirNET Wireless, LLC. Prior to establishing CPointe Associates, Mr.
Hirschman was vice president of operations of Software, Etc., Inc., a retail
software chain, from 1989 until 1996. Mr. Hirschman has also held senior
management positions with retailers T.J. Maxx, Gap Stores and Banana Republic.
Mr. Hirschman currently serves on the Audit Committee of the Company's board of
directors.
Mr. Roy G. Warren - Chief Executive Officer since May 1999; Director since 1997
Mr. Warren serves as our Chief Executive Officer and as a director. As
Chief Executive Officer, Mr. Warren continues to develop strategy for our growth
and external financial matters.
For 15 years from 1981 through 1996, Mr. Warren was in the securities
brokerage industry. During those years, Mr. Warren acted as executive officer,
principal, securities broker and partner with brokerage firms in Florida, most
notably Kemper Financial Companies, Alex Brown & Sons and Laffer Warren &
Company. Mr. Warren currently serves on the Executive Committee of the Company's
board of directors.
30
Mr. Warren also serves as a director of our U.S. subsidiary, Bravo! Foods,
Inc. and our wholly owned Chinese subsidiary, China Premium Food Corp (Shanghai)
Co., Ltd.
Mr. Tommy E. Kee - Chief Financial Officer, Treasurer since 2003
Tommy Kee joined our company in March 2003 as Chief Financial Officer. He
graduated with an MBA from the University of Memphis and a BS degree in
accounting from the University of Tennessee. Before joining us, he served for
several years as CFO for Allied Interstate, Inc. in the West Palm Beach area.
Prior to that, Mr. Kee served as CFO and Treasurer for Hearx Ltd. a West Palm
Beach, Florida public company. He also served 18 years as International
Controller and Financial Director with the Holiday Inns Inc. organization in
Memphis and Orlando. Mr. Kee handles all financial management and reporting for
the Company and works closely with our external auditors and general counsel for
financial reporting and SEC compliance.
Roy D. Toulan, Jr. - Vice President, Corporate Secretary, General Counsel since
2003
Roy Toulan began with the original founders as outside corporate counsel
in 1997 and has been responsible for all of our corporate and business legal
work, including securities matters. Mr. Toulan became Corporate Counsel in
October 2002, when he left his private legal practice in Boston, and Vice
President in January 2003. He received his law degree from Catholic University
in Washington D.C., and for the first 15 years of his career practiced corporate
and securities litigation with large law firms in New York and Boston. Before
joining our company full time, he spent the last 18 years in private practice in
Boston, Massachusetts in general corporate and securities law helping companies
with corporate structure and funding, both domestically and internationally.
Mr. Michael Edwards - Vice President Sales since 2003
Mr. Edwards has been with our company in a sales and marketing capacity
since 2000. Prior to that time, he worked for 5 years in beverage marketing
research for Message Factors, Inc., a Memphis, Tennessee marketing research
firm. Mr. Edwards has a BS degree from Florida State University in Management
and Marketing and spent 13 years in the banking industry, leaving CitiBank to
join Message Factors in 1995.
Dr. Benjamin Patipa - Vice President, Schools/Vending since 2002
Dr. Patipa is a pediatrician with over fifteen years of experience in
directing operations, marketing, sales and facilitating growth in both public
and private companies. In 1987, Dr. Patipa founded and served as the chairman
and CEO of Weight For Me, Inc., a company that developed a proprietary program
which pioneered the delivery of weight control and nutrition services to the
over 12 million obese children and adolescents in America. Weight For Me earned
national and international recognition as the premier program for the control of
obesity in children and adolescents. Dr. Patipa also served at HEARx Ltd. as a
member of the Executive Operating Committee and Sonus USA, Inc., where he lead
the company's franchise licensing and buying group business in the Southeast
United States. Most recently, Dr. Patipa served as Senior Vice President and
Operational Head of eHDL/HealthNet Data Link, Inc., a national electronic
healthcare information company.
Mr. Arthur W. Blanding - Director Since November 1999
Mr. Blanding is president of The Omega Company, an international dairy
industry consulting company. Mr. Blanding has over 50 years experience in
management of dairy processing, sales and strategic planning consulting. He
graduated from Michigan State University in 1956, with a degree in food science,
and in 1964 from Oregon State University with a degree in Food Microbiology and
attended Harvard Business School.
As President of The Omega Company for the past 20 years, Mr. Blanding has
completed over 200 projects successfully, both in the U.S. and abroad. Clients
of The Omega Company include Abbott International, Cumberland Farms, Dairy Gold,
Farm Fresh, Inc., Haagen Dazs, Labatt, Ross Laboratories and Stop & Shop
Company, among others. Mr. Blanding was a consultant for the design and
construction of the dairy processing facility built in Shanghai by Green Food
Peregrine. The Omega Company is a party to a consulting contract with the
Company concerning technical and production issues.
31
Mr. Robert J. Cummings - Director Since 1997
Mr. Cummings' work experience includes ten years in purchasing at Ford
Motor Company. In 1975, he founded and currently operates J & J Production
Service, Inc., a manufacturing representative business, which is currently
responsible for over $300 million in annual sales.
Mr. Paul Downes - Director Since 1997
Mr. Downes is a director and, from August of 1997 to April of 1998, served
as our Chairman. For the past 12 years, Mr. Downes has managed his personal
diverse portfolio of international investments with concentration in the United
Kingdom, Eastern Europe, North Africa and Asia. In 1985, he founded a group of
nursing homes for the elderly in Great Britain, which he sold in 1990. Prior to
that time, Mr. Downes spent several years organizing golf tournaments and
international golf matches in Malaysia, Singapore, Thailand, Philippines,
Indonesia and Hong Kong, spending two years living in Southeast Asia. Mr. Downes
is one of our "founders" and played a leading role in our initial raising
efforts. From 2001, Mr. Downes has served as the Chairman of a start up software
company located in Delray Beach, Florida.
Mr. Phillip Pearce - Director Since 1997
Mr. Pearce is a "retired" member of the securities industry. Mr. Pearce
served as Chairman of the NASD during which time he was instrumental in the
founding of NASDAQ. Additionally, Mr. Pearce was a former Director of E.F.
Hutton and has served as Governor of the New York Stock Exchange. Since his
retirement in 1988, Mr. Pearce has remained active in the securities industry as
a corporate financial consultant. Mr. Pearce serves on the compensation
committee of our board of directors. Mr. Pearce also serves on our audit
committee. Mr. Pearce serves as a director of Xybernaut Corporation, a reporting
company, and Redwood Grove Capital Management, LLC.
Based upon a review of the appropriate Forms 3, 4 and 5 and any amendments
to such forms filed pursuant to Section 16(a), the Company reports the following
delinquent filings. On December 23 and 30, 2003, Mr. Warren purchased, in the
aggregate, 100,000 shares of our stock and reported those purchases on January 5
and 16, 2004, respectively. On December 30, 2003, Mr. Kee purchased 5,000 shares
of our stock and reported that purchase on January 21, 2004. Awaiting the
receipt of individual CIK numbers from the Commission caused a portion of the
delay in each instance. All officers and directors have been issued individual
CIK numbers for future reports.
Our directors and executive officers have not filed Form 4s for options
that have been authorized pursuant to compensation plans but not issued.
32
EXECUTIVE COMPENSATION
Compensation of directors
Directors were compensated for their travel expenses to and from board of
directors' meetings in 2001, 2002 and 2003. In 2002, there were four in person
meetings and three telephonic board meetings. In 2003, there were three in
person meetings and four telephonic board meetings. Directors received options
for 35,000 shares of common stock for each year as a director through 2001. Each
member of the executive committee has received options for an additional 40,000
shares of common stock for their services from 1998 through 2001. Directors
received additional options for 25,000 shares for 2002 and 2003
Compensation of executive officers
The following table sets forth the compensation paid during the last three
fiscal years to our Chief Executive Officer and the other executive officers of
our company:
Summary Compensation
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- ------------------------
Name & Position Year Salary Bonus Other Restricted Stock All Other
(1) Awards and Options Compensation (2)
------------------------- ------ ------------ --------- --------------- ------------------------ ------------------
Roy G. Warren President 2001 $180,000 4% $12,000 170,000 options (3) $220,000 salary
& CEO 2002 $180,000 EBITDA Medical 2,500,000 options (4) $12,000
Director 2003 $220,000 insurance (insurance)
Tommy E. Kee 2003 120,000 $12,000 300,000 options (5) $60,000 salary
Chief financial; Officer Medical $12,000
insurance (insurance)
Roy D. Toulan, Jr. 2003 180,000 $28,000 $8,900 300,000 options (6) $180,000 salary
Vice President Secretary Medical (part) $8,900
Corporate Counsel Life & (insurance)
disability
insurance
(1) Mr. Warren has waived the 4% EBITDA bonus provision in his employment
contract. Mr. Toulan was granted 100,000 shares of common stock as a
signing bonus, valued at $28,000.
(2) Amount paid for termination of employment owing to change of control.
(3) Five year options received as director; 145,000 options at $0.75, 25,000
options at $0.60.
(4) Employment agreement incentive options: 1,000,000 options at $0.50,
1,000,000 options at $1.50; 100,000 at $0.75, 100,000 at $2.00, 100,000 at
$3.00, 100,000 at $4.00, 100,000 at $5.00; all five year options; last
400,000 options vest at trading price trigger equal to exercise price.
(5) Employment agreement incentive options; 100,000 at $0.10; balance at
market price; vesting of three 100,000 share tranches at July 1, 2003,
December 31, 2003 and December 31, 2004, respectively.
(6) Employment agreement incentive options at $0.40; vesting of three 100,000
share tranches at January 1, 2003, December 31, 2003 and December 31,
2004, respectively.
33
OPTION GRANTS
The following table sets forth individual grants of stock options made
during the last completed fiscal year to each of the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Name Number of Securities % of Total Options Exercise or Expiration Date
Underlying Options Granted to Employees Base Price
Granted in Fiscal Year (1) ($/Share)
------------------------- ---------------------- ----------------------- ----------------- ------------------------
Roy G. Warren President 25,000 $0.25 June 30, 2008
& CEO 100,000 Aggregate 58% 0.75 October 24, 2005
Director 100,000 2.00 5 yrs from vesting
100,000 3.00 5 yrs from vesting
100,000 4.00 5 yrs from vesting
100,000 5.00 5 yrs from vesting
1,000,000 0.50 December 31, 2007
1,000,000 1.50 December 31, 2007
Tommy E. Kee 100,000 $0.10 (100,000) June 30, 2008
Chief Financial Officer 100,000 Aggregate 1.1% Market price at December 30, 2008
Treasurer 100,000 vesting December 30, 2009
(200,000)
Roy D. Toulan, Jr. 100,000 $0.40 (300,000) December 31, 2007
Vice President Secretary 100,000 Aggregate 1.1% December 30, 2008
Corporate Counsel 100,000 December 30, 2009
(1) Includes options for 25,000 shares granted to Mr. Warren as a director.
AGGREGATED OPTION EXERCISES TABLE
None of the named executive officers exercised any stock options during
2003. The following table provides information on the value of such officers'
unexercised options at December 31, 2003.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Name Shares Value Number of Securities Value of Unexercised
Acquired Realized Underlying Unexercised Options In-the-Money Options at 2003
on Exercise at 2003Fiscal Year-End Fiscal Year-End
Exercisable / Unexercisable Exercisable / Unexercisable
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
Roy G. Warren President 2,695.000
& CEO - - -
Director
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
2,295,000 400,000
exercisable unexercisable
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
Tommy E. Kee - - 300,000 -
Chief Financial Officer
Treasurer
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
200,000 100,000
exercisable unexercisable
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
Roy D. Toulan, Jr. 300,000
Vice President Secretary - - -
Corporate Counsel
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
200,000 100,000
exercisable unexercisable
------------------------- ------------ ------------ ---------------- --------------- ---------------------------------
34
COMPENSATION PLANS
DIRECTORS
On March 27, 2001, we issued options to our directors, including Roy
Warren, to purchase the aggregate of 925,000 shares of our common stock. The
options have an exercise price of $0.75 and expire March 26, 2006. Directors
received options for 35,000 shares for each full year of service and an
additional 40,000 shares for service on a board committee. On July 1, 2002, we
issued 250,000 options to the Board of Directors, including Roy Warren, for
services rendered as directors. Each director received options for 25,000 shares
of common stock at an exercise price of $0.60. The options can be exercised for
five years.
On January 13, 2004, the Board of Directors adopted a plan to convert on a
one for one basis the options granted to the present employees of our and the
directors currently serving on the Board into a like number of our restricted
shares of common stock. The issuance of such common stock to any individual
director or employee is conditioned upon the execution of the "lockup" agreement
by such director or employee, pursuant to which the recipients of such common
stock shall not sell, transfer, pledge or hypothecate such common stock for a
six month period, commencing on the issue date of such common stock. The
conversion plan adopted by the Board of Directors will result in the issuance of
5,200,000 shares of our restricted common stock to our present directors and
employees.
Employment contracts
o Roy G. Warren Chief Executive Officer
We had a one-year contract with Mr. Warren commencing January 1, 2003, at
an annual base salary of $220,000. The contract provides for the grant of
options for 1,000,000 shares of common stock at $0.50 per share, options for
1,000,000 shares of common stock at $1.50 per share and options for 100,000
shares of common stock at $0.75 per share. During his employment, he also will
receive five-year incentive options for an additional 400,000 shares in tranches
of 100,000, as the public trading price for our stock reaches $2.00, $3.00,
$4.00 and $5.00, respectively. The exercise price for these options will track
the market price for our common stock when granted. Mr. Warren's employment
contract provides for the payment of one year's salary plus medical insurance
costs for termination of employment owing to change of control in our company.
Tommy E. Kee, Chief Financial Officer, Treasurer
Mr. Kee has an eighteen-month contract with our company commencing July 1,
2003 at an annual salary of $120,000. We granted options for 300,000 shares of
common stock as an incentive bonus pursuant to an employment contract. The first
100,000 share options tranche vested on July 1, 2003 at an exercise price of
$0.10 per share. The remaining options for 200,000 shares of common stock vest
as follows: options for 100,000 shares on each of December 31, 2003 and 2004,
respectively. All of these options expire five years from vesting. Mr. Kee's
employment contract provides for the payment of six months' salary plus medical
insurance costs for termination of employment owing to change of control in the
Company.
Roy D. Toulan, Jr., Vice President, General Counsel and Corporate
Secretary
Mr. Toulan has a two-year contract with our company commencing January 1,
2003 at an annual salary of $180,000. An incentive bonus of 100,000 common stock
shares was granted to Mr. Toulan in January 2003, valued at $0.28 per share. In
addition, we granted options for 100,000 shares of common stock as part of the
pursuant to an employment contract. These options vested immediately, expire on
December 30, 2007 and have an exercise price of $0.40 per share. We also granted
options for 200,000 shares of common stock at an exercise price of $0.40 per
share, which vest as follows: options for 100,000 shares on each of December 31,
2003 and 2004. Options for 100,000 shares expire on each of December 30, 2008
and 2009, respectively. Mr. Toulan's employment contract provides for the
payment of one year's salary plus medical insurance costs for termination of
employment owing to change of control in our company.
35
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The equity compensation reported in this section has been and will be
issued pursuant to individual compensation contracts and arrangements with
employees, directors, consultants, advisors, vendors, suppliers, lenders and
service providers. The equity is reported on an aggregate basis as of December
31, 2003. our security holders have not approved the compensation contracts and
arrangements underlying the equity reported.
Compensation Plan Number of securities to Weighted average price of Number of securities remaining
Category be issued upon exercise outstanding options, for future issuance under equity
of outstanding options, warrants and rights compensation plans
warrants and rights
------------------------ --------------------------- ------------------------------ ------------- --------------------
Directors 1,405,000 $0.72 350,000 director plan
------------------------ --------------------------- ------------------------------ ------------- --------------------
Management 1,036,667 $0.59 3,350,000 individual plans
------------------------ --------------------------- ------------------------------ ------------- --------------------
Founders 2,083,705 $1.00 0 individual plans
------------------------ --------------------------- ------------------------------ ------------- --------------------
Consultants 360,714 $0.54 0 individual plans
------------------------ --------------------------- ------------------------------ ------------- --------------------
Lender 25,000 $0.40 0 individual plan
------------------------ --------------------------- ------------------------------ ------------- --------------------
Total 4,911,086 $0.79 3,700,000
------------------------ --------------------------- ------------------------------ ----------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our company's common
stock as of April 30, 2004, as to
o each person known to beneficially own more than 5% of the Company's
common stock
o each of our directors
o each executive officer o all directors and officers as a group
The following conditions apply to all of the following tables:
o except as otherwise noted, the named beneficial owners have direct
ownership of the stock and have sole voting and investment power
with respect to the shares shown
o the class listed as "common" includes the shares of common stock
underlying the Company's issued convertible preferred stock, options
and warrants
36
BENEFICIAL OWNERS
TITLE OF NAME AND ADDRESS OF AMOUNT AND PERCENT OF
CLASS BENEFICIAL OWNER (1) NATURE OF CLASS (2)
BENEFICIAL
OWNERSHIP
--------------------- ----------------------------------- ------------------------- --------------------------
Common Amro International, SA (3) 4,496,927 9.99%
Grossmuenster Platz 26
P.O. Box 4401 Zurich, Switzerland CH 8022 Austinvest
Anstalt Balzers Landstrasse 938 9494 Furstentums Balzers,
Liechtenstein Esquire Trade & Finance Inc. Trident
Chambers
P.O. Box 146 Road Town, Tortola, B.V.I.
--------------------- ----------------------------------- ------------------------- --------------------------
Common The Keshet Fund LP (4) 4,496,927 9.99%
Keshet L.P.
Nesher Ltd
Talbiya B. Investments Ltd.
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
--------------------- ----------------------------------- ------------------------- --------------------------
Common Alpha Capital 4,496,927 9.99%
Aktiengesellschaft (5)
Pradafant 7, Furstentums
9490, Vaduz,
Liechtenstein
--------------------- ----------------------------------- ------------------------- --------------------------
Common Mid-Am Capital, L.L.C. (5) 4,496,927 9.99%
Northpointe Tower
10220 North Ambassador Drive
Kansas City, MO 64190
--------------------- ----------------------------------- ------------------------- --------------------------
Common Explorer Fund Management, LLC (5) 4,496,927 9.99%
444 N. Michigan Ave.
Chicago, IL 60611
--------------------- ----------------------------------- ------------------------- --------------------------
Common Dale Reese (6) 3,305,985 8.20%
125 Kingston Road
Media, PA
--------------------- ----------------------------------- ------------------------- --------------------------
Common Mr. Larry Frisman 2,702,500 6.71%
7533 Isle Verde Way
Delray Beach, FL 33446
--------------------- ----------------------------------- ------------------------- --------------------------
Common Longview Fund LP(5) 4,496,927 9.99%
1325 Howard Avenue #422
Burlingame, CA 94010
--------------------- ----------------------------------- ------------------------- --------------------------
Common Alpha Capital (5) 4,496,927 9.99%
Aktiengesellschaft
Pradafant 7
9490 Furstentums
Vaduz, Liechtenstein
--------------------- ----------------------------------- ------------------------- --------------------------
Common Gamma Opportunity (5) 4,496,927 9.99%
Capital Partners LP
British Colonial Centre
of Commerce
One Bay Street, Suite 401
Nassau, The Bahamas
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 30, 2004 are deemed
outstanding for computing the percentage of the person holding such option
or warrant but are not deemed outstanding for computing the percentage of
any other person.
(2) Percentage based on 40,296,574 shares of common stock outstanding with
respect to the common stock.
(3) Amro International, S.A., Austinvest Anstalt Balzers and Esquire Trade &
Finance Inc. share a common investment representative, attorney and
subscription agreements for the Series D and Series F convertible
preferred stock and are treated as a group for beneficial ownership
purposes. This group is contractually limited to a beneficial ownership of
the Company's equity not to exceed 9.99%. All of the equity listed
consists of convertible preferred and warrants.
37
(4) The Keshet Fund L.P., Keshet L.P., Nesher Ltd. and Talbiya B. Investments
Ltd. share a common investment representative, attorney and subscription
agreements for the Series G convertible preferred stock and are treated as
a group for beneficial ownership purposes. This group is contractually
limited to a beneficial ownership of the Company's equity not to exceed
9.99%. All of the equity listed consists of convertible preferred and
warrants.
(5) This owner is contractually limited to a beneficial ownership of the
Company's equity not to exceed 9.99%. All of the equity listed consists of
convertible debentures, convertible preferred and warrants.
(6) The beneficial owner has the right to convert 107,440 shares of stock
preferred to 107,440 shares of common stock within 60 days.
MANAGEMENT OWNERS
TITLE OF CLASS NAME AND ADDRESS AMOUNT AND PERCENT OF
OF MANAGEMENT NATURE OF CLASS (2)
OWNER (1) OWNERSHIP
------------------------- ----------------------------- --------------------------- -------------------------
Common Roy G. Warren 3,175,482 (3) 7.88%
11300 US Highway No.1
N. Palm Beach, FL
------------------------- ----------------------------- --------------------------- -------------------------
Common Paul Downes 288,000 (4) *
Tamarind Management Ltd.
20579 S. Charlestown
Boca Raton, FL 33434
------------------------- ----------------------------- --------------------------- -------------------------
Common Robert Cummings 530,000 (5) 1.32%
2829 N.E. 44th Street
Lighthouse Point,
FL 33064
------------------------- ----------------------------- --------------------------- -------------------------
Common John McCormack 787,500 (6) 1.95%
8750 South Grant
Burridge, IL 60521
------------------------- ----------------------------- --------------------------- -------------------------
Common Mr. Arthur W. 177,889 (7) *
Blanding
Janesville, WI 53545
------------------------- ----------------------------- --------------------------- -------------------------
Common Phillip Pearce 231,000 (8) *
6624 Glenleaf Court
Charlotte, NC 28270
------------------------- ----------------------------- --------------------------- -------------------------
Common Stanley Hirschman 334,670 (9) *
2600 Rutgers Court
Plano, Texas 75093
------------------------- ----------------------------- --------------------------- -------------------------
Common Roy D. Toulan, Jr. 515,000 (10) 1.28%
VP, General Counsel
6 Wheelers Pt. Rd
Gloucester, MA
------------------------- ----------------------------- --------------------------- -------------------------
Common Tommy Kee 205,000 (11) *
CFO, Treasurer
129 Eagleton Court
Palm Beach
Gardens, FL
------------------------- ----------------------------- --------------------------- -------------------------
Common Executive officers 6,244,541 15.50%
and directors as a
group
------------------------- ----------------------------- --------------------------- -------------------------
* less than one percent
38
(1) Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of April 27, 2004 are deemed
outstanding for computing the percentage of the person holding such option
or warrant but are not deemed outstanding for computing the percentage of
any other person.
(2) Percentage based on 40,296,514 shares of common stock outstanding with
respect to the common stock.
(3) Includes 170,000 shares of common stock that can be acquired within 60
days by the exercise of options; also includes options for 2,550,000
shares of common stock authorized by the Board of Directors but not yet
issued.
(4) Includes 130,000 shares of common stock that can be acquired within 60
days by the exercise of options; also includes options for 50,000 shares
of common stock authorized by the Board of Directors but not yet issued.
(5) Includes 170,000 shares of common stock that can be acquired within 60
days by the exercise of options; also includes options for 50,000 shares
of common stock authorized by the Board of Directors but not yet issued.
(6) Includes 130,000 shares of common stock that can be acquired within 60
days by the exercise of options; also includes options for 50,000 shares
of common stock authorized by the Board of Directors but not yet issued.
(7) Includes 95,000 shares of common stock that can be acquired within 60 days
by the exercise of options; also includes options for 50,000 shares of
common stock authorized by the Board of Directors but not yet issued.
(8) Includes 130,000 shares of common stock that can be acquired within 60
days by the exercise of options; also includes options for 50,000 shares
of common stock authorized by the Board of Directors but not yet issued.
(9) Includes 25,000 shares of common stock that can be acquired within 60 days
by the exercise of options; also includes options for 50,000 shares of
common stock authorized by the Board of Directors but not yet issued.
(10) Includes options for 200,000 shares of common stock authorized by the
Board of Directors but not yet issued
(11) Includes options for 200,000 shares of common stock authorized by the
Board of Directors but not yet issued
There currently are no arrangements that may result in a change of
ownership or control of our company.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. Longview Fund LP
purchased a convertible debenture in the amount of $250,000 and warrants to buy
1,500,000 shares of common stock. Phillip Pearce, a director of our company and
Stanley Hirschman, our Chairman, serve on the Board of Directors of Redwood
Grove Capital Management, LLC, which has a management agreement with Longview
Fund LP. In addition, Mr. Pearce and Mr. Hirschman each own .05% of the
outstanding membership interest of Redwood Grove Capital Management, LLC.
39
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue up to 300,000,000 shares of Common Stock, par
value $.001. As of April 30, 2004, there were 40,296,574 shares of common stock
outstanding. Holders of the common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock are entitled to share ratably in all of our assets which are legally
available for distribution after payment of all debts and other liabilities and
liquidation preference of any outstanding common stock. Holders of common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are validly issued, fully paid and
nonassessable.
We have engaged American Stock Transfer & Trust Company located at 59
Maiden Lane, Plaza Level, New York, NY 10038, as independent transfer agent or
registrar.
PREFERRED STOCK
We are authorized to issue up to 5,000,000 shares of preferred stock, par
value $.01 per shares. As of April 30, 2004, there were 692,065 shares of
preferred stock outstanding. The board of directors has authority, without
action by the stockholders, to issue all or any portion of the authorized but
unissued preferred stock in one or more series and to determine the voting
rights, preferences as to dividends and liquidation, conversion rights, and
other rights of such series. The preferred stock, if and when issued, may carry
rights superior to those of the common stock.
We do not have any plans to issue any shares of preferred stock. However,
we consider it desirable to have one or more classes of preferred stock to
provide us with greater flexibility in the future in the event that we elect to
undertake an additional financing and in meeting corporate needs that may arise.
If opportunities arise that would make it desirable to issue preferred stock
through either public offerings or private placements, the provision for these
classes of stock in our certificate of incorporation would avoid the possible
delay and expense of a stockholders' meeting, except as may be required by law
or regulatory authorities. Issuance of the preferred stock would result,
however, in a series of securities outstanding that may have certain preferences
with respect to dividends, liquidation, redemption, and other matters over the
common stock which would result in dilution of the income per share and net book
value of the common stock. Issuance of additional common stock pursuant to any
conversion right that may be attached to the preferred stock may also result in
the dilution of the net income per share and net book value of the common stock.
The specific terms of any series of preferred stock will depend primarily on
market conditions, terms of a proposed acquisition or financing, and other
factors existing at the time of issuance. As a result, it is not possible at
this time to determine the respects in which a particular series of preferred
stock will be superior to our common stock. The board of directors does not have
any specific plan for the issuance of preferred stock at the present time and
does not intend to issue any such stock on terms which it deems are not in our
best interest or the best interests of our stockholders.
WARRANTS
In connection with a Securities Purchase Agreement dated November 2003, we
issued 4,000,000 class A and 10,000,000 class B warrants to purchase shares of
common stock. The A warrants are exercisable until three years from the date of
issuance at a purchase price of $0.05 per share. The B warrants are exercisable
until three years from the date of issuance at a purchase price of $1.00 per
share.
In connection with a Subscription Agreement dated April 2004, we issued
3,000,000 warrants to purchase shares of common stock. The warrants are
exercisable until five years from the date of issuance at a purchase price of
$0.15 per share.
40
In connection with the grant of an intellectual property license on
February 1, 2004 we issued 750,000 warrants. The warrants have an exercise price
of $.10 per share for the first year and, upon the occurrence of certain
conditions tied to the royalty performance under the license, can be extended
for an additional year with an exercise price of $.14 per share.
CONVERTIBLE SECURITIES
Approximately 13,500,000 shares of common stock are issuable upon
conversion of outstanding convertible debentures upon conversion of the
convertible debentures issued pursuant to the Securities Purchase Agreement
dated November 2003 and the Subscription Agreement dated April 2004.
To obtain funding for our ongoing operations, we entered into the two
financing transactions.
NOVEMBER 2003
In November 2003, we entered a Subscription Agreement with two accredited
investors in for the sale of (i) $400,000 in convertible debentures, (ii) class
A warrants to buy 2,000,000 shares of our common stock and (iii) class B
warrants to buy 10,000,000 shares of common stock. In connection with this
financing, we paid a fee, which included (i) 400,000 shares of common stock,
(ii) class A warrant to purchase 2,000,000 shares of common stock and (iii) 10%
of the proceeds received by us in connection with the exercise of the class B
warrants, which is payable in shares of common stock at the rate of one share of
common stock for every ten shares of common stock actually issued upon exercise
of the class B warrants.
The debentures issued in connection with the November 2003 financing bear
interest at 8%, mature on two years from the date of issuance, and are
convertible into our common stock, at the selling stockholders' option, at the
lower of (i) $0.05 or (ii) 75% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 30 trading
days before but not including the conversion date. However, during the six
months after the issuance of the convertible debenture, the conversion price
shall not be less than $.03 per share unless an event of default exists. The
conversion floor price of $.03 per share shall be extended indefinitely, if
during the six months after the issuance of the convertible debenture (i) the
closing trading price of our common stock for any consecutive 15 day trading
period is $.20 or higher, (ii) the daily trading volume for each such 15 trading
days is 300,000 or more shares of common stock and (iii) the registration
statement registering the shares issuable under the convertible debenture is
effective for each such 15 trading days, unless an event of default exists.
Accordingly, the above factors are not satisfied, there is in fact no limit on
the number of shares into which the debentures may be converted. As of April 27,
2004, the average of the three lowest intraday trading prices for our common
stock during the preceding 30 trading days as reported on the Over-The-Counter
Bulletin Board was $.14 and, therefore, the conversion price for the convertible
debentures was $.05. Based on this conversion price, the $400,000 convertible
debentures, excluding interest, were convertible into 8,000,000 shares of our
common stock.
APRIL 2004
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) five year warrants to buy 3,000,000 shares of our common stock at $.15 per
share. In connection with this financing, we paid a feein the aggregate of
convertible debentures in the amount of $50,000.
The debentures issued in connection with the April 2004 financing bear
interest at 10%. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. On October 1, 2005, all
principal and interest shall become due. In the event that our common stock has
a closing price in excess of $.20 for the five days preceding the monthly
payment, then, within our discretion, the monthly payment may be deferred. The
convertible debentures are convertible into shares of common stock at $.10 per
share. Based on this conversion price. The $550,000 convertible debentures,
excluding interest, are convertible into 5,500,000 shares of our common stock.
The convertible debentures, excluding interest, are convertible into
5,500,000 shares of our common stock. Further, the convertible debentures issued
in April 2004 were convertible into 5,000,000 shares of common stock and the
convertible debentures issued in connection with the fee were convertible into
500,000 shares of common stock.
41
This prospectus relates to the resale of the shares of common stock and
the common stock underlying these convertible debentures and warrants.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Delaware law, our directors or officers shall not be personally
liable to us or our shareholders for damages for breach of such director's or
officer's fiduciary duty. The effect of this provision of our Articles of
Incorporation, as amended, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act" or "Securities Act") may be permitted to directors,
officers or persons controlling us pursuant to the foregoing provisions, or
otherwise, we have been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately-negotiated transactions;
o short sales that are not violations of the laws and regulations of any
state or the United States;
o broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share;
o through the writing of options on the shares
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus. The selling
stockholders shall have the sole and absolute discretion not to accept any
purchase offer or make any sale of shares if they deem the purchase price to be
unsatisfactory at any particular time.
The selling stockholders may also engage in short sales against the box,
puts and calls and other transactions in our securities or derivatives of our
securities and may sell or deliver shares in connection with these trades.
The selling stockholders or their respective pledgees, donees, transferees
or other successors in interest, may also sell the shares directly to market
makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
42
We are required to pay all fees and expenses incident to the registration
of the shares, including fees and disbursements of counsel to the selling
stockholders, but excluding brokerage commissions or underwriter discounts.
The selling stockholders, alternatively, may sell all or any part of the
shares offered in this prospectus through an underwriter. No selling stockholder
has entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholders defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion. In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We have agreed to indemnify the selling stockholders, or their transferees
or assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
PENNY STOCK
The Securities and Exchange Commission has adopted Rule 15g-9 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must
43
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
44
SELLING STOCKHOLDERS
The table below sets forth information concerning the resale of the shares
of common stock by the selling stockholders. We will not receive any proceeds
from the resale of the common stock by the selling stockholders. We will receive
proceeds from the exercise of the warrants. Assuming all the shares registered
below are sold by the selling stockholders, none of the selling stockholders
will continue to own any shares of our common stock.
The following table also sets forth the name of each person who is
offering the resale of shares of common stock by this prospectus, the number of
shares of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of shares of
common stock each person will own after the offering, assuming they sell all of
the shares offered.
Total
Total Shares of Percentage Percentage
Common Stock of Common Shares of Beneficial of Common
Issuable Upon Stock, Common Stock Beneficial Percentage of Ownership Stock Owned
Conversion of Assuming Included in Ownership Common Stock After the After
Name Debentures Full Prospectus Before the Owned Before Offering Offering
and/or Warrants* Conversion (1) Offering** Offering** (3) (3)
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Gamma Opportunity 10,000,000 19.64% Up to 4,496,927 9.99% -- --
Capital Partners, LP 14,000,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
MID-AM Capital, L.L.C. 10,000,000 19.64% Up to 4,496,927 9.99% -- --
Capital Partners, LP 14,000,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Libra Finance, S.A 3,150,000 7.15% Up to 3,275,000 7.15% -- --
3,275,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Longview Fund LP 4,000,000 8.90% Up to 4,496,927 9.99% -- --
5,250,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Alpha Capital 4,000,000 8.90% Up to 4,496,927 9.99% -- --
Aktiengesellschaft 5,250,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Knightsbridge 500,000 1.21% Up to 500,000 1.21% -- --
Holdings LLC 500,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Bi-Coastal 250,000 0.61% Up to 375,000 0.61% -- --
Consulting Corp. 375,000
shares of
common stock
------------------- ----------------- ------------- ------------- ------------ -------------- ------------ -------------
Marvel Enterprises, 1,500,000 3.54% Up to 1,500,000 3.54% -- --
Inc. 1,500,000
shares of
common stock
* This column represents an estimated number based on a conversion price as of a
recent date of April 27, 2004 of $.05 with respect to the convertible debentures
issued in November 2003 and $.10 with respect to the convertible debentures
issued in April 2004, divided into the principal amount.
45
** These columns represents the aggregate maximum number and percentage of
shares that the selling stockholders can own at one time (and therefore, offer
for resale at any one time) due to their 9.99% limitation.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the convertible debentures is subject to adjustment depending on,
among other factors, the future market price of the common stock, and could be
materially less or more than the number estimated in the table.
(1) Includes a good faith estimate of the shares issuable upon conversion of
the convertible debentures and exercise of warrants, based on current market
prices. Because the number of shares of common stock issuable upon conversion of
the convertible debentures is dependent in part upon the market price of the
common stock prior to a conversion, the actual number of shares of common stock
that will be issued upon conversion will fluctuate daily and cannot be
determined at this time. Under the terms of the convertible debentures, if the
convertible debentures had actually been converted on April 27, 2004, the
conversion price would have been $.05 for the convertible debentures issued in
November 2003 and $.10 for the convertible debentures registered in April 2004.
The actual number of shares of common stock offered in this prospectus, and
included in the registration statement of which this prospectus is a part,
includes such additional number of shares of common stock as may be issued or
issuable upon conversion of the convertible debentures and exercise of the
related warrants by reason of any stock split, stock dividend or similar
transaction involving the common stock, in accordance with Rule 416 under the
Securities Act of 1933. However the selling stockholders have contractually
agreed to restrict their ability to convert their convertible debentures or
exercise their warrants and receive shares of our common stock such that the
number of shares of common stock held by them in the aggregate and their
affiliates after such conversion or exercise does not exceed 9.9% of the then
issued and outstanding shares of common stock as determined in accordance with
Section 13(d) of the Exchange Act. Accordingly, the number of shares of common
stock set forth in the table for the selling stockholders exceeds the number of
shares of common stock that the selling stockholders could own beneficially at
any given time through their ownership of the convertible debentures and the
warrants. In that regard, the beneficial ownership of the common stock by the
selling stockholder set forth in the table is not determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
(2) Libra Finance, S.A. is owned by Mr. Rar Al Najjab, Hashemite Kingdom of
Jordan. Libra Finance is an international investment and financial consultant
entity. Among other investment activities, Libra advises investors on
financially assisting small companies in need of capital. Gamma Capital
Advisors, Ltd., an Anguilla, British West Indies company, is the general partner
to the stockholder Gamma Opportunity Capital Partners, LP, a Cayman Islands
registered limited partnership, with the power to vote and dispose of the common
shares being registered on behalf of the stockholder. As such, Gamma Capital
Advisors, Ltd. may be deemed the beneficial owner of said shares. Christopher
Rossman and Jonathan P. Knight, PhD. are the Directors to Gamma Capital
Advisors, Ltd., each possessing the power to act on its behalf. Gamma Capital
Advisors, Ltd., Christopher Rossman and Jonathan P. Knight, PhD. each disclaim
beneficial ownership of the shares of common stock being registered hereto.
Mid-Am, a limited liability company headquartered in Kansas City, Missouri, is a
finance affiliate of Dairy Farmers of America, Inc. Gerald L. Bos, the CEO and
Treasurer of Mid-Am. Longview Fund LP is a California limited partnership. S.
Michael Rudolph may be deemed the control person of the shares owned by such
entity, with final voting power and investment control over such shares. Alpha
Capital Aktiengesellschaft is a private investment fund that is owned by all its
investors and managed by Mr. Konrad Ackerman. Mr. Konrad Ackerman may be deemed
the control person of the shares owned by such entity, with final voting power
and investment control over such shares. Knightsbridge Holdings LLC is a Florida
limited liability company. Alyce Schreiber, Managing Member, may be deemed the
control person of the shares owned by such entity, with final voting power and
investment control over such shares. Bicoastal Consulting Corp is a New Jersey
corporation. Peter Benz may be deemed the control person of the shares owned by
such entity, with final voting power and investment control over such shares.
(3) Assumes that all securities registered will be sold.
46
TERMS OF CONVERTIBLE DEBENTURES
NOVEMBER 2003
To obtain funding for our ongoing operations, we entered into a
Subscription Agreement with an accredited investor on November 21, 2003 for the
sale of (i) $400,000 in convertible debentures, (ii) class A warrants to buy
2,000,000 shares of our common stock and (iii) class B warrants to buy
10,000,000 shares of common stock. In connection with this financing, we paid a
fee, which included (i) 400,000 shares of common stock, (ii) class A warrant to
purchase 2,000,000 shares of common stock and (iii) 10% of the proceeds received
by us in connection with the exercise of the class B warrants, which is payable
in shares of common stock at the rate of one share of common stock for every ten
shares of common stock actually issued upon exercise of the class B warrants.
This prospectus relates to the resale of the shares of common stock and
the common stock underlying these convertible debentures and warrants.
The debentures bear interest at 8%, mature on two years from the date of
issuance, and are convertible into our common stock, at the selling
stockholders' option, at the lower of (i) $0.05 or (ii) 75% of the average of
the three lowest intraday trading prices for the common stock on a principal
market for the 30 trading days before but not including the conversion date.
However, during the six months after the issuance of the convertible debenture,
the conversion price shall not be less than $.03 per share unless an event of
default exists. The conversion floor price of $.03 per share shall be extended
indefinitely, if during the six months after the issuance of the convertible
debenture (i) the closing trading price of our common stock for any consecutive
15 day trading period is $.20 or higher, (ii) the daily trading volume for each
such 15 trading days is 300,000 or more shares of common stock and (iii) the
registration statement registering the shares issuable under the convertible
debenture is effective for each such 15 trading days, unless an event of default
exists. Accordingly, the above factors are not satisfied, there is in fact no
limit on the number of shares into which the debentures may be converted. As of
April 27, 2004, the trading prices for our common stock during the preceding 30
trading days as reported on the Over-The-Counter Bulletin Board was $.14 and,
therefore, the conversion price for the convertible debentures was $.05. Based
on this conversion price, the $400,000 convertible debentures, excluding
interest, were convertible into 8,000,000 shares of our common stock. The full
principal amount of the convertible debentures are due upon default under the
terms of convertible debentures.
In connection with a Securities Purchase Agreement dated November 2003, we
have issued 4,000,000 class A and 10,000,000 class B warrants to purchase shares
of common stock. The A warrants are exercisable until three years from the date
of issuance at a purchase price of $0.05 per share. The B warrants are
exercisable until three years from the date of issuance at a purchase price of
$1.00 per share. In 2004, we entered into an agreement with holders of the B
warrants whereby we amended 5,000,000 of the B Warrants to have an exercise
price of $.10 per share.
The conversion price of the debentures and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the selling stockholder's position.
The selling stockholders have contractually agreed to restrict their
ability to convert their convertible debentures or exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 9.9% of the then issued and outstanding shares of
common stock.
APRIL 2004
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. In connection with
this financing, we paid a fee in the amount of a convertible debentures in the
amount of $50,000.
47
The debentures issued in connection with the April 2004 financing bear
interest at 10%. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. On October 1, 2005, all
principal and interest shall become due. In the event that our common stock has
a closing price in excess of $.20 for the five days preceding the monthly
payment, then, within our discretion, the monthly payment may be deferred. and
the notes are convertible into our common stock at $0.10 per share. Based on
this conversion price, the $500,000 convertible debentures, excluding interest,
were convertible into 5,000,000 shares of our common stock.
The selling stockholders have contractually agreed to restrict their
ability to convert or exercise their warrants and receive shares of our common
stock such that the number of shares of common stock held by them and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock. See the "Selling Stockholders"
and "Risk Factors" sections for a complete description of the convertible
debentures.
SAMPLE CONVERSION CALCULATION
The number of shares of common stock issuable upon conversion of the
debentures is determined by dividing that portion of the principal of the
debenture to be converted and interest, if any, by the conversion price. For
example, assuming conversion of $400,000 of debentures issued in November 2003
on April 30, 2004, a conversion price of $0.05 per share, the number of shares
issuable upon conversion would be:
$400,000/$.05 = 8,000,000 shares
The following is an example of the amount of shares of our common stock
that are issuable, upon conversion of our convertible debentures (excluding
accrued interest), based on market prices 25%, 50% and 75% below $.05.
Number % of
% Below Price Per With Discount of Shares Outstanding
Market Share at 25% Issuable Stock(1)
------ --------- ------------- ---------- -----------
25% $.0375 $.0281 14,222,222 22.15%
50% $.0250 $.0188 21,333,333 29.91%
75% $.0125 $.0125 42,666,667 46.04%
(2) Based on 40,296,574 shares of common stock outstanding.
As illustrated, the number of shares of common stock issuable upon
conversion of our convertible debentures will increase if the market price of
our stock declines, which will cause dilution to our existing stockholders.
LEGAL MATTERS
Sichenzia Ross Friedman Ference LLP, New York, New York will issue an
opinion with respect to the validity of the shares of common stock being offered
hereby.
EXPERTS
Lazar Levine & Felix LLP , Certified Public Accountants, have audited, as
set forth in their report thereon appearing elsewhere herein, our financial
statements at December 31, 2003 and for the year then ended that appears in the
prospectus. BDO SEIDMAN, LLP, Certified Public Accountants, have audited, as set
forth in their report thereon appearing elsewhere herein, our financial
statements at December 31, 2002 and for the year then ended that appears in the
prospectus. The financial statements referred to above are included in this
prospectus with reliance upon the auditors' opinion based on their expertise in
accounting and auditing.
48
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Bravo! Foods International Corp., filed
as part of the registration statement, and it does not contain all information
in the registration statement, as certain portions have been omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission.
We are subject to the informational requirements of the Securities
Exchange Act of 1934 which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission. Such reports,
proxy statements and other information may be inspected at public reference
facilities of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C.
20549. Copies of such material can be obtained from the Public Reference Section
of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the SEC, you may
also obtain this information by visiting the SEC's Internet website at
http://www.sec.gov.
49
BRAVO! FOODS INTERNATIONAL CORP.
AND SUBSIDIARY
FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 2004
F-1
BRAVO FOODS INTERNATIONAL CORP. AND SUBSIDIRAY
INDEX TO FINANCIAL STATEMENTS
Consolidated balance sheets as of March 31, 2004 (unaudited) and December 31, 2003 F-3
Consolidated statements of operations (unaudited) for the three months ended
March 31, 2004 and 2003 F-5
Consolidated statements of cash flows (unaudited) for the three months
ended March 31, 2004 and 2003 F-6
Notes to consolidated financial statements (unaudited) F-7
F-2
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, March 31,
2003 2004
------------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 58,859 $ 85,476
Accounts receivable - net 25,921 20,044
Other receivables 6,331 6,331
Inventories 54,995 64,995
Prepaid expenses 201,617 444,379
------------- -----------
Total current assets 347,723 621,225
Furniture and equipment, net 68,623 63,351
License rights, net of accumulated amortization 24,065 191,482
Deferred product development costs 41,711 144,662
Deposits 10,736 10,736
------------- -----------
Total assets $ 492,858 $ 1,031,456
============= ===========
LIABILITIES AND CAPITAL DEFICIT
Current liabilities:
Note payable to International Paper $ 187,743 $ 187,743
Notes payable to Alpha Capital 100,000 100,000
Note payable to Mid-Am Capital LLC 150,000 150,000
Note payable to Jasper Products LLC - 917,035
Note payable to Warner Brothers 147,115 147,115
Accounts payable 2,123,705 1,293,196
Deferred income - 152,260
Accrued liabilities 610,665 781,614
------------- -----------
Total current liabilities 3,319,228 3,728,963
Dividends payable 582,823 676,291
Other notes payable 310,098 204,187
------------- -----------
Total liabilities 4,212,149 4,609,441
------------- -----------
F-3
December 31, March 31,
2003 2004
------------- -----------
(Unaudited)
COMMITMENTS AND CONTINGENCIES
CAPITAL DEFICIT (Note 2):
Series B convertible, 9% cumulative, and redeemable preferred stock, stated
value $1.00 per share, 1,260,000 shares authorized, 107,440 shares issued
and outstanding, redeemable at $107,440 107,440 107,440
Series F convertible and redeemable preferred stock, stated value
$10.00 per share, 130,515 and 125,515 shares issued and
outstanding 1,205,444 1,159,264
Series G convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 58,810 and 53,810 shares
issued and outstanding 520,604 476,334
Series H convertible, 7% cumulative and redeemable preferred
stock, stated value $10.00 per share, 165,500 shares issued and
outstanding 895,591 895,591
Series I convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 30,000 shares issued and
outstanding 72,192 72,192
Series J convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 200,000 shares issued and
outstanding 1,854,279 1,854,279
Series K convertible, 8% cumulative and redeemable preferred
stock, stated value $10.00 per share, 80,000 shares issued and
outstanding - 800,000
Common stock, par value $0.001 per share, 300,000,000 shares
authorized, 28,047,542 and 32,092,588 shares issued and
outstanding 28,045 32,093
Additional paid-in capital 21,144,896 21,547,321
Accumulated deficit (29,548,471) (30,523,188)
Translation adjustment 689 689
------------- -----------
Total capital deficit (3,719,291) (3,577,985)
------------- -----------
Total liabilities and capital deficit $ 492,858 $ 1,031,456
============= ===========
See accompanying notes.
F-4
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
2003 2004
------------ -------------
(Unaudited) (Unaudited)
Revenue - unit sales $ 92,918 $ 367,458
Revenue - net kit sales 2,737 -
Revenue - gross kit sales 301,775 70,748
-------------- ---------------
Total revenue 397,430 438,206
Cost of sales (80,362) (330,121)
-------------- ---------------
Gross margin 317,068 108,085
Selling expenses 361,075 253,038
Product development 494 3,645
General and administrative expense 772,470 700,966
-------------- ---------------
Loss from operations (816,971) (849,564)
Other income (expense)
Interest expense (2,044) (31,685)
-------------- ---------------
Loss before income taxes (819,015) (881,249)
Provision for income taxes - -
-------------- ---------------
Net loss (819,015) (881,249)
Dividends accrued for Series B preferred stock (2,384) (2,411)
Dividends accrued for Series G preferred stock (13,799) (10,864)
Dividends accrued for Series H preferred stock (30,292) (28,883)
Dividends accrued for Series I preferred stock (5,918) (5,984)
Dividends accrued for Series J preferred stock (298,720) (39,890)
Dividends accrued for Series K preferred stock - (5,436)
-------------- ---------------
Net loss applicable to common shareholders $(1,170,128) $ (974,717)
============== ===============
Weighted average number of common shares
outstanding 25,843,743 31,001,544
============== ===============
Basic and diluted loss per share $ (0.05) $ (0.03)
============== ===============
Comprehensive loss and its components consist of the following:
Net loss $ (819,015) $ (881,249)
Foreign currency translation adjustment 3,047 -
-------------- -------------
Comprehensive loss $ (815,968) $ (881,249)
============== ===============
See accompanying notes.
F-5
BRAVO! FOODS INTERNATIONAL, CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
2003 2004
------------ ------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (819,015) $ (881,249)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 26,202 59,100
Stock issuance for compensation and finder's fee 28,000 90,000
Loss on disposal of fixed assets 15,135 -
Increase (decrease) from changes in:
Accounts receivable 65,187 5,877
Other receivable (17,097) -
Advance to vendors 11 -
Inventories 70 (10,000)
Prepaid expenses (8,149) (242,762)
Accounts payable and accrued expenses 158,340 409,736
Deferred product development costs - (202,952)
-------------- --------------
Net cash used in operating activities (551,316) (772,250)
-------------- --------------
Cash flows from investing activities:
Purchase of equipment (4,429) (1,133)
-------------- --------------
Net cash used in investing activities (4,429) (1,133)
-------------- --------------
Cash flows from financing activities:
Proceeds of Series K preferred stock - 800,000
Proceeds of Series J preferred stock 500,000 -
Payment of note payable, bank loan and license fee payable (98,335) -
-------------- --------------
Net cash provided by financing activities 401,665 800,000
-------------- --------------
Effect of changes in exchange rates on cash 3,047 -
-------------- --------------
Net (decrease) increase in cash and cash equivalents (151,033) 26,617
Cash and cash equivalents, beginning of period 224,579 58,859
-------------- --------------
Cash and cash equivalents, end of period $ 73,546 $ 85,476
============== ==============
See accompanying notes.
F-6
NOTE 1 - INTERIM PERIODS
The accompanying unaudited consolidated financial statements include the
accounts of Bravo! Foods International, Corp. and its wholly-owned subsidiary
China Premium Food Corp (Shanghai) Co., Ltd.. (the "Company"). The Company is
engaged in the sale of flavored milk products and flavor ingredients in the
United States, Canada, Mexico and nine countries in the Middle East.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10QSB and Article 10 of
Regulation S-X. All significant inter-company accounts and transactions have
been eliminated in consolidation. The consolidated financial statements are
presented in U.S. dollars. Accordingly, the accompanying financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report for the year ended
December 31, 2003.
As shown in the accompanying consolidated financial statements, the Company has
suffered operating losses and negative cash flow from operations since inception
and has an accumulated deficit of $30,523,188, a capital deficit of $3,577,985,
negative working capital of $3,107,738 and is delinquent on certain of its debts
at March 31, 2004. Further, the Company's auditors stated in their report on the
Company's Consolidated Financial Statements for the year ended December 31,
2003, that these conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management plans to increase gross profit
margins in its U.S. business and obtain additional financing and is in the
process of repositioning its products with the anticipated launch of four new
product lines in the second quarter 2004. While there is no assurance that
funding will be available or that the Company will be able to improve its profit
margins, the Company is continuing to actively seek equity and/or debt financing
and has raised $1,350,000 in the fourth quarter 2003 and first quarter 2004. No
assurances can be given that the Company will be successful in carrying out its
plans. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
REVENUE RECOGNITION
The Company recognizes revenue in the United States at the gross amount of its
invoices for the sale of finished product to wholesale buyers. Commencing with
the first quarter 2004, the Company will no longer use the sale of "kits" as a
revenue event in the United States. Rather, the Company will take title to its
branded flavored milks when they are shipped by the Company's third party
processors and recognize as revenue the gross wholesale price charged to the
Company's wholesale customers. Expenses for slotting fees and certain promotions
are treated as a reduction of reported revenue. The Company determines gross
margin by deducting from the reported wholesale price the cost charged by the
Company's third party processors to produce the branded milk products. The sale
of "kits" will remain as the revenue model for the Company's international
business
F-7
The Company recognizes revenue for its international business at the gross
amount of its invoices for the sale of flavor ingredients and production rights
(collectively referred to as "kits") at the time of shipment of flavor
ingredients to processor dairies with whom the Company has production contracts
for extended shelf life and aseptic long life milk. This recognition is based
upon the Company's role as the principal in these transactions, its discretion
in establishing kit prices (including the price of flavor ingredients and
production right fees), its development and refinement of flavors and flavor
modifications, its discretion in supplier selection and its credit risk to pay
for ingredients if processors do not pay ingredient suppliers. The revenue
generated by the production contracts under this model is allocated for the
processors' purchase of flavor ingredients and fees charged by the Company to
the processors for production rights. The Company formulates the price of
production rights to cover its royalties under intellectual property licenses,
which varies by licensor as a percentage of the total cost of a kit sold to the
processor dairy under the production agreement. The Company recognizes revenue
on the gross amount of "kit" invoices to the dairy processors and simultaneously
records as cost of goods sold the cost of flavor ingredients paid by the
processor dairies to ingredients supplier. The recognition of revenue generated
from the sale of production rights associated with the flavor ingredients is
complete upon shipment of the ingredients to the processor, given the short
utilization cycle of the ingredients shipped. The criteria to meet this
guideline are: 1) persuasive evidence of an arrangement exists, 2) delivery has
occurred or services have been rendered, 3) the price to the buyer is fixed or
determinable and 4) collectibility is reasonably assured.
The Company follows the final consensus reached by the Emerging Issues Task
Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent". Pursuant to EITF 99-19, sales of kits made directly to customers by the
Company are reflected in the statements of operations on a gross basis, whereby
the total amount billed to the customer is recognized as revenue.
STOCK-BASED COMPENSATION
The Company has adopted the intrinsic value method of accounting for employee
stock options as permitted by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation" (SFAS No. 123) and discloses the
pro forma effect on net loss and loss per share as if the fair value based
method had been applied. For equity instruments, including stock options, issued
to non-employees, the fair value of the equity instruments or the fair value of
the consideration received, whichever is more readily determinable, is used to
determine the value of services or goods received and the corresponding charge
to operations.
The following table illustrates the effect on net loss and loss per share as if
the Company had applied the fair value recognition provision of SFAS No. 123 to
stock-based employee compensation.
Three Months Ended
March 31,
-------------------------
2003 2004
---------- ----------
Net loss applicable to common shareholders as reported: $ (1,170,128) $ (947,717)
Add: total stock based employee compensation expense
determined under fair value method for all awards 4,500 -
---------- ----------
Pro forma net loss $ (1,174,628) $ (947,717)
---------- ----------
Loss per share:
As reported $ (0.05) $ (0.03)
Pro forma $ (0.05) $ (0.03)
F-8
NOTE 2 - TRANSACTIONS IN CAPITAL DEFICIT
On February 1, 2004, the Company agreed to issue 750,000 shares of its
common stock and warrants to purchase an additional 750,000 shares of common
stock to Marvel Enterprises, Inc. The Company issued its equity in connection
with the grant of an intellectual property license by Marvel on January 17,
2004, giving the Company the right to use certain Marvel Comics characters on
the Company's Slammers(R) line of flavored milks. The warrants have an exercise
price of $0.10 per share for the first year and, upon the occurrence of certain
conditions tied to the royalty performance under the license, can be extended
for an additional year with an exercise price of $0.14 per share. The Company
made this private offering to Marvel Enterprises, an accredited investor,
pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933.
On February 12, 2004, the Company held a special meeting of shareholders
at which the shareholders approved an increase of the Company's authorized
common stock from 50,000,000 shares to 300,000,000 shares.
On February 17, 2004, the Company converted 875 shares of Series G
Convertible Preferred Stock into 215,164 shares of common stock pursuant to a
January 12, 2004 notice of conversion from Nesher, LP, at a conversion price of
$0.0407. The conversion did not include accrued and unpaid dividends on the
converted preferred. The Company and the holder delayed processing this notice
in light of the Company's special meeting of shareholders held February 12,
2004. The shares of common stock issued pursuant to this conversion were retired
and cancelled on March 5, 2004 and issued to third parties on that date in
accordance with the instructions of Nesher, LP.
On February 17, 2004, the Company converted 1,400 shares of Series G
Convertible Preferred Stock into 343,980 shares of common stock pursuant to a
January 12, 2004 notice of conversion from Talbiya Investments, Ltd., at a
conversion price of $0.0407. The conversion did not include accrued and unpaid
dividends on the converted preferred. The Company and the holder delayed
processing this notice in light of the Company's special meeting of shareholders
held February 12, 2004. The shares of common stock issued pursuant to this
conversion were retired and cancelled on March 5, 2004 and issued to third
parties on that date in accordance with the instructions of Talbiya Investments,
Ltd.
On February 17, 2004, the Company converted 700 shares of Series G
Convertible Preferred Stock into 172,162 shares of common stock pursuant to a
January 12, 2004 notice of conversion from The Keshet Fund, LP, at a conversion
price of $0.0407. The conversion did not include accrued and unpaid dividends on
the converted preferred. The Company and the holder delayed processing this
notice in light of the Company's special meeting of shareholders held February
12, 2004. The shares of common stock issued pursuant to this conversion were
retired and cancelled on March 5, 2004 and issued to third parties on that date
in accordance with the instructions of The Keshet Fund, LP.
F-9
On February 17, 2004, the Company converted 2,025 shares of Series G
Convertible Preferred Stock into 497,951 shares of common stock pursuant to a
January 12, 2004 notice of conversion from Keshet LP, at a conversion price of
$0.0407. The conversion did not include accrued and unpaid dividends on the
converted preferred. The Company and the holder delayed processing this notice
in light of the Company's special meeting of shareholders held February 12,
2004. The shares of common stock issued pursuant to this conversion were retired
and cancelled on March 5, 2004 and issued to third parties on that date in
accordance with the instructions of Keshet, LP.
On March 1, 2004, the Company issued 80,000 shares of non-voting Series K
8% Convertible Preferred stock, to Mid-Am Capital, LLC, having a stated value of
$10.00 per Preferred K share, for the aggregate purchase price of $800,000. Each
preferred share is convertible to 100 shares of the Company's common stock at a
conversion price of $0.10, representing 8,000,000 shares of common stock
underlying the preferred. In addition, the following adjustments were made to
prior issued warrants for the purpose of facilitating future fund raising by the
Company arising out of the exercise of the warrants by Holder. The purchase
price, as defined in the Warrant No. 2003-B-002, has been reduced to $0.10,
subject to further adjustment as described in the warrant. The expiration date,
as defined in the warrant, remains as stated. This private offering was made to
Mid-Am, an accredited investor, pursuant to Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933.
On March 1, 2004, the Company issued 750,000 shares of its common stock to
Knightsbridge in compensation for services to be rendered, pursuant to a
November 2003 engagement letter with Knightsbridge Holdings, LLC for business
and operational consulting services. The Company delayed the issuance of these
shares owing to the necessity of a special meeting of shareholders to increase
the Company's authorized shares, which took place in February 2004. On March 1,
2004, Knightsbridge commenced its services and the Company issued the shares of
common stock.
On March 9, 2004, the Company converted 5,000 shares of Series F
Convertible Preferred Stock into 1,315,789 shares of common stock pursuant to a
January 8, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.038. The conversion did not include accrued and unpaid
dividends on the converted preferred. The Company and the holder delayed
processing this notice in light of the Company's special meeting of shareholders
held February 12, 2004. The shares of common stock issued pursuant to this
conversion were issued to third parties in accordance with the instructions of
Esquire Trade & Finance Inc.
NOTE 3 - ADOPTION OF NEW ACCOUNTING STANDARDS
ADOPTION OF SFAS 150
In May 2003, Statement of Financial Accounting Standards ("SFAS") No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," was issued effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The adoption of SFAS No. 150
did not result in the reclassification of any financial instruments in the
Company's financial statements.
F-10
ADOPTION OF SFAS 149
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," was issued effective for contracts entered
into or modified after June 30, 2003, with certain exceptions. This statement
amends and clarifies financial accounting and reporting for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." The Company does not currently
engage in hedging activities, and the adoption of this statement did not have
any effect on its financial statements.
NOTE 4 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in one industry segment. The following sales
information was based on customer location rather than subsidiary location.
GEOGRAPHIC AREA INFORMATION:
Period Ended United Total
March 31, 2004 States Canada Mexico China Company
------------ ----------- ----------- ----------- -----------
Revenue - unit sales $ 367,458 $ - $ - $ - $ 367,458
Revenue - net kit sales - - - - -
Revenue - gross kit sales 44,380 - 26,368 - 70,748
------------ ----------- ----------- ----------- -----------
Total revenue 411,838 - 26,368 $ - 438,206
Cost of goods sold (322,343) - (7,778) - (330,121)
------------ ----------- ----------- ----------- -----------
Gross margin $ 89,495 $ - $ 18,590 $ - $ 108,085
------------ ----------- ----------- ----------- -----------
Period Ended United Total
March 31, 2003 States Canada Mexico China Company
------------ ----------- ----------- ----------- -----------
Revenue - unit sales $ 92,918 $ - $ - $ - $ 92,918
Revenue - net kit sales 2,737 - - - 2,737
Revenue - gross kit sales 205,945 35,966 59,864 - 301,775
------------ ----------- ----------- ----------- -----------
Total revenue 301,600 35,966 59,864 $ - 397,430
Cost of goods sold (51,989) (10,403) (17,970) - (80,362)
------------ ----------- ----------- ----------- -----------
Gross margin $ 249,611 $ 25,563 $ 41,894 $ - $ 317,068
------------ ----------- ----------- ----------- -----------
F-11
NOTE 5 - SUBSEQUENT EVENTS
On April 1 2004, the Company converted 5,000 shares of Series F
Convertible Preferred Stock into 1,315,789 shares of common stock pursuant to a
January 27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.038. The conversion did not include accrued and unpaid
dividends on the converted preferred. The Company and the holder delayed
processing this notice in light of the Company's special meeting of shareholders
held February 12, 2004. The shares of common stock issued pursuant to this
conversion were issued to third parties on that date in accordance with the
instructions of Austinvest Anstalt Balzers.
On April 2, 2004, the Company and Mid-Am Capital, LLC entered into
Supplement No.1 to the Series K Convertible Preferred Subscription Agreement, by
which the Company sold an additional 15,000 shares of its Series K Convertible
Preferred Stock utilizing the proceeds from a certain promissory note issued by
the Company to Mid-Am in the face amount of $150,000. With the consummation of
this sale, the $150,000 promissory note was deemed paid in full by the Company.
On April 8, 2004, the Company converted 4,862 shares of Series G
Convertible Preferred Stock into 700,000 shares of common stock pursuant to a
March 25, 2004 notice of conversion from Nesher, LP, at a conversion price of
$0.0853. The conversion included accrued and unpaid dividends of $11,089 on the
preferred converted.
On April 8, 2004, the Company converted 4,478 shares of Series G
Convertible Preferred Stock into 650,000 shares of common stock pursuant to a
March 25, 2004 notice of conversion from Talbiya B. Investments, Ltd., at a
conversion price of $0.0853. The conversion included accrued and unpaid
dividends of $10,662 on the preferred converted.
On April 8, 2004, the Company converted 1,919 shares of Series G
Convertible Preferred Stock into 275,000 shares of common stock pursuant to a
March 25, 2004 notice of conversion from The Keshet Fund, LP, at a conversion
price of $0.0853. The conversion included accrued and unpaid dividends of $4,265
on the preferred converted.
On April 8, 2004, the Company converted 7,677 shares of Series G
Convertible Preferred Stock into 1,100,000 shares of common stock pursuant to a
March 25, 2004 notice of conversion from Keshet, LP, at a conversion price of
$0.0853. The conversion included accrued and unpaid dividends of $17,060 on the
preferred converted.
On April 20, 2004, the Company entered into a Subscription Agreement with
Longview Fund, LP and Alpha Capital Aktiengesellschaft for the issuance of two
convertible 10% notes in the amount of $250,000 each and five-year warrants for
the purchase of, in the aggregate, 3,000,000 shares of common stock, at $0.15
per share. The notes are convertible into shares of common stock of the Company
at $0.10 per common share. Conversions are limited to a maximum ownership of
9.99% of the underlying common stock at any one time. The notes are payable in
ten equal monthly installments, commencing November 1, 2004. The installment
payments consist of principal and a "premium" of 20% of the principal paid per
installment. The Company has the option to defer such payment until the note's
maturity date on October 1, 2005, if the Company's common stock trades above
$0.20 for the five trading days prior to the due date of an installment payment.
In connection with this transaction, the Company issued two additional notes in
the aggregate amount of $50,000, upon identical terms as the principal notes, as
a finder's fee. The company also paid $20,000 in legal fees. The common stock
underlying all notes and warrants carry registration rights.
On April 30, 2004, the Company converted 20,000 shares of Series F
Convertible Preferred Stock into 1,945,525 shares of common stock pursuant to an
April 27, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.1028. The conversion did not include accrued and unpaid
dividends on the converted preferred.
On April 30, 2004, the Company converted 20,000 shares of Series F
Convertible Preferred Stock into 1,945,525 shares of common stock pursuant to an
April 27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.1028. The conversion did not include accrued and unpaid
dividends on the converted preferred.
On April 30, 2004, the Company converted 2,500 shares of Series F
Convertible Preferred Stock into 243,191 shares of common stock pursuant to an
April 27, 2004 notice of conversion from Esquire Trade & Finance Inc., at a
conversion price of $0.1028. The conversion did not include accrued and unpaid
dividends on the converted preferred.
On April 30, 2004, the Company converted 2,500 shares of Series F
Convertible Preferred Stock into 243,191 shares of common stock pursuant to an
April 27, 2004 notice of conversion from Austinvest Anstalt Balzers, at a
conversion price of $0.1028. The conversion did not include accrued and unpaid
dividends on the converted preferred.
F-12
BRAVO! FOODS INTERNATIONAL CORP.
AND SUBSIDIARY
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2003
F-13
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants - Current F-15
Report of Independent Certified Public Accountants - Predecessor F-16
Consolidated Financial Statements
Balance Sheets F-17
Statements of Operations and Comprehensive Loss F-19
Statements of Capital Deficit F-20
Statements of Cash Flows F-21
Notes to Consolidated Financial Statements F-22
F-14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Bravo! Foods International Corp.
North Palm Beach, Florida
We have audited the accompanying balance sheet of Bravo! Foods International
Corp. as of December 31, 2003 and the related statements of operations and
comprehensive loss, shareholders' deficit and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bravo! Foods International
Corp. as of December 31, 2003 and the results of its operations and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred a net loss of $3,016,987 for the year ended December
31, 2003 and as of that date had a working capital deficiency of $2,971,505 and
a shareholders' deficit of $3,719,291. The Company also is delinquent in payment
of certain debts. These conditions 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
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence. Management's actions in
regard to these matters are more fully described in Note 1.
LAZAR LEVINE & FELIX LLP
New York, New York
April 2, 2004
F-15
Report of Independent Certified Public Accountants
To the Board of Directors
Bravo! Foods International Corp.
We have audited the accompanying consolidated balance sheets of Bravo! Foods
International Corp. and subsidiary as of December 31, 2002, and the related
consolidated statements of operations and comprehensive loss, shareholders'
deficit and cash flows the year ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bravo! Foods
International Corp. and subsidiary as of December 31, 2002, and the results of
their operations and their cash flows for the year ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in the summary
of accounting policies in the consolidated financial statements, the Company has
a limited operating history, has incurred substantial losses since its
inception, and at December 31, 2002, has a working capital deficiency, is
delinquent on certain of its debts and has negative net assets, all of which
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in the
same section. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
BDO Seidman, LLP
Los Angeles, California
March 14, 2003
F-16
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------
2002 2003
-------- --------
Assets
Current assets:
Cash and cash equivalents $224,579 $ 58,859
Accounts receivable, net 236,149 25,921
Other receivables 14,662 6,331
Advance to vendor 8,719 --
Inventories 55,062 54,995
Prepaid expenses 7,605 201,617
-------- --------
Total current assets 546,776 347,723
Furniture and equipment, net 89,602 68,623
License rights, net of accumulated amortization 88,104 24,065
Deferred product development costs -- 41,711
Deposits 15,000 10,736
-------- --------
Total assets $739,482 $492,858
======== ========
See accompanying notes
F-17
December 31,
--------------------------------
2002 2003
--------------- --------------
Liabilities and Capital Deficit
Current liabilities:
Note payable to International Paper $ 187,743 187,743
Notes payable to Alpha Capital 100,000 100,000
Notes payable to Mid-Am Capital LLC - 150,000
License fee payable to Warner Brothers 270,053 147,115
Accounts payable 1,039,313 2,123,705
Accrued liabilities 409,615 610,665
--------------- --------------
Total current liabilities 2,006,724 3,319,228
Dividends payable 266,666 582,823
Other notes payable - 310,098
--------------- --------------
Total liabilities 2,273,390 4,212,149
--------------- --------------
Commitments and contingencies
Capital Deficit:
Series B convertible, 9% cumulative, and redeemable preferred stock, stated
value $1.00 per share, 1,260,000 shares authorized, 107,440 $107,440
Series F convertible and redeemable preferred stock, stated value $10.00 per
share, 130,515 shares issued and outstanding 1,205,444 1,205,444
Series G convertible, 8% cumulative and redeemable preferred stock, stated value
$10.00 per share, 70,208 and 58,810 shares issued and outstanding 624,115 520,604
Series H convertible, 7% cumulative and redeemable preferred stock, stated value
$10.00 per share, 175,500 and 165,500 shares issued and outstanding 939,686 895,591
Series I convertible, 8% cumulative and redeemable preferred stock, stated value
$10.00 per share, 30,000 shares issued and outstanding 72,192 72,192
Series J convertible, 8% cumulative and redeemable preferred stock, stated value
$10.00 per share, 100,000 and 200,000 shares issued and outstanding 854,279 1,854,279
Common stock, par value $0.001 per share, 50,000,000 shares authorized,
25,732,854 and 28,047,542 shares issued and outstanding 25,730 28,045
Additional paid-in capital 20,266,463 21,144,896
Accumulated deficit (25,629,016) (29,548,471)
Accumulated other comprehensive loss - translation adjustment (241) 689
--------------- --------------
Total capital deficit (1,533,908) (3,719,291)
--------------- --------------
Total liabilities and capital deficit $ 739,482 492,858
============== ==============
See accompanying notes
F-18
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
Years ended December 31,
------------------------------
2002 2003
------------- -------------
Revenue - unit sales $ 232,595 $ 356,985
Revenue - net kit sales 433,118 2,737
Revenue - gross kit sales 1,107,257 840,420
------------- -------------
Total revenue 1,772,970 1,200,142
Cost of sales (279,355) (192,498)
------------- -------------
Gross margin 1,493,615 1,007,644
Selling expense 776,090 1,739,850
Product development 239,298 5,570
General and administrative expense 3,615,674 2,249,678
------------- -------------
Loss from operations (3,137,447) (2,987,454)
Other income (expense):
Interest expense, net 22,984 29,533
------------- -------------
Loss before income taxes (3,160,431) (3,016,987)
Provision for income taxes - -
------------- -------------
Net loss (3,160,431) (3,016,987)
Dividends accrued for Series B preferred stock (9,803) (9,669)
Dividends accrued for Series D preferred stock (18,499) -
Dividends accrued for Series G preferred stock (60,279) (46,457)
Dividends accrued for Series H preferred stock (75,439) (120,818)
Dividends accrued for Series I preferred stock (7,817) (24,000)
Dividends accrued for Series J preferred stock (2,044) (138,960)
Deemed dividend on Series J preferred stock (305,724) (367,211)
Deemed dividend on Series F preferred stock - (195,353)
------------- -------------
Deemed dividends on Sseries H preferred stock (236,764)
------------- -------------
Deemed dividends on Series I preferred stock (294,793)
------------- -------------
Net loss applicable to common shareholders $ (4,171,590) $ (3,919,455)
------------- -------------
Weighted average number of common shares outstanding 18,503,849 26,779,222
------------- -------------
Basic and diluted loss per share $ (0.23) $ (0.15)
------------- -------------
Comprehensive loss and its components consist of the following:
Net loss $ (3,160,431) $ (3,016,987)
Foreign currency translation adjustment 231 930
------------- -------------
Comprehensive loss $ (3,160,200) $ (3,016,057)
------------- -------------
See accompanying notes
F-19
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
STATEMENTS OF CAPITAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 and 2003
Preferred Stock Common Stock
-------------------------- --------------------------
Shares Amount Shares Amount
---------- ----------- ----------- ----------
Balance, December 31, 2001
568,774 $3,872,078 14,681,008 $ 14,681
Issuance of common stock for service -- -- 999,112 999
Stock issued for options exercised -- -- 1,000,000 1,000
Conversion of preferred stock (155,111) (1,469,880) 8,952,734 8,950
Issuance of Series H preferred stock 70,000 474,487 100,000 100
Issuance of Series I preferred stock 30,000 72,192 -- --
Issuance of Series J preferred stock 100,000 854,279 -- --
Issuance of options to consultants -- -- -- --
Extension of option terms -- -- -- --
Issuance of warrants to a lender -- -- -- --
Beneficial conversion feature of Series H preferred
stock -- -- -- --
Beneficial conversion feature of Series I preferred
stock -- -- -- --
Beneficial conversion of Series J preferred stock -- -- -- --
Accrued Dividends - Series B -- -- -- --
Accrued Dividends - Series D -- -- -- --
Accrued Dividends - Series G -- -- -- --
Accrued Dividends - Series H -- -- -- --
Accrued Dividends - Series I -- -- -- --
Accrued Dividends - Series J -- -- -- --
Net Loss for 2002 -- -- -- --
Translation Adjustment -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2002 613,663 3,803,156 25,732,854 25,730
Issuance of common stock for services -- -- 100,000 100
Conversion preferred stock (21,398) (147,606) 1,814,688 1,815
Issuance of Series J preferred stock 100,000 1,000,000 -- --
Finders' fees for financing -- -- 400,000 400
Issuance of warrants for convertible notes -- -- -- --
Beneficial conversion feature of convertible notes -- -- -- --
SEC registration costs for financing -- -- -- --
Conversion price changes for warrants -- -- -- --
Accrued Dividends - Series B -- -- -- --
Accrued Dividends - Series G -- -- -- --
Accrued Dividends - Series H -- -- -- --
Accrued Dividends - Series I -- -- -- --
Accrued Dividends - Series J -- -- -- --
Net loss for 2003 -- -- -- --
Translation adjustment -- -- -- --
------------ ------------ ------------ ------------
Balance, December 31, 2003 692,265 $ 4,655,550 28,047,542 $ 28,045
============ ============ ============ ============
Additional Accumulated
Paid In Accumulated Comprehensive
Capital Deficit Loss Total
---------- ------------- -------------- -----------
$16,028,980 $(21,457,425) $ (472) $(1,542,158)
Issuance of common stock for service 278,752 -- -- 279,751
Stock issued for options exercised 329,000 -- -- 330,000
Conversion of preferred stock 1,648,516 -- -- 187,586
Issuance of Series H preferred stock 225,413 -- -- 700,000
Issuance of Series I preferred stock 215,796 -- -- 287,988
Issuance of Series J preferred stock 145,721 -- -- 1,000,000
Issuance of options to consultants 161,612 -- -- 161,612
Extension of option terms 391,345 -- -- 391,345
Issuance of warrants to a lender 4,051 -- -- 4,051
Beneficial conversion feature of Series H preferred
stock 236,764 (236,764) -- --
Beneficial conversion feature of Series I preferred
stock 294,793 (294,793) -- --
Beneficial conversion of Series J preferred stock 305,721 (305,721) -- --
Accrued Dividends - Series B -- (9,803) -- (9,803)
Accrued Dividends - Series D -- (18,499) -- (18,499)
Accrued Dividends - Series G -- (60,279) -- (60,279)
Accrued Dividends - Series H -- (75,439) -- (75,439)
Accrued Dividends - Series I -- (7,817) -- (7,817)
Accrued Dividends - Series J -- (2,044) -- (2,044)
Net Loss for 2002 -- (3,160,431) -- (3,160,431)
Translation Adjustment -- -- 231 231
------------ ------------ ------------ ------------
Balance, December 31, 2002 20,266,464 (25,629,015) (241) (1,533,906)
Issuance of common stock for services 27,900 -- -- 28,000
Conversion preferred stock 169,538 -- -- 23,747
Issuance of Series J preferred stock 367,211 (367,211) -- 1,000,000
Finders' fees for financing 65,029 -- -- 65,429
Issuance of warrants for convertible notes 49,474 -- -- 49,474
Beneficial conversion feature of convertible notes 40,427 -- -- 40,427
SEC registration costs for financing (36,500) -- -- (36,500)
Conversion price changes for warrants 195,353 (195,353) -- --
Accrued Dividends - Series B -- (9,669) -- (9,669)
Accrued Dividends - Series G -- (46,457) -- (46,457)
Accrued Dividends - Series H -- (120,818) -- (120,818)
Accrued Dividends - Series I -- (24,000) -- (24,000)
Accrued Dividends - Series J -- (138,961) -- (138,961)
Net loss for 2003 -- (3,016,987) -- (3,016,987)
Translation adjustment -- -- 930 930
------------ ------------ ------------ ------------
Balance, December 31, 2003 $ 21,144,896 $(29,548,471) $ 689 $ (3,719,291)
------------ ------------ ------------ ------------
See accompanying notes
F-20
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
Years ended December 31,
--------------------------
2002 2003
----------- -----------
Cash flows from operating activities:
Net loss $(3,160,431) $(3,016,987)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 671,243 101,207
Stock issuance for compensation and financing finder's fee 54,600 93,428
Options issued for compensation 557,008 --
Registration costs for financing -- (36,500)
Loss on disposal of fixed assets -- 15,134
Increase (decrease) from changes in:
Accounts receivable (83,467) 210,228
Other receivable (2,484) 8,331
Advance to vendors 12,279 8,719
Inventories 36,341 67
Prepaid expenses 16,501 (189,748)
Accounts payable and accrued expenses 293,652 1,285,443
Deferred product and development costs -- (41,711)
----------- -----------
Net cash used in operating activities (1,604,758) (1,562,389)
----------- -----------
Cash flows from investing activities:
Purchase of equipment (9,422) (31,323)
----------- -----------
Net cash used in investing activities (9,422) (31,323)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of Series H preferred stock 700,000 --
Proceeds from issuance of Series I preferred stock 287,988 --
Proceeds from issuance of Series J preferred stock 1,000,000 1,000,000
Proceeds from exercise of stock options 330,000 --
Short term borrowing -- 150,000
Notes payable -- 400,000
Borrowings repayment (250,000) --
Payment of note payable, bank loan and license fee payable (461,500) (122,938)
----------- -----------
Net cash provided by financing activities 1,606,488 1,427,062
----------- -----------
Effect of changes in exchange rate on cash 231 930
----------- -----------
Net (decrease) in cash and cash equivalents (7,461) (165,720)
Cash and cash equivalents, beginning of year 232,040 224,579
----------- -----------
Cash and cash equivalents, end of year $ 224,579 $ 58,859
----------- -----------
Supplemental cash flow information
Cash paid during the year for interest $ 7,988 $ --
----------- -----------
Non-cash investing and financing activities:
Stock granted in exchange of debt and payables and services $ 225,151 $ 93,428
Preferred stock and accrued dividends converted to common stock $ 1,657,446 $ 171,353
Beneficial conversion feature $ 837,278 $ 133,611
----------- -----------
See accompanying notes
F-21
BRAVO! FOODS INTERNATIONAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization, Businesses and Going Concern Uncertainty
Bravo! Foods International Corp. (the Company), formerly known as China Premium
Food Corporation, was incorporated under the laws of the State of Delaware on
April 26, 1996. The Company is engaged in the sale of flavored milk products and
flavor ingredients in the United States, Puerto Rico, the Middle East, Canada
and Mexico and the co-production, marketing and distribution of branded dairy
products in the People's Republic of China.
In December 1999, the Company obtained Chinese government approval for the
registration of China Premium Food Corp (Shanghai) Co. Ltd., a wholly owned
subsidiary, in the Wai Gao Qiao free trade zone in Shanghai, China. This
subsidiary was formed to import, export and distribute food products and
flavored milk ingredients on a wholesale level in China. The Company has
announced that it plans to cease all business activities of this Chinese
subsidiary in the second quarter 2004.
GOING CONCERN UNCERTAINTY
As shown in the accompanying consolidated financial statements, the Company has
suffered operating losses and negative cash flow from operations since inception
and has an accumulated deficit of $29,548,471, a capital deficit of $3,719,291,
negative working capital of $2,971,505 and is delinquent on certain of its debts
at December 31, 2003. Further, the Company's auditors stated in their report on
the Company's Consolidated Financial Statements for the year ended December 31,
2003, that these conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management plans to increase gross profit
margins in its U.S. business and obtain additional financing and is in the
process of repositioning its products with the anticipated launch of four new
product lines in the second quarter 2004. While there is no assurance that
funding will be available or that the Company will be able to improve its profit
margins, the Company is continuing to actively seek equity and/or debt financing
and has raised $1,350,000 in the fourth quarter 2003 and first quarter 2004. No
assurances can be given that the Company will be successful in carrying out its
plans. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Bravo! Foods
International Corp. and its wholly owned subsidiary China Premium Food Corp
(Shanghai) Co., Ltd. (the "Company"). All significant intercompany transactions
have been eliminated.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS
Transaction gains and losses result from a change in exchange rates between the
functional currency and the currency in which a foreign currency transaction is
denominated. They represent an increase or decrease in (a) the actual functional
current cash flows realized upon settlement of foreign currency transactions and
(b) the expected functional currency cash flows on unsettled foreign currency
transactions. All transaction gains and losses are included in other income or
expense.
Assets and liabilities of China Premium Food Corp (Shanghai) Co., Ltd. are
translated into the US dollar at the prevailing exchange rate in effect at each
period end. Revenue and expenses are translated into the US dollar at the
average exchange rate during the reporting period. Contributed capital is
translated into the US dollar at the historical exchange rate when capital was
injected. Any difference resulting from using the current rate, historical rate
and average rate in determination of retained earnings is accounted for as a
translation adjustment and reported as part of comprehensive income or loss in
the equity section.
F-22
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Among the more significant estimates included in
these financial statements are the estimated allowance for doubtful accounts
receivable and the deferred income tax asset allowance. Actual results could
differ materially from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, receivables, accrued liabilities and notes payable
are reasonable estimates of their fair value because of the short maturity of
these items.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk primarily consist of cash and accounts receivable.
During the normal course of business, the Company extends unsecured credit to
its customers who are located in various geographical areas. Typically credit
terms require payments to be made by the thirtieth day following the sale. The
Company regularly evaluates and monitors the creditworthiness of each customer
on a case-by-case basis. The Company provides an allowance for doubtful accounts
based on its continuing evaluation of its customers' credit risk. As of December
31, 2003, the allowance of doubtful accounts aggregated $39,226. The Company
maintains its cash accounts with high credit quality financial institutions. The
FDIC insures total cash balances up to $100,000 per bank. Cash balances in any
one financial institution were not in excess of this limit at December 31, 2003.
INVENTORY
Inventory, which consists primarily of packing materials and other flavor
ingredients, is stated at the lower of cost on the first-in, first-out method or
market.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Depreciation is computed primarily
utilizing the straight-line method over a period of seven years for furniture
and five years for equipment.
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterment to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation
thereon are removed from the accounts, and any resulting gain or loss is
included in the statement of operations.
F-23
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 2002, the Company began applying the provisions of
Statement of Financial Accounting Standard No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable through the estimated undiscounted cash flows expected to result
from the use and eventual disposition of the assets. Whenever any such
impairment exists, an impairment loss will be recognized for the amount by which
the carrying value exceeds the fair value. During 2002, the Company determined
that license rights in China having a net book value of $39,286 were impaired.
REVENUE RECOGNITION
The Company sells flavor ingredients and production rights (collectively
referred to as "kits") to processor dairies in the U.S., China, Canada and
Mexico and also sells flavored milk products in the U.S. Revenue is recognized
when the goods are shipped and title and the risk and reward of ownership have
been passed to the customer and possible return of goods can be reasonably
estimated. The criteria to meet this guideline are: 1) persuasive evidence of an
arrangement exists, 2) delivery has occurred or services have been rendered, 3)
the price to the buyer is fixed or determinable and 4) collectibility is
reasonably assured.
The Company follows the final consensus reached by the Emerging Issues Task
Force (EITF) 99-19, "Reporting Revenue Gross as a Principal versus Net as an
Agent". Pursuant to EITF 99-19, sales of kits made directly to customers by the
Company are reflected in the statement of operations on a gross basis, whereby
the total amount billed to the customer is recognized as revenue. Sales of kits
made through intermediaries, in which the Company's role is similar to that of
an agent, are reflected on a net basis, which represents the amount earned by
the Company in the transaction.
The Company has production agreements with processors of dairy products pursuant
to which the Company sells flavored milk products to retail stores (referred to
as "unit sales"). The Company benefits from the difference between the prices
charged by the dairy processor to produce the product for the Company and the
price paid by retail stores to purchase the product. The Company bears the
responsibility for paying food brokers fees, transportation and delivery
expenses and sample expense, etc. The Company recognizes revenue on the net
basis and recognizes the aforementioned expenses as selling expenses.
SHIPPING AND HANDLING COSTS
Shipping and handling costs incurred by the Company are included in selling
expenses and aggregated $273,362 and $504,971 for 2002 and 2003, respectively.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion costs, which are included in selling expenses, are
expensed as incurred and aggregated $304,084 and $342,367 for 2002 and 2003,
respectively.
F-24
INCOME TAXES
The Company accounts for income taxes using the liability method, which requires
an entity to recognize deferred tax liabilities and assets. Deferred income
taxes are recognized based on the differences between the tax bases of assets
and liabilities and their reported amounts in the financial statements that will
result in taxable or deductible amounts in future years. Further, the effects of
enacted tax laws or rate changes are included as part of deferred tax expense or
benefit in the period that covers the enactment date. A valuation allowance is
recognized if it is more likely than not that some portion, or all, of a
deferred tax asset will not be realized.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is computed by dividing loss applicable
to common stockholders by the weighted average number of common shares
outstanding for the period.
For the years ended December 31, 2002 and 2003, potential common shares arising
from the Company's stock options, stock warrants and convertible preferred stock
of 19,074,098 and 39,611,363, respectively, were not included in the computation
of diluted earnings per share because their effect was antidilutive.
STOCK-BASED COMPENSATION
The Company has adopted the intrinsic value method of accounting for employee
stock options as permitted by Statement of Financial Accounting Standards No.
123, "Accounting for Stock-based Compensation" (SFAS No. 123) and discloses the
pro forma effect on net loss and loss per share as if the fair value based
method had been applied. For equity instruments, including stock options, issued
to non-employees, the fair value of the equity instruments or the fair value of
the consideration received, whichever is more readily determinable, is used to
determine the value of services or goods received and the corresponding charge
to operations.
The following table illustrates the effect on net loss and loss per share as if
the Company had applied the fair value recognition provision of SFAS No. 123 to
stock-based employee compensation.
Year ending December 31,
--------------------------------
2002 2003
------------- ------------
Net loss applicable to common shareholders: as reported $ (4,171,590) $ (3,919,455)
Add: total stock based employee compensation expense determined under
fair value method for all awards - -
------------- ------------
Pro forma net loss $ (4,171,590) $ (3,919,455)
------------- ------------
As reported $ (0.23) $ (0.15)
Pro forma $ (0.23) $ (0.15)
F-25
RECENT ACCOUNTING PRONOUNCEMENTS
ADOPTION OF SFAS 150
In May 2003, Statement of Financial Accounting Standards ("SFAS") No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity," was issued effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). The adoption of SFAS No. 150
did not result in the reclassification of any financial instruments in the
Company's financial statements.
ADOPTION OF SFAS 149
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," was issued effective for contracts entered
into or modified after June 30, 2003, with certain exceptions. This statement
amends and clarifies financial accounting and reporting for derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activity." The Company does not currently
engage in hedging activities, and the adoption of this statement did not have
any effect on its financial statements.
ADOPTION OF SFAS NO. 148
In December 2002, FASB issued Statement No. 148 (SFAS No. 148), "Accounting for
Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock-Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for the Company's financial statements for the year
ending after December 15, 2002. As permitted by SFAS No. 148, the Company has
elected to retain the intrinsic value method of accounting for stock-based
awards granted to employees. Accordingly, the adoption of SFAS No. 148 did not
have a material effect on the Company's financial position or results of
operations.
ADOPTION OF SFAS NO. 146
In June 2002, FASB issued Statement No. 146 (SFAS No. 146), "Accounting for
Costs Associated with Exit or Disposal Activities," effective for activities
that are initiated after December 31, 2002, with early application encouraged.
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The adoption of SFAS No. 146 did not have a material effect on
the Company's financial position or results of operations.
F-26
ADOPTION OF SFAS NO. 143
In June 2001, Financial Accounting Standards Board (FASB) issued Statement No.
143 (SFAS No. 143), "Accounting for Asset Retirement Obligations," effective for
fiscal years beginning after June 15, 2002. The Statement requires entities to
record the fair value of a liability for an asset retirement obligation in the
period in which it is incurred. When the liability is initially recorded, the
entity capitalizes a cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. The
adoption of SFAS No. 143 did not have a material effect on the Company's
financial position or results of operations.
ADOPTION OF FIN NO. 46
In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46),
"Consolidation of Variable Interest Entities," an interpretation of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements." FIN No. 46
explains how to identify variable interest entities and how an enterprise
assesses its interest in a variable entity to decide whether to consolidate that
entity. FIN No. 46 requires existing unconsolidated variable interest entities
to be consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. FIN No. 46 is effective
immediately for variable interest entities after January 31, 2003, and to
variable interest entities in which an enterprise obtained an interest after
that date. FIN No. 46 applies in the first fiscal year or interim period
beginning after June 15, 2003, to variable interest entities in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The adoption of FIN No. 46 did not have a material effect on the Company's
financial position and result of operations.
ADOPTION OF FIN NO. 45
In November 2002, the FASB issued Interpretation No. 45 ("FIN No. 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.
FIN No. 45 will affect leasing transactions involving residual guarantees,
vendor and manufacturer guarantees and tax and environmental indemnities. All
such guarantees will need to be disclosed in the notes to the financial
statements starting with the period ending after December 15, 2002. For
guarantees issued after December 31, 2002, the fair value of the obligation must
be reported on the balance sheet. Existing guarantees will be grandfathered and
will not be recognized on the balance sheet. There is no impact on our financial
position and results of operations due to the application of FIN No. 45.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year consolidated
financial statements to conform to the 2003 presentation.
Depreciation and amortization expense aggregated $42,919 and $37,168 for 2002
and 2003, respectively.
NOTE 3 - LICENSING AGREEMENTS WITH WARNER BROTHERS CONSUMER PRODUCTS CO.
LICENSING AGREEMENT IN CHINA
On January 1, 1999, the Company entered into a licensing agreement (the Original
Agreement) with Warner Brothers Consumer Products Co. (Warner) for the right to
utilize Looney Tunes(TM) images and names, as defined in the Agreement, on its
products in Shanghai and Hangzhou, China. The Company agreed to pay a 3% royalty
fee on the net invoiced price of each licensed article with a minimum guaranteed
consideration of $300,000 of which $45,000 was paid at inception of the
Agreement, and the balance to be paid in ten quarterly installments of $21,250
starting on September 30, 1999 with a final payment of $42,500 on or before
March 31, 2002. The Company recorded license rights of $300,000 and amortized
the rights over a period of three years.
On November 21, 2000, the Company entered into an amendment of the Original
Agreement with Warner. Per the amendment, the term of the agreement was extended
to June 30, 2003 with the guaranteed consideration being increased to $400,000.
The Original Agreement, as amended, was extended to October 29, 2003, at which
time it expired. As of December 31, 2003, the outstanding obligation under this
agreement was $147,116.
The Company decided not to seek another license from Warner Bros. for China
beyond the October 2003 expiration based upon the lack of sales in the Company's
China markets and what the Company perceived to be the licensor's continuing
overall lack of brand support in China. The Company and Warner Bros. dispute the
contractual necessity of the payment of the balance owed on the China license as
a result of the above circumstances. As of December 31, 2003, the Company
reserved $152,448 for this obligation, representing the $147,116 balance of
guaranteed royalties plus $5,332 for the legally allowed default penalty.
LICENSING AGREEMENT IN THE UNITED STATES
On July 26, 2000, the Company entered into a license agreement with Warner Bros.
and obtained rights to utilize Looney Tunes(TM) character images and names in
the U.S. in connection with specified categories of products sold by Bravo!. The
license agreement was originally effective from January 1, 2000 to December 31,
2002. In April 2002, the Company and Warner Bros. reached an agreement to extend
this license agreement until December 31, 2003. The Company recorded the gross
amount of $500,000 as licensing costs and an obligation for the licensing
agreement of $500,000 simultaneously.
F-28
In May 2002, the Company entered into a licensing agreement with Warner to
utilize licensed property in connection with the 2002 Taz Atti-Tour events for
the period March 13, 2002 to December 31, 2002. The Company recorded a
non-refundable minimum guaranteed payment of $250,000. The guaranteed payment
was amortized over the term of the license agreement. The Company recorded
amortization expense of $250,000 for the year ended December 31, 2002. At
December 31, 2002, $83,333 was due for payment under the terms of the agreement,
which was paid on February 26, 2003.
The history of the Company with Warner Bros. licenses, as a function of sales of
the flavored milks, has not supported the guaranteed royalty structure required
by Warner Bros. for its licenses. As a result, the Company decided to exploit
its own Slammers(R) brand, which has been developed in 2003, and commenced
negotiations for licenses with Marvel Comics and Moon Pie. For these reasons,
the Company decided not to accept the offer of Warner Bros. to renew the U.S.
license.
LICENSING AGREEMENT IN MEXICO
In September 2001, the Company entered into a licensing agreement with Warner
for the right to utilize Looney Tunes(TM) character images and names, as defined
in the agreement, on its products sold in Mexico. The Company agreed to pay
royalties of 5% on net sales, defined as the gross invoice price billed to the
dairy producing, distributing and selling the licensed products, from June 1,
2001 through May 31, 2002; 7% on net sales from June 1, 2002 through May 31,
2003; and 10% on net sales from June 1, 2003 through May 31, 2004; with a
minimum total guaranteed consideration of $145,000.
The licensing agreement is effective through May 31, 2004. The Company recorded
license rights of $145,000 to be amortized over a period of three years.
Amortization expense for the year ended December 31, 2003 and 2003 was $48,333
for each year. As of December 31, 2003, no outstanding obligation remained under
this agreement. Based upon the Company's analysis of the cost of this license as
a function of sales of the flavored milks, the Mexico license will not by
renewed by the Company.
LICENSING AGREEMENT IN CANADA
In May 2002, the Company entered into a licensing agreement with Warner to
utilize Looney Tunes(TM) characters and names on milk products sold in specified
retail outlets throughout Canada, for the period March 1, 2002 to March 31,
2004. The Company recorded a license right of $32,720 upon execution of the
agreement. The guaranteed payment is amortized over the term of the license
agreement. The Company recorded amortization expense for the year ended December
31, 2002 and 2003 of $13,088 and $15,706, respectively. Based upon the Company's
analysis of the cost of this license as a function of sales of the flavored
milks, the Canada license will not by renewed by the Company.
NOTE 4 - DEFAULT OF NOTE PAYABLE TO INTERNATIONAL PAPER
In 1999, the Company issued a promissory note to assume existing debt owed by
its then Chinese joint venture subsidiary to a supplier, International Paper.
The face value of that unsecured note was $282,637 at an interest rate of 10.5%
per annum. The note originally required 23 monthly payments of $7,250 and a
balloon payment of $159,862 due on July 15, 2000. During 2000, the Company
negotiated an extension of this note to July 1, 2001. International Paper
imposed a charge of $57,000 to renegotiate the note, which amount represents
interest due through the extension date. The current balance due on this note is
$187,743 at December 31, 2003, all of which is delinquent. The Company has not
had any communication with International Paper during the last three years.
Although International Paper has not pursued collection of the note, it is
possible that they could do so in the future and, if they do, such collection
effort may have a significant adverse impact on the liquidity of the Company.
The Company has not accrued interest as of December 31, 2002 and December 31,
2003.
F-29
NOTE 5 - NOTES PAYABLE TO INDIVIDUAL LENDERS
On November 6 and 7, 2001, respectively, the Company received the proceeds of
two loans aggregating $100,000 from two offshore lenders. The two promissory
notes, one for $34,000 and the other for $66,000, were payable on February 1,
2002 with interest at an annual rate of 8%. These loans are secured by a general
security interest in all the assets of the Company. These lenders have agreed to
extend the notes without default on a demand basis. Interest accrued and unpaid
as December 31, 2003 aggregated $17,380.
NOTE 6 - CAPITAL DEFICIT
2002
During 2002, the Company issued 70,000 shares of its Series H convertible
preferred stock, having a conversion price of $0.40 per share of common stock,
and warrants for 1,750,000 shares at $0.50 per share. The Series H convertible
preferred stock and warrants were priced at $10.00 per unit, and resulted in
proceeds of $700,000 in cash. In accordance with EITF 00-27, the Company
allocated $225,513 to the warrants, $474,487 to the underlying preferred stock
and recorded deemed dividends of $236,764 related to the beneficial conversion
features.
In connection with the above private placement of Series H Preferred stock, the
Company issued 100,000 shares of common stock as finder fees.
On June 17, 2002, the Company issued 30,000 shares of its Series I convertible
and 8% cumulative and redeemable preferred stock and warrants for 2,000,000
shares of common stock at $0.50 per share, exercisable three years from issue,
to two sophisticated and accredited investors, pursuant to Rule 506, Regulation
D and Section 4(2) of the Securities Act of 1933. The conversion of the
preferred into common stock shall be at a per common share conversion price of
either $0.40 or 75% of the average of the three lowest closing bid prices for
the thirty day period immediately preceding conversion, at the option of the
holder. The conversion price is subject to a maximum of $0.50 per share and a
minimum of $0.30 per share, which minimum conversion price shall govern for the
270 days immediately following the issue date of the Series I preferred shares.
The minimum conversion price shall be extended indefinitely upon the occurrence
of certain defined events, including the effectiveness of a registration
statement for the resale of the common stock underlying the preferred and a
trading price of the Company's common stock at $0.50 or higher for fifteen
consecutive days. The Series I convertible preferred stock and warrants were
priced at $10.00 per unit, and resulted in gross cash proceeds of $300,000, less
expenses of $12,012. In accordance with EITF 00-27, the Company allocated
$215,796 to the 2 million warrants and $72,192 to the underlying preferred stock
and recorded deemed dividends of $294,793 arising from a beneficial conversion
feature.
F-30
On September 30, 2002, the Company issued 100,000 shares of non-voting Series J
Convertible and 8% cumulative and redeemable Preferred stock, having a stated
value of $10.00 per share, and common stock warrants to Mid-Am Capital, L.L.C.
("Mid-Am") for the aggregate purchase price of $1,000,000. Each preferred share
is convertible to 40 shares of the Company's common stock at a conversion price
of $0.25 per share, representing 4,000,000 shares of common stock underlying the
preferred stock. The issued warrants entitle the holder to purchase 25 shares of
common stock for each share of Series J Convertible Preferred stock issued at an
exercise price of $0.40 per common stock share, representing 2,500,000 shares of
common stock underlying the warrants. The warrants are exercisable for a
five-year period. This private offering was made to Mid-Am, an accredited
investor, pursuant to Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. In accordance with EITF 00-27, the Company allocated
$145,721 to the warrants, $854,279 to preferred stock and recorded deemed
dividends of $305,721 arising from a beneficial conversion feature. The value of
the warrants was determined using the Black Scholes Option Pricing Model with
the following inputs: Expected Volatility of 34.11%, Risk Free Rate of Return of
4.24%, No Dividends and an Expected Life of 3.75 years.
During 2002, the Company issued a total of 5,081,830 shares of common stock upon
the conversion of 87,500 shares of Series D preferred stock.
During 2002, the Company issued a total of 2,320,224 shares of common stock upon
the conversion of 44,484 shares of Series F preferred stock.
During 2002, the Company issued a total of 1,550,680 shares of common stock upon
the conversion of 23,127 shares of Series G preferred stock.
In connection with the aforementioned conversion of preferred stock, a total of
$187,586 of accrued dividends payable was also converted into the Company's
common stock, of which $146,670 related to Series D and $40,916 related to
Series G.
On June 10, 2002, the Company issued 1,000,000 shares of common stock in
exchange for cash of $330,000 due to exercise of the options.
On October 17, 2002, the Company issued a total of 999,112 shares of common
stock at the market price of $0.28 per share in lieu of cash payment of $225,151
and recorded non-cash expense of $54,600.
2003
On January 2, 2003, the Company issued 100,000 shares of common stock to an
employee. This common stock will be registered under a Form S-8 registration
statement. In January 2003, the Company recorded $28,000 of compensation expense
based upon a signing bonus for this grant. In addition, the Company granted
options for 100,000 shares of common stock to the employee pursuant to an
employment contract. These options vested immediately, expire on December 30,
2007 and have an exercise price of $0.40 per share. The Company also granted
options for 200,000 shares of common stock at an exercise price of $0.40 per
share and vest as follows: options for 100,000 shares on each of December 31,
2003 and 2004, and 100,000 expire on each of December 30, 2008 and 2009,
respectively.
On February 4, 2003, the Company issued 30,000 shares of common stock to Keshet,
LP, upon the conversion of 480 shares of Series G Convertible Preferred stock,
at a conversion price of $0.196. The conversion included accrued and unpaid
dividends on the preferred converted.
F-31
On February 21, 2002, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to 40
shares of the Company's common stock at a per common share conversion price of
$0.25, representing 2,000,000 shares of common stock underlying the preferred.
The issued warrants entitle the holder to purchase 33.33 shares of common stock
for each share of Series J Convertible Preferred stock issued at an exercise
price of $0.30 per common stock share, representing 1,666,667 shares of common
stock underlying the warrants. The warrants are exercisable for a five-year
period. The February 21, 2003 closing market trading price was $0.23 per share.
This private offering was made to Mid-Am, an accredited investor, pursuant to
Rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933. In
accordance with EITF 00-27, the Company recorded a deemed dividend of $274,720
related to a beneficial conversion feature.
On April 14, 2003, the Company issued 50,000 shares of common stock to Keshet,
LP, upon the conversion of 596 shares of Series G Convertible Preferred, at a
conversion price of $0.148. The conversion included accrued and unpaid dividends
on the preferred converted.
On April 22, 2003, the Company issued 50,000 shares of common stock to The
Keshet Fund, LP, upon the conversion of 595 shares of Series G Convertible
Preferred, at a conversion price of $0.148. The conversion included accrued and
unpaid dividends on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to Keshet,
LP, upon the conversion of 607 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid dividends
on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 607 shares of Series G Convertible Preferred,
at a conversion price of $0. 076. The conversion included accrued and unpaid
dividends on the preferred converted.
On May 29, 2003, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. for the aggregate
purchase price of $500,000. Each preferred share is convertible to 50 shares of
the Company's common stock at a conversion price of $0.20, representing
2,500,000 shares of common stock underlying the preferred. The issued warrants
entitle the holder to purchase 40 shares of common stock for each share of
Series J Convertible Preferred stock issued at an exercise price of $0.25 per
common stock share, representing 2,000,000 shares of common stock underlying the
warrants. The warrants are exercisable for a five-year period. The May 22, 2003
closing market trading price was $0.12 per share. In addition, the following
adjustments were made to prior issued warrants for the purpose of facilitating
future fund raising by the Company arising out of the exercise of the warrants
by Holder. The purchase price, as defined in the Warrants No. 1 and 2, has been
reduced to $0.25, subject to further adjustment as described in the warrants.
The warrant stock provided for in Warrant No.1 has been increased by 1,500,000
shares. The warrant stock provided for in Warrant No. 2 has been increased by
333,333 shares. The expiration date, as defined in the respective warrants,
remains as stated. The trading price call option trigger set forth in Section 9
(b) of the warrants has been reduced from $1.75 to $0.75 per share. This private
offering was made to Mid-Am, an accredited investor, pursuant to Rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933. The value of the
warrants, $92,491, was determined using the Black-Scholes model.
On August 12, 2003, the Company issued 1,200,000 shares of common stock based
upon Series G notices of conversion received in June and July 2003. The issuance
of common stock was delayed in order to determine the accuracy of the conversion
variables contained in the respective notices of conversion, as follows: The
Company issued 200,000 shares of common stock to Keshet, LP, upon the conversion
of 1,209 shares of Series G Convertible Preferred, at a conversion price of
$0.076. The conversion included accrued and unpaid dividends on the preferred
converted.
F-32
The Company issued 200,000 shares of common stock to The Keshet Fund, LP, upon
the conversion of 1,209 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid dividends
on the preferred converted.
The Company issued 150,000 shares of common stock to The Keshet Fund, LP, upon
the conversion of 773 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
The Company issued 250,000 shares of common stock to Keshet, LP, upon the
conversion of 1,289 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
The Company issued 200,000 shares of common stock to Talbiya B. Investments,
Ltd., upon the conversion of 1,031 shares of Series G Convertible Preferred, at
a conversion price of $0.0653. The conversion included accrued and unpaid
dividends on the preferred converted.
The Company issued 200,000 shares of common stock to Nesher. Ltd., upon the
conversion of 1,031 shares of Series G Convertible Preferred, at a conversion
price of $0.0653. The conversion included accrued and unpaid dividends on the
preferred converted.
On September 15, 2003, the Company issued 213,750 shares of common stock to
Michael Willms, upon the conversion of 7,500 shares of Series H Convertible
Preferred, at the fixed conversion price of $0.40. The conversion included
accrued and unpaid dividends on the preferred converted.
On September 29, 2003, the Company issued 70,938 shares of common stock to The
Dennis H. Willms Irrevocable Trust, Michael Willms, Trustee, upon the conversion
of 2,500 shares of Series H Convertible Preferred, at the fixed conversion price
of $0.40. The conversion included accrued and unpaid dividends on the preferred
converted.
On November 21, 2003, the Company entered into a Subscription Agreement with
Gamma Opportunity Capital Partners, LP for the sale of a convertible note in the
amount of $200,000 and warrants to purchase 5,000,000 shares of common stock, at
$1.00 per share. The convertible note is convertible into shares of common stock
of the Company at the lesser of $0.05 or 75% of the average of the three lowest
closing bid prices for the thirty trading days prior to but not including the
conversion date. During the 180 days following the issuance of the convertible
note, the conversion price shall not be less than $.03 per share if no event of
default exists. This 180 day period shall be extended indefinitely if no event
of default exists, the closing trading price for any 15 day consecutive trading
period is $0.20 or higher, the daily trading volume for the 15 days is at least
300,000 and a registration statement registering the convertible note is
effective. In connection with this transaction, the Company issued 400,000
shares of its common stock and a warrant to purchase 2,000,000 shares of common
stock at $.05 per share.
On November 21, 2003, the Company also entered into a Subscription Agreement
with Mid-Am Capital, LLC for the sale of a convertible note in the amount of
$200,000 and warrants to purchase 5,000,000 shares of common stock, at $1.00 per
share. The convertible note is convertible into shares of common stock of the
Company at the lesser of $0.05 or 75% of the average of the three lowest closing
bid prices for the thirty trading days prior to but not including the conversion
date. During the 180 days following the issuance of the convertible note, the
conversion price shall not be less that $.03 per share if no event of default
exists. This 180 day period shall be extended indefinitely if no event of
default exists, the closing trading price for any 15 day consecutive trading
period is $0.20 or higher, the daily trading volume for the 15 days is at least
300,000 and a registration statement registering the convertible note is
effective.
F-33
NOTE 7 - STOCK WARRANTS AND OPTIONS
2002
In March 2002, the Company issued to a lender, warrants to purchase 25,000
shares of common stock with an exercise price of $0.40 per share. The warrants
are immediately exercisable and have an expiration date of February 28, 2007.
Based on a Black-Scholes option pricing model, the Company recorded interest
expense of $4,051. The value of the warrants was determined using the Black
Scholes Option Pricing Model with the following inputs: Expected Volatility of
44%, Risk Free Rate of Return of 4.24%, No Dividends and an Expected Life of
3.75 years.
In May 2002, the Company issued stock options to purchase 1,710,000 shares of
common stock, in the aggregate, as compensation to three consultants. These
options are exercisable for a one-year period. Of the 1,710,000 options,
1,150,000 options have an exercise price of $0.33 per share and 560,000 options
have an exercise price of $0.50 per share. Based on a Black-Scholes option
pricing model, the Company recorded a non-cash expense of $124,859. In June
2002, 1 million options with an exercise price of $0.33 per share were
exercised. The value of the warrants was determined using the Black Scholes
Option Pricing Model with the following inputs: Expected Volatility of 64%, Risk
Free Rate of Return of 4.24%, No Dividends and an Expected Life of 1 year.
In April 2002 the Company extended options for 1,383,705 shares of common stock
issued on April 29 and April 30, 1997 to Tamarind Management, Ltd. (an affiliate
of Mr. Paul Downes, a founder of the Company) and options for 700,000 shares of
common stock issued on April 1997 to Mr. Dale Reese (a founder of the Company).
These extended options are exercisable upon the following conditions: The option
expiration dates are extended for a two year period, commencing upon the
effective date of a registration statement for the resale of the common stock
underlying the options; the options will not be exercised during a one year
lockup period commencing on the 1st day after the Company's common stock trades
during a 90 day period at a moving average of at least $1.00; the Company can
call the options commencing on the 1st day after its common stock trades during
a 90 day period at a moving average of at least $2.00.
In June 2002, the Company agreed to extend the expiration dates of warrants,
aggregating 6,089,777 shares of common stock, issued in connection with the
Company's Series D and F preferred stock until June 2005 and to reduce the
exercise price of certain of those warrants to $1.00. In consideration for this
warrant modification, the holders of two promissory notes executed by the
Company aggregating $100,000, agreed to extend the maturity dates of the notes
to December 31, 2002. In addition, the holders of the Company's Series D and F
preferred stock agreed to waive all potential penalties associated with the
Series D and F preferred stock, including the abandonment of a certain SB-2
registration statement filed in connection with the resale of the common stock
underlying the Series D and F preferred stock. As a result of extending the life
and reducing the exercise prices of these warrants, the Company remeasured the
value of the warrants and recorded $391,345 as non-cash expense.
F-34
In October 2002, the Company issued options to purchase 310,714 shares of common
stock to consultants and third party professional service providers pursuant to
written agreements with the Company. Of the options issued, 75,000 options have
an exercise price of $1.00 per share and the remaining 235,714 options have an
exercise price of $0.35 per share. The Company recorded stock compensation of
$36,753. The value of the warrants was determined using the Black Scholes Option
Pricing Model with the following inputs: Expected Volatility of 70%, Risk Free
Rate of Return of 3.8%, No Dividends and an Expected Life of 3.75 years.
2003
On January 2, 2003, the Company granted options for 100,000 shares of common
stock to an employee pursuant to an employment contract. These options vested
immediately, expire on December 30, 2007 and have an exercise price of $0.40 per
share. The Company also granted options for 200,000 shares of common stock at an
exercise price of $0.40 per share and vest as follows: options for 100,000
shares on each of December 31, 2003 and 2004, and 100,000 expire on each of
December 30, 2008 and 2009, respectively.
On February 21, 2003, the Company issued a warrant for 1,666,667 shares of
common stock to Mid-Am, in connection with the issuance of 50,000 shares of
non-voting Series J 8% Convertible Preferred stock, having a stated value of
$10.00 per Preferred J share, for the aggregate purchase price of $500,000. The
warrants have an exercise price of $0.30 per common stock share, and are
exercisable for a five-year period. The February 21, 2003 closing market trading
price was $0.23 per share. In accordance with EITF 00-27, the Company recorded a
deemed dividend of $274,720 related to a beneficial conversion feature.
On May 29, 2003, the Company issued a warrant for 2,000,000 shares of common
stock to Mid-Am, in connection with the issuance of 50,000 shares of non-voting
Series J 8% Convertible Preferred stock, having a stated value of $10.00 per
Preferred J share, for the aggregate purchase price of $500,000. The warrants
entitle the holder to purchase 40 shares of common stock for each share of
Series J Convertible Preferred stock issued at an exercise price of $0.25 per
common stock share, and are exercisable for a five-year period. The May 22, 2003
closing market trading price was $0.12 per share. In addition, the following
adjustments were made to prior issued warrants for the purpose of facilitating
future fund raising by the Company arising out of the exercise of the warrants
by Holder. The purchase price, as defined in the Warrants No. 1 (issued
September 2002) and 2 (issued February 2003), was reduced to $0.25, subject to
further adjustment as described in the warrants. The warrant stock provided for
in Warrant No.1 was increased by 1,500,000 shares. The warrant stock provided
for in Warrant No. 2 was increased by 333,333 shares. The expiration date, as
defined in the respective warrants, remains as stated. The trading price call
option trigger set forth in Section 9 (b) of all of the warrants has been
reduced from $1.75 to $0.75 per share. The value of the warrants, $92,491, was
determined using the Black-Scholes model.
On November 21, 2003, the Company issued two "A" warrants for the aggregate
amount of 2,000,000 shares of common stock, and two "B" warrants for the
aggregate amount of 10,000,000 shares of common stock to Mid-Am Capital, L.L.C.
and Gamma Opportunity Capital Partners, LP, in connection with the issuance of
two convertible notes in the aggregate face amount of $400,000. The "A" warrants
have an exercise price of $0.05 per share and the "B" warrants have an exercise
price of $1.00 per share. In connection with this transaction, the Company
issued a warrant to purchase 2,000,000 shares of common stock at $0.05 per
share, as a finder's fee. All warrants issued in connection with this
transaction are exercisable for five years.
F-35
The assumptions used in the Black Scholes option pricing model in 2002 and 2003
were as follows:
December 31,
-------------------------------------------
2002 2003
------------------- -------------------
Discount rate - bond yield rate 3.80 - 4.13 % 2.35 - 4.9 %
Volatility 34 - 70 % 69 - 88 %
Expected life 1 - 3.75 years 2.25 - 3.75 years
Expected dividend yield - -
A summary of the status of the Company's stock options and warrants as of
December 31, 2002 and 2003 with changes during the years then ended are
presented below:
Weighted
Average
Exercise
Shares Price
------------- ------------
Total warrants and options outstanding at December 31, 2001 15,154,917 $ 0.74
Warrants and options granted 8,297,714 0.28
Warrants and options exercised (1,000,000) (0.33)
Warrants and options expired (1,294,828) (1.15)
------------- ------------
Total warrants and options outstanding at December 31, 2002 21,157,803 0.70
Warrants and options granted 18,668,337 0.13
Warrants and options exercised -
Warrants and options expired (214,777) (1.03)
------------- ------------
Total warrants and options outstanding at December 31, 2003 39,611,363 $ 0.28
------------- ------------
The following table summarizes information about stock options and warrants
outstanding at December 31, 2003:
Warrants/Options Outstanding Options/Warrants Exercisable
------------------------------------------------ ----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
-------------------- -------------- --------------- ------------ ---------------- -------------
$0 to $0.75 37,054,658 2.9 $ 0.23 37,054,658 $ 0.23
$0.75 to $2.00 2,523,705 1.3 1.04 2,523,705 1.04
$2.00 to $3.00 33,000 0.7 2.75 33,000 2.75
-------------- --------------- ------------ ---------------- -------------
39,611,363 2.42 $ 0.29 39,611,363 $ 0.28
-------------- --------------- ------------ ---------------- -------------
F-36
NOTE 8 - INCOME TAXES
The Company is subject to Federal income taxes. As the Company has experienced
operating losses for the years of 2002 and 2003, no income tax has been provided
for.
The Company has gross deferred tax assets of approximately $5.4 million and $6.8
million at December 31, 2002 and 2003, respectively, relating principally to tax
effects of net operating loss carryforwards. In assessing the recoverability of
deferred tax assets, management considers whether it is more likely than not
that the assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers projected future taxable income and tax planning strategies in making
this assessment. Based upon the level of historical taxable loss and projections
for future taxable income over the periods in which the deferred tax items are
recognizable for tax reporting purposes, it is more likely than not that the
Company will not realize the benefits of these differences at December 31, 2002
and 2003. As such, management has recorded a valuation allowance for the full
amount of deferred tax assets at December 31, 2002 and 2003.
At December 31, 2003, the Company has available net operating losses of
approximately $17.7 million for federal income tax purposes, to offset future
taxable income, if any, which will expire at various dates through the year 2022
for federal income tax purposes. The utilization of net operating losses,
however, may be subject to certain limitations as prescribed by Section 382 of
the Internal Revenue Code.
NOTE 9 - BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates principally in one industry segment. The following sales
information was based on customer location rather than subsidiary location.
The allocation of the cost of equipment and the current year investment in new
equipment and depreciation expense have been made on the basis of the primary
purpose for which the equipment was acquired. The following furniture and
equipment information was based on where the furniture and equipment was used.
Geographic Area Information:
2003 United
States Canada Mexico China Total Company
------------ ----------- ----------- ----------- --------------
Revenue - unit sales $ 356,985 $ - $ - $ - $ 356,985
Revenue - net kit sales 2,737 - - - 2,737
Revenue - gross kit sales 629,999 43,745 145,362 21,314 840,420
------------ ----------- ----------- ----------- --------------
Total revenue 989,721 43,745 145,362 21,314 1,200,142
Cost of goods sold (127,647) (10,403) (45,247) (9,201) (192,498)
------------ ----------- ----------- ----------- --------------
Gross margin $ 862,074 $ 33,342 $ 100,115 $ 12,113 $ 1,007,644
------------ ----------- ----------- ----------- --------------
Furniture and equipment, net $ 62,407 $ - $ - $ 6,216 $ 68,623
------------ ----------- ----------- ----------- --------------
2002 United
States Canada Mexico China Total Company
------------ ----------- ----------- ----------- --------------
Revenue -unit sales $ 232,595 $ - $ - $ - $ 232,595
Revenue -net kit sales 433,118 - - - 433,118
Revenue -gross kit sales 849,404 112,700 90,025 55,128 1,107,257
------------ ----------- ----------- ----------- --------------
Total revenue 1,515,117 112,700 90,025 55,128 1,772,970
Cost of goods sold (184,022) (23,511) (18,780) (53,042) (279,355)
------------ ----------- ----------- ----------- --------------
Gross margin $ 1,331,095 $ 89,189 $ 71,245 $ 2,086 $ 1,493,615
------------ ----------- ----------- ----------- --------------
Furniture and equipment, net $ 63,405 $ - $ - $ 26,197 $ 89,602
------------ ----------- ----------- ----------- --------------
F-37
NOTE 10 - COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases office space at its corporate office in Florida under an
original operating lease expiring May 31, 2004. The Company has renewed the
operating lease for an additional five year period at a 25% reduction to the
cost of the original lease.
Future minimum rental payments required under the operating lease as of December
31, 2003 are as follows:
Years ending December 31, Amount
------------------------- -------------
2004 Partial old rate (5 months) $ 53,307
2005 $ 37,275
2006 $ 37,275
2007 $ 37,275
2008 $ 37,275
2009 Partial year $ 15,531
Rental expense for the years ended December 31, 2002 and 2003 was $72,550 and
$75,270, respectively.
NOTE 11 - SUBSEQUENT EVENTS
On February 12, 2004, the Company held a special meeting of shareholders at
which the shareholders approved an increase of the Company's authorized common
stock from 50,000,000 shares to 300,000,000 shares.
On February 17, 2004, the Company converted 875 shares of Series G Convertible
Preferred Stock into 215,164 shares of common stock pursuant to a January 12,
2004 notice of conversion from Nesher, LP, at a conversion price of $0.0407. The
conversion included accrued and unpaid dividends on the converted preferred. The
Company and the holder delayed processing this notice in light of the Company's
special meeting of shareholders held February 12, 2004. The shares of common
stock issued pursuant to this conversion were retired and cancelled on March 5,
2004 and issued to third parties on that date in accordance with the
instructions of Nesher, LP. On February 17, 2004, the Company converted 1,400
shares of Series G Convertible Preferred Stock into 343,980 shares of common
stock pursuant to a January 12, 2004 notice of conversion from Talbiya
Investments, Ltd., at a conversion price of $0. 0407. The conversion included
accrued and unpaid dividends on the converted preferred. The Company and the
holder delayed processing this notice in light of the Company's special meeting
of shareholders held February 12, 2004. The shares of common stock issued
pursuant to this conversion were retired and cancelled on March 5, 2004 and
issued to third parties on that date in accordance with the instructions of
Talbiya Investments, Ltd.
F-38
On February 17, 2004, the Company converted 700 shares of Series G Convertible
Preferred Stock into 172,162 shares of common stock pursuant to a January 12,
2004 notice of conversion from The Keshet Fund, LP, at a conversion price of $0.
0407. The conversion included accrued and unpaid dividends on the converted
preferred. The Company and the holder delayed processing this notice in light of
the Company's special meeting of shareholders held February 12, 2004. The shares
of common stock issued pursuant to this conversion were retired and cancelled on
March 5, 2004 and issued to third parties on that date in accordance with the
instructions of The Keshet Fund, LP.
On February 17, 2004, the Company converted 2,025 shares of Series G Convertible
Preferred Stock into 497,951 shares of common stock pursuant to a January 12,
2004 notice of conversion from Keshet LP, at a conversion price of $0. 0407. The
conversion included accrued and unpaid dividends on the converted preferred. The
Company and the holder delayed processing this notice in light of the Company's
special meeting of shareholders held February 12, 2004. The shares of common
stock issued pursuant to this conversion were retired and cancelled on March 5,
2004 and issued to third parties on that date in accordance with the
instructions of Keshet, LP.
On March 1,2004, the Company issued 80,000 shares of non-voting Series K 8%
Convertible Preferred stock, to Mid-Am Capital, LLC, having a stated value of
$10.00 per Preferred K share, for the aggregate purchase price of $800,000. Each
preferred share is convertible to 100 shares of the Company's common stock at a
conversion price of $0.10, representing 8,000,000 shares of common stock
underlying the preferred. In addition, the following adjustments were made to
prior issued warrants for the purpose of facilitating future fund raising by the
Company arising out of the exercise of the warrants by Holder. The purchase
price, as defined in the Warrant No. 2003-B-002, has been reduced to $0.10,
subject to further adjustment as described in the warrant. The expiration date,
as defined in the warrant, remains as stated. This private offering was made to
Mid-Am, an accredited investor, pursuant to Rule 506 of Regulation D and Section
4(2) of the Securities Act of 1933.
On March 9, 2004, the Company converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January 8,
2004 notice of conversion from Esquire Trade & Finance Inc., at a conversion
price of $0.038. The conversion did not include accrued and unpaid dividends on
the converted preferred. The Company and the holder delayed processing this
notice in light of the Company's special meeting of shareholders held February
12, 2004. The shares of common stock issued pursuant to this conversion were
issued to third parties on that date in accordance with the instructions of
Esquire Trade & Finance Inc.
F-39
On April 1 2004, the Company converted 5,000 shares of Series F Convertible
Preferred Stock into 1,315,789 shares of common stock pursuant to a January 8,
2004 notice of conversion from Austinvest Anstalt Balzers, at a conversion price
of $0.038. The conversion did not include accrued and unpaid dividends on the
converted preferred. The Company and the holder delayed processing this notice
in light of the Company's special meeting of shareholders held February 12,
2004. The shares of common stock issued pursuant to this conversion were issued
to third parties on that date in accordance with the instructions of Austinvest
Anstalt Balzers.
On April 2, 2004, the Company and Mid-Am Capital, LLC entered into Supplement
No.1 to the Series K Convertible Preferred Subscription Agreement, by which the
Company sold an additional 15,000 shares of its Series K Convertible Preferred
Stock utilizing the proceeds from a certain promissory note issued by the
Company to Mid-Am in the face amount of $150,000. With the consummation of this
sale, the $150,000 promissory note was deemed paid in full by the Company.
F-40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation, as amended, provide to the fullest
extent permitted by Delaware law, our directors or officers shall not be
personally liable to us or our shareholders for damages for breach of such
director's or officer's fiduciary duty. The effect of this provision of our
Articles of Incorporation, as amended, is to eliminate our right and our
shareholders (through shareholders' derivative suits on behalf of our company)
to recover damages against a director or officer for breach of the fiduciary
duty of care as a director or officer (including breaches resulting from
negligent or grossly negligent behavior), except under certain situations
defined by statute. We believe that the indemnification provisions in its
Articles of Incorporation, as amended, are necessary to attract and retain
qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
NATURE OF EXPENSE AMOUNT
SEC Registration fee $ 2,071.99
Accounting fees and expenses 10,000.00*
Legal fees and expenses 35,000.00*
Miscellaneous 5,000.00
----------
TOTAL $52,071.99*
==========
* Estimated.
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On January 2, 2001, an employment agreement with a new President and Chief
Operating Officer became effective pursuant to which the Company granted 100,000
shares of its common stock and options to purchase an additional 400,000 shares
of common stock at a per share price of $0.75.
On March 6, 2001, a sophisticated and accredited investor deposited $250,000
with the Company as consideration for 25,000 shares of Series H convertible
preferred stock to be issued. Through the period ended June 30, 2001 the Company
received an additional $550,000. The Series H convertible preferred stock is
priced at $10.00 per unit. The Series H convertible preferred stock has a stated
value of $10.00 per share and a conversion feature of $0.50 per share. The
Series H convertible preferred stock will be issued pursuant to an exemption to
registration provided by Regulation D, Rule 506 and Section 4(2) of the 1933
Act. The gross proceeds of $800,000 were part of a total offering of Series H
convertible preferred stock having aggregate gross proceeds of $1,280,000. As of
June 30, 2001 the Series H Preferred Stock had not been issued to the investor.
On August 1, 2001, the Company issued 228,000 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 4,000 shares of Series D
Convertible Preferred, at a conversion price of $0.20. The conversion included
accrued and unpaid dividends on the preferred converted. The preferred and the
underlying common were issued under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On August 14, 2001, the Company granted to an employee, 232,000 options to
purchase common stock of the Company at the price of $0.35 per share. These
options are for five years and are exercisable immediately. These options were
issued as compensation for services rendered in the development of the business
of Company's U.S. subsidiary.
On August 14, 2001, the Company granted to 4 employees, a total of 110,000
options to purchase common stock of the Company at the market price on that date
($0.36 per share). These options are for five years and are exercisable
immediately. These options were issued as incentive options for future services.
On August 14, 2001, the Company voted to issue to the Board of Directors 25,000
options each, for a total of 250,000 options, to purchase common stock of the
Company at the exercise price of $0.60 per share. These options are for five
years and are exercisable immediately. These options were issued as incentive
options for future services.
On September 30, 2001, 4000 Series D Convertible Preferred Shares and 3,265
Series G Convertible Preferred Shares were converted to 383,137 shares of Common
Stock. These shares were issued to two accredited and sophisticated investors
pursuant to an exemption from registration provided by Regulation D, Rule 506
and Section 4(2) of the Securities Act of 1933.
On October 30, 2001, the Company issued 25,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 665 shares of Series G Convertible
Preferred, at a conversion price of $0.2907. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
II-2
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On October 30, 2001, the Company issued 107,347 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 3,000 shares of Series D
Convertible Preferred, at a conversion price of $0.3226. The conversion included
accrued and unpaid dividends on the preferred converted. The preferred and the
underlying common were issued under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On October 30, 2001, the Company issued 55,139 shares of common stock to AMRO
International, S.A., upon the conversion of 1,500 shares of Series D Convertible
Preferred, at a conversion price of $0.3146. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On October 30, 2001, the Company issued 107,347 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 3,000 shares of Series D
Convertible Preferred, at a conversion price of $0.3226. The conversion included
accrued and unpaid dividends on the preferred converted. The preferred and the
underlying common were issued under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On November 16, 2001, the Company issued 20,000 shares of common stock to Keshet
LP, upon the conversion of 547 shares of Series G Convertible Preferred, at a
conversion price of $0.2987. The conversion included accrued and unpaid
dividends on the preferred converted. The preferred and the underlying common
were issued under Rule 506 of Regulation D and Section 4(2) of the Securities
Act of 1933. The Company relied upon the accredited status of the purchasers,
the information contained in completed subscriber questionnaires concerning the
business and investing history and experience of each purchaser and their
representations to the company as to investment intent.
On November 16, 2001, the Company issued 45,898 shares of common stock to The
Keshet Fund LP, upon the conversion of 1,175 shares of Series G Convertible
Preferred, at a conversion price of $0.2806. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On November 20, 2001, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 255 shares of Series G Convertible
Preferred, at a conversion price of $0.2800. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On November 27, 2001, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 255 shares of Series G Convertible
Preferred, at a conversion price of $0.2800. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On November 29, 2001, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 249 shares of Series G Convertible
Preferred, at a conversion price of $0.2740. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
II-3
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On December 5, 2001, the Company issued 126,863 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 3,000 shares of Series D
Convertible Preferred, at a conversion price of $0.2747. The conversion included
accrued and unpaid dividends on the preferred converted. The preferred and the
underlying common were issued under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On December 5, 2001, the Company issued 126,863 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 3,000 shares of Series D
Convertible Preferred, at a conversion price of $0.2747. The conversion included
accrued and unpaid dividends on the preferred converted. The preferred and the
underlying common were issued under Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On December 5, 2001, the Company issued 105,500 shares of its Series H
convertible preferred stock and warrants for 2,637,500 shares at $0.50 per share
to five sophisticated and accredited investors. The Series H convertible
preferred stock and warrants were priced at $10.00 per unit, and resulted in
proceeds of $1,055,000 in cash, with legal and issuance expenses of $5,000. The
Series H preferred and the common stock underlying the preferred and the
warrants were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to their individual investment
intent. All of the purchasers are known to a director of the Company, who is the
primary investor in the Series H offering. The Company's directors have approved
a total Series H offering in the amount of $2,350,000, representing 235,000
shares of the Series H preferred. Each share of Series H convertible preferred
stock (1) has a stated value of $10.00 per share; (2) accrues dividends at 7%
simple interest per annum, payable in cash or, at the option of the holder,
added to the stated value of the preferred for conversion computation purposes;
(3) has no voting rights; (4) has a conversion price of $0.40 per share of
common stock, subject to a contractually limited maximum conversion into no
greater than 9.99% of the Company's issued and outstanding common stock at
conversion; (5) is redeemable at the option of the Company after two years from
issuance at 135% of the stated value, plus accrued dividends; and (6) has a
mandatory conversion feature exercisable by the Company five years from issue at
the stated conversion price, subject to a minimum daily trading volume of
100,000 shares during a lookback period and closing bid prices not less that
300% of the conversion price. Each Series H unit consists of one share of Series
H convertible preferred stock plus warrants for 25 shares of common stock having
an exercise price of $0.50 per share and an expiration date of December 4, 2006.
On December 11, 2001, the Company issued 10,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 254 shares of Series G Convertible
Preferred, at a conversion price of $0.2704. The conversion included accrued and
unpaid dividends on the preferred converted. The preferred and the underlying
common were issued under Rule 506 of Regulation D and Section 4(2) of the
Securities Act of 1933. The Company relied upon the accredited status of the
purchasers, the information contained in completed subscriber questionnaires
concerning the business and investing history and experience of each purchaser
and their representations to the company as to investment intent.
On January 2, 2002, we issued options for 3,714 shares of common stock having an
exercise price of $0.35 and exercisable for five years, pursuant to an
employment agreement.
On January 18, 2002, we issued 238,334 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 5,000 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $8,463.34.
II-4
On January 18, 2002, we issued 238,334 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 5,000 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $8,463.34.
On January 28, 2002, we issued 40,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 883 shares of Series G Convertible Preferred, at a
conversion price of $0.2453. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $984.83.
On January 28, 2002, we issued 136,038 shares of common stock to Amro
International, S.A., upon the conversion of 2,840 shares of Series D Convertible
Preferred, at a conversion price of $0.2453. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $4,970.00.
On January 30, 2002, we issued 15,000 shares of its Series H convertible
preferred stock, having a conversion price of $0.40 per share of common stock,
and warrants for 375,000 shares at $0.50 per share. The Series H convertible
preferred stock and warrants were priced at $10.00 per unit, and resulted in
proceeds of $150,000 in cash.
On February 4, 2002, we issued 206,700 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 4,375 shares of Series D Convertible
Preferred, at a conversion price of $0.2480. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,511.60.
On February 4, 2002, we issued 206,700 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 4,375 shares of Series D Convertible
Preferred, at a conversion price of $0.2480. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,511.60.
On February 5, 2002, we issued 20,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 492 shares of Series G Convertible Preferred, at a
conversion price of $0.2453. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $496.03.
On February 15, 2002, we issued 5,000 shares of its Series H convertible
preferred stock, having a conversion price of $0.40 per share of common stock,
and warrants for 125,000 shares at $0.50 per share to a sophisticated and
accredited investor. The Series H convertible preferred stock and warrants were
priced at $10.00 per unit, and resulted in proceeds of $50,000 in cash.
On February 20, 2002, we issued 35,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 832 shares of Series G Convertible Preferred, at a
conversion price of $0.2949. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $952.05.
On February 29, 2002, we issued 279,795 shares of common stock to Amro
International, S.A, upon the conversion of 7,160 shares of Series D Convertible
Preferred, at a conversion price of $0.3013. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $12,711.00.
On March 1, 2002, we issued 20,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 536 shares of Series G Convertible Preferred, at a
conversion price of $0.2993. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $630.20.
On March 1, 2002, we issued warrants for 25,000 shares of common stock, having
an exercise price of $0.40 per share. The warrants are immediately exercisable
and have an expiration date of February 28, 2007. These warrants were issued to
the lender in connection with a December 27, 2001 loan of $250,000 to us.
On March 15, 2002, we issued 20,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 532 shares of Series G Convertible Preferred, at a
conversion price of $0.2973. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $633.70.
On March 18, 2002, we issued 50,000 shares of its Series H convertible preferred
stock, having a conversion price of $0.40 per share of common stock, and
warrants for 1,250,000 shares at $0.50 per share to a sophisticated and
II-5
accredited investor. The Series H convertible preferred stock and warrants were
priced at $10.00 per unit, and resulted in proceeds of $500,000 in cash.
On April 19, 2002, we issued 10,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 252 shares of Series G Convertible Preferred, at a
conversion price of $0.2840. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $320.80.
On April 19, 2002, we issued 10,000 shares of common stock to The Keshet Fund
LP, upon the conversion of 234 shares of Series G Convertible Preferred, at a
conversion price of $0.2640. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $299.40.
On April 24, 2002 our Board of Directors voted to extend options for 1,383,705
shares of common stock issued on April 29 and April 30, 1997 to Tamarind
Management, Ltd. (an affiliate of Mr. Paul Downes, a founder of the Company) and
options for 700,000 shares of common stock issued on April 30, 1997 to Mr. Dale
Reese (a founder of the Company), for services rendered to us. These extended
options, which had original expiration dates of April 29 and April 30, 2002,
respectively, retain an exercise price of $1.00 and are exercisable upon the
following conditions: The expiration dates for these options are extended for a
two year period, commencing upon the effective date of a registration statement
for the resale of the common stock underlying the options; the options will not
be exercised during a one year lockup period commencing on the 1st day after our
common stock trades during a 90 day period at a moving average of at least
$1.00; we have the option to call the options commencing on the 1st day after
our common stock trades during a 90 day period at a moving average of at least
$2.00.
On May 3, 2002, we issued 52,730 shares of common stock to Amro International,
S.A, upon the conversion of 1,000 shares of Series D Convertible Preferred, at a
conversion price of $0.22. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $1,811.51.
On May 7, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 215 shares of Series G Convertible Preferred, at a
conversion price of $0.2427. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $277.44.
On May 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 158 shares of Series G Convertible Preferred, at a
conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $207.77.
On May 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 158 shares of Series G Convertible Preferred, at a
conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $207.77.
On May 13, 2002, we issued 20,000 shares of common stock to Keshet LP, upon the
conversion of 316 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $416.07.
On May 13, 2002, we issued 15,000 shares of common stock to Keshet LP, upon the
conversion of 237 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $312.45.
On May 17, 2002, we issued 131,239 shares of common stock to Amro International,
S.A, upon the conversion of 2,000 shares of Series D Convertible Preferred, at a
conversion price of $0.18. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $3,623.00.
On May 17, 2002, we issued 278,498 shares of common stock to Amro International,
S.A, upon the conversion of 4,000 shares of Series D Convertible Preferred, at a
conversion price of $0.17. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $7,344.00.
On May 20, 2002, we issued 10,000 shares of common stock to Keshet LP, upon the
conversion of 158 shares of Series G Convertible Preferred, at a conversion
II-6
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $209.37.
On May 20, 2002, we issued 10,000 shares of common stock to Keshet LP, upon the
conversion of 131 shares of Series G Convertible Preferred, at a conversion
price of $0.1680. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $372.82.
On May 23, 2002, we issued 63,454 shares of common stock to Austinvest Anstalt
Balzers, upon the conversion of 1,000 shares of Series D Convertible Preferred,
at a conversion price of $0.1787. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $7,494.00.
On May 23, 2002, we issued 63,454 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 1,000 shares of Series D Convertible
Preferred, at a conversion price of $0.1787. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $7,494.00.
On May 24, 2002, we issued 15,000 shares of common stock to Keshet LP, upon the
conversion of 237 shares of Series G Convertible Preferred, at a conversion
price of $0.1787. The conversion included accrued and unpaid dividends on the
preferred converted in the amount of $312.85.
On May 24, 2002, we issued 15,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 157 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $449.88.
On May 29, 2002, we issued 652,178 shares of common stock to Amro International,
S.A, upon the conversion of 9,642 shares of Series D Convertible Preferred, at a
conversion price of $0.168. The conversion included accrued and unpaid dividends
on the preferred converted in the amount of $13,146.
On May 29, 2002, we issued 652,178 shares of common stock to Esquire Trade &
Finance, Inc., upon the conversion of 9,642 shares of Series D Convertible
Preferred, at a conversion price of $0.168. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $13,146.
On May 30, 2002, we issued 652,178 shares of common stock to Austinvest Anstalt
Balzers, upon the conversion of 9,642 shares of Series D Convertible Preferred,
at a conversion price of $0.168. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $13,146.
On June 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 126 shares of Series G Convertible Preferred, at a
conversion price of $0.1627. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $366.70.
On June 13, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 130 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $381.12.
On June 17, 2002, we received sufficient consents to file an amended certificate
of incorporation, which increased our authorized common stock from 20,000,000 to
50,000,000 shares.
On June 17, 2002, we issued 30,000 shares of its Series I 8% convertible
preferred stock and warrants for 2,000,000 shares at $0.50 per share,
exercisable within three years from issue, to two sophisticated and accredited
investors, pursuant to Rule 506, Regulation D and Section 4(2) of the Securities
Act of 1933. The conversion of the preferred into common stock shall be at a per
common share conversion price of 75% of the average of the three lowest closing
bid prices for the thirty day period immediately preceding conversion. The
conversion price is subject to a maximum of $0.50 per share and a minimum of
$0.30 per share, which minimum conversion price shall govern for the 270 days
immediately following the issue date of the Series I preferred shares. The
minimum conversion price shall be extended indefinitely upon the occurrence of
certain defined events, including the effectiveness of a registration statement
for the resale of the common stock underlying the preferred and a trading price
of our common stock at $0.50 or higher for fifteen consecutive days. We have the
ability to compel the exercise of the warrants in tranches of not more than
500,000 warrants each, if the trading price of our common stock equals or
II-7
exceeds $1.00 for thirty consecutive trading days and a registration statement
for the underlying common is effective. The Series I convertible preferred stock
and warrants were priced at $10.00 per unit, and resulted in gross cash proceeds
of $300,000, less expenses of $12,000.
On June 18, 2002, we agreed to extend the expiration dates of warrants issued in
connection with our Series D and F preferred until June 17, 2005 and to reduce
the exercise price of certain of those warrants to $1.00. In consideration for
this warrant modification, the holders of two promissory notes executed by us
aggregating $100,000, dated November 6 and 7, 2001, respectively, agreed to
extend the maturity dates of the notes to December 31, 2002. In addition, the
holders of our Series D and F preferred stock agreed to waive all potential
penalties associated with the Series D and F preferred, including the
abandonment of a certain SB-2 registration statement filed in connection with
the resale of the common stock underlying the Series D and F preferred. Below is
a table containing the warrant modifications.
On June 19, 2002, we issued 33,333 shares of restricted common stock to
Tradersbloom Limited, as a finder fee in connection with the issuance of our
Series I preferred stock. Tradersbloom Limited is a sophisticated and accredited
investor.
On June 19, 2002, we issued 66,667 shares of restricted common stock to Libra
Finance, S.A., as a finder fee in connection with the issuance of our Series I
preferred stock. Libra Finance, S.A. is a sophisticated and accredited investor.
On June 21, 2002, we issued 10,000 shares of common stock to The Keshet Fund LP,
upon the conversion of 135 shares of Series G Convertible Preferred, at a
conversion price of $0.1760. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $402.29.
On July 1, 2002, the Company issued 500,000 shares of common stock to Esquire
Trade & Finance, Inc., upon the conversion of 8,250 shares of Series D
Convertible Preferred, at a conversion price of $0.165. The conversion did not
include accrued and unpaid dividends on the preferred converted.
On July 1, 2002, the Company issued 500,000 shares of common stock to Austinvest
Anstalt Balzers, upon the conversion of 8,250 shares of Series D Convertible
II-8
Preferred, at a conversion price of $0.165. The conversion did not include
accrued and unpaid dividends on the preferred converted.
On July 23, 2002, the Company issued 475,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 6,172 shares of Series G Convertible
Preferred, at a conversion price of $0.1680. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $18,083.72.
On July 23, 2002, the Company issued 475,000 shares of common stock to Keshet
LP, upon the conversion of 6,172 shares of Series G Convertible Preferred, at a
conversion price of $0.1680. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $18,083.72.
On September 26, 2002, the Company issued 154,171 shares of common stock to Amro
International, SA, upon the conversion of 2,500 shares of Series D Convertible
Preferred, at a conversion price of $0.187. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $3,830.
On September 26, 2002, the Company issued 396,053 shares of common stock to Amro
International, SA, upon the conversion of 7,108 shares of Series D Convertible
Preferred, at a conversion price of $0.208. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $11,299.
On September 30, 2002, the Company issued 100,000 shares of non-voting Series J
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $1,000,000. Each preferred share is convertible to
40 shares of the Company's common stock of at a per common share conversion
price of $0.25, representing 4,000,000 shares of common stock underlying the
preferred. The issued warrants entitle the holder to purchase 25 shares of
common stock for each share of Series J Convertible Preferred stock issued at an
exercise price of $0.40 per common stock share, representing 2,500,000 shares of
common stock underlying the warrants. The warrants are exercisable for a
five-year period . The blended per share price for the common stock underlying
the preferred and the warrants is $0.307; the September 30, 2002 closing market
trading price was $0.29 per share. This private offering was made to Mid-Am, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933.
The common stock issued by the Company in the fourth quarter 2002 resulted from
conversions by the holders of Series F and G convertible preferred stock. The
common stock and the preferred converted were issued to sophisticated and
accredited investors, who had appropriate access to information concerning the
Company's operations and financial condition in a rule 506 private offering.
Holders of the Series F and G preferred can convert such equity into common
shares at 75% of the average of the three lowest bid trading prices of the
Company's common shares measured during a 20 day lookback period.
On November 8, 2002, the Company issued 160,112 shares of common stock to
Austinvest Anstalt Balzers, upon the conversion of 2,642 shares of Series F
Convertible Preferred, at a conversion price of $0.165. The Series F preferred
does not include dividends.
On November 8, 2002, the Company issued 160,112 shares of common stock to
Esquire Trade & Finance, Inc., upon the conversion of 2,642 shares of Series F
Convertible Preferred, at a conversion price of $0.165. The Series F preferred
does not include dividends.
On November 18, 2002, the Company issued 26,000 shares of common stock to
Nesher, Ltd., upon the conversion of 377 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $1,333.92.
On November 18, 2002, the Company issued 11,240 shares of common stock to
Talbiya B. Investments, Ltd., upon the conversion of 163 shares of Series G
Convertible Preferred, at a conversion price of $0.1963. The conversion included
accrued and unpaid dividends on the preferred converted in the amount of
$577.16.
On November 18, 2002, the Company issued 10,000 shares of common stock to
Nesher, Ltd., upon the conversion of 145 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $515.68.
II-9
On November 18, 2002, the Company issued 6,000 shares of common stock to Talbiya
B. Investments, Ltd., upon the conversion of 87 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $309.67.
On November 18, 2002, the Company issued 8,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 116 shares of Series G Convertible
Preferred, at a conversion price of $0.1963. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $413.25.
On November 18, 2002, the Company issued 14,440 shares of common stock to
Keshet, LP, upon the conversion of 208 shares of Series G Convertible Preferred,
at a conversion price of $0.1960. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $747.92.
On November 18, 2002, the Company issued 6,000 shares of common stock to Keshet,
LP, upon the conversion of 93 shares of Series G Convertible Preferred, at a
conversion price of $0.2093. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $332.70.
On November 20, 2002, the Company issued 2,000,000 shares of common stock to
Amro International, SA, upon the conversion of 39,200 shares of Series F
Convertible Preferred, at a conversion price of $0.1960. The Series F preferred
does not include dividends.
On November 27, 2002, the Company issued 16,000 shares of common stock to
Keshet, LP, upon the conversion of 257 shares of Series G Convertible Preferred,
at a conversion price of $0.2093. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $931.69.
On November 27, 2002, the Company issued 15,000 shares of common stock to
Keshet, LP, upon the conversion of 273 shares of Series G Convertible Preferred,
at a conversion price of $0.2480. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $994.59.
On December 24, 2002, the Company issued 8,000 shares of common stock to The
Keshet Fund LP, upon the conversion of 144 shares of Series G Convertible
Preferred, at a conversion price of $0.2467. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $534.17.
On December 24, 2002, the Company issued 45,000 shares of common stock to
Nesher, LP, upon the conversion of 750 shares of Series G Convertible Preferred,
at a conversion price of $0.2293. The conversion included accrued and unpaid
dividends on the preferred converted in the amount of $2,815.26.
On December 24, 2002, the Company issued 90,000 shares of common stock to
Keshet, LP, upon the conversion of 1,501 shares of Series G Convertible
Preferred, at a conversion price of $0.2293. The conversion included accrued and
unpaid dividends on the preferred converted in the amount of $5,630.52.
On December 24, 2002, the Company issued 45,000 shares of common stock to
Talbiya B. Investments, Ltd, upon the conversion of 750 shares of Series G
Convertible Preferred, at a conversion price of $0.2293. The conversion included
accrued and unpaid dividends on the preferred converted in the amount of
$2,815.26.
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vested
immediately, expire on December 30, 2007 and have an exercise price of $0.40 per
share.
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vest on
December 31, 2003, expire on December 30, 2008 and have an exercise price of
$0.40 per share.
On January 2, 2003 the Company granted options for 100,000 shares of common
stock to Mr. Toulan pursuant to an employment contract. These options vest on
December 31, 2004, expire on December 30, 2009 and have an exercise price of
$0.40 per share.
II-10
On February 4, 2003, the Company issued 30,000 shares of common stock to Keshet,
LP, upon the conversion of 480 shares of Series G Convertible Preferred, at a
conversion price of $0.1960. The conversion included accrued and unpaid
dividends on the preferred converted.
On February 21, 2003, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to 40
shares of the Company's common stock of at a per common share conversion price
of $0.25, representing 2,000,000 shares of common stock underlying the
preferred. The issued warrants entitle the holder to purchase 33.33 shares of
common stock for each share of Series J Convertible Preferred stock issued at an
exercise price of $0.30 per common stock share, representing 1,666,667 shares of
common stock underlying the warrants. The warrants are exercisable for a
five-year period. The February 21, 2003 closing market trading price was $0.23
per share. This private offering was made to Mid-Am, an accredited investor,
pursuant to Rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933.
On April 14, 2003, the Company issued 50,000 shares of common stock to Keshet,
LP, upon the conversion of 596 shares of Series G Convertible Preferred, at a
conversion price of $0.148. The conversion included accrued and unpaid dividends
on the preferred converted.
On April 22, 2003, the Company issued 50,000 shares of common stock to The
Keshet Fund, LP, upon the conversion of 595 shares of Series G Convertible
Preferred, at a conversion price of $0.148. The conversion included accrued and
unpaid dividends on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to Keshet,
LP, upon the conversion of 607 shares of Series G Convertible Preferred, at a
conversion price of $0.076. The conversion included accrued and unpaid dividends
on the preferred converted.
On May 22, 2003, the Company issued 100,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 607 shares of Series G Convertible Preferred,
at a conversion price of $0.076. The conversion included accrued and unpaid
dividends on the preferred converted.
On May 29, 2003, the Company issued 50,000 shares of non-voting Series J 8%
Convertible Preferred stock, having a stated value of $10.00 per Preferred J
share, and common stock warrants to Mid-Am Capital, L.L.C. ("Mid-Am") for the
aggregate purchase price of $500,000. Each preferred share is convertible to 50
shares of the Company's common stock of at a per common share conversion price
of $0.20, representing 2,500,000 shares of common stock underlying the
preferred. The issued warrants entitle the holder to purchase 40 shares of
common stock for each share of Series J Convertible Preferred stock issued at an
exercise price of $0.25 per common stock share, representing 2,000,000 shares of
common stock underlying the warrants. The warrants are exercisable for a
five-year period. The May 22, 2003 closing market trading price was $0.22 per
share. In addition, the following adjustments were made to prior issued Warrants
for the purpose of facilitating future fund raising by the Company arising out
of the exercise of the Warrants by Holder. The Purchase Price, as defined in the
Warrants No. 1 and 2, has been reduced to $0.25, subject to further adjustment
as described in the Warrants. The Warrant Stock provided for in Warrant No.1 has
been increased by 1,500,000 shares. The Warrant Stock provided for in Warrant
No. 2 has been increased by 333,333 shares. The Expiration Date, as defined in
the respective Warrants, remains as stated. The aforementioned adjustments
resulted in a total of 6,000,000 shares of common stock underlying Warrant No. 1
and Warrant No. 2. Those warrants were valued using the Black-Scholes model as
of May 22, 2003. No adjustments resulted from that valuation. The trading price
Call Option trigger set forth in Section 9 (b) of the Warrants has been reduced
from $1.75 to $0.75 per share. This private offering was made to Mid-Am, an
accredited investor, pursuant to Rule 506 of Regulation D and Section 4(2) of
the Securities Act of 1933.
On August 12, 2003, the Company issued 1,200,000 shares of common stock upon the
conversion of 6,542 shares of Series G Convertible Preferred. The conversions
were based upon notices of conversion received in June and July 2003, and was
delayed in order to determine the accuracy of the conversion variables contained
in the respective notices of conversion. The conversion-based issuances of
common were as follows:
II-11
o The Company issued 200,000 shares of common stock to Keshet, LP,
upon the conversion of 1,209 shares of Series G Convertible
Preferred, at a conversion price of $0.076. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 200,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 1,209 shares of Series G
Convertible Preferred, at a conversion price of $0.076. The
conversion included accrued and unpaid dividends on the preferred
converted.
o The Company issued 150,000 shares of common stock to The Keshet
Fund, LP, upon the conversion of 773 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 250,000 shares of common stock to Keshet, LP,
upon the conversion of 1,289 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
o The Company issued 200,000 shares of common stock to Talbiya B.
Investments, Ltd., upon the conversion of 1,031 shares of Series G
Convertible Preferred, at a conversion price of $0.0653. The
conversion included accrued and unpaid dividends on the preferred
converted.
o The Company issued 200,000 shares of common stock to Nesher. Ltd.,
upon the conversion of 1,031 shares of Series G Convertible
Preferred, at a conversion price of $0.0653. The conversion included
accrued and unpaid dividends on the preferred converted.
On September 15, 2003, the Company issued 213,750 shares of common stock to
Michael Willms, upon the conversion of 7,500 shares of Series H Convertible
Preferred, at the fixed conversion price of $0.40. The conversion included
accrued and unpaid dividends on the preferred converted.
On September 29, 2003, the Company issued 70,938 shares of common stock to The
Dennis H. Willms Irrevocable Trust, Michael Willms, Trustee, upon the conversion
of 2,500 shares of Series H Convertible Preferred, at the fixed conversion price
of $0.40. The conversion included accrued and unpaid dividends on the preferred
converted.
To obtain funding for our ongoing operations, we entered into a Subscription
Agreement with two accredited investors in November 2003 for the sale of (i)
$400,000 in convertible debentures, (ii) class A warrants to buy 2,000,000
shares of our common stock and (iii) class B warrants to buy 10,000,000 shares
of common stock. In connection with this financing, we paid a finders fee to an
accredited investor, which included (i) 400,000 shares of common stock, (ii)
class A warrant to purchase 2,000,000 shares of common stock and (iii) 10% of
the proceeds received by us in connection with the exercise of the class B
warrants, which is payable in shares of common stock at the rate of one share of
common stock for every ten shares of common stock actually issued upon exercise
of the class B warrants.
In April 2004, we entered into a Subscription Agreement with two
accredited investors for the sale of (i) $500,000 in convertible debentures and
(ii) warrants to buy 3,000,000 shares of our common stock. In connection with
this financing, we paid a fee in the amount of $50,000 in the form of a
convertible debentures.
The debentures issued in connection with the April 2004 financing bear interest
at 10%. The principal on the notes is due in equal monthly installments
commencing on November 1, 2004 until October 1, 2005. On October 1, 2005, all
principal and interest shall become due. In the event that our common stock has
a closing price in excess of $.20 for the five days preceding the monthly
payment, then, within our discretion, the monthly payment may be deferred. and
the notes are convertible into our common stock at $0.10 per share.
MARVEL LICENSE
On February 1, 2004, we entered into a license agreement with Marvel
Enterprises, Inc. In consideration for the use of proprietary information, we
issued Marvel 750,000 shares of our common stock and a common stock purchase
warrant to purchase 750,000 shares of our common stock. The warrants have an
II-12
exercise price of $.10 per share for the first year and, upon the occurrence of
certain conditions tied to the royalty performance under the license, can be
extended for an additional year with an exercise price of $.14 per share.
* All of the above offerings and sales were deemed to be exempt under
rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in offering the
securities. The offerings and sales were made to a limited number of persons,
all of whom were accredited investors, business associates of Bravo! Foods
International Corp. or executive officers of Bravo! Foods International Corp.,
and transfer was restricted by Bravo! Foods International Corp. in accordance
with the requirements of the Securities Act of 1933. In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative nature of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission filings.
Except as expressly set forth above, the individuals and entities to
whom we issued securities as indicated in this section of the registration
statement are unaffiliated with the Company.
II-13
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
References to "the Company" in this Exhibit List mean Bravo! Foods International
Corp., a Delaware corporation.
Exhibit
NO. TITLE OF DOCUMENT
3.1 Articles of Incorporation (1)
3.2 Amended Articles (name change) (1)
3.3 Restated Bylaws China Peregrine Food Corporation (1)
4.1 Preferred, Series B Designation (1)
4.2 Preferred, Series F Designation (2)
4.3 Preferred, Series G Designation (3)
4.4 Preferred, Series H Designation (6)
4.5 Preferred, Series I Designation (7)
4.6 Preferred, Series J Designation (8)
4.7 Preferred, Series K Designation (10)
4.8 Subscription Agreement dated November 2003 entered with Gamma
Opportunity Capital Partners, LP
4.9 Class A Common Stock Purchase Warrant issued to Gamma
Opportunity Capital Partners, LP
4.10 Class B Common Stock Purchase Warrant issued to Gamma
Opportunity Capital Partners, LP
4.11 Convertible Note issued to Gamma Opportunity Capital Partners,
LP dated November 2003
4.12 Class A Common Stock Purchase Warrant issued to Libra Finance,
S.A.
4.13 Subscription Agreement dated November 2003 entered with MID-AM
CAPITAL, L.L.C.
4.14 Class A Common Stock Purchase Warrant issued to MID-AM
CAPITAL, L.L.C.
4.15 Class B Common Stock Purchase Warrant issued to MID-AM
CAPITAL, L.L.C.
4.16 Convertible Note issued to MID-AM CAPITAL, L.L.C. dated
November 2003
4.17 Subscription Agreement dated April 2, 2004 entered with Alpha
Capital Aktiengesellschaft and Longview Fund LP
4.18 Convertible Note issued to Alpha Capital Aktiengesellschaft
dated April 2004
4.19 Convertible Note issued to Longview Fund LP dated April 2004
4.20 Common Stock Purchase Warrant issued to Alpha Capital
Aktiengesellschaft dated April 2004
II-14
4.21 Common Stock Purchase Warrant issued to Longview Fund LP dated
April 2004
5.1 Sichenzia Ross Friedman Ference LLP Opinion and Consent (filed
herewith)
10.1 Warner Bros China License Agreement (5)
10.2 Warner Bros China License Agreement (modified) (5)
10.3 Warner Bros. U.S. License Agreement (5)
10.4 Warner Bros. Mexico License Agreement (6)
10.5 Warner Bros. Cananda License Agreement (6)
10.6 MoonPie License Agreement (10)
10.7 Marvel License Agreement (10)
10.8 SADAFCO Production Agreement (10)
10.9 Real Estate Lease Amendment Extending Term (10)
21.1 Subsidiaries Certificate of Incorporation
Bravo! Foods, Inc. (6)
21.2 Subsidiaries Articles of Association (6)
China Premium Food Corporation (Shanghai)
Co., Inc.
23.1 Consent of Lazar Levine & Felix LLP (filed herewith).
23.2 Consent of BDO Seidman LP (filed herewith).
23.3 Consent of legal counsel (see Exhibit 5.1).
--------------------------------------------------
(1) Filed with Form 10SB/A First Amendment
(2) Filed with Form 10QSB for 3-31-99
(3) Filed with Form 10QSB for 6-30-99
(4) Filed with Form 10K-SB for 12-31-99
(5) Filed with Form 10QSB for 6-30-00
(6) Filed with Form SB-2/A Second Amendment
(7) Filed with Form SB-2/A Third Amendment
(8) Filed with Form 10K-SB 2001
(9) Filed with Form 8K filed October 2, 2002
(10) Filed with Form 10-KSB for 12-31-03
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
II-15
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of North
Palm Beach, State of Florida, on June 4, 2004.
BRAVO! FOODS INTERNATIONAL CORP.
By: /s/ Roy G. Warren
----------------------
Roy G. Warren, CEO and
Secretary
II-16
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
---------------------------------------- -------------------------------------- ----------------------
Name Title Date
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/S/STANLEY HIRSCHMAN Chairman and Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Stanley Hirschman
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/S/ROY G. WARREN Director, CEO and Secretary June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Roy G. Warren
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Arthur W. Blanding
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/S/ROBERT CUMMINGS Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Robert Cummings
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/S/PAUL DOWNES Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Paul Downes
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/s/ Phillip Pearce Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Phillip Pearce
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/s/ John McCormack Director June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
John McCormack
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/S/TOMMY KEE Chief Financial Officer June 4, 2004
---------------------------------------- -------------------------------------- ----------------------
Tommy Kee
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
/s/Roy D. Toulan Vice President, Corporate Secretary June 4, 2004
and General Counsel
---------------------------------------- -------------------------------------- ----------------------
Roy D. Toulan
---------------------------------------- -------------------------------------- ----------------------
---------------------------------------- -------------------------------------- ----------------------
II-17
EXHIBIT 4.8
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of November 21,
2003, by and among Bravo! Foods International Corp., a Delaware corporation (the
"Company"), and the subscriber identified on the signature page hereto (a
"Subscriber" and collectively "Subscribers" if more than one).
WHEREAS, the Company and the Subscribers 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") 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
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase $200,000 (the "Purchase Price") of principal amount of 8% 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 the lesser of $.05, or seventy-five percent (75%) of
the average of the three lowest closing bid prices of the Common Stock as
reported by Bloomberg L.P. for the OTC Bulletin Board ("Bulletin Board") for the
thirty (30) trading days preceding, but not including the Conversion Date, as
defined in Section 7.1(b) of this Agreement ("Conversion Price"); and share
purchase warrants (the "Warrants") to purchase shares of Common Stock (the
"Warrant Shares"). The Conversion Price is subject to adjustment as described in
the Note. The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "Shares"), the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
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 Subscribers hereby
agree as follows:
1. CLOSING. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto. The aggregate amount of the
Notes to be purchased by the Subscribers 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. Intentionally Omitted.
3. WARRANTS.
(a) On the Closing Date, the Company will issue Warrants to the
Subscribers. Five (5) Warrants will be issued for each one dollar ($1.00) of
Purchase Price paid on the Closing Date ("A Warrants"). The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of an A Warrant shall be
$.05. The A Warrants will be exercisable for three (3) years after the Closing
Date.
(b) On the Closing Date, the Company will issue to the Subscribers
an additional twenty-five (25) Warrants for each one dollar ($1.00) of Purchase
Price ("B Warrants"). The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a B Warrant shall be $1.00. The B Warrants shall be
exercisable for three (3) years after the Closing Date. Collectively, the A
Warrants and B Warrants are referred to herein as Warrants and the Common Stock
issuable upon exercise of the A Warrants and B Warrants is referred to as
Warrant Shares.
4. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished with
or has obtained from the EDGAR Website of the Securities and Exchange Commission
(the "Commission") the Company's Form 10-KSB for the year ended December 31,
2002 as filed with the Commission, together with all subsequently filed Forms
10-QSB, 8-K, and filings made with the Commission available at the EDGAR 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 and exercise of any of the Warrants, an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (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 AND WARRANTS. On Closing Date, the Subscriber
will purchase the Notes and Warrants 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.
2
(e) SHARES LEGEND. The Shares and the Warrant 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."
(f) WARRANTS LEGEND. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID 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."
(g) 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."
(h) 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.
3
(i) 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.
(j) CORRECTNESS OF REPRESENTATIONS. Each 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.
5. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with each 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 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.
(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
Warrant, the Security Agreement, the Escrow Agreement and any other agreements
delivered together with this Agreement or to be delivered in connection herewith
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; and the Company has full
corporate power and authority necessary to enter into this Agreement, the Notes,
the Warrants, the Security Agreement, the Escrow Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Company relating hereto.
(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.
4
(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 Amex, the National Association of
Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC Bulletin Board nor
the Company's Shareholders is required for the execution and compliance by the
Company of its obligations under this Agreement, and all other agreements
entered into or to be entered into by the Company relating hereto, including,
without limitation, the issuance and sale of the Securities, and the performance
of the Company's obligations hereunder and under all such other agreements.
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, 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 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
(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 except as described in this Agreement and
the documents delivered together with this Agreement.
(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 upon exercise of the Warrants, the
Shares and Warrant Shares, will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each 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;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
5
(v) will not result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
debt or equity holder of the Company except as described in the Reports.
(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.
(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.
6
(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 1933 Act) 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 will be delisted from the Bulletin Board nor that its common stock does
not meet all requirements for the continuation of such quotation and the Company
satisfies the requirements for the continued listing 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,
2002 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).
(r) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 2002,
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 and exercise of the Warrants 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.
7
(u) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
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 1933 Act) 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 Subscribers 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.
6. REGULATION D OFFERING. The offer and issuance of the Securities to the
Subscribers 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 each 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. The Company will provide, at the Company's expense, such other
legal opinions in the future as are reasonably necessary for the conversion of
the Notes and exercise of the Warrants and resale of the Shares and Warrant
Shares.
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.
8
(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.
(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.
9
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 or exercise the Warrant in whole or in part,
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 or exercise of all or part of said Warrant 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, or aggregate
purchase price of the Warrant Shares 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.
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.
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7.7. OPTIONAL REDEMPTION. The Company will have the option of redeeming
any outstanding Notes ("Optional Redemption") by paying to the Subscriber a sum
of money equal to 125% of the principal amount of the portion of the Note
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Subscriber arising under this Subscription
Agreement, Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption) is given to
a Subscriber ("Redemption Date"). The Subscriber may elect within five (5)
business days after receipt of a Notice of Redemption to give the Company Notice
of Conversion in connection with some or all of the Note principal and interest
which was the subject of the Notice of Redemption. A Notice of Redemption must
be accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber not later than the fifth (5th)
business day after the Redemption Date ("Optional Redemption Payment Date"). In
the event the Company fails to pay the Redemption Amount by the Optional
Redemption Payment Date, then the Redemption Notice will be null and void and
the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default, as described in the Note shall
have occurred; and (ii) the Company Shares issuable upon conversion of the full
outstanding Note principal are included for unrestricted resale in a
registration statement effective as of the Redemption Date. Note proceeds may
not be used to effect an Optional Redemption.
8. LEGAL FEE/ESCROW AGENT AND FINDER'S FEE.
(a) LEGAL FEE/ESCROW AGENT. The Company shall pay to Grushko &
Mittman, 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 and the Warrants (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 each 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, each Subscriber is providing
indemnification only for such Subscriber's own actions and not for any action of
any other Subscriber. Each Subscriber's liability hereunder is several and not
joint. The Company agrees that it will pay the Finder a fee equal to 10% of the
Purchase Price ("Finder's Fees"). The Finder will also be paid by the Company
10% of the proceeds received by the Company from exercise of the B Warrants
("Warrant Exercise Compensation"). The Warrant Exercise Compensation will be
payable by the Company to the Finders within ten days after each receipt by the
Company of Warrant Exercise proceeds. The Finder will also receive on the
Closing Date ten (10) Awarrants for each one dollar ($1.00) of Purchase Price
paid on the Closing Date ("Finder's Warrants"). 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.
(c) The 10% Finder's Fees payable to the Finder in connection with
the Purchase Price shall be payable by delivery on the Closing Date of common
stock of the Company at the rate of one share of common stock for each $.05 of
such Finder's Fees. The Finder's Fees payable as Warrant Exercise Compensation
shall be payable at the rate of one share of Common Stock for each ten Warrant
Shares actually issued upon exercise of Warrants. The Common Stock deliverable
in payment of Finder's Fees is referred to as "Finder's Shares." 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 Subscribers are
hereby also made and granted to the Finder in respect of the Finder's Shares,
Finder's Warrants and Warrant Shares issuable upon exercise of the Finder's
Warrants. References to Warrants and Warrant Shares shall include Finder's
Warrants and Warrant Shares issuable upon exercise of the Finder's Warrants.
11
9. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Subscribers as follows:
(a) STOP ORDERS. The Company will advise the Subscribers, 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 to be purchased hereunder and the Warrant Shares upon
each national securities exchange, or quotation system, if any, upon which
shares of common stock are then listed (subject to official notice of issuance)
and shall maintain such listing so long as any Securities are outstanding. The
Company will maintain the listing of its Common Stock on the American Stock
Exchange, Nasdaq SmallCap Market, Nasdaq National Market System, OTC 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 Subscribers 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 Subscribers and promptly provide copies thereof to Subscriber.
(d) REPORTING REQUIREMENTS. From the date of this Agreement and
until at least two (2) years after the Actual Effective Date, the Company will
(i) cause its Common Stock to continue to be registered under Section 12(b) or
12(g) of the 1934 Act, (ii) comply in all respects with its reporting and filing
obligations under the 1934 Act, (iii) 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 (iv) 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 the later of
two (2) years after the Actual Effective Date. Until the earlier of the resale
of the Shares and the Warrant Shares by each Subscriber or at least two (2)
years after the Warrants have been exercised, the Company will use its best
efforts to continue the listing or quotation of the Common Stock on 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.
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 each Subscriber promptly
after such filing.
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(e) USE OF PROCEEDS. The Company undertakes to use the proceeds of
the Subscribers' funds for working capital.
(f) RESERVATION. The Company undertakes to reserve, pro rata on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, at all times that Notes or Warrants remain outstanding, a number
of common shares equal to not less than 200% of the amount of common shares
necessary to allow each such holder at all times to be able to convert all such
outstanding Notes, and one common share for each Warrant Share. 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 until two (2) years after
the Closing Date, 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 until two (2) years
after the Closing Date, 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 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.
(i) BOOKS AND RECORDS. From the date of this Agreement until two (2)
years after the Closing Date, 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 until
two (2) years after the Closing Date, 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 until two
(2) years after the Closing Date, 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 until two (2) years
after the Closing Date, 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 needful 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.
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(m) CONFIDENTIALITY. From the date of this Agreement until two (2)
years after the Closing Date, the Company agrees that it will not disclose
publicly or privately the identity of the Subscribers 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.
(n) BLACKOUT. The Company undertakes and covenants that until the
first to occur of (i) the registration statement described in Section 11.1(iv)
having been effective for one hundred and eighty (180) business days, or (ii)
until all the Shares and Warrant Shares have been resold pursuant to said
registration statement, the Company will not enter into any acquisition, merger,
exchange or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement, causing an already
effective registration statement to no longer be effective or current.
(o) S-8. The Company will not file a Form S-8 with the Commission
during the Exclusion Period (as defined in Section 12(a) of the Agreement)
without the consent of the Subscriber except in respect of employee benefit
plans and past services rendered.
10. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' 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) Each 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.
14
11.1. REGISTRATION RIGHTS. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after the
Closing Date, but not later than three years after the Closing Date ("Request
Date"), the Company, upon a written request therefor from any record holder or
holders of more than 50% of the Shares issued and issuable upon conversion of
the Notes, Finder's Shares, and Warrant Shares, shall prepare and file with the
Commission a registration statement under the 1933 Act covering the Shares,
Finder's Shares and Warrant Shares (collectively "Registrable Securities") which
are the subject of such request. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are registered for
resale in an effective registration statement or included for registration in a
pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written notice.
Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 11.1(i).
(ii) 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 S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers 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(ii) 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(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
15
(iv) The Company shall file with the Commission not later than
thirty (30) days after the Closing Date (the "Filing Date"), and cause to be
declared effective within one hundred and twenty (120) days after the Closing
Date (the "Effective Date"), a Form SB-2 registration statement (the
"Registration Statement") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to 200%
of the Shares issuable upon conversion of the Notes (using the Conversion Price
on the Closing Date or the trading day immediately preceding the filing date of
the Registration Statement, or any amendment thereto, whichever results in the
greatest number of registrable Shares), all the Warrant Shares issuable upon
exercise of the Warrants and Finder's Shares issued on the Closing Date and
issuable upon exercise of the B Warrants. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Subscriber, and not
issued, employed or reserved for anyone other than each Subscriber. Such
Registration Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 11.1(iv) except as disclosed on
Schedule 11.1, without the written consent of Subscriber. In the event the
registration statement described in Section 11.1(iv) is declared effective
within thirty (30) days of the Effective Date, then Liquidated Damages will not
be payable for the thirty day period commencing on the Effective Date. It shall
be deemed a Non-Registration Event if at any time after the Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber fewer
than 125% of the amount of Common Shares issuable upon full conversion of all
sums due under the Note.
11.2. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) 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 11, 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 Registrable Securities (the "Sellers") copies of all filings and
Commission letters of comment;
(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;
16
(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.
11.4. NON-REGISTRATION EVENTS. The Company and the Subscribers agree that
the Seller will suffer damages if any registration statement required under
Section 11.1(iv) above is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) 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) the registration
statement on Form SB-2 or such other form described in Section 11.1(iv) is not
filed on or before the Filing Date or is not declared effective on or before the
sooner of the Effective Date, or within ten (10) business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 11.1(iv) will not be reviewed, (ii)
if the registration statement described in Sections 11.1(i) or 11.1(ii) is not
filed within 60 days after such written request, or is not declared effective
within 120 days after such written request, or (iii) any registration statement
described in Sections 11.1(i), 11.1(ii) or 11.1(iv) 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), (ii) and (iii) 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 actually paid "Purchase Price" (as
defined in the Warrants) of Warrant Shares and Finder's Shares valued at a
purchase price equal to the Finder's Fee, 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.
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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.
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(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.
19
(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 1933
Act) 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.
(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 each 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 and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Shares and Warrant Shares. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
20
(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) RIGHT OF FIRST REFUSAL. Until 180 days after the actual effective
date ("Actual Effective Date") of the Registration Statement (the "Exclusion
Period"), the Subscribers shall be given not less than five (5) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, 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"). The Subscribers
shall have the right during the five (5) business days following the notice to
purchase such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Notes in the Offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the original notice period or for a period of five (5) business days
following the notice of modification, whichever is longer, to exercise such
right.
(b) FAVORED NATIONS PROVISION. If, at any time a Note or Warrant is
outstanding or Registrable Securities are not then registered in an effective
Registration Statement for unrestricted resale as required by Section 11 hereof
("Outstanding Period"), except for the Excepted Issuances, the Company shall
offer, issue or agree to issue any Common Stock or securities convertible into
or exercisable for shares of Common Stock to any person, firm or corporation at
a price per share or conversion or exercise price per share which shall be less
than the per share purchase price of the Shares, or upon any other term more
favorable to such other investor, without the consent of a Subscriber still
holding Securities, then the Subscriber is granted the right to modify any term
or condition of the Offering to be the same as any term of the subsequent
offering that Subscriber deems more favorable than the term or condition of the
Offering. The rights of the Subscriber set forth in this Section 12(b) 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.
(c) MAXIMUM EXERCISE OF RIGHTS. In the event the exercise of the
rights described in Sections 12(a) or 12(b) 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 purchase and/or 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 each Subscriber as to only such
Subscriber.
21
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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, (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 & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575, and (iii) if to the Finder, to: Libra Finance, S.A., P.O. Box 4603,
Zurich, Switzerland, telecopier: 011-411-201-6262.
(b) CLOSING. The consummation of the transactions contemplated
herein ("Closing") shall take place at the offices of Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of
all conditions to Closing set forth in this Agreement.
(c) 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 Subscribers
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.
(d) 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.
(e) 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.
22
(f) 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(e) 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
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: November _____, 2003
---------------- --------------------- -------------------- --------------------
SUBSCRIBER PURCHASE PRICE A WARRANTS B WARRANTS ISSUABLE
ISSUABLE ON ON CLOSING DATE
CLOSING DATE
---------------- --------------------- -------------------- --------------------
$200,000.00 1,000,000 5,000,000
(Signature)
GAMMA OPPORTUNITY CAPITAL PARTNERS, LP
British Colonial Centre of Commerce
One Bay Street, Suite 401
Nassau (NP), The Bahamas
Fax: (242) 322-6657
LIST OF EXHIBITS AND SCHEDULES
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 11.1 Other Securities to be Registered
SCHEDULE 5(D) TO THE SUBSCRIPTION AGREEMENT - ADDITIONAL ISSUANCES
(a) Series F Convertible Preferred Stock; Right of First Refusal and Offering
Restrictions
(b) Series G Convertible Preferred Stock; Right of First Refusal and Offering
Restrictions
(c) 200,000 Convertible Note to be issued to one and possibly two other
investors, contemporaneous with this issue. This offering is part of the larger
offering for up to a maximum of $600,000 in convertible Notes at identical
terms.
SCHEDULE 5(Q) TO THE SUBSCRIPTION AGREEMENT - UNDISCLOSED LIABILITIES
None
SCHEDULE 5(S) TO THE SUBSCRIPTION AGREEMENT - CAPITALIZATION
Total issued and outstanding shares of common stock at designated dates is
27,647,542; authorized shares is 50,000,000
SCHEDULE 11.1 TO THE SUBSCRIPTION AGREEMENT - OTHER SECURITIES TO BE REGISTERED
Additional securities to be registered are the Registrable Securities issuable
pursuant to the offerings described in item (c) of Schedule 5(d).
EXHIBIT 4.9
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 1,000,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT
No. 2003-A-001 Issue Date: November 21, 2003
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Delaware (the "Company"), hereby certifies that, for value
received, GAMMA OPPORTUNITY CAPITAL PARTNERS, LP, British Colonial Centre of
Commerce, One Bay Street, Suite 401, Nassau (NP), The Bahamas, Fax: (242)
322-6657 (the "Holder"), or its assigns, is entitled, subject to the terms set
forth below, to purchase from the Company from and after the Issue Date and at
any time or from time to time before 5:00 p.m., New York time, through three (3)
years after such date (the "Expiration Date"), up to 1,000,000 fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $.001 par value
per share, of the Company at a per share purchase price of $.05. The
aforedescribed purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the "Purchase Price". The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein. The Company may reduce the Purchase Price without
the consent of the Holder. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain subscription agreement
(the "Subscription Agreement"), dated at or about November 21, 2003, between the
Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may not employ the cashless exercise feature
described above at any time that the Warrant Stock to be issued upon exercise is
included for unrestricted resale in an effective registration statement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
4
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the period this Warrant
is outstanding, shall issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such lower
consideration amount. For purposes of this adjustment, 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 an adjustment to the Purchase Price upon the grant or issuance
of such conversion or purchase rights.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder 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%.
6
11. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the address and telecopier number listed on the first
paragraph of this Warrant, with a copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name:
Title:
Witness:
8
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
9
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
10
EXHIBIT 4.10
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 5,000,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
CLASS B COMMON STOCK PURCHASE WARRANT
No. 2003-B-001 Issue Date: November 21, 2003
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Delaware (the "Company"), hereby certifies that, for value
received, GAMMA OPPORTUNITY CAPITAL PARTNERS, LP, British Colonial Centre of
Commerce, One Bay Street, Suite 401, Nassau (NP), The Bahamas, Fax: (242)
322-6657 (the "Holder"), or its assigns, is entitled, subject to the terms set
forth below, to purchase from the Company from and after the Issue Date and at
any time or from time to time before 5:00 p.m., New York time, through three (3)
years after such date (the "Expiration Date"), up to 5,000,000 fully paid and
nonassessable shares of Common Stock (as hereinafter defined), $.001 par value
per share, of the Company at a per share purchase price of $1.00. The
aforedescribed purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the "Purchase Price". The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein. The Company may reduce the Purchase Price without
the consent of the Holder. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain subscription agreement
(the "Subscription Agreement"), dated at or about November 21, 2003, between the
Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may not employ the cashless exercise feature
described above at any time that the Warrant Stock to be issued upon exercise is
included for unrestricted resale in an effective registration statement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
4
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the period this Warrant
is outstanding, shall issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such lower
consideration amount. For purposes of this adjustment, 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 an adjustment to the Purchase Price upon the grant or issuance
of such conversion or purchase rights.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date nor may the Company exercise its right to give a
Call Notice (as defined in Section 11) 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 Holder and its affiliates on an
exercise date or Call Date, and (ii) the number of shares of Common Stock
issuable upon the exercise of this Warrant with respect to which the
determination of this limitation is being made on an exercise date or Call Date,
which would result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock on such date. For the
purposes of 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
Holder shall not be limited to aggregate exercises which would result in the
issuance of more than 9.99%. The restriction described in this paragraph may be
revoked upon sixty-one (61) days prior notice from the Holder to the Company.
The Holder 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%.
6
11. CALL. The Company shall have the option to "call" the Warrants (the
"Warrant Call"), one or more times, in accordance with and governed by the
following:
(a) The Company shall exercise the Warrant Call by giving to the
Warrant Holder a written notice of call (the "Call Notice") during the period in
which the Warrant Call may be exercised. The effective date of each Call Notice
(the "Call Date") is the date on which notice is effective under the notice
provision of Section 13 of this Warrant.
(b) The Company's right to exercise the Warrant Call shall commence
thirty trading days after the actual effective date of a Registration Statement
described in Section 11 of the Subscription Agreement and end thirty trading
days prior to the Expiration Date.
(c) The number of shares of Common Stock to be issued upon exercise
of the Warrant which are subject to a Call Notice must be registered in a
Registration Statement effective from twenty-two trading days prior to the Call
Date and through the Delivery Date.
(d) A Call Notice may be given not sooner than fifteen trading days
after the prior Call Date.
(e) A Call Notice may be given by the Company only within ten days
after the Common Stock has had trading volume as reported for the Principal
Market (as defined in the Subscription Agreement) of not less than 150,000
Common Shares for fifteen (15) consecutive trading days ("Lookback Period").
(f) The Common Stock must be listed on the Principal Market for the
Lookback Period and through the Delivery Date.
(g) The Company shall not have received a notice from the Principal
Market during the ninety calendar days prior to the Call Date that the Company
or its Common Stock does not meet the requirements for continued quotation,
listing or trading on the Principal Market.
(h) The Company and the Common Stock shall meet the requirements for
continued quotation, listing or trading on the Principal Market for the Lookback
Period and through the Delivery Date.
(i) Unless otherwise agreed to by the Holder of this Warrant, a Call
Notice must be given to all Warrant Holders who receive Warrants similar to this
Warrant (in terms of exercise price and other principal terms) issued on or
about the same Issue Date as this Warrant, in proportion to the amounts of
Common Stock which may be purchased by the respective Warrant Holders in
accordance with the respective Warrants held by each.
(j) The Warrant Holder shall exercise his Warrant rights and
purchase the Called Warrant Shares and pay for same within fourteen trading days
after the Call Date. If the Warrant Holder fails to timely pay the amount
required by the Warrant Call, the Company's sole remedy shall be to cancel a
corresponding amount of this Warrant.
7
(k) The Company may not exercise the right to Call this Warrant
after the occurrence of a default by the Company of a material term of this
Agreement or Subscription Agreement or if an Event of Default (as defined in the
Note or Subscription Agreement) has occurred.
12. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
13. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, (ii) if to
the Holder, to the address and telecopier number listed on the first paragraph
of this Warrant, with a copy by telecopier only to: Grushko & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575, and (iii) if to Libra Finance, S.A. to: P.O. Box 4603, Zurich,
Switzerland, telecopier: 011-411-201-6262.
15. The Company shall give notice to Libra Finance, S.A. of each exercise
and Call of this Warrant. Such notice must be given not later than two business
days after the Company receives a notice of exercise of this Warrant and within
two business days of each Call Date. The Company will timely pay to Libra
Finance, S.A. the Warrant Exercise Commission (as defined in the Subscription
Agreement).
16. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
8
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name:
Title:
Witness:
9
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
10
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
11
EXHIBIT 4.11
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.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BRAVO! FOODS INTERNATIONAL CORP., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to GAMMA
OPPORTUNITY CAPITAL PARTNERS, LP, British Colonial Centre of Commerce, One Bay
Street, Suite 401, Nassau (NP), The Bahamas, Fax: (242) 322-6657 (the "Holder")
or order, without demand, the sum of Two Hundred Thousand Dollars ($200,000.00),
with simple interest accruing at the annual rate of 8%, on November 21, 2005
(the "Maturity Date").
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.
1.2 CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred (whether or not such Event of
Default is continuing), the Borrower may not pay this Note on or after the
Maturity Date, without the consent of the Holder.
1.3 INTEREST RATE. Simple interest payable on this Note shall accrue at
the annual rate of eight percent (8%) and be payable upon each Conversion, June
30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below. Borrower may elect to pay
interest due on a semi-annual due date or the Maturity Date by delivering
registered Common Stock in lieu of cash. Such Common Stock will be valued at the
Conversion Price in effect on the due date of the interest payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001 par value per share
("Common Stock") as set forth below.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right from and after the date of the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a Notice of Conversion as described in Section
7 of the Subscription Agreement of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within three business days from
the Conversion Date ("Delivery Date") that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest on
the Note in the manner provided in Section 1.3 through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lesser of (i) $.05 ("Maximum Base
Price") or (ii) seventy-five percent (75%) of the average of the three lowest
closing bid prices for the thirty (30) trading days prior to but not including
the Conversion Date for the Common Stock on the OTC Pink Sheets, NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange, as applicable, or if not then
trading on any of the foregoing, such other principal market or exchange where
the Common Stock is listed or traded (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock, the "Principal
Market"). During the 180 days after the initial issue date of this Note
("Initial Period") unless an Event of Default as described in Article III hereof
shall have occurred, the Conversion Price shall not be less than $.03. In the
event during the Initial Period (i) the closing trading price of the Common
Stock for any consecutive fifteen day trading period is $.20 or higher, and (ii)
the daily trading volume for each such fifteen trading days is 300,000 or more
shares of Common Stock, and (iii) the registration statement described in
Section 11.1(iv) of the Subscription Agreement (as defined hereinafter) is
effective for each such fifteen trading days, then the Initial Period shall be
extended indefinitely but shall terminate immediately upon the occurrence of an
Event of Default. Closing bid price shall mean the last closing bid price as
reported by Bloomberg L.P.
(c) The Maximum Base Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. So long as this Note is outstanding, if the
Borrower shall issue any shares of Common Stock except for the employee stock
options, or in connection with the exercise of Warrants, options or upon the
conversion of convertible instruments outstanding on the issue date of this Note
and as described in the Borrower's Reports (as defined in the Subscription
Agreement) for a consideration less than the Fair Market Value (as defined in
Section 2(c)(E) below) for such shares at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Conversion Price. For purposes of this
adjustment, the issuance of any security of the Borrower 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 an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
E. For purposes of Section 2.1(c)(D) above, Fair Market Value
of a share of Common Stock as of a particular date (the "Determination Date")
shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair
Market Value of a share of Common Stock as of a Determination Date shall mean:
(a) If the Borrower's Common Stock is traded on an
exchange or is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market System,
the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
(b) If the Borrower's Common Stock is not traded on an exchange or
on the NASDAQ National Market System, the NASDAQ SmallCap Market or
the American Stock Exchange, Inc., but is traded in the
over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the
Borrower's Common Stock is not publicly traded, then as the Holder
and the Borrower agree or in the absence of agreement by arbitration
in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Borrower's
charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation
under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of all
of the Warrants are outstanding at the Determination Date.
(d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
(f) The terms of this Note are modifiable by the Holder pursuant to
but not limited to Section 12(c) of the Subscription Agreement.
2.2 METHOD OF CONVERSION. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
2.3 MAXIMUM CONVERSION. The Holder 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 Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Borrower 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 Holder shall not be limited to aggregate conversions of only
9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay
any installment of principal, interest or other sum due under this Note when due
and such failure continues for a period of ten (10) days after the due date. The
ten (10) day period described in this Section 3.1 is the same ten (10) day
period described in Section 1.1 hereof.
3.2 BREACH OF COVENANT. The Borrower breaches any material covenant
or other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.
3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 JUDGMENTS. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.
3.7 DELISTING. Delisting of the Common Stock from the OTC Bulletin
Board ("OTCBB") or such other principal exchange on which the Common Stock is
listed for trading; failure to comply with the requirements for continued
listing on the OTCBB for a period of three consecutive trading days; or
notification from the OTC Bulletin Board or any Principal Market that the
Borrower is not in compliance with the conditions for such continued listing on
the OTCBB or other Principal Market.
3.8 STOP TRADE. An SEC or judicial stop trade order or Principal
Market trading suspension that lasts for five or more consecutive trading days.
3.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 NON-REGISTRATION EVENT. The occurrence of a Non-Registration
Event as described in Section 10.4 of the Subscription Agreement.
3.11 REVERSE SPLITS. The Borrower effectuates a reverse split of its
common stock without ten days prior written notice to the Holder.
3.12 SECURITY AGREEMENT. An "Event of Default" as defined in the
Security Agreement dated at or about the date of this Note delivered by Borrower
to Holder (the "Security Agreement").
3.13 CROSS DEFAULT. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement, in each case, which is not cured after any required
notice and/or cure period.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 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 Borrower to: Bravo! Foods
International Corp., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the name, address and telecopy number set forth on the front
page of this Note, with a copy by telecopier only to Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
4.3 AMENDMENT PROVISION. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. 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. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 MAXIMUM PAYMENTS. Nothing contained herein 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 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 Borrower to the Holder and thus refunded to the
Borrower.
4.8 REDEMPTION. This Note may not be redeemed or paid before or
after the Maturity Date except as described in the Subscription Agreement.
4.9 SHAREHOLDER STATUS. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have the right of a shareholder of the Borrower with
respect to the Shares of Common Stock to be received after delivery by the
Holder of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in
its name by an authorized officer on this ____ day of November, 2003.
BRAVO! FOODS INTERNATIONAL CORP.
By:________________________________
Name:
Title:
WITNESS:
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by BRAVO! FOODS INTERNATIONAL
CORP. on November 21, 2003 into Shares of Common Stock of BRAVO! FOODS
INTERNATIONAL CORP. (the "Borrower") according to the conditions set forth in
such Note, as of the date written below.
Date of Conversion:____________________________________________________________
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 2,000,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT
No. 2003-A-002 Issue Date: November 21, 2003
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Delaware (the "Company"), hereby certifies that, for value
received, LIBRA FINANCE, S.A., P.O. Box 4603, Zurich, Switzerland, Fax:
011-411-201-6262 (the "Holder"), or its assigns, is entitled, subject to the
terms set forth below, to purchase from the Company from and after the Issue
Date and at any time or from time to time before 5:00 p.m., New York time,
through three (3) years after such date (the "Expiration Date"), up to 2,000,000
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.001 par value per share, of the Company at a per share purchase price of $.05.
The aforedescribed purchase price per share, as adjusted from time to time as
herein provided, is referred to herein as the "Purchase Price". The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein. The Company may reduce the Purchase Price without
the consent of the Holder. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth in that certain subscription agreement
(the "Subscription Agreement"), dated at or about November 21, 2003, between the
Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
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(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may not employ the cashless exercise feature
described above at any time that the Warrant Stock to be issued upon exercise is
included for unrestricted resale in an effective registration statement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
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3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the period this Warrant
is outstanding, shall issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such lower
consideration amount. For purposes of this adjustment, 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 an adjustment to the Purchase Price upon the grant or issuance
of such conversion or purchase rights.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder 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%.
6
11. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the address and telecopier number listed on the first
paragraph of this Warrant, with a copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name:
Title:
Witness:
8
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
9
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
10
EXHIBIT 4.13
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of November 20,
2003, by and among Bravo! Foods International Corp., a Delaware corporation (the
"Company"), and the subscriber identified on the signature page hereto (a
"Subscriber" and collectively "Subscribers" if more than one).
WHEREAS, the Company and the Subscribers 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") 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
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase $200,000 (the "Purchase Price") of principal amount of 8% 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 the lesser of $.05, or seventy-five percent (75%) of
the average of the three lowest closing bid prices of the Common Stock as
reported by Bloomberg L.P. for the OTC Bulletin Board ("Bulletin Board") for the
thirty (30) trading days preceding, but not including the Conversion Date, as
defined in Section 7.1(b) of this Agreement ("Conversion Price"); and share
purchase warrants (the "Warrants") to purchase shares of Common Stock (the
"Warrant Shares"). The Conversion Price is subject to adjustment as described in
the Note. The Notes, shares of Common Stock issuable upon conversion of the
Notes (the "Shares"), the Warrants and the Warrant Shares are collectively
referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
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 Subscribers hereby
agree as follows:
1. CLOSING. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto. The aggregate amount of the
Notes to be purchased by the Subscribers 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. Intentionally Omitted.
3. WARRANTS.
(a) On the Closing Date, the Company will issue Warrants to the
Subscribers. Five (5) Warrants will be issued for each one dollar ($1.00) of
Purchase Price paid on the Closing Date ("A Warrants"). The per Warrant Share
exercise price to acquire a Warrant Share upon exercise of an A Warrant shall be
$.05. The A Warrants will be exercisable for three (3) years after the Closing
Date.
(b) On the Closing Date, the Company will issue to the Subscribers
an additional twenty-five (25) Warrants for each one dollar ($1.00) of Purchase
Price ("B Warrants"). The per Warrant Share exercise price to acquire a Warrant
Share upon exercise of a B Warrant shall be $1.00. The B Warrants shall be
exercisable for three (3) years after the Closing Date. Collectively, the A
Warrants and B Warrants are referred to herein as Warrants and the Common Stock
issuable upon exercise of the A Warrants and B Warrants is referred to as
Warrant Shares.
4. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished with
or has obtained from the EDGAR Website of the Securities and Exchange Commission
(the "Commission") the Company's Form 10-KSB for the year ended December 31,
2002 as filed with the Commission, together with all subsequently filed Forms
10-QSB, 8-K, and filings made with the Commission available at the EDGAR 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 and exercise of any of the Warrants, an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (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 AND WARRANTS. On Closing Date, the Subscriber
will purchase the Notes and Warrants 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.
2
(e) SHARES LEGEND. The Shares and the Warrant 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."
(f) WARRANTS LEGEND. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON
EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID 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."
(g) 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."
(h) 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.
3
(i) 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.
(j) CORRECTNESS OF REPRESENTATIONS. Each 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.
5. COMPANY REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to and agrees with each 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 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.
(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
Warrant, the Security Agreement, the Escrow Agreement and any other agreements
delivered together with this Agreement or to be delivered in connection herewith
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; and the Company has full
corporate power and authority necessary to enter into this Agreement, the Notes,
the Warrants, the Security Agreement, the Escrow Agreement and such other
agreements and to perform its obligations hereunder and under all other
agreements entered into by the Company relating hereto.
(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.
4
(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 Amex, the National Association of
Securities Dealers, Inc., Nasdaq, SmallCap Market, the OTC Bulletin Board nor
the Company's Shareholders is required for the execution and compliance by the
Company of its obligations under this Agreement, and all other agreements
entered into or to be entered into by the Company relating hereto, including,
without limitation, the issuance and sale of the Securities, and the performance
of the Company's obligations hereunder and under all such other agreements.
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscribers in Section 4 are true and correct, 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 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
(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 except as described in this Agreement and
the documents delivered together with this Agreement.
(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 upon exercise of the Warrants, the
Shares and Warrant Shares, will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted,
provided that each 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;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
5
(v) will not result in the activation of any anti-dilution
rights or a reset or repricing of any debt or security instrument of any other
debt or equity holder of the Company except as described in the Reports.
(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.
(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.
6
(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 1933 Act) 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 will be delisted from the Bulletin Board nor that its common stock does
not meet all requirements for the continuation of such quotation and the Company
satisfies the requirements for the continued listing 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,
2002 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).
(r) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 2002,
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 and exercise of the Warrants 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.
7
(u) NO DISAGREEMENTS WITH ACCOUNTANTS AND LAWYERS. There are no
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 1933 Act) 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 Subscribers 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.
6. REGULATION D OFFERING. The offer and issuance of the Securities to the
Subscribers 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 each 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. The Company will provide, at the Company's expense, such other
legal opinions in the future as are reasonably necessary for the conversion of
the Notes and exercise of the Warrants and resale of the Shares and Warrant
Shares.
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.
8
(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.
(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.
9
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 or exercise the Warrant in whole or in part,
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 or exercise of all or part of said Warrant 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, or aggregate
purchase price of the Warrant Shares 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.
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.
10
7.7. OPTIONAL REDEMPTION. The Company will have the option of redeeming
any outstanding Notes ("Optional Redemption") by paying to the Subscriber a sum
of money equal to 125% of the principal amount of the portion of the Note
together with accrued but unpaid interest thereon and any and all other sums
due, accrued or payable to the Subscriber arising under this Subscription
Agreement, Note or any other document delivered herewith ("Redemption Amount")
outstanding on the day notice of redemption ("Notice of Redemption) is given to
a Subscriber ("Redemption Date"). The Subscriber may elect within five (5)
business days after receipt of a Notice of Redemption to give the Company Notice
of Conversion in connection with some or all of the Note principal and interest
which was the subject of the Notice of Redemption. A Notice of Redemption must
be accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber not later than the fifth (5th)
business day after the Redemption Date ("Optional Redemption Payment Date"). In
the event the Company fails to pay the Redemption Amount by the Optional
Redemption Payment Date, then the Redemption Notice will be null and void and
the Company will thereafter have no further right to effect an Optional
Redemption, and at the Subscription's election, the Redemption Amount will be
deemed a Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will also be
deemed an Event of Default under the Note. A Notice of Redemption may be given
by the Company, provided (i) no Event of Default, as described in the Note shall
have occurred; and (ii) the Company Shares issuable upon conversion of the full
outstanding Note principal are included for unrestricted resale in a
registration statement effective as of the Redemption Date. Note proceeds may
not be used to effect an Optional Redemption.
8. NOT USED.
9. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Subscribers as follows:
(a) STOP ORDERS. The Company will advise the Subscribers, 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 to be purchased hereunder and the Warrant Shares upon
each national securities exchange, or quotation system, if any, upon which
shares of common stock are then listed (subject to official notice of issuance)
and shall maintain such listing so long as any Securities are outstanding. The
Company will maintain the listing of its Common Stock on the American Stock
Exchange, Nasdaq SmallCap Market, Nasdaq National Market System, OTC 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 Subscribers 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 Subscribers and promptly provide copies thereof to Subscriber.
11
(d) REPORTING REQUIREMENTS. From the date of this Agreement and
until at least two (2) years after the Actual Effective Date, the Company will
(i) cause its Common Stock to continue to be registered under Section 12(b) or
12(g) of the 1934 Act, (ii) comply in all respects with its reporting and filing
obligations under the 1934 Act, (iii) 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 (iv) 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 the later of
two (2) years after the Actual Effective Date. Until the earlier of the resale
of the Shares and the Warrant Shares by each Subscriber or at least two (2)
years after the Warrants have been exercised, the Company will use its best
efforts to continue the listing or quotation of the Common Stock on 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.
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 each Subscriber promptly
after such filing.
(e) USE OF PROCEEDS. The Company undertakes to use the proceeds of
the Subscribers' funds for working capital.
(f) RESERVATION. The Company undertakes to reserve, pro rata on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, at all times that Notes or Warrants remain outstanding, a number
of common shares equal to not less than 200% of the amount of common shares
necessary to allow each such holder at all times to be able to convert all such
outstanding Notes, and one common share for each Warrant Share. 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 until two (2) years after
the Closing Date, 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 until two (2) years
after the Closing Date, 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 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 until two (2)
years after the Closing Date, 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 until
two (2) years after the Closing Date, 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 until two
(2) years after the Closing Date, 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 until two (2) years
after the Closing Date, 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 needful 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. From the date of this Agreement until two (2)
years after the Closing Date, the Company agrees that it will not disclose
publicly or privately the identity of the Subscribers 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.
(n) BLACKOUT. The Company undertakes and covenants that until the
first to occur of (i) the registration statement described in Section 11.1(iv)
having been effective for one hundred and eighty (180) business days, or (ii)
until all the Shares and Warrant Shares have been resold pursuant to said
registration statement, the Company will not enter into any acquisition, merger,
exchange or sale or other transaction that could have the effect of delaying the
effectiveness of any pending registration statement, causing an already
effective registration statement to no longer be effective or current.
(o) S-8. The Company will not file a Form S-8 with the Commission
during the Exclusion Period (as defined in Section 12(a) of the Agreement)
without the consent of the Subscriber except in respect of employee benefit
plans and past services rendered.
10. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' 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.
13
(b) Each 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. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 91 days after the
Closing Date, but not later than three years after the Closing Date ("Request
Date"), the Company, upon a written request therefor from any record holder or
holders of more than 50% of the Shares issued and issuable upon conversion of
the Notes, Finder's Shares, and Warrant Shares, shall prepare and file with the
Commission a registration statement under the 1933 Act covering the Shares,
Finder's Shares and Warrant Shares (collectively "Registrable Securities") which
are the subject of such request. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are registered for
resale in an effective registration statement or included for registration in a
pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written notice.
Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 11.1(i).
(ii) 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 S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers 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(ii) 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(ii) without thereby incurring any liability to
the Seller.
14
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission not later than
thirty (30) days after the Closing Date (the "Filing Date"), and cause to be
declared effective within one hundred and twenty (120) days after the Closing
Date (the "Effective Date"), a Form SB-2 registration statement (the
"Registration Statement") (or such other form that it is eligible to use) in
order to register the Registrable Securities for resale and distribution under
the 1933 Act. The Company will register not less than a number of shares of
common stock in the aforedescribed registration statement that is equal to 200%
of the Shares issuable upon conversion of the Notes (using the Conversion Price
on the Closing Date or the trading day immediately preceding the filing date of
the Registration Statement, or any amendment thereto, whichever results in the
greatest number of registrable Shares), all the Warrant Shares issuable upon
exercise of the Warrants and Finder's Shares issued on the Closing Date and
issuable upon exercise of the B Warrants. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Subscriber, and not
issued, employed or reserved for anyone other than each Subscriber. Such
Registration Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 11.1(iv) except as disclosed on
Schedule 11.1, without the written consent of Subscriber. In the event the
registration statement described in Section 11.1(iv) is declared effective
within thirty (30) days of the Effective Date, then Liquidated Damages will not
be payable for the thirty day period commencing on the Effective Date. It shall
be deemed a Non-Registration Event if at any time after the Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber fewer
than 125% of the amount of Common Shares issuable upon full conversion of all
sums due under the Note.
11.2. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) 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 11, 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 Registrable Securities (the "Sellers") copies of all filings and
Commission letters of comment;
(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;
15
(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.
11.4. NON-REGISTRATION EVENTS. The Company and the Subscribers agree that
the Seller will suffer damages if any registration statement required under
Section 11.1(iv) above is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) 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) the registration
statement on Form SB-2 or such other form described in Section 11.1(iv) is not
filed on or before the Filing Date or is not declared effective on or before the
sooner of the Effective Date, or within ten (10) business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 11.1(iv) will not be reviewed, (ii)
if the registration statement described in Sections 11.1(i) or 11.1(ii) is not
filed within 60 days after such written request, or is not declared effective
within 120 days after such written request, or (iii) any registration statement
described in Sections 11.1(i), 11.1(ii) or 11.1(iv) 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), (ii) and (iii) 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 actually paid "Purchase Price" (as
defined in the Warrants) of Warrant Shares and Finder's Shares valued at a
purchase price equal to the Finder's Fee, 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.
16
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.
17
(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.
18
(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 1933
Act) 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.
(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 each 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 and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Shares and Warrant Shares. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand.
19
(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) RIGHT OF FIRST REFUSAL. Until 180 days after the actual effective
date ("Actual Effective Date") of the Registration Statement (the "Exclusion
Period"), the Subscribers shall be given not less than five (5) business days
prior written notice of any proposed sale by the Company of its common stock or
other securities or debt obligations, 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"). The Subscribers
shall have the right during the five (5) business days following the notice to
purchase such offered common stock, debt or other securities in accordance with
the terms and conditions set forth in the notice of sale in the same proportion
to each other as their purchase of Notes in the Offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the original notice period or for a period of five (5) business days
following the notice of modification, whichever is longer, to exercise such
right.
(b) FAVORED NATIONS PROVISION. If, at any time a Note or Warrant is
outstanding or Registrable Securities are not then registered in an effective
Registration Statement for unrestricted resale as required by Section 11 hereof
("Outstanding Period"), except for the Excepted Issuances, the Company shall
offer, issue or agree to issue any Common Stock or securities convertible into
or exercisable for shares of Common Stock to any person, firm or corporation at
a price per share or conversion or exercise price per share which shall be less
than the per share purchase price of the Shares, or upon any other term more
favorable to such other investor, without the consent of a Subscriber still
holding Securities, then the Subscriber is granted the right to modify any term
or condition of the Offering to be the same as any term of the subsequent
offering that Subscriber deems more favorable than the term or condition of the
Offering. The rights of the Subscriber set forth in this Section 12(b) 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.
20
(c) MAXIMUM EXERCISE OF RIGHTS. In the event the exercise of the
rights described in Sections 12(a) or 12(b) 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 purchase and/or 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 each 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, (ii) if to
the Subscriber, to: the address and telecopier number indicated on the signature
page hereto, with a copy by telecopier only to: Kevin Cody, telecopier: (816)
801-6517.
(b) CLOSING. The consummation of the transactions contemplated
herein ("Closing") shall take place at the offices of Mid-Am Capital, L.L.C.,
Northpointe Tower, 10220 North Ambassador Drive, Kansas City, MO 64190, upon the
satisfaction of all conditions to Closing set forth in this Agreement.
(c) 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 Subscribers
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.
(d) 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.
21
(e) LAW GOVERNING THIS AGREEMENT. This Agreement shall be governed
by and construed in accordance with the laws of the State of Missouri 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 Missouri or in the federal courts
located in the state of Missouri. 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.
(f) 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(e) 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.
[THIS SPACE INTENTIONALLY LEFT BLANK]
22
SIGNATURE PAGE TO SUBSCRIPTION AGREEMENT
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: November _____, 2003
--------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE A WARRANTS B WARRANTS ISSUABLE
ISSUABLE ON ON CLOSING DATE
CLOSING DATE
--------------------------------------------------------------------------------
$200,000.00 1,000,000 5,000,000
(Signature)
Mid-Am Capital, L.L.C.
Northpointe Tower
10220 North Ambassador Drive
Kansas City, MO 64190
LIST OF EXHIBITS AND SCHEDULES
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 11.1 Other Securities to be Registered
SCHEDULE 5(D) TO THE SUBSCRIPTION AGREEMENT - ADDITIONAL ISSUANCES
(a) Series F Convertible Preferred Stock; Right of First Refusal and Offering
Restrictions
(b) Series G Convertible Preferred Stock; Right of First Refusal and Offering
Restrictions
(c) 200,000 Convertible Note to be issued to one and possibly two other
investors, contemporaneous with this issue. This offering is part of the larger
offering for up to a maximum of $600,000 in convertible Notes at identical
terms.
SCHEDULE 5(Q) TO THE SUBSCRIPTION AGREEMENT - UNDISCLOSED LIABILITIES
None
SCHEDULE 5(S) TO THE SUBSCRIPTION AGREEMENT - CAPITALIZATION
Total issued and outstanding shares of common stock at designated dates is
27,647,542; authorized shares is 50,000,000
SCHEDULE 11.1 TO THE SUBSCRIPTION AGREEMENT - OTHER SECURITIES TO BE REGISTERED
Additional securities to be registered are the Registrable Securities issuable
pursuant to the offerings described in item (c) of Schedule 5(d).
EXHIBIT 4.14
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 1,000,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
CLASS A COMMON STOCK PURCHASE WARRANT
No. 2003-A-003 Issue Date: November 20, 2003
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Israel (the "Company"), hereby certifies that, for value
received, MID-AM CAPITAL, L.L.C., Northpointe Tower, 10220 North Ambassador
Drive' Kansas City, MO 64190 , telecopier: (816) 801-6517 (the "Holder"), or its
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company from and after the Issue Date and at any time or from time to time
before 5:00 p.m., Eastern Time, through three (3) years after such date (the
"Expiration Date"), up to 1,000,000 fully paid and nonassessable shares of
Common Stock (as hereinafter defined), $.001 par value per share, of the Company
at a per share purchase price of $.05. The aforedescribed purchase price per
share, as adjusted from time to time as herein provided, is referred to herein
as the "Purchase Price". The number and character of such shares of Common Stock
and the Purchase Price are subject to adjustment as provided herein. The Company
may reduce the Purchase Price without the consent of the Holder. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain subscription agreement (the "Subscription Agreement"), dated at or
about November 20, 2003, between the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System, the NASDAQ SmallCap Market or the American
Stock Exchange, Inc., but is traded in the over-the-counter market, then the
average of the closing bid and ask prices reported for the last business day
immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree, or in
the absence of such an agreement, by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
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(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may not employ the cashless exercise feature
described above at any time that the Warrant Stock to be issued upon exercise is
included for unrestricted resale in an effective registration statement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
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3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the period this Warrant
is outstanding, shall issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such lower
consideration amount. For purposes of this adjustment, 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 an adjustment to the Purchase Price upon the grant or issuance
of such conversion or purchase rights.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder 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%.
6
11. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the address and telecopier number listed on the first
paragraph of this Warrant, with a copy by telecopier only to: Kevin Cody,
telecopier: (816) 801-6517.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of Missouri. Any dispute relating to this Warrant shall be
adjudicated in the State of Missouri. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name: Roy G. Warren
Title: Chief Executive Officer
Witness:
8
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
9
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
10
EXHIBIT 4.15
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 5,000,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
CLASS B COMMON STOCK PURCHASE WARRANT
No. 2003-B-002 Issue Date: November 20, 2003
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Israel (the "Company"), hereby certifies that, for value
received MID-AM CAPITAL, L.L.C., Northpointe Tower, 10220 North Ambassador
Drive' Kansas City, MO 64190 , telecopier: (816) 801-6517 (the "Holder"), or its
assigns, is entitled, subject to the terms set forth below, to purchase from the
Company from and after the Issue Date and at any time or from time to time
before 5:00 p.m., Eastern Time time, through three (3) years after such date
(the "Expiration Date"), up to 5,000,000 fully paid and nonassessable shares of
Common Stock (as hereinafter defined), $.001 par value per share, of the Company
at a per share purchase price of $1.00. The aforedescribed purchase price per
share, as adjusted from time to time as herein provided, is referred to herein
as the "Purchase Price". The number and character of such shares of Common Stock
and the Purchase Price are subject to adjustment as provided herein. The Company
may reduce the Purchase Price without the consent of the Holder. Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain subscription agreement (the "Subscription Agreement"), dated at or
about November 20 2003, between the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange or on
the NASDAQ National Market System, the NASDAQ SmallCap Market or the American
Stock Exchange, Inc., but is traded in the over-the-counter market, then the
average of the closing bid and ask prices reported for the last business day
immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's Common
Stock is not publicly traded, then as the Holder and the Company agree, or in
the absence of such an agreement, by arbitration in accordance with the rules
then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may not employ the cashless exercise feature
described above at any time that the Warrant Stock to be issued upon exercise is
included for unrestricted resale in an effective registration statement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
4
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. If the Company, during the period this Warrant
is outstanding, shall issue any shares of Common Stock except for the Excepted
Issuances (as defined in the Subscription Agreement) prior to the complete
exercise of this Warrant for a consideration less than the Purchase Price that
would be in effect at the time of such issue, then, and thereafter successively
upon each such issue, the Purchase Price shall be reduced to such lower
consideration amount. For purposes of this adjustment, 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 an adjustment to the Purchase Price upon the grant or issuance
of such conversion or purchase rights.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date nor may the Company exercise its right to give a
Call Notice (as defined in Section 11) 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 Holder and its affiliates on an
exercise date or Call Date, and (ii) the number of shares of Common Stock
issuable upon the exercise of this Warrant with respect to which the
determination of this limitation is being made on an exercise date or Call Date,
which would result in beneficial ownership by the Holder and its affiliates of
more than 9.99% of the outstanding shares of Common Stock on such date. For the
purposes of 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
Holder shall not be limited to aggregate exercises which would result in the
issuance of more than 9.99%. The restriction described in this paragraph may be
revoked upon sixty-one (61) days prior notice from the Holder to the Company.
The Holder 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%.
6
11. CALL. The Company shall have the option to "call" the Warrants (the
"Warrant Call"), one or more times, in accordance with and governed by the
following:
(a) The Company shall exercise the Warrant Call by giving to the
Warrant Holder a written notice of call (the "Call Notice") during the period in
which the Warrant Call may be exercised. The effective date of each Call Notice
(the "Call Date") is the date on which notice is effective under the notice
provision of Section 13 of this Warrant.
(b) The Company's right to exercise the Warrant Call shall commence
thirty trading days after the actual effective date of a Registration Statement
described in Section 11 of the Subscription Agreement and end thirty trading
days prior to the Expiration Date.
(c) The number of shares of Common Stock to be issued upon exercise
of the Warrant which are subject to a Call Notice must be registered in a
Registration Statement effective from twenty-two trading days prior to the Call
Date and through the Delivery Date.
(d) A Call Notice may be given not sooner than fifteen trading days
after the prior Call Date.
(e) A Call Notice may be given by the Company only within ten days
after the Common Stock has had trading volume as reported for the Principal
Market (as defined in the Subscription Agreement) of not less than 150,000
Common Shares for 15 consecutive trading days ("Lookback Period").
(f) The Common Stock must be listed on the Principal Market for the
Lookback Period and through the Delivery Date.
(g) The Company shall not have received a notice from the Principal
Market during the ninety calendar days prior to the Call Date that the Company
or its Common Stock does not meet the requirements for continued quotation,
listing or trading on the Principal Market.
(h) The Company and the Common Stock shall meet the requirements for
continued quotation, listing or trading on the Principal Market for the Lookback
Period and through the Delivery Date.
(i) Unless otherwise agreed to by the Holder of this Warrant, a Call
Notice must be given to all Warrant Holders who receive Warrants similar to this
Warrant (in terms of exercise price and other principal terms) issued on or
about the same Issue Date as this Warrant, in proportion to the amounts of
Common Stock which may be purchased by the respective Warrant Holders in
accordance with the respective Warrants held by each.
(j) The Warrant Holder shall exercise his Warrant rights and
purchase the Called Warrant Shares and pay for same within fourteen trading days
after the Call Date. If the Warrant Holder fails to timely pay the amount
required by the Warrant Call, the Company's sole remedy shall be to cancel a
corresponding amount of this Warrant.
7
(k) The Company may not exercise the right to Call this Warrant
after the occurrence of a default by the Company of a material term of this
Agreement or Subscription Agreement or if an Event of Default (as defined in the
Note or Subscription Agreement) has occurred.
12. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
13. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, (ii) if to
the Holder, to the address and telecopier number listed on the first paragraph
of this Warrant, with a copy by telecopier only to: Kevin Cody, telecopier:
(816) 801-6517.
15. The Company shall give notice to all other holders of the Warrants of
each exercise and Call of this Warrant. Such notice must be given not later than
two business days after the Company receives a notice of exercise of this
Warrant and within two business days of each Call Date.
16. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of Missouri. Any dispute relating to this Warrant shall be
adjudicated in the State of Missouri. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. The invalidity or unenforceability of any provision hereof shall
in no way affect the validity or enforceability of any other provision.
8
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name: Roy G. Warren
Title: Chief Executive Officer
Witness:
9
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
10
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
11
EXHIBIT 4.16
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.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BRAVO! FOODS INTERNATIONAL CORP., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to MID-AM
CAPITAL, L.L.C., Northpointe Tower, 10220 North Ambassador Drive' Kansas City,
MO 64190 , telecopier: (816) 801-6517 (the "Holder") or order, without demand,
the sum of Two Hundred Thousand Dollars ($200,000.00), with simple interest
accruing at the annual rate of 8%, on November 20, 2005 (the "Maturity Date").
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.
1.2 CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred (whether or not such Event of
Default is continuing), the Borrower may not pay this Note on or after the
Maturity Date, without the consent of the Holder.
1.3 INTEREST RATE. Simple interest payable on this Note shall accrue at
the annual rate of eight percent (8%) and be payable upon each Conversion, June
30, 2004 and semi-annually thereafter, and on the Maturity Date, accelerated or
otherwise, when the principal and remaining accrued but unpaid interest shall be
due and payable, or sooner as described below. Borrower may elect to pay
interest due on a semi-annual due date or the Maturity Date by delivering
registered Common Stock in lieu of cash. Such Common Stock will be valued at the
Conversion Price in effect on the due date of the interest payment.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.001 par value per share
("Common Stock") as set forth below.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right from and after the date of the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a Notice of Conversion as described in Section
7 of the Subscription Agreement of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within three business days from
the Conversion Date ("Delivery Date") that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest on
the Note in the manner provided in Section 1.3 through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lesser of (i) $.05 ("Maximum Base
Price") or (ii) seventy-five percent (75%) of the average of the three lowest
closing bid prices for the thirty (30) trading days prior to but not including
the Conversion Date for the Common Stock on the OTC Pink Sheets, NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market System, American
Stock Exchange, or New York Stock Exchange, as applicable, or if not then
trading on any of the foregoing, such other principal market or exchange where
the Common Stock is listed or traded (whichever of the foregoing is at the time
the principal trading exchange or market for the Common Stock, the "Principal
Market"). During the 180 days after the initial issue date of this Note
("Initial Period") unless an Event of Default as described in Article III hereof
shall have occurred, the Conversion Price shall not be less than $.03. In the
event during the Initial Period (i) the closing trading price of the Common
Stock for any consecutive fifteen day trading period is $.20 or higher, and (ii)
the daily trading volume for each such fifteen trading days is 300,000 or more
shares of Common Stock, and (iii) the registration statement described in
Section 11.1(iv) of the Subscription Agreement (as defined hereinafter) is
effective for each such fifteen trading days, then the Initial Period shall be
extended indefinitely but shall terminate immediately upon the occurrence of an
Event of Default. Closing bid price shall mean the last closing bid price as
reported by Bloomberg L.P.
(c) The Maximum Base Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. So long as this Note is outstanding, if the
Borrower shall issue any shares of Common Stock except for the employee stock
options, or in connection with the exercise of Warrants, options or upon the
conversion of convertible instruments outstanding on the issue date of this Note
and as described in the Borrower's Reports (as defined in the Subscription
Agreement) for a consideration less than the Fair Market Value (as defined in
Section 2(c)(E) below) for such shares at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Conversion Price. For purposes of this
adjustment, the issuance of any security of the Borrower 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 an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
E. For purposes of Section 2.1(c)(D) above, Fair Market Value
of a share of Common Stock as of a particular date (the "Determination Date")
shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair
Market Value of a share of Common Stock as of a Determination Date shall mean:
(a) If the Borrower's Common Stock is traded on an
exchange or is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market System,
the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
(b) If the Borrower's Common Stock is not traded on an
exchange or on the NASDAQ National Market System, the NASDAQ
SmallCap Market or the American Stock Exchange, Inc., but is traded
in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately
preceding the Determination Date.
(c) Except as provided in clause (d) below, if the
Borrower's Common Stock is not publicly traded, then as the Holder
and the Borrower agree or in the absence of agreement by arbitration
in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass
on the matter to be decided.
(d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Borrower's
charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation
under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of all
of the Warrants are outstanding at the Determination Date.
(d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
(f) The terms of this Note are modifiable by the Holder pursuant to
but not limited to Section 12(c) of the Subscription Agreement.
2.2 METHOD OF CONVERSION. This Note may be converted by the Holder
in whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
2.3 MAXIMUM CONVERSION. The Holder 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 Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Borrower 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 Holder shall not be limited to aggregate conversions of only
9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay
any installment of principal, interest or other sum due under this Note when due
and such failure continues for a period of ten (10) days after the due date. The
ten (10) day period described in this Section 3.1 is the same ten (10) day
period described in Section 1.1 hereof.
3.2 BREACH OF COVENANT. The Borrower breaches any material covenant
or other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.
3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for
the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 JUDGMENTS. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.
3.7 DELISTING. Delisting of the Common Stock from the OTC Bulletin
Board ("OTCBB") or such other principal exchange on which the Common Stock is
listed for trading; failure to comply with the requirements for continued
listing on the OTCBB for a period of three consecutive trading days; or
notification from the OTC Bulletin Board or any Principal Market that the
Borrower is not in compliance with the conditions for such continued listing on
the OTCBB or other Principal Market.
3.8 STOP TRADE. An SEC or judicial stop trade order or Principal
Market trading suspension that lasts for five or more consecutive trading days.
3.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 NON-REGISTRATION EVENT. The occurrence of a Non-Registration
Event as described in Section 10.4 of the Subscription Agreement.
3.11 REVERSE SPLITS. The Borrower effectuates a reverse split of its
common stock without ten days prior written notice to the Holder.
3.12 SECURITY AGREEMENT. An "Event of Default" as defined in the
Security Agreement dated at or about the date of this Note delivered by Borrower
to Holder (the "Security Agreement").
3.13 CROSS DEFAULT. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement, in each case, which is not cured after any required
notice and/or cure period.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.2 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 Borrower to: Bravo! Foods
International Corp., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the name, address and telecopy number set forth on the front
page of this Note, with a copy by telecopier only to Kevin Cody, telecopier:
(816) 801-6517.
4.3 AMENDMENT PROVISION. The term "Note" and all reference thereto,
as used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this
Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Missouri. 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 Missouri or in the
federal courts located in the state of Missouri. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 MAXIMUM PAYMENTS. Nothing contained herein 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 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 Borrower to the Holder and thus refunded to the
Borrower.
4.8 REDEMPTION. This Note may not be redeemed or paid before or
after the Maturity Date except as described in the Subscription Agreement.
4.9 SHAREHOLDER STATUS. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have the right of a shareholder of the Borrower with
respect to the Shares of Common Stock to be received after delivery by the
Holder of a Conversion Notice to the Borrower.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer on this ____ day of November, 2003.
BRAVO! FOODS INTERNATIONAL CORP.
By:________________________________
Name: Roy Warren
Title: Chief Executive Officer
WITNESS:
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by BRAVO! FOODS INTERNATIONAL
CORP. on November ___, 2003 into Shares of Common Stock of BRAVO! FOODS
INTERNATIONAL CORP. (the "Borrower") according to the conditions set forth in
such Note, as of the date written below.
Date of Conversion:____________________________________________________________
THIS SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of April 2, 2004,
by and among Bravo! Foods International Corp., a Delaware corporation (the
"Company"), and the subscribers identified on the signature pages hereto (each a
"Subscriber" and collectively "Subscribers" if more than one).
WHEREAS, the Company and the Subscribers 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") 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
Subscribers, as provided herein, and the Subscribers, in the aggregate, shall
purchase $500,000 (the "Purchase Price") of principal amount of 10% 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 $0.10 ("Conversion Price"); and share purchase
warrants (the "Warrants") to purchase shares of Common Stock (the "Warrant
Shares"). The Conversion Price is subject to adjustment as described in the Note
and this Agreement. The Notes, shares of Common Stock issuable upon conversion
of the Notes (the "Shares"), the Warrants and the Warrant Shares are
collectively referred to herein as the "Securities"; and
WHEREAS, the aggregate proceeds of the sale of the Notes and the Warrants
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 Subscribers hereby
agree as follows:
1. CLOSING. Subject to the satisfaction or waiver of the terms and
conditions of this Agreement, on the Closing Date, each Subscriber shall
purchase and the Company shall sell to each Subscriber a Note in the principal
amount designated on the signature page hereto. The aggregate amount of the
Notes to be purchased by the Subscribers 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. ESCROW ARRANGEMENTS; FORM OF PAYMENT. Upon execution hereof by the
parties and pursuant to the terms of the Escrow Agreement, each 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.
3. WARRANTS. On the Closing Date, the Company will issue Warrants to the
Subscribers in the form of EXHIBIT B hereto. Six (6) Warrants will be issued for
each one dollar ($1.00) of Purchase Price paid on the Closing Date ("Warrants").
The per Warrant Share exercise price to acquire a Warrant Share upon exercise of
Warrant shall be $.15. The Warrants will be exercisable for five (5) years after
the Closing Date.
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4. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. Each Subscriber hereby
represents and warrants to and agrees with the Company as to such Subscriber
that:
(a) INFORMATION ON COMPANY. The Subscriber has been furnished with
or has obtained from the EDGAR Website of the Securities and Exchange Commission
(the "Commission") the Company's Form 10-KSB for the year ended December 31,
2002 as filed with the Commission, together with all subsequently filed Forms
10-QSB, 8-K, and filings made with the Commission available at the EDGAR 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 and exercise of any of the Warrants, an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (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 AND WARRANTS. On Closing Date, the Subscriber
will purchase the Notes and Warrants 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 and the Warrant Shares shall bear the
following or similar legend:
2
"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."
(f) WARRANTS LEGEND. The Warrants shall bear the following or
similar legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
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."
(g) 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."
(h) 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.
(i) 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.
3
(j) CORRECTNESS OF REPRESENTATIONS. Each 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.
(k) 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 each 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 D, 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.
(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
Warrants, 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.
4
(f) NO VIOLATION OR CONFLICT. Assuming the representations and
warranties of the Subscribers 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
(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 upon exercise of the Warrants, the
Shares and Warrant 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 each Subscriber complies with the prospectus
delivery requirements of the 1933 Act);
5
(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.
(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.
6
(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 1933 Act) 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,
2002 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).
(r) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since December 31, 2002,
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 and exercise of the Warrants 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.
7
(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 1933 Act) 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 Subscribers 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
Subscribers 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 Subscribers. 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 and exercise of the Warrants and
resale of the Warrant Shares.
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.
8
(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.
(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.
9
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 or exercise the Warrant in whole or in part,
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 or exercise of all or part of said Warrant 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, or aggregate
purchase price of the Warrant Shares 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.
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.
10
7.6 ADJUSTMENTS. The Conversion Price and amount of Shares issuable upon
conversion of the Notes and exercise of the Warrants 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. The Company will have the option of redeeming
any outstanding Notes ("Optional Redemption") by paying to the Subscriber a sum
of money equal to one hundred and twenty percent (120%) of the principal amount
of the portion of the Note together with accrued but unpaid interest thereon and
any and all other sums due, accrued or payable to the Subscriber arising under
this Subscription Agreement, Note or any other document delivered herewith
("Redemption Amount") outstanding on the day notice of redemption ("Notice of
Redemption) is given to a Subscriber ("Redemption Date"). The Subscriber may
elect within ten (10) business days after receipt of a Notice of Redemption to
give the Company Notice of Conversion in connection with some or all of the Note
principal and interest which was the subject of the Notice of Redemption. A
Notice of Redemption must be accompanied by a certificate signed by the chief
executive officer or chief financial officer of the Company stating that the
Company has on deposit and segregated ready funds equal to the Redemption
Amount. The Redemption Amount must be paid in good funds to the Subscriber not
later than the twelfth (12th) business day after the Redemption Date ("Optional
Redemption Payment Date"). In the event the Company fails to pay the Redemption
Amount by the Optional Redemption Payment Date, then the Redemption Notice will
be null and void and the Company will thereafter have no further right to effect
an Optional Redemption, and at the Subscription's election, the Redemption
Amount will be deemed a Mandatory Redemption Payment and the Optional Redemption
Payment Date will be deemed a Mandatory Redemption Payment Date. Such failure
will also be deemed an Event of Default under the Note. A Notice of Redemption
may be given by the Company, provided an Event of Default, as described in the
Note has not occurred and is continuing. Note proceeds may not be used to effect
an Optional Redemption.
8. LEGAL FEE/ESCROW AGENT AND FINDER'S FEE.
(a) LEGAL FEE/ESCROW AGENT. The Company shall pay to Grushko &
Mittman, P.C., a fee of $20,000 ("Legal Fees") as reimbursement for services
rendered in connection with this Agreement and the purchase and sale of the
Notes and the Warrants (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 each 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. and
Bi-Coastal Consulting Corp. (each 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,
each Subscriber is providing indemnification only for such Subscriber's own
actions and not for any action of any other Subscriber. Each Subscriber's
liability hereunder is several and not joint. The Company agrees that it will
pay the Finders a fee equal to 10% of the Purchase Price ("Finder's Fees"). The
Finders will also be paid by the Company in the aggregate 10% of the proceeds
received by the Company from exercise of the Warrants ("Warrant Exercise
Compensation"). The Warrant Exercise Compensation will be payable by the Company
to the Finders within ten days after each receipt by the Company of Warrant
Exercise proceeds. The Company represents that there are no other parties
entitled to receive fees, commissions, or similar payments in connection with
the Offering except the Finders. The Finders' compensation will be allocated
between the finders as set forth on SCHEDULE 8 hereto.
11
(c) The Finder's Fees payable to the Finders in connection with the
Purchase Price shall be payable by delivery on the Closing Date of Notes
identical to the Notes issuable to the Subscribers. The Common Stock deliverable
in payment of Finder's Fees is referred to as "Finder's Shares." 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 Subscribers are
hereby also made and granted to the Finders in respect of the Finder's Notes and
Shares issuable upon conversion of the Finder's Note. References to Note or
Notes herein shall include the Finder's Notes and references to Shares shall
include Shares issuable upon conversion of the Finder's Notes.
9. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Subscribers as follows:
(a) STOP ORDERS. The Company will advise the Subscribers, 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 and the Warrant Shares 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 so long as any Warrants are outstanding. 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 Subscribers 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 Subscribers and promptly provide copies thereof to Subscriber.
(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 and Warrant Shares have been resold or transferred by all the
Subscribers 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 and the Warrant Shares by each
Subscriber or at least two (2) years after the Warrants have been exercised, 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 Subscribers holding a majority of the Shares and Warrant 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 each Subscriber promptly after
such filing.
12
(e) USE OF PROCEEDS. The Company undertakes to use the proceeds of
the Subscribers' funds for working capital.
(f) RESERVATION. The Company undertakes to reserve, pro rata on
behalf of each holder of a Note or Warrant, from its authorized but unissued
common stock, at all times that Notes or Warrants 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, and one common share for each Warrant Share. 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 and
Warrant Shares have been resold or transferred by all the Subscribers 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 and
Warrant Shares have been resold or transferred by all the Subscribers 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.
(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
and Warrant Shares have been resold or transferred by all the Subscribers
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.
13
(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 and Warrant Shares have been resold or transferred by all the
Subscribers 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 and Warrant Shares have been resold or transferred by all the Subscribers
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 and
Warrant Shares have been resold or transferred by all the Subscribers 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 and Warrant Shares have been resold or transferred by
all the Subscribers 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 Subscribers
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 Subscribers
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) BLACKOUT. The Company undertakes and covenants that until the
first to occur of (i) until one hundred and eighty (180) days after the Actual
Effective Date during which such Registration Statement shall be current and
available for use in connection with the unrestricted public resale of the
Shares and Warrant Shares ("Exclusion Period"), or (ii) until all the Shares and
Warrant Shares have been resold pursuant to such registration statement, the
Company will not enter into any acquisition, merger, exchange or sale or other
transaction that could have the effect of delaying the effectiveness of any
pending registration statement or causing an already effective registration
statement to no longer be effective or current.
10. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING INDEMNIFICATION.
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend the Subscribers, the Subscribers' 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.
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(b) Each 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. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing one hundred and
twenty-one (121) days after the Closing Date, but not later than three years
after the Closing Date ("Request Date"), the Company, upon a written request
therefor from any record holder or holders of more than 50% of the Shares issued
and issuable upon conversion of the Notes, Finder's Note, and Warrant Shares,
shall prepare and file with the Commission a registration statement under the
1933 Act covering the Shares, the Shares issuable upon conversion of the
Finder's Note and Warrant Shares (collectively "Registrable Securities") which
are the subject of such request. For purposes of Sections 11.1(i) and 11.1(ii),
Registrable Securities shall not include Securities which are registered for
resale in an effective registration statement or included for registration in a
pending registration statement, or which have been issued without further
transfer restrictions after a sale or transfer pursuant to Rule 144 under the
1933 Act. In addition, upon the receipt of such request, the Company shall
promptly give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall include in
such registration statement Registrable Securities for which it has received
written requests within 10 days after the Company gives such written notice.
Such other requesting record holders shall be deemed to have exercised their
demand registration right under this Section 11.1(i).
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(ii) 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 S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscribers 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(ii) 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(ii) without thereby incurring any liability to
the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 11.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account and the Company actually
does file such other registration statement, such written request shall be
deemed to have been given pursuant to Section 11.1(ii) rather than Section
11.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 11.1(ii).
(iv) The Company shall file with the Commission not later than sixty
(60) days after the Closing Date (the "Filing Date"), and cause to be declared
effective within one hundred and twenty (120) days after the Closing Date (the
"Effective Date"), a Form SB-2 registration statement (the "Registration
Statement") (or such other form that it is eligible to use) in order to register
the Registrable Securities for resale and distribution under the 1933 Act. The
Company will register not less than a number of shares of common stock in the
aforedescribed registration statement that is equal to 150% of the Shares
issuable upon conversion of the Notes and Finder's Notes, all the Warrant Shares
issuable upon exercise of the Warrants. The Registrable Securities shall be
reserved and set aside exclusively for the benefit of each Subscriber, and not
issued, employed or reserved for anyone other than each Subscriber. Such
Registration Statement will immediately be amended or additional registration
statements will be immediately filed by the Company as necessary to register
additional shares of Common Stock to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 11.1(iv) except as disclosed on
Schedule 11.1, without the written consent of Subscriber. In the event the
registration statement described in Section 11.1(iv) is declared effective
within thirty (30) days of the Effective Date, then Liquidated Damages will not
be payable for the thirty day period commencing on the Effective Date. It shall
be deemed a Non-Registration Event if at any time after the Effective Date the
Company has registered for unrestricted resale on behalf of the Subscriber fewer
than 125% of the amount of Common Shares issuable upon full conversion of all
sums due under the Notes, Finder's Notes and Warrants.
11.2. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Section 11.1(i), 11.1(ii), or (iv) 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 11, 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 Registrable Securities copies of all filings and Commission
letters of comment including a notification by confirmed telecopier and
overnight express delivery of the declaration of effectiveness of any
Registration Statement within twenty-four (24) hours of such effectiveness;
16
(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.
17
11.4. NON-REGISTRATION EVENTS. The Company and the Subscribers agree that
the Seller will suffer damages if any registration statement required under
Section 11.1(iv) above is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) 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) the registration
statement on Form SB-2 or such other form described in Section 11.1(iv) is not
filed on or before the Filing Date or is not declared effective on or before the
sooner of the Effective Date, or within three (3) business days of receipt by
the Company of a written or oral communication from the Commission that the
Registration Statement will not be reviewed or that the Commission has no
further comments, (ii) if the registration statement described in Sections
11.1(i) or 11.1(ii) is not filed within 60 days after such written request, or
is not declared effective within 120 days after such written request, or (iii)
any registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
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), (ii) and (iii) 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 actually paid "Purchase Price"
(as defined in the Warrants) of Warrant Shares and Finder's Shares valued at a
purchase price equal to the Finder's Fee, 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.
18
(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.
19
(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 1933
Act) 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.
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(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 each 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 and Warrant Shares subject to such default at a price per share
equal to 130% of the Purchase Price of such Shares and Warrant 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
during the Exclusion Period 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 each Subscriber holding Notes or Shares, then the
Company shall issue, for each such occasion, additional shares of Common Stock
to each 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 or
Warrant Shares still owned by the Subscriber) is equal to such other lower price
per share and the Conversion Price and Warrant exercise 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 then Per Share Purchase Price. 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.
21
(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
purchase and/or 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 each 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, (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 & Mittman, P.C., 551
Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575, and (iii) if to the Finders, to: the addresses and telecopier numbers
indicated on Schedule 8 hereto.
(b) CLOSING. The consummation of the transactions contemplated
herein ("Closing") shall take place at the offices of Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of
all conditions to Closing set forth in this Agreement.
(c) 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 Subscribers
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.
22
(d) 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.
(e) 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.
(f) 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(e) 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.
(g) INDEPENDENT NATURE OF SUBSCRIBERS' OBLIGATIONS AND RIGHTS. The
obligations of each Subscriber hereunder are several and not joint with the
obligations of any other Subscriber hereunder, and no such Subscriber shall be
responsible in any way for the performance of the obligations of any other
hereunder.
(h) 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]
23
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: Roy G. Warren
Title: CEO
Dated: April 2, 2004
------------------------ ------------------------- -----------------------------
SUBSCRIBER PURCHASE PRICE WARRANTS ISSUABLE ON CLOSING
DATE
------------------------ ------------------------- -----------------------------
$250,000.00 1,500,000
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: Roy G. Warren
Title: CEO
Dated: April 2, 2004
------------------------ ------------------------- -----------------------------
SUBSCRIBER PURCHASE PRICE WARRANTS ISSUABLE ON CLOSING
DATE
------------------------ ------------------------- -----------------------------
$250,000.00 1,500,000
(Signature) LONGVIEW FUND LP
1325 Howard Avenue #422
Burlingame, CA 94010
Attn: S. Michael Rudolph
Fax: (650) 343-2506
LIST OF EXHIBITS AND SCHEDULES
Exhibit A Form of Escrow Agreement
Exhibit B Form of Warrant
Exhibit C Form of Legal Opinion
Exhibit D Disclosure Schedule
Schedule 5(d) Additional Issuances
Schedule 5(q) Undisclosed Liabilities
Schedule 5(s) Capitalization
Schedule 8 Finders
Schedule 11.1 Other Securities to be Registered
SCHEDULE 8
FINDERS
-------------------------------- ---------------------------------------------------------
FINDER COMPENSATION
-------------------------------- ---------------------------------------------------------
Libra Finance, S.A. Finder's Fees and Warrant Exercise Compensation payable
P.O. Box 4603 in connection with investment by Alpha Capital
Zurich, Switzerland Aktiengesellschaft
Fax: 011-411-201-6262
-------------------------------- ---------------------------------------------------------
Bi-Coastal Consulting Corp. Finder's Fees and Warrant Exercise Compensation payable
25 Longview Court in connection with investment by Longview Fund LP
Hillsborough, CA 94010
Fax: (650) 343-2506
-------------------------------- ---------------------------------------------------------
EXHIBIT 4.18
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.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BRAVO! FOODS INTERNATIONAL CORP., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to ALPHA
CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein,
Fax: 011-42-32323196 (the "Holder") or order, without demand, the sum of Two
Hundred and Fifty Thousand Dollars ($250,000.00) ("Principal"), with simple
interest accruing at the annual rate of ten percent (10%).
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 INTEREST RATE. Simple interest payable on this Note shall accrue at
the annual rate of ten percent (10%).
1.2 MONTHLY Payments. Monthly payments will be due and payable in equal
monthly installments on the first day of each month commencing November 1, 2004
until October 1, 2005 ("Maturity Date"). Each monthly payment will be
accompanied by an amount equal to one-fifth of the Principal ("Premium"). On the
Maturity Date, all outstanding principal, interest and Premium will be due and
payable. In the event the Company's $.001 par value common stock ("Common
Stock") has closing prices of higher than $0.20 as reported by Bloomberg L.P.
for the OTC Bulletin Board for the five (5) trading days preceding a monthly
payment due date ("Lookback Period"), then the monthly payment first due after
the Lookback Period shall be deferred, at the Company's option, until the
Maturity Date.
1.3 MANNER OF Payment. Borrower may elect to pay sums due on this Note on
a monthly due date or the Maturity Date by delivering registered Common Stock in
lieu of cash. Such Common Stock will be valued at the average closing price of
the Common Stock during the Lookback Period immediately preceding the relevant
payment due date.
1
1.4 CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred (whether or not such Event of
Default is continuing), the Borrower may not pay this Note on or after the
Maturity Date, without the consent of the Holder.
1.5 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock as set forth below.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right from and after the date of the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid Principal portion of this Note, accrued
interest and Premium, at the election of the Holder (the date of giving of such
notice of conversion being a "Conversion Date") into fully paid and
nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein. Upon delivery to the Borrower of a Notice of Conversion as
described in Section 7 of the Subscription Agreement of the Holder's written
request for conversion, Borrower shall issue and deliver to the Holder within
three business days from the Conversion Date ("Delivery Date") that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. At the election of the Holder, the Borrower will deliver accrued
but unpaid interest on the Note and Premium in the manner provided in Section
1.2 through the Conversion Date directly to the Holder on or before the Delivery
Date (as defined in the Subscription Agreement). The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note, interest and/or Premium to
be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be $0.10 ("Maximum Base Price").
(c) The Maximum Base Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
2
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. So long as this Note is outstanding, if the
Borrower shall issue any shares of Common Stock except for the employee stock
options, or in connection with the exercise of Warrants, options or upon the
conversion of convertible instruments outstanding on the issue date of this Note
and as described in the Borrower's Reports (as defined in the Subscription
Agreement) for a consideration less than the Fair Market Value (as defined in
Section 2(c)(E) below) for such shares at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Conversion Price. For purposes of this
adjustment, the issuance of any security of the Borrower 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 an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
E. For purposes of Section 2.1(c)(D) above, Fair Market Value
of a share of Common Stock as of a particular date (the "Determination Date")
shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair
Market Value of a share of Common Stock as of a Determination Date shall mean:
(i) If the Borrower's Common Stock is traded on an
exchange or is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market System,
the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
3
(ii) If the Borrower's Common Stock is not traded on an
exchange or on the NASDAQ National Market System, the NASDAQ
SmallCap Market or the American Stock Exchange, Inc., but is traded
in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately
preceding the Determination Date.
(iii) Except as provided in clause (d) below, if the
Borrower's Common Stock is not publicly traded, then as the Holder
and the Borrower agree or in the absence of agreement by arbitration
in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass
on the matter to be decided.
(iv) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Borrower's
charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation
under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of all
of the Warrants are outstanding at the Determination Date.
(d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
(f) The terms of this Note are modifiable by the Holder pursuant to
but not limited to Section 12(c) of the Subscription Agreement.
2.2 METHOD OF CONVERSION. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
2.3 MAXIMUM CONVERSION. The Holder 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 Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Borrower 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 Holder shall not be limited to aggregate conversions of only
9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
4
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of Principal,
interest and Premium then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any
installment of Principal, interest, Premium or other sum due under this Note
when due and such failure continues for a period of ten (10) days after the due
date. The ten (10) day period described in this Section 3.1 is the same ten (10)
day period described in Section 1.1 hereof.
3.2 BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.
3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation
or warranty of the Borrower made herein, in the Subscription Agreement, or in
any agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading in any material respect as of
the date made and the Closing Date.
3.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.
3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within 45 days of initiation.
3.7 DELISTING. Delisting of the Common Stock from the OTC Bulletin Board
("OTCBB") or such other principal exchange on which the Common Stock is listed
for trading; failure to comply with the requirements for continued listing on
the OTCBB for a period of three consecutive trading days; or notification from
the OTC Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the OTCBB or other
Principal Market.
5
3.8 STOP TRADE. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.
3.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 NON-REGISTRATION EVENT. The occurrence of a Non-Registration Event as
described in Section 11.4 of the Subscription Agreement.
3.11 REVERSE SPLITS. The Borrower effectuates a reverse split of its
common stock without ten days prior written notice to the Holder.
3.12 CROSS DEFAULT. A default by the Borrower first occurring after the
date of this Note of a material term, covenant, warranty or undertaking of any
other agreement to which the Borrower and Holder are parties, or the initial
occurrence after the date of this Note of a material event of default under any
such other agreement, in each case, which is not cured after any required notice
and/or cure period.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 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 Borrower to: Bravo! Foods
International Corp., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the name, address and telecopy number set forth on the front
page of this Note, with a copy by telecopier only to Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
6
4.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. 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. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 MAXIMUM PAYMENTS. Nothing contained herein 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 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 Borrower to the Holder and thus refunded to the
Borrower.
4.8 REDEMPTION. This Note may not be redeemed or paid before or after the
Maturity Date except as described in the Subscription Agreement.
4.9 SHAREHOLDER STATUS. The Holder shall not have rights as a shareholder
of the Borrower with respect to unconverted portions of this Note. However, the
Holder will have the right of a shareholder of the Borrower with respect to the
Shares of Common Stock to be received after delivery by the Holder of a
Conversion Notice to the Borrower.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer on this 2nd day of April, 2004.
BRAVO! FOODS INTERNATIONAL CORP.
By:________________________________
Name: Roy G. Warren
Title: CEO
WITNESS:
Roy D. Toulan, Jr.
8
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by BRAVO! FOODS INTERNATIONAL
CORP. on April ___, 2004 into Shares of Common Stock of BRAVO! FOODS
INTERNATIONAL CORP. (the "Borrower") according to the conditions set forth in
such Note, as of the date written below.
Date of Conversion:____________________________________________________________
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.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, BRAVO! FOODS INTERNATIONAL CORP., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay to LONGVIEW
FUND LP, 1325 Howard Avenue #422, Burlingame, CA 94010, Fax: (650) 343-2506 (the
"Holder") or order, without demand, the sum of Two Hundred and Fifty Thousand
Dollars ($250,000.00) ("Principal"), with simple interest accruing at the annual
rate of ten percent (10%).
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 INTEREST RATE. Simple interest payable on this Note shall accrue at
the annual rate of ten percent (10%).
1.2 MONTHLY Payments. Monthly payments will be due and payable in equal
monthly installments on the first day of each month commencing November 1, 2004
until October 1, 2005 ("Maturity Date"). Each monthly payment will be
accompanied by an amount equal to one-fifth of the Principal ("Premium"). On the
Maturity Date, all outstanding principal, interest and Premium will be due and
payable. In the event the Company's $.001 par value common stock ("Common
Stock") has closing prices of higher than $0.20 as reported by Bloomberg L.P.
for the OTC Bulletin Board for the five (5) trading days preceding a monthly
payment due date ("Lookback Period"), then the monthly payment first due after
the Lookback Period shall be deferred, at the Company's option, until the
Maturity Date.
1.3 MANNER OF Payment. Borrower may elect to pay sums due on this Note on
a monthly due date or the Maturity Date by delivering registered Common Stock in
lieu of cash. Such Common Stock will be valued at the average closing price of
the Common Stock during the Lookback Period immediately preceding the relevant
payment due date.
1
1.4 CONVERSION PRIVILEGES. The Conversion Privileges set forth in Article
II shall remain in full force and effect immediately from the date hereof and
until the Note is paid in full regardless of the occurrence of an Event of
Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred (whether or not such Event of
Default is continuing), the Borrower may not pay this Note on or after the
Maturity Date, without the consent of the Holder.
1.5 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum shall apply to the
amounts owed hereunder.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock as set forth below.
2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.
(a) The Holder shall have the right from and after the date of the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid Principal portion of this Note, accrued
interest and Premium, at the election of the Holder (the date of giving of such
notice of conversion being a "Conversion Date") into fully paid and
nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein. Upon delivery to the Borrower of a Notice of Conversion as
described in Section 7 of the Subscription Agreement of the Holder's written
request for conversion, Borrower shall issue and deliver to the Holder within
three business days from the Conversion Date ("Delivery Date") that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. At the election of the Holder, the Borrower will deliver accrued
but unpaid interest on the Note and Premium in the manner provided in Section
1.2 through the Conversion Date directly to the Holder on or before the Delivery
Date (as defined in the Subscription Agreement). The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal of the Note, interest and/or Premium to
be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be $0.10 ("Maximum Base Price").
(c) The Maximum Base Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey all or substantially all
its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
2
B. Reclassification, etc. If the Borrower at any time shall,
by reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.
D. Share Issuance. So long as this Note is outstanding, if the
Borrower shall issue any shares of Common Stock except for the employee stock
options, or in connection with the exercise of Warrants, options or upon the
conversion of convertible instruments outstanding on the issue date of this Note
and as described in the Borrower's Reports (as defined in the Subscription
Agreement) for a consideration less than the Fair Market Value (as defined in
Section 2(c)(E) below) for such shares at the time of such issue, then, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Borrower upon such issue of additional
shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Conversion Price. For purposes of this
adjustment, the issuance of any security of the Borrower 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 an adjustment to the Conversion
Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.
E. For purposes of Section 2.1(c)(D) above, Fair Market Value
of a share of Common Stock as of a particular date (the "Determination Date")
shall mean the Fair Market Value of a share of the Borrower's Common Stock. Fair
Market Value of a share of Common Stock as of a Determination Date shall mean:
(i) If the Borrower's Common Stock is traded on an
exchange or is quoted on the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") National Market System,
the NASDAQ SmallCap Market or the American Stock Exchange, Inc.,
then the closing or last sale price, respectively, reported for the
last business day immediately preceding the Determination Date.
3
(ii) If the Borrower's Common Stock is not traded on an
exchange or on the NASDAQ National Market System, the NASDAQ
SmallCap Market or the American Stock Exchange, Inc., but is traded
in the over-the-counter market, then the mean of the closing bid and
asked prices reported for the last business day immediately
preceding the Determination Date.
(iii) Except as provided in clause (d) below, if the
Borrower's Common Stock is not publicly traded, then as the Holder
and the Borrower agree or in the absence of agreement by arbitration
in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen
from a panel of persons qualified by education and training to pass
on the matter to be decided.
(iv) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a
liquidation, dissolution or winding up pursuant to the Borrower's
charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such
liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation
under the charter, assuming for the purposes of this clause (d) that
all of the shares of Common Stock then issuable upon exercise of all
of the Warrants are outstanding at the Determination Date.
(d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. Borrower agrees that its issuance
of this Note shall constitute full authority to its officers, agents, and
transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.
(f) The terms of this Note are modifiable by the Holder pursuant to
but not limited to Section 12(c) of the Subscription Agreement.
2.2 METHOD OF CONVERSION. This Note may be converted by the Holder in
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.
2.3 MAXIMUM CONVERSION. The Holder 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 Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) 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 Holder and its affiliates of more than 9.99% of the
outstanding shares of Common Stock of the Borrower 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 Holder shall not be limited to aggregate conversions of only
9.99% and aggregate conversion by the Holder may exceed 9.99%. The Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section 2.3 will limit any conversion hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the conversion
limitation described in this Section 2.3 upon and effective after 61 days prior
written notice to the Borrower. The Holder may allocate which of the equity of
the Borrower deemed beneficially owned by the Holder shall be included in the
9.99% amount described above and which shall be allocated to the excess above
9.99%.
4
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of Principal,
interest and Premium then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any
installment of Principal, interest, Premium or other sum due under this Note
when due and such failure continues for a period of ten (10) days after the due
date. The ten (10) day period described in this Section 3.1 is the same ten (10)
day period described in Section 1.1 hereof.
3.2 BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement or this Note in any
material respect and such breach, if subject to cure, continues for a period of
ten (10) business days after written notice to the Borrower from the Holder.
3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material representation
or warranty of the Borrower made herein, in the Subscription Agreement, or in
any agreement, statement or certificate given in writing pursuant hereto or in
connection therewith shall be false or misleading in any material respect as of
the date made and the Closing Date.
3.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.
3.5 JUDGMENTS. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets for
more than $50,000, and shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) days.
3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower and if instituted against
Borrower are not dismissed within 45 days of initiation.
3.7 DELISTING. Delisting of the Common Stock from the OTC Bulletin Board
("OTCBB") or such other principal exchange on which the Common Stock is listed
for trading; failure to comply with the requirements for continued listing on
the OTCBB for a period of three consecutive trading days; or notification from
the OTC Bulletin Board or any Principal Market that the Borrower is not in
compliance with the conditions for such continued listing on the OTCBB or other
Principal Market.
5
3.8 STOP TRADE. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.
3.9 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.
3.10 NON-REGISTRATION EVENT. The occurrence of a Non-Registration Event as
described in Section 11.4 of the Subscription Agreement.
3.11 REVERSE SPLITS. The Borrower effectuates a reverse split of its
common stock without ten days prior written notice to the Holder.
3.12 CROSS DEFAULT. A default by the Borrower first occurring after the
date of this Note of a material term, covenant, warranty or undertaking of any
other agreement to which the Borrower and Holder are parties, or the initial
occurrence after the date of this Note of a material event of default under any
such other agreement, in each case, which is not cured after any required notice
and/or cure period.
ARTICLE IV
MISCELLANEOUS
4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
Holder hereof in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 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 Borrower to: Bravo! Foods
International Corp., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the name, address and telecopy number set forth on the front
page of this Note, with a copy by telecopier only to Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number: (212)
697-3575.
6
4.3 AMENDMENT PROVISION. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
4.4 ASSIGNABILITY. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns.
4.5 COST OF COLLECTION. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
4.6 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of New York. 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. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs.
4.7 MAXIMUM PAYMENTS. Nothing contained herein 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 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 Borrower to the Holder and thus refunded to the
Borrower.
4.8 REDEMPTION. This Note may not be redeemed or paid before or after the
Maturity Date except as described in the Subscription Agreement.
4.9 SHAREHOLDER STATUS. The Holder shall not have rights as a shareholder
of the Borrower with respect to unconverted portions of this Note. However, the
Holder will have the right of a shareholder of the Borrower with respect to the
Shares of Common Stock to be received after delivery by the Holder of a
Conversion Notice to the Borrower.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by an authorized officer on this 2nd day of April, 2004.
BRAVO! FOODS INTERNATIONAL CORP.
By:________________________________
Name: Roy G. Warren
Title: CEO
WITNESS:
Roy D. Toulan, Jr.
8
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by BRAVO! FOODS INTERNATIONAL
CORP. on April ___, 2004 into Shares of Common Stock of BRAVO! FOODS
INTERNATIONAL CORP. (the "Borrower") according to the conditions set forth in
such Note, as of the date written below.
Date of Conversion:_____________________________________________________________
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 1,500,000 shares of Common Stock of
Bravo! Foods International Corp. (subject to adjustment
as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2003-APR-001 Issue Date: April 2, 2004
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Delaware (the "Company"), hereby certifies that, for value
received, ALPHA CAPITAL AKTIENGESELLSCHAFT, Pradafant 7, 9490 Furstentums,
Vaduz, Lichtenstein, Fax: 011-42-32323196 (the "Holder"), or its assigns, is
entitled, subject to the terms set forth below, to purchase from the Company
from and after the Issue Date and at any time or from time to time before 5:00
p.m., New York time, through five (5) years after such date (the "Expiration
Date"), up to 1,500,000 fully paid and nonassessable shares of Common Stock (as
hereinafter defined), $.001 par value per share, of the Company at a per share
purchase price of $0.15. The aforedescribed purchase price per share, as
adjusted from time to time as herein provided, is referred to herein as the
"Purchase Price". The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein. The Company may
reduce the Purchase Price without the consent of the Holder. Capitalized terms
used and not otherwise defined herein shall have the meanings set forth in that
certain subscription agreement (the "Subscription Agreement"), dated at or about
April 2, 2004, between the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to
be issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may employ the cashless exercise feature described
above only during the pendency of a Non-Registration Event as described in
Section 11 of the Subscription Agreement.
(d) For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
4
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. SHARE ISSUANCE. Until the Expiration Date, if
the Company shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete exercise of this
Warrant for a consideration less than the Purchase Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issue, the Purchase Price shall be reduced to such other lower issue price. For
purposes of this adjustment, the issuance of any security or debt instrument of
the Company carrying the right to convert such security or debt instrument into
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Purchase Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option. The
reduction of the Purchase Price described in this Section 3.4 is in addition to
the other rights of the Holder described in the Subscription Agreement.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
6
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder 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%.
11. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the address and telecopier number listed on the first
paragraph of this Warrant, with a copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name: Roy G. Warren
Title: CEO
Witness:
Roy D. Toulan, Jr.
8
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
9
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
(Signature must conform to name of holder
as specified on the face of the Warrant)
Signed in the presence of:
(Name)
(Address)
ACCEPTED AND AGREED:
[TRANSFEREE]
(Address)
(Name)
10
EXHIBIT 4.21
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO BRAVO! FOODS INTERNATIONAL CORP. THAT SUCH REGISTRATION IS NOT
REQUIRED.
Right to Purchase 1,500,000 shares of Common Stock of Bravo!
Foods International Corp. (subject to adjustment as provided
herein)
COMMON STOCK PURCHASE WARRANT
No. 2003-APR-002 Issue Date: April 2, 2004
BRAVO! FOODS INTERNATIONAL CORP., a corporation organized under the laws
of the State of Delaware (the "Company"), hereby certifies that, for value
received, to LONGVIEW FUND LP, 1325 Howard Avenue #422, Burlingame, CA 94010,
Fax: (650) 343-2506 (the "Holder"), or its assigns, is entitled, subject to the
terms set forth below, to purchase from the Company from and after the Issue
Date and at any time or from time to time before 5:00 p.m., New York time,
through five (5) years after such date (the "Expiration Date"), up to 1,500,000
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.001 par value per share, of the Company at a per share purchase price of
$0.15. The aforedescribed purchase price per share, as adjusted from time to
time as herein provided, is referred to herein as the "Purchase Price". The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein. The Company may reduce the Purchase
Price without the consent of the Holder. Capitalized terms used and not
otherwise defined herein shall have the meanings set forth in that certain
subscription agreement (the "Subscription Agreement"), dated at or about April
2, 2004, between the Company and the Holder.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Company" shall include Bravo! Foods International Corp. and
any corporation which shall succeed or assume the obligations of Bravo! Foods
International Corp. hereunder.
(b) The term "Common Stock" includes (a) the Company's Common Stock, $.001
par value per share, as authorized on the date of the Subscription Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (even if the
right so to vote has been suspended by the happening of such a contingency) and
(c) any other securities into which or for which any of the securities described
in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
1
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after the
Issue Date through and including the Expiration Date, the Holder hereof shall be
entitled to receive, upon exercise of this Warrant in whole in accordance with
the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. FULL EXERCISE. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise, to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. PARTIAL EXERCISE. This Warrant may be exercised in part (but
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
Holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of whole shares of Common Stock designated by the Holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the Holder hereof a new Warrant of like tenor, in the name of
the Holder hereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may request, the whole number of shares of Common
Stock for which such Warrant may still be exercised.
1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common Stock
as of a particular date (the "Determination Date") shall mean:
(a) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., then the closing or last sale price,
respectively, reported for the last business day immediately preceding the
Determination Date;
(b) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System, the NASDAQ SmallCap Market or the
American Stock Exchange, Inc., but is traded in the over-the-counter market,
then the average of the closing bid and ask prices reported for the last
business day immediately preceding the Determination Date;
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree,
or in the absence of such an agreement, by arbitration in accordance with the
rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided; or
2
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.
1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or trust
company shall have been appointed as trustee for the Holder of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.
2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter ("Delivery Date"), the Company at its
expense (including the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to the Holder hereof, or as such
Holder (upon payment by such Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. CASHLESS EXERCISE.
(a) If a Registration Statement is effective and the Holder may sell
its Shares of Company Common Stock upon exercise hereof thereunder, this Warrant
may be exercisable in whole or in part for cash only as set forth in Section 1
above. If no such Registration Statement is available, payment upon exercise may
be made at the option of the Holder either in (i) cash or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Common Stock issuable upon
exercise of the Warrants in accordance with Section (b) below or (iii) by a
combination of any of the foregoing methods, for the number of Common Shares
specified in such form (as such exercise number shall be adjusted to reflect any
adjustment in the total number of shares of Common Stock issuable to the holder
per the terms of this Warrant) and the holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable shares of Common Stock (or Other Securities) determined as
provided herein.
3
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, upon consent of the Company, the holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being cancelled) by surrender of this Warrant at the principal
office of the Company together with the properly endorsed Subscription Form in
which event the Company shall issue to the holder a number of shares of Common
Stock computed using the following formula:
X=Y (A-B)
A
Where X= the number of shares of Common Stock to be
issued to the holder
Y= the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being exercised
(at the date of such calculation)
A= the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B= Purchase Price (as adjusted to the date of
such calculation)
(c) The Holder may employ the cashless exercise feature described
above only during the pendency of a Non-Registration Event as described in
Section 11 of the Subscription Agreement.
(d) For purposes of Rule 144 promulgated under the 1933 Act, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
commenced, on the date this Warrant was originally issued pursuant to the
Subscription Agreement.
3. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the Holder of the Warrants after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company (a
"Trustee") having its principal office in New York, NY, as trustee for the
Holder of the Warrants.
4
3.3. CONTINUATION OF TERMS. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the Other Securities and property receivable
on the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such person shall have expressly assumed the terms of this Warrant as
provided in Section 4. In the event this Warrant does not continue in full force
and effect after the consummation of the transaction described in this Section
3, then only in such event will the Company's securities and property (including
cash, where applicable) receivable by the Holder of the Warrants be delivered to
the Trustee as contemplated by Section 3.2.
3.4 SHARE ISSUANCE. SHARE ISSUANCE. Until the Expiration Date, if
the Company shall issue any Common Stock except for the Excepted Issuances (as
defined in the Subscription Agreement), prior to the complete exercise of this
Warrant for a consideration less than the Purchase Price that would be in effect
at the time of such issue, then, and thereafter successively upon each such
issue, the Purchase Price shall be reduced to such other lower issue price. For
purposes of this adjustment, the issuance of any security or debt instrument of
the Company carrying the right to convert such security or debt instrument into
Common Stock or of any warrant, right or option to purchase Common Stock shall
result in an adjustment to the Purchase Price upon the issuance of the
above-described security, debt instrument, warrant, right, or option. The
reduction of the Purchase Price described in this Section 3.4 is in addition to
the other rights of the Holder described in the Subscription Agreement.
4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the Holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be adjusted to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 11 hereof).
5
6. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT; FINANCIAL
STATEMENTS. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.
7. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with applicable
securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the shares of Common Stock. On the surrender for exchange of this
Warrant, with the Transferor's endorsement in the form of Exhibit B attached
hereto (the "Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. REGISTRATION RIGHTS. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in the Subscription Agreement. The terms of the Subscription Agreement are
incorporated herein by this reference. Upon the occurrence of a Non-Registration
Event, or in the event the Company is unable to issue Common Stock upon exercise
of this Warrant that has been registered in a Registration Statement described
in Section 11 of the Subscription Agreement, within the time periods described
in the Subscription Agreement, which Registration Statement must be effective
for the periods set forth in the Subscription Agreement, then upon written
demand made by the Holder, the Company will pay to the Holder of this Warrant,
in lieu of delivering Common Stock, a sum equal to the closing price of the
Company's Common Stock on the principal market or exchange upon which the Common
Stock is listed for trading on the trading date immediately preceding the date
notice is given by the Holder, less the Purchase Price, for each share of Common
Stock designated in such notice from the Holder.
10. MAXIMUM EXERCISE. The Holder shall not be entitled to exercise this
Warrant on an exercise date 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 Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
on such date. For the purposes of 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 Holder shall not be limited to aggregate exercises which
would result in the issuance of more than 9.99%. The restriction described in
this paragraph may be revoked upon sixty-one (61) days prior notice from the
Holder to the Company. The Holder 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%.
6
11. WARRANT AGENT. The Company may, by written notice to the Holder of the
Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing Common
Stock (or Other Securities) on the exercise of this Warrant pursuant to Section
1, exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.
12. TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is transferred on
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. 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., 11300 U.S. Highway 1, Suite 202, North Palm Beach, Florida
33408, Attn: Roy D. Toulan, Jr., Esq., telecopier: (561) 625-1413, and (ii) if
to the Holder, to the address and telecopier number listed on the first
paragraph of this Warrant, with a copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
14. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
7
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.
BRAVO! FOODS INTERNATIONAL CORP.
By:
Name: Roy G. Warren
Title: CEO
Witness:
Roy D. Toulan, Jr.
8
EXHIBIT A
FORM OF SUBSCRIPTION
(to be signed only on exercise of Warrant)
TO: BRAVO! FOODS INTERNATIONAL CORP.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is _________________________________________________
______________________________________ .
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________
(Signature must conform to name of holder
as specified on the face of the Warrant)
(Address)
9
EXHIBIT B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of BRAVO! FOODS INTERNATIONAL CORP. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of BRAVO! FOODS INTERNATIONAL CORP. with full power of substitution in the
premises.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: BRAVO! FOODS INTERNATIONAL CORP.
FORM SB-2 REGISTRATION STATEMENT (FILE NO. 333-_________)
Ladies and Gentlemen:
We refer to the above-captioned registration statement on Form SB-2 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Bravo! Foods International Corp., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission.
We have examined the originals, photocopies, certified copies or other
evidence of such records of the Company, certificates of officers of the Company
and public officials, and other documents as we have deemed relevant and
necessary as a basis for the opinion hereinafter expressed. In such examination,
we have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as certified copies or photocopies and the
authenticity of the originals of such latter documents.
Based on our examination mentioned above, we are of the opinion that the
securities being sold pursuant to the Registration Statement, including
2,150,000 shares of common stock, up to 24,250,000 shares of common stock
underlying convertible debentures and up to 17,750,000 shares of common stock
underlying common stock purchase warrants, are duly authorized and will be, when
issued in the manner described in the Registration Statement, legally and
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm under "Legal Matters" in
the related Prospectus. In giving the foregoing consent, we do not hereby admit
that we are in the category of persons whose consent is required under Section 7
of the Act, or the rules and regulations of the Securities and Exchange
Commission.
/s/ Sichenzia Ross Friedman Ference LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent certified public accountants of Bravo! Foods
International Corp., we hereby consent to the reference to our firm under the
caption "Experts" and to the use of our report dated April 2, 2004 in the
Registration Statement (Form SB-2) to be filed with the Securities and Exchange
Commission on or about June 3, 2004.
/s/ Lazar Levine & Felix LLP
Lazar Levine & Felix LLP
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Bravo! Foods International Corp.
North Palm Beach, Florida
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 14, 2003, relating to the
consolidated financial statements of Bravo! Foods International Corp., which is
contained in that Prospectus. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Los Angeles, California
June 3, 2004
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