SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) OCTOBER 10, 1997
VITECH AMERICA, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 0-21369 65 041 9086
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(State or other jurisdiction (Commission File (IRS Employer
or incorporation) Number) Identification No.)
8807 NORTHWEST 23RD STREET, MIAMI, FLORIDA 33172
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code (305) 477-1161
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On October 10, 1997, Vitech America, Inc. (the "Company") completed a
Private Placement of 10% Convertible Promissory Notes (the "Convertible Notes").
The Private Placement resulted in gross proceeds to the Company of $20,000,000.
The Private Placement was between the Company and four institutional investors.
Each investor received a 10% Convertible Note. The Notes bear interest at 10%
per annum with interest payable monthly beginning December 31, 1997 and the
Notes mature on October 10, 2000. The Notes are initially convertible at a
conversion price of $16.50 (the "Initial Conversion Price") subject to
stock-splits, stock dividends, rights offering by the Company and certain
combinations, capitalizations, reclassifications, extraordinary distributions
and other similar events. In the event that the Company shall have declined to
repay in full, following the exercise by noteholders of the first or second put
right (as defined below), the Initial Conversion Price shall be (i) the lesser
of .85 multiplied by the 10-day weighted average sale price ("VWASP") on Nasdaq
as reported by Bloomberg, LP (or other principal exchange on which the Company's
securities are traded) for the lowest 10-day consecutive period during 30
consecutive trading day period ending one trading day prior to the conversion
date and (ii) $16.50 per share.
Beginning October 10, 1998 and continuing for a period of 30 days
thereafter, each Noteholder shall have the right ("First Put Right") to request
the Company to repurchase all, but not less than all of the outstanding Notes
held by such Holder at a price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest thereon. Commencing 180 days after the First
Put Date and continuing for a period of 30 days thereafter, each Noteholder
shall have a second right (the "Second Put Right") to request the Company to
repurchase all, but not less than all of the outstanding Notes at a price equal
to 115% of the principal amount thereof plus accrued and unpaid interest
thereon. The purchase price for any Put Right shall be paid in four equal
monthly installments on the last business day of each month commencing on the
first full month following the put notice with respect to the applicable First
or Second Put Right, with interest on each installment at the rate of 10% per
annum. The Company shall have the right at any time from time to time commencing
on October 10, 1998 to purchase from any Holder of the Notes, the Notes at a
call price at 112% of the principal amount, plus accrued in unpaid interest
thereon provided that such call price shall be increased by 1% per month.
Under the terms of the Agreement, the Company is obligated to prepare
and file a Form S-3 Registration Statement providing for the resale of the
shares of Common Stock issuable upon conversion of the Notes within 120 days of
November 4, 1997 and to use its best efforts to have such Registration Statement
declared effective on or before January 15, 1998. In the event that such
Registration Statement is not declared effective by such date, the Company shall
pay to each Noteholder monthly, the greater of (x) the pro rata portion of an
amount equal to 1.5% of the aggregate outstanding principal amount of the Notes
held by such Holder, which monthly amount will be increased to 2% in the event
that such Registration Statement is not declared effective by February 15, 1998,
or (y) $2,500 for each day the Registration Statement is not declared effective
by January 15, 1998.
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In no event shall the Company issue more than 19.9% of the then issued
and outstanding shares of Common Stock of the Company, unless the Company shall
obtain stockholder approval or a waiver of such requirement by the Nasdaq Stock
Market. Unless the Company shall have obtained stockholder approval or a waiver
or such requirement by the Nasdaq Stock Market within the time period as set
forth in the Agreement, the principal amount of the Convertible Notes, which may
not be converted because of such limitation, will be payable at a Formula Price
which shall be the amount equal to the greater of (i) the aggregate principal
amount of the Convertible Notes then outstanding, together with all accrued and
unpaid interest thereon, and (ii) the sum of (A) the product of (x) the number
of shares of Common Stock which the Convertible Notes being redeemed are then
convertible at the current conversion price and (y) the VWASP on the date the
Convertible Notes are redeemed, plus (B) accrued and unpaid interest on the
Convertible Notes to the date of repayment.
The proceeds of sale from the issuance of these securities are being
used to refinance the indebtedness of the Company to George St. Laurent, Jr. in
the aggregate principal amount of approximately $10 million and to fund the
purchase of the acquisition of Microtech Sistemas Industria Y Comercio, S.A. in
an amount equal to approximately $5 million and the remaining funds for general
corporate purposes.
The Company on October 10, 1997, completed the issuance of an
additional $18,600,000 10% Convertible Notes. The Notes were issued in a private
placement transaction to 52 investors. The Company intends to use the net
proceeds from such offering for expansion of inventory, increase of
manufacturing capacity and repayment of approximately $12,000,000 in short-term
debt to Brazilian banks, currently bearing interest at the rate of 15-26%. The
remaining proceeds will be used for general working capital. This offering,
which was not conditioned on completion of the previously described offering,
provided from the issuance of Convertible Notes containing substantially the
same terms and conditions as set forth above. Although, the Company has agreed
to register shares of Common Stock issuable upon conversion of these Notes 20
days after November 1, 1997 and use its best efforts to have the Registration
Statement declared effective within 90 days of such date. The Company will not
incur any penalties in the event that such registration is not accomplished by
such date.
The Company incurred fees and expenses equal to approximately 1.75 % of
the gross proceeds of the offerings and issued warrants to purchase 233,940
shares of the Company's Common Stock.
The above discussion is qualified by its entirety to the Agreements
which are filed with this Report on Form 8-K.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
EXHIBITS
10.1 Securities Purchase Agreement dated October 10, 1997, by and
between the Company, H.W. Partners, L.P., as Purchaser's Representative
and Investor.
10.2 Form of Convertible Promissory Note dated October 10, 1997 for the
Investors.
10.3 Put and Call Agreement dated October 10, 1997 between the Company
and the Investors.
10.4. Registration Rights Agreement dated October 10, 1997 between the
Company and the Investors.
10.5 Form of Convertible Promissory Note dated October 10, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VITECH AMERICA, INC.
By: /s/ EDWARD KELLY
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Edward Kelly
Chief Financial Officer
DATED: October 24, 1997
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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10.1 Securities Purchase Agreement dated October 10, 1997, by and
between the Company, H.W. Partners, L.P., as Purchaser's
Representative and Investor.
10.2 Form of Convertible Promissory Note dated October 10, 1997 for
the Investors.
10.3 Put and Call Agreement dated October 10, 1997 between the Company
and the Investors.
10.4 Registration Rights Agreement dated October 10, 1997 between the
Company and the Investors.
10.5 Form of Convertible Promissory Note dated October 10, 1997.
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT DATED OCTOBER 10, 1997, BY AND BETWEEN THE
COMPANY, H.W. PARTNERS, L.P., AS PURCHASER'S REPRESENTATIVE AND INVESTOR.
<PAGE>
SECURITIES PURCHASE AGREEMENT
DATED AS OF
OCTOBER 10, 1997
BY AND AMONG
VITECH AMERICA, INC.,
AS THE ISSUER,
THE PURCHASERS LISTED ON SCHEDULE I ATTACHED HERETO,
AND
HW PARTNERS, L.P., AS THE PURCHASERS' REPRESENTATIVE
<PAGE>
SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of October 10, 1997, among Vitech America, Inc.
(the "Company"), the Purchasers listed on SCHEDULE I attached hereto (each a
"Purchaser" and collectively, the "Purchasers") and HW Partners, L.P., as the
Purchasers' Representative (the "Purchasers' Representative").
R E C I T A L S:
WHEREAS, the Company is currently contemplating raising up to
$20,000,000 in a private placement of debt securities (the "Offering"); and
WHEREAS, the Company desires to sell and issue to the Purchasers, and
the Purchasers wish to purchase from the Company, $20,000,000 aggregate
principal amount of the Company's 10% Convertible Notes due October 10, 2000
(the "Convertible Notes"), with terms and conditions as set forth in the form of
Convertible Note attached hereto as EXHIBIT A (with such changes and
modifications as may be approved by the Purchasers) as a part of the Offering;
and
WHEREAS, the Convertible Notes will be convertible into shares of the
Company's common stock, no par value (the "Common Stock"), and the Purchasers
will have registration rights with respect to such shares of Common Stock
issuable upon conversion as set forth in the Registration Rights Agreement in
the form attached hereto as EXHIBIT B; and
WHEREAS, the Convertible Notes will be subject to certain put and call
rights as set forth in a Put and Call Agreement attached hereto as EXHIBIT C;
and
WHEREAS, in order to induce the Purchasers and the Purchasers'
Representative to enter into the transactions described in this Agreement, the
Company desires to issue to the Purchasers an aggregate of 121,212 warrants to
purchase shares of Common Stock on the terms and conditions described in the
Common Stock Purchase Warrant in the form attached hereto as Exhibit D (with
such changes and modifications as may be approved by the Purchasers) (the
"Warrants"); and
WHEREAS, the Purchasers and other holders of Warrants will have certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of the Warrants as set forth in the Registration Rights Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
I. DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"ADDITIONAL NOTES" has the meaning set forth in Section 4.26.
"AFFILIATE" means, with respect to any Person (the "Subject Person"),
(i) any other Person (a "Controlling Person") that directly, or indirectly
through one or more intermediaries, Controls the Subject
<PAGE>
Person or (ii) any other Person (other than the Subject Person or a Consolidated
Subsidiary of the Subject Person) which is Controlled by or is under common
Control with a Controlling Person.
"ADVISORY DIRECTOR" has the meaning set forth in Section 7.15.
"AGREEMENT" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"AMORTIZATION DATE" has the meaning set forth in Section 3.3(a).
"ASSET SALE" has the meaning set forth in Section 8.7.
"BALANCE SHEET DATE" has the meaning set forth in Section 4.7.
"BENEFIT ARRANGEMENT" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by the Company.
"BENEFIT PLANS" has the meaning set forth in Section 4.9(b).
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in New York, New York and Miami, Florida are authorized
or required by law to close.
"CAPITAL RAISING LIMITATIONS" has the meaning set forth in Section
7.16.
"CAPITAL REORGANIZATION" has the meaning set forth in Section 11.5.
"CHANGE OF CONTROL" means (i) after the date of this Agreement any
person or group of persons (within the meaning of Sections 13 and 14 of the
Exchange Act and the rules and regulations of the Commission relating to such
Sections) other than the Purchasers shall have acquired beneficial ownership
(within the meaning of Rules 13d-3 and 13d-5 promulgated by the Commission
pursuant to the Exchange Act) of 33-1/3% or more of the outstanding shares of
Common Stock of the Company, (ii) any sale or other disposition (other than by
reason of death or disability) to any Person of any Common Stock of the Company
held by George C. St. Laurent, III and William C. St. Laurent except as
permitted under Section 7.14; or (iii) individuals constituting the Board of
Directors of the Company on the date hereof (together with any new Directors
whose election by such Board of Directors or whose nomination for election by
the stockholders of the Company was approved by a vote of at least 50.1% of the
Directors then still in office who were either Directors as of the date hereof
or whose election or nomination for election was previously so approved, cease
for any reason to constitute at least two-thirds of the Board of Directors of
the Company then in office.
"CLOSING BID PRICE" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the Nasdaq Market or, if not
reported by Bloomberg, L.P. on the Nasdaq Market, as reported by such other
exchange or market where the Common Stock is then traded.
"CLOSING DATE" means October 10, 1997.
"CLOSING DATE AMOUNT" has the meaning set forth in Section 2.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
<PAGE>
"COMMISSION" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"COMMON STOCK" means the common stock, no par value per share, of the
Company.
"COMPANY" means Vitech America, Inc., a Florida corporation, and its
successors.
"COMPANY CORPORATE DOCUMENTS" means the certificate of incorporation
and by-laws of the Company.
"CONSOLIDATED SUBSIDIARY" means at any date with respect to any Person
any Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"CONSOLIDATED NET WORTH" means at any date the total shareholder's
equity which would appear on a consolidated balance sheet of the Company
prepared as of such date.
"CONTROL" (including, with correlative meanings, the terms
"Controlling," "Controlled by" and under "common Control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract or
otherwise .
"CONVERSION DATE" shall mean the date of delivery (including delivery
via telecopy) of a Notice of Conversion for all or a portion of a Convertible
Note by the holder thereof to the Company.
"CONVERSION PRICE" has the meaning set forth in the Convertible Notes.
"CONVERSION SHARES" has the meaning set forth in Section 4.5.
"CONVERTIBLE NOTES" means the Company's 10% Convertible Notes
substantially in the form set forth as EXHIBIT A hereto.
"DEADLINE" has the meaning set forth in Section 10.1.
"DEBT" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"DEFAULT" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DEFAULT FEE" has the meaning set forth in Section 10.4(c).
"DEFAULT INTEREST" has the meaning set forth in the Convertible Notes.
<PAGE>
"DEPOSIT CHECK" means that certain $100,000 check of the Company
payable to Purchasers Representative and delivered to Purchasers Representative
pursuant to a September 18, 1997 letter agreement between the Company and
Purchasers Representative.
"DERIVATIVE SECURITIES" has the meaning set forth in Section 10.5.
"DISCOUNTED EQUITY OFFERINGS" has the meaning set forth in Section
10.5.
"DIRECTORS" means the individuals then serving on the Board of
Directors or similar such management council of the Company.
"DISPOSITION" has the meaning set forth in Section 7.14.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA GROUP" means the Company and each Subsidiary and all members of
a controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"EVENT OF DEFAULT" has the meaning set forth in Article XII hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXPENSE REIMBURSEMENT FEE" shall mean the lesser of (x) the actual
costs and expenses (including, without limitation, the fees and expenses of
counsel and out-of-pocket travel expenses) incurred by the Purchasers in
connection with the preparation, negotiation and delivery of the Transaction
Agreements and (y) $100,000. In calculation the Closing Date Amount, $50,000
shall be used as an estimate of the Expense Reimbursement Fee.
"FIXED PRICE(S)" has the meaning set forth in Section 11.1.
"FORMULA PRICE" shall mean a dollar amount equal to the greater of (i)
the aggregate principal amount of the Convertible Notes then outstanding,
together with all accrued and unpaid interest (including Default Interest)
thereon, and (ii) the sum of (A) the product of (x) the number of shares of
Common Stock into which the Convertible Notes being redeemed are then
convertible at the then current Conversion Price and (y) the VWSAP (as defined
in the Convertible Notes) as reported by Bloomberg, L.P. on the applicable date
the Convertible Notes are redeemed, plus (B) accrued and unpaid interest
(including Default Interest) on the Convertible Notes through the date of
repayment.
<PAGE>
"FUTURE OFFERINGS" has the meaning set forth in Section 7.16.
"GAAP" has the meaning set forth in Section 1.2.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing (whether by virtue
of partnership arrangements, by agreement to keep well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain a minimum net
worth, financial ratio or similar requirements, or otherwise) any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or (ii) entered into for the purpose of assuring in any other manner the
holder of such Debt of the payment thereof or to protect such holder against
loss in respect thereof (in whole or in part); provided that the term Guarantee
shall not include endorsements for collection or deposit in the ordinary course
of business. The term Guarantee used as a verb has a corresponding meaning.
"HAZARDOUS MATERIALS" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"INITIAL COMMITMENT FEE" shall mean $175,000 to be paid by the Company
to the Purchasers on the Closing Date (representing 1.5% of the aggregate
principal amount of the Convertible Notes issued to the Purchasers on the
Closing Date less (i) $25,000 previously paid to the Purchasers' Representative
as a due diligence fee and (ii) the Deposit Check).
"INITIAL CONVERSION PRICE" shall have the meaning set forth in the
Convertible Notes.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.20.
"LIEN" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"LIMITATION ON CONVERSION" has the meaning set forth in Section 10.3.
"LISTING APPLICATIONS" shall have the meaning set forth in Section 4.4.
"LOCK-UP PERIOD" has the meaning set forth in Section 7.16.
"MAJORITY HOLDERS" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Notes outstanding at such time.
"MAJORITY STOCKHOLDERS" shall have the meaning set forth in Section
7.14.
"MARKET PRICE" shall mean the Closing Bid Price of the Common Stock
preceding the date of determination.
<PAGE>
"MATERIAL PLAN" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $500,000.
"MATERIAL TRANSACTION" shall have the meaning set forth in Section
3.3(b).
"MATURITY DATE" shall mean the date of maturity of the Convertible
Notes; specifically, October 10, 2000.
"MAXIMUM NUMBER OF SHARES" shall mean 19.9% of the then issued and
outstanding shares of Common Stock of the Company as of the applicable date of
determination, which, as of the date hereof, is 2,173,341 shares of Common
Stock, or such greater number of shares as the stockholders of the Company may
have previously approved pursuant to Section 4.3(d) of each Convertible Note.
"MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"NASDAQ MARKET" means the Nasdaq Stock Market's National Market.
"NASDAQ REDEMPTION DATE" has the meaning set forth in Section 3.3(c).
"NASDAQ REDEMPTION EVENT" has the meaning set forth in Section 3.3(c).
"NET CASH PROCEEDS" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
underwriters' fees, brokerage commissions, professional fees and other customary
out-of-pocket expenses payable in connection with such transaction, and (ii) in
the case of dispositions of assets, (A) actual transfer taxes (but not income
taxes) payable with respect to such dispositions, and (B) the amount of Debt, if
any, secured by a Lien on the asset or assets disposed of and required to be,
and actually repaid by the Company or any Subsidiary in connection therewith,
and any trade payables specifically relating to such asset or assets sold by the
Company or any Subsidiary that are not assumed by the purchaser of such asset or
assets.
"NOTICE OF CONVERSION" means the form to be delivered by a holder of a
Convertible Note upon conversion of all or a portion thereof to the Company
substantially in the form of EXHIBIT E attached hereto.
"NOTICE OF EXERCISE" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of EXHIBIT F attached hereto.
"OFFERING" has the meaning set forth in the Recitals.
"OFFICER'S CERTIFICATE" shall mean a certificate executed by the
President, chief executive officer or chief financial officer of the Company in
the form of EXHIBIT G attached hereto.
"OTHER TAXES" has the meaning set forth in Section 3.6(d).
"PAR VALUE REDEMPTION PRICE" has the meaning set forth in Section
3.3(a).
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"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"PERMITS" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry n the business of the Company and the Subsidiaries.
"PERMITTED DEBT" has the meaning set forth in Section 8.1.
"PERSON" means an individual, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"PLAN" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under the Code and either (i) is maintained, or
contributed to, by any member of the ERISA Group for employees of any member of
the ERISA Group or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at such time a member of
the ERISA Group for employees of any Person which was at such time a member of
the ERISA Group.
"PURCHASE PRICE" means the purchase price for the Securities set forth
in Section 2.2 hereof.
"PURCHASERS" means, collectively, those entities listed in SCHEDULE I
attached hereto and their successors and assigns, including holders from time to
time of the Convertible Notes.
"PURCHASERS' REPRESENTATIVE" means HW Partners, L.P.
"PUT AND CALL AGREEMENT" means the agreement between the Company and
the Purchasers dated the Closing Date substantially in the form set forth in
Exhibit C attached hereto.
"REGISTRABLE SECURITIES" has the meaning set forth in Section 10.4(a).
"REGISTRATION DEFAULT" has the meaning set forth in Section 10.4(e).
"REGISTRATION DEFAULT NOTICE" has the meaning set forth in Section
3.3(b).
"REGISTRATION MAINTENANCE PERIOD" has the meaning set forth in Section
10.4(c).
"REGISTRATION RIGHTS AGREEMENT" means the agreement between the Company
and the Purchasers dated the Closing Date substantially in the form set forth in
EXHIBIT B attached hereto.
"REGISTRATION STATEMENT" has the meaning set forth in Section 10.4(b).
"REQUIRED EFFECTIVENESS DATE" has the meaning set forth in Section
10.4(b).
"RIGHTS OFFERING" has the meaning set forth in Section 11.3.
"SEC REPORTS" shall have the meaning set forth in Section 4.7.
<PAGE>
"SECURITIES" means the Convertible Notes, the Warrants and, as
applicable, the Conversion Shares and the Warrant Shares.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARE REORGANIZATION" has the meaning set forth Section 11.2.
"SOLVENCY CERTIFICATE" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Convertible Notes and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of EXHIBIT H
attached hereto.
"SPECIAL DISTRIBUTION" has the meaning set forth in Section 11.4.
"SUBSIDIARY" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person. Unless specified to the contrary,
"Subsidiary" means a Subsidiary of the Company.
"SUBSIDIARY CORPORATE DOCUMENTS" means the certificates of
incorporation and by-laws of each Subsidiary.
"TAXES" has the meaning set forth in Section 3.5(a).
"TRADING DAY" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"TRANSACTION AGREEMENTS" means this Agreement, the Warrants, the Put
and Call Agreement, the Registration Rights Agreement and the Convertible Notes.
"TRANSFER" means any disposition of Securities that would constitute a
sale thereof under the Securities Act.
"UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"WARRANTS" means the Common Stock Purchase Warrants issued to the
Purchasers for 121,212 shares of Common Stock in the aggregate on the Closing
Date in the form of EXHIBIT D hereto
"WARRANT SHARES" has the meaning set forth in Section 4.5.
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis
<PAGE>
(except for changes concurred in by the Company's independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. PURCHASE AND SALE OF CONVERTIBLE NOTES. Subject to the
terms and conditions set forth herein, the Company agrees to issue and sell to
each Purchaser, and each Purchaser severally agrees to purchase from the
Company, such principal amount of Convertible Notes as is set forth opposite to
each Purchaser's name on SCHEDULE I attached hereto.
SECTION 2.2. PURCHASE PRICE. The purchase price for the Convertible
Notes shall be 100% of the principal amount thereof. No part of the purchase
price of the Convertible Notes shall be allocated to the Warrants. Therefore,
the aggregate consideration payable by the Purchasers to the Company for the
Convertible Notes and the Warrants shall be $20,000,000 (the "Purchase Price").
SECTION 2.3. CLOSING AND MECHANICS OF PAYMENT.
(a) On the Closing Date, subject to the satisfaction of all terms
and conditions set forth herein, each of the Purchasers shall deliver
by wire transfer to the Company immediately available funds in an
amount equal to the portion of the Purchase Price of the Convertible
Notes to be purchased by such Purchaser on the Closing Date, in the
proportions as set forth on SCHEDULE I attached hereto, LESS such
Purchaser's ratable share of the (x) Initial Commitment Fee and (y) an
estimate of the Expense Reimbursement Fee (the "Closing Date Amount").
(b) On the Closing Date, against payment as set forth in
subsection 2.3(a) above, the Company shall deliver to each Purchaser
(A) a single Convertible Note for each Purchaser representing the
principal amount of such Convertible Note issued to such Purchaser as
of the Closing Date, and (B) a single Warrant for each Purchaser
representing the aggregate Warrants issued to such Purchaser as of the
Closing Date.
(c) Within ten (10) Business Days of the receipt of notice from
the Purchasers, the Company shall pay any funds due and owing as the
Expense Reimbursement Fee in excess of the $50,000 estimated Expense
Reimbursement Fee utilized as part of the calculation of the Closing
Date Amount as described in Section 2.3(a) above.
(d) The Purchasers Representative is hereby authorized to cash and
retain the proceeds of the Deposit Check.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE NOTE
SECTION 3.1. PAYMENT MECHANICS. The Company will pay all sums becoming
due on each Convertible Note by the method and at the address specified for such
purpose as the applicable Purchaser shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of any Convertible Note or the making of any notation thereon, except that upon
written request of the Company made concurrently with or reasonably promptly
after payment or prepayment in full of this Convertible Note, the holder shall
surrender the Convertible Note for cancellation, reasonably
<PAGE>
promptly after any such request, to the Company at its principal executive
office. All payments to the Purchasers shall be made for the applicable
Purchaser's benefit to the Purchaser's account established at Bear, Stearns &
Co., New York, New York. Prior to any sale or other disposition of the
Convertible Note, the holder thereof will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender the Convertible Note to the Company in
exchange for a new Convertible Note or Convertible Notes. The Company will
afford the benefits of this Section 3.1 to any transferee of the Convertible
Note purchased under this Agreement and that has made the same agreement
relating to this Convertible Note as the Purchaser has in this Section 3.1;
provided that such transferee is an "accredited investor" under Rule 501 of the
Securities Act.
SECTION 3.2. VOLUNTARY PREPAYMENTS.
(a) On the terms and subject to the conditions set forth in the
Put and Call Agreement commencing on the date that is one year
following the Closing Date, the Company shall at any time and from time
to time have the right to redeem each Convertible Note at the call
price in effect at such time, plus any accrued and unpaid interest on
each Convertible Note through the applicable date of consummation of
the redemption
(b) In the event that any holder of the Convertible Notes elects
to exercise its Put Rights (as defined in the Put and Call Agreement)
under the Put and Call Agreement, the Company shall have the right,
subject to the terms and conditions set forth therein, to pay to such
holder upon consummation thereof the outstanding principal balance of
each Convertible Note subject to the Put Rights plus all accrued and
unpaid interest thereon.
SECTION 3.3. MANDATORY PREPAYMENTS.
(a) Commencing on the date that is two (2) years following the
Closing Date (the "Amortization Date") and continuing thereafter until
the Maturity Date, the Company shall pay to Purchasers on a quarterly
basis an amount equal to ten percent (10%) of the outstanding principal
balance of each Convertible Note outstanding as of the Business Day
immediately preceding the date that such payment is due. Each such
quarterly payment shall be made, in advance, commencing on the
Amortization Date and continuing thereafter until the Maturity Date, at
which time the remaining outstanding principal balance of each
Convertible Note plus all accrued and unpaid and interest thereon shall
be due and payable in full (including, without limitation, Default
Interest) (the unpaid principal balance of each Convertible Note, plus
all accrued and unpaid interest thereon, including Default Interest, is
herein referred to as the "Par Value Redemption Price").
(b) Upon (i) the occurrence of a Change of Control of the Company,
(ii) a transfer of all or substantially all of the assets of the
Company to any Person in a single transaction or series of related
transactions, (iii) a consolidation, merger or amalgamation of the
Company with or into another Person (other than a merger (x) which does
not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock or in which the
Company is the surviving entity, (y) which is effected solely to change
the jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of
Common Stock solely into shares of Common Stock or (z) consummated in
compliance with Section 8.5 hereof) (the events described in (i), (ii)
and (iii) above sometimes being referred to herein individually as a
"Material Transaction"), or (iv) the occurrence of a Registration
Default which continues uncured for a period of ten (10) days and the
delivery to the Company by the Majority Holders of the Convertible
Notes of a notice ("Registration Default Notice") demanding
<PAGE>
that the Company redeem such Convertible Notes, then, in each case, the
Company shall redeem this Convertible Note in cash for the Formula
Price.
(c) Upon the issuance of the Maximum Number of Shares and the
failure within 90 days (the "Nasdaq Redemption Date") of such issuance
to obtain shareholder approval to issue additional shares of Common
Stock (the "Nasdaq Redemption Event"), the Company shall redeem each
Convertible Note as set forth in Section 4.3(d) of the Convertible
Notes and Section 10.3(b) hereof.
SECTION 3.4. PREPAYMENT PROCEDURES.
(a) Any prepayment or redemption of the Convertible Notes pursuant
to Sections 3.2 or 3.3 above shall be deemed to be effective and
consummated (for purposes of determining the Formula Price, the amount
of accrued and unpaid interest, and the time at which the Purchasers
shall thereafter not be entitled to deliver a Notice of Conversion for
the Convertible Notes) as follows:
(i) A redemption pursuant to Section 3.2(a), on the Call
Exercise Date (as defined in the Put and Call Agreement);
(ii) A redemption pursuant to Section 3.2(b), on the Put
Exercise Date (as defined in the Put and Call Agreement);
(iii) A redemption pursuant to Section 3.3(c), the date of
consummation of the applicable Material Transaction, or the
delivery date of a Registration Default Notice; and
(iv) A redemption pursuant to Section 3.3(c), the date
specified in the Convertible Notes.
(b) Within one (1) Business Day after (i) the applicable
Amortization Date, (ii) the Maturity Date or (iii) the effective date
of a prepayment or redemption of the Convertible Notes as specified in
Section 3.4(a) above, the Company shall deliver by wire transfer in
immediately available funds the applicable prepayment/redemption price
to each Purchaser of the Convertible Notes subject to redemption. If
any Purchaser does not receive payment of any amounts due to such
Purchaser for prepayment or on redemption of its Convertible Notes by
reason of the Company's failure to make payment at the times prescribed
above for any reason, the Company shall pay to the applicable holder on
demand (i) interest on the sums not paid when due at an annual rate
equal to the lesser of (A) the maximum lawful rate and (B) 18% per
annum and (ii) all costs of collection, including, but not limited to,
reasonable attorneys' fees and costs, whether or not any suit or other
formal proceedings are instituted.
(c) The Company shall select the Convertible Notes to be redeemed
in any redemption in which not all of the Convertible Notes are to be
redeemed so that the ratio of the Convertible Notes of each holder
selected for redemption to the total Convertible Notes owned by that
holder shall be the same as the ratio of all such Convertible Notes
selected for redemption bears to the total of all then outstanding
Convertible Notes. Should any Convertible Notes be required to be
redeemed under the terms hereof not be redeemed solely by reason of
limitations imposed by law applicable to any holder of Convertible
Notes, the remaining applicable Convertible Notes shall be redeemed on
a pro rata basis, with the applicable disqualified notes (the
"Disqualified Notes")
<PAGE>
being thereafter redeemed on the earliest possible dates thereafter to
the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by any Purchaser (including
delivery via telecopy) to the Company prior to the (i) Maturity Date or
(ii) effective date of a redemption specified in Section 3.4(a) above,
shall be honored by the Company and the conversion of the Convertible
Notes shall be deemed effected on the Conversion Date. In addition,
between the effective date of redemption specified in Section 3.4(a)
above and the date the Company is required to deliver the redemption
proceeds to the Purchasers, the Purchasers may deliver a Notice of
Conversion to the Company, provided that such notice will be (i) of no
force or effect if the Company timely pays the redemption proceeds to
the Purchasers when due or (ii) honored on or as of the date the Notice
of Conversion if the Company fails to timely pay the redemption
proceeds to the Purchasers when due.
SECTION 3.5 PAYMENT OF ADDITIONAL AMOUNTS.
(a) Any and all payments by the Company hereunder or under the
Convertible Notes to any Purchaser and each "qualified assignee"
thereof shall be made free and clear of and without deduction or
withholding for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes")
unless such Taxes are required by law or the administration thereof to
be deducted or withheld. If the Company shall be required by law or the
administration thereof to deduct or withhold any Taxes from or in
respect of any sum payable under the Convertible Notes (i) the holders
of the Convertible Notes subject to such Taxes shall have the right,
but not the obligation, for a period of thirty (30) days commencing
upon the day it shall have received written notice from the Company
that it is required to withhold Taxes to transfer all or any portion of
the Convertible Notes to a qualified assignee to the extent such
transfer can be effected in accordance with the other provisions of
this Agreement and applicable law; (ii) the Company shall make such
deductions or withholdings; and (iii) the Company shall forthwith pay
the full amount deducted or withheld to the relevant taxation or other
authority in accordance with applicable law. A "qualified assignee" of
a Purchaser is a Person that (i) is organized under the laws of (A) the
United States or (B) any jurisdiction other than the United States or
any political subdivision thereof, (ii) represents and warrants to the
Company (with such representations and warranties confirmed by the
transferring Purchaser)that payments of the Company to such assignee
under the laws in existence on the date of this Agreement would not be
subject to any Taxes and (iii) from time to time, as and when requested
by the Company, executes and delivers to the Company and the Internal
Revenue Service any forms required, and provides the Company with any
information necessary to establish such assignee's continued exemption
from Taxes under applicable law.
(b) If Taxes are imposed upon the Company and the holders of
Convertible Notes subject to such Taxes have not exercised their right
to transfer the Convertible Notes to a qualified assignee as set forth
in this Section 3.5 (either by notice to the Company to that effect or
failure to exercise such right within the thirty (30) day period
prescribed), the Company shall either:
(i) On the 30th day after the failure to exercise such right
(such day being referred to as the "redemption date") prepay all
of the Convertible Notes remaining unconverted on the redemption
date and held by a party subject to Taxes in cash for the Par
Value Redemption Price; or
<PAGE>
(ii):
(A) Increase the sum payable by the Company to the
Purchasers as may be necessary by the Company so that
after making all required deductions or withholdings
(including deductions and withholdings applicable to
additional amounts paid under this Section 3.5), such
Purchaser receives an amount equal to the sum it would
have received if such deduction or withholding had been
made; and
(B) The Company shall indemnify each Purchaser or qualified
assignee, for the full amount of Taxes or Other Taxes
(including, without limitation, any taxes or Other Taxes
imposed by any jurisdiction on amounts payable under
this Section 3.5) paid by each Purchaser, or qualified
assignee, and any liability (including penalties,
interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. Payment under this
indemnification shall be made within thirty (30) days
from the date such Purchaser or assignee makes written
demand therefore. A certificate as to the amount of such
Taxes or Other Taxes submitted to the Company by such
Purchaser or assignee shall be inclusive evidence of the
amount due from the Company to such party.
(c) If the Company pays any Taxes or Other Taxes, the Purchasers
shall cooperate in good faith with the Company to receive any tax
credit or refund in the amount of such Taxes or Other Taxes applicable
to the Purchasers (each a "Tax Refund"). Upon the receipt by the
Purchasers of any Tax Refund, the Purchasers shall promptly remit the
same to the Company.
(d) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or
similar levies (all such taxes, charges and levies hereinafter referred
to as "Other Taxes") which arise from any payment made under any of the
Financing Documents or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from the Purchasers to a Person of
any of the Securities, or are the legal obligation of Purchasers.
(e) Within thirty (30) days after the date of any payment of
Taxes, the Company will furnish to each Purchaser the original or a
certified copy of a receipt evidencing payment thereof.
(f) Each Purchaser shall provide to the Company a Form W-8,
stating that it is a non-U.S. person, together with any additional tax
forms which may be required under the Code, as amended after the date
hereof, to allow interest payments to be made to it without deduction.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers and the
Purchasers' Representative, and each of them, as of the Closing Date the
following:
SECTION 4.1. ORGANIZATION AND QUALIFICATION. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and
<PAGE>
to carry on its business as and where now owned, leased, used, operated and
conducted. SCHEDULE 4.1 sets forth a list of all Subsidiaries and the
jurisdiction in which each is incorporated. The Company and each of its
Subsidiaries is duly qualified to conduct business as a foreign corporation and
is in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary, except where such failure
would not have a Material Adverse Effect. A "Material Adverse Effect" means any
material adverse effect on the operations, results of operations, properties,
assets, condition (financial or otherwise) or prospects of the Company or the
Company and its Subsidiaries, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.
SECTION 4.2. AUTHORIZATION AND EXECUTION.
(a) The Company has all requisite corporate power and authority to
enter into and perform this Agreement, the Convertible Notes, the
Registration Rights Agreement, the Put and Call Agreement and the
Warrants (each a "Transaction Agreement" and collectively, the
"Transaction Agreements") and to consummate the transactions
contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its
shareholders is required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Documents will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective
terms, subject to (i) applicable bankruptcy, insolvency or similar laws
affecting the enforceability of creditors rights generally and (ii)
equitable principles of general applicability.
SECTION 4.3. CAPITALIZATION. As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on SCHEDULE
4.3 hereto and no other shares of capital stock of the Company will be
outstanding as of the Closing Date. All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully paid
and non-assessable. No shares of capital stock of the Company are subject to
preemptive rights of the stockholders of the Company or any liens or
encumbrances imposed through the actions or failure to act of the Company. Other
than as set forth on SCHEDULE 4.3 hereto, as of the date hereof, (i) there are
no outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries are obligated to
register the sale of any of its or their securities under the Securities Act
(except pursuant to the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company (or in any agreement providing rights to security holders) that will
be triggered by the issuance of the Convertible Notes, Conversion Shares,
Warrants or Warrant Shares. The Company has furnished to the Purchasers'
Representative true and correct copies of the Company's Corporate Documents, and
the terms of all
<PAGE>
securities convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
SECTION 4.4. GOVERNMENTAL AUTHORIZATION. The execution and delivery by
the Company of the Transaction Agreements does not and will not, the issuance
and sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) the listing applications ("Listing Applications") to be filed with the
Nasdaq Market relating to the shares of Common Stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants and (d) the filing of a "Form
D" as described in Section 7.13 below.
SECTION 4.5. ISSUANCE OF SHARES. Upon conversion in accordance with the
terms of the Convertible Notes, or upon exercise in accordance with the terms of
the Warrants (assuming the payment of the exercise price set forth in the
Warrants), the shares of Common Stock issued upon conversion of the Convertible
Notes (the "Conversion Shares") or exercise of the Warrants (the "Warrant
Shares") shall be duly and validly issued and outstanding, fully paid and
nonassessable, free and clear of any taxes, Liens and charges with respect to
issuance and shall not be subject to preemptive rights or similar rights of any
other stockholders of the Company. Assuming the representations and warranties
of the Purchasers herein are true and correct in all material respects, each of
the Securities will have been issued in material compliance with all applicable
United States federal securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of the Conversion Shares could
dilute the ownership interests of other stockholders of the Company. The Company
further acknowledges that its obligation to issue the Conversion Shares upon
conversion of the Convertible Notes in accordance with this Agreement and the
Convertible Notes is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company.
SECTION 4.6. NO CONFLICTS. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, as of the date hereof, contravene or constitute
a default under or violation of (i) any provision of applicable law or
regulation, (ii) the Company Corporate Documents, (iii) any material agreement,
judgment, injunction, order, decree or other material instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary. The Company and each Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other legal requirements of any domestic or foreign government or any
instrumentality thereof having jurisdiction over the conduct of its businesses
or the ownership of its properties, except in each case where such failure would
not have a Material Adverse Effect.
SECTION 4.7. FINANCIAL INFORMATION AND SEC REPORTS. Since November 4,
1996, the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to each
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects in light of the circumstances
<PAGE>
when made with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. There
have been no material adverse changes in the Company's business, properties,
results of operations or financial condition since the date of the Company's
most recent Report on Form 10-K for the year ended December 31, 1996, which have
not been disclosed to the Purchasers in writing or as set forth in the SEC
Reports. The audited and unaudited consolidated balance sheets of the Company
and its Subsidiaries contained in the SEC Reports, and the related consolidated
statements of income, changes in stockholders' equity and changes in cash flows
for the periods then ended, including the footnotes thereto, except as indicated
therein, (i) complied in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto and (ii) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated, except that the unaudited financial
statements do not contain notes and may be subject to normal audit adjustments
and normal annual adjustments. Such financial statements fairly present the
financial condition of the Company and its Subsidiaries at the dates indicated
and the consolidated results of their operations and cash flows for the periods
then ended and, except as indicated therein, reflect all claims against and all
Debts and liabilities of the Company and its Subsidiaries, fixed or contingent.
Since December 31, 1996 (the "Balance Sheet Date"), except as disclosed in the
SEC Reports, there has been (i) no material adverse change in the assets or
liabilities, or in the business or financial condition, or in the results of
operations, of the Company and its Subsidiaries, whether as a result of any
legislative or regulatory change, revocation of any license or rights to do
business, fire, explosion, accident, casualty, labor trouble, flood, drought,
riot, storm, condemnation, act of God, public force or otherwise and (ii) no
material adverse change in the assets or liabilities, or in the business or
financial condition, or in the results of operations of the Company and its
Subsidiaries except in the ordinary course of business.
SECTION 4.8. LITIGATION. There is no action, suit or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary, before any court or arbitrator or any governmental body, agency or
official in which, if adversely determined, could materially adversely affect
the business, financial condition, operations, performance or properties of the
Company or which challenges the validity of any Transaction Agreements.
SECTION 4.9. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(a) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance in all material respects with the presently applicable
provisions of ERISA and the Code with respect to each Plan. No member of the
ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Code in respect of any Plan, (ii) failed to make any required
contribution or payment to any Plan or Multiemployer Plan or in respect of any
Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement,
which has resulted or could result in the imposition of a Lien or the posting of
a bond or other security under ERISA or the Code or (iii) incurred any liability
under Title IV of ERISA other than a liability to the PBGC for premiums under
Section 4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including
profit sharing, deferred compensation, stock option, employee stock purchase,
bonus, retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
<PAGE>
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 4.10. ENVIRONMENTAL MATTERS. The costs and liabilities
associated with Environmental Laws (including the cost of compliance therewith)
are unlikely to have a material adverse effect on the business, financial
condition, operations, performance or properties of the Company or any
Subsidiary. Each of the Company and the Subsidiaries conducts its businesses in
compliance in all material respects with all applicable Environmental Laws.
SECTION 4.11. TAXES. All United States and Brazilian federal, state,
county, municipality local or foreign income tax returns and all other material
tax returns (including foreign tax returns) which are required to be filed by or
on behalf of the Company and each Subsidiary have been filed and all material
taxes due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes or other governmental charges have been established in accordance with
GAAP.
SECTION 4.12. INVESTMENTS, JOINT VENTURES. The Company has no
Subsidiaries or other direct or indirect Investment in any Person, and the
Company is not a party to any partnership, management, shareholders' or joint
venture or similar agreement, other than as set forth on SCHEDULE 4.12 hereto.
SECTION 4.13. NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 4.14. FULL DISCLOSURE. The information heretofore furnished by
the Company to the Purchasers for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to the
Purchasers will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 4.15. NO SOLICITATION; NO INTEGRATION WITH OTHER OFFERINGS. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than the Purchasers) any of the Securities or, within the six months prior to
the date hereof, any other similar security of the Company except as
contemplated by this Agreement, and the Company represents that neither itself
nor any Person authorized to act on its behalf (except that the Company makes no
representation as to the Purchasers and their Affiliates) will sell or offer for
sale any such security to, or solicit any offers to buy any such security from,
<PAGE>
or otherwise approach or negotiate in respect thereof with, any Person or
Persons so as thereby to cause the issuance or sale of any of the Securities to
be in violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to the Purchasers will not be integrated with any
other issuance of the Company's securities (past, current or future) which
requires stockholder approval under the rules of the Nasdaq Market.
SECTION 4.16. PERMITS. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and its Subsidiaries has fulfilled and performed all
material obligations with respect to such Permits; and (c) no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination by the issuer thereof or which results in any other material
impairment of the rights of the holder of any such Permit.
SECTION 4.17. LEASES. Except as disclosed on SCHEDULE 4.17 hereto,
neither the Company nor any Subsidiary is a party to any capital lease
obligation with a value greater than $100,000 or to any operating lease with an
aggregate annual rental greater than $100,000 during the life of such lease.
SECTION 4.18. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and to the Company's knowledge, there is no existing condition,
situation or set of circumstances which could reasonably be expected to result
in such a liability, other than (i) those liabilities provided for in the
financial statements delivered pursuant to Section 4.7 hereof and (ii) other
undisclosed liabilities which, individually or in the aggregate, would not have
a Material Adverse Effect.
SECTION 4.19. PUBLIC UTILITY HOLDING COMPANY. Neither the Company nor
any Subsidiary is, or will be upon the issuance and sale of the Securities and
the use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Transaction
Agreement.
SECTION 4.20. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents (if any), trademarks, trade names, copyrights, technology, know-how and
processes (collectively, "Intellectual Property") used in, or necessary for the
conduct of its business; no claims have been asserted by any Person to the use
of any such Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 4.21. INSURANCE. The Company and its Subsidiaries maintain
insurance in the amounts set forth on Schedule 4.21, which the Company believes
are in at least such amounts and cover such risks such that any uninsured loss
would not have a Material Adverse Effect. All insurance coverages of the Company
and its Subsidiaries are in full force and effect and there are no past due
premiums in respect of any such insurance.
SECTION 4.22. TITLE TO PROPERTIES. The Company and its Subsidiaries
have good and marketable title to all their respective properties reflected on
the financial statements referred to in Section 4.7.
<PAGE>
SECTION 4.23. ELIGIBILITY TO USE FORM S-3. As of November 4, 1997, the
Company will meet, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions
applicable to Registration Statements on Form S-3 covering the resale of the
Conversion Shares and Warrant Shares.
SECTION 4.24. INTERNAL ACCOUNTING CONTROLS. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 4.25. FUTURE OUTSIDE CAPITAL. Attached hereto as SCHEDULE 4.25
is a copy of the Company's Operating Plan (the "Operating Plan") The Operating
Plan has not been materially altered since the date of the Operating Plan. As of
the date hereof, and continuing thereafter until 18 months following the Closing
Date, based on the Operating Plan, the Company will have no further need for
outside capital other than (i) the net proceeds of the Offering and the issuance
of the Additional Notes, (ii) customary bank borrowings on commercially
reasonable terms up to the maximum amount set forth in Section 8.1 hereof and
(iii) capital required to fund the purchase price of acquisitions (whether or
not set forth in the Operating Plan). Notwithstanding the foregoing, the
Purchasers acknowledge that (i) this representation is based upon the facts and
circumstances surrounding the Company as of the Closing Date, and (ii) the
Company's need for operating capital may change if the Operating Plan of the
Company changes after the Closing Date.
SECTION 4.26. CONTEMPORANEOUS CLOSING. The Company anticipates issuing
between $15,000,000 and $20,000,000 aggregate principal amount of convertible
notes of the Company (the "Additional Notes") substantially in the form attached
hereto as Exhibit J.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
AND PURCHASERS' REPRESENTATIVE
SECTION 5.1. PURCHASERS. Each Purchaser severally (and not jointly)
hereby represents and warrants to the Company solely as to such Purchaser that:
(a) the Purchaser is an "accredited investor" within the meaning
of Rule 501(a) under the Securities Act and the Securities to be
acquired by it pursuant to this Agreement are being acquired for its
own account and, as of the date hereof, not with a view toward, or for
sale in connection with, any distribution thereof except in compliance
with applicable United States federal and state securities law;
provided that the disposition of the Purchaser's property shall at all
times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and
the purchase of the Securities pursuant hereto are within the
Purchaser's corporate or partnership powers, as applicable, and have
been duly and validly authorized by all requisite corporate or
partnership action;
<PAGE>
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of
applicable law or regulation, or (ii) any agreement, judgment,
injunction, order, decree or other instrument binding upon such
Purchaser;
(e) such Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement;
(f) this Agreement constitutes a valid and binding agreement of
the Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable
principles of general applicability;
(g) the Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and
risks of its investment in the Securities and the Purchaser is capable
of bearing the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced
in business and financial matters; the Purchaser has previously
invested in securities similar to the Securities and fully understands
the limitations on transfer described herein; the Purchaser has been
afforded access to information about the Company and the financial
condition, results of operations, property, management and prospects of
the Company sufficient to enable it to evaluate its investment in the
Securities; the Purchaser has been afforded the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and the risks of
investing in the Securities; and the Purchaser has been afforded the
opportunity to obtain such additional information which the Company
possesses or can acquire that is necessary to verify the accuracy and
completeness of the information given to the Purchaser concerning the
Company. The foregoing does not in any way relieve the Company of its
representations and other undertakings hereunder, and shall not limit
any Purchaser's ability to rely thereon;
(i) no part of the source of funds used by the Purchaser to
acquire the Securities constitutes assets allocated to any separate
account maintained by the Purchaser in which any employee benefit plan
(or its related trust) has any interest; and
(j) the Purchaser is a corporation organized under the laws of the
Nevis West Indies.
SECTION 5.2 PURCHASERS' REPRESENTATIVE.
Purchasers' Representative hereby represents and warrants to the
Company that:
(a) the execution, delivery and performance of this Agreement are
within the Purchaser's Representative's corporate or partnership
powers, as applicable, and have been duly and validly authorized by all
requisite corporate or partnership action;
(b) this Agreement has been duly executed and delivered by the
Purchaser's Representative;
<PAGE>
(c) the execution and delivery by the Purchaser's Representative
of the Transaction Agreements to which it is a party does not, and the
consummation of the transactions contemplated hereby and thereby will
not, contravene or constitute a default under or violation of (i) any
provision of applicable law or regulation, or (ii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
such Purchaser's Representative; and
(d) this Agreement constitutes a valid and binding agreement of
the Purchaser's Representative enforceable in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency or similar laws
affecting the enforceability of creditors rights generally and (ii)
equitable principles of general applicability.
ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 6.1. CONDITIONS PRECEDENT TO THE PURCHASERS' OBLIGATION
TO PURCHASE. The obligation of each Purchaser hereunder to purchase the
Convertible Notes at the Closing is subject to the satisfaction, on or before
the Closing Date of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in its sole discretion:
(a) The Company shall have executed this Agreement, the
Registration Rights Agreement and the Put and Call Agreement and
delivered the same to the Purchasers (or the Purchasers'
Representative);
(b) The Company shall have delivered to the Purchasers duly
executed certificates representing the Convertible Notes and the
Warrants in accordance with Section 2.3 hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all respects as
of the date when made and as of the Closing Date as though made at such
time (except for representations and warranties that speak as of a
specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by
it at or prior to the Closing Date. The Purchasers' Representative
shall have received an Officer's Certificate, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably
requested by the Purchasers' Representative, including but not limited
to, certificates with respect to the Company Corporate Documents,
resolutions relating to the transactions contemplated hereby and the
incumbencies of certain officers and Directors of the Company. The form
of such certificate is attached hereto as EXHIBIT G;
(e) The Company shall have received all governmental, board of
directors, shareholders and third party consents and approvals
necessary or desirable in connection with the issuance and sale of the
Securities;
(f) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having
been taken by any competent authority that could
<PAGE>
restrain, prevent or impose any materially adverse conditions thereon
or that could seek or threaten any of the foregoing;
(g) Each of the Purchasers shall have received an opinion, dated
the Closing Date, of counsel to the Company, substantially in the form
attached as EXHIBIT I hereto;
(h) All fees and expenses due and payable by the Company on or
prior to the Closing Date shall have been paid;
(i) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of the Purchasers;
(j) There shall exist no action, suit, investigation, litigation
or proceeding pending or threatened in any court or before any
arbitrator or governmental instrumentality that challenges the validity
of or purports to affect this Agreement or any other Transaction
Agreement, or other transaction contemplated hereby or thereby or that
could reasonably be expected to have a Material Adverse Effect, or any
material adverse effect on the enforceability of the Transaction
Agreements or the Securities or the rights of the holders of the
Securities or the Purchasers hereunder;
(k) The Purchasers shall have confirmed receipt of the Convertible
Notes and the Warrants to be issued, duly executed by the Company in
the denominations and registered in the names of the Purchasers as
specified in or pursuant to SCHEDULE I;
(l) Immediately before and after the Closing Date, no Default or
Event of Default shall have occurred and be continuing; and
(m) The Purchasers shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents
as they shall reasonably request.
SECTION 6.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations
of the Company to issue and sell the Securities to the Purchasers pursuant to
this Agreement are subject to the satisfaction, at or prior to the Closing Date,
of the following conditions:
(a) The representations and warranties of the Purchasers contained
herein shall be true and correct in all material respects on the
Closing Date and the Purchasers shall have performed and complied in
all material respects with all agreements required by this Agreement to
be performed or complied with by the Purchasers at or prior to the
Closing Date;
(b) The issue and sale of the Securities by the Company shall not
be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Registration Rights Agreement and the Put and Call
Agreement signed by the Purchasers and the Purchasers' Representative;
and
(d) The Company shall have received payment of the Purchase Price
of the Convertible Notes.
<PAGE>
ARTICLE VII
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes remain outstanding (except for Sections 7.1(a),
(b) and (d), 7.8, 7.11-7.16, which shall apply for so long as any Convertible
Notes or Warrants remain outstanding) and for the benefit of the Purchasers:
SECTION 7.1. INFORMATION. The Company will deliver to each holder of
the Convertible Notes:
(a) promptly upon the filing thereof, copies of (i) all
registration statements (other than the exhibits thereto and any
registration statements on Form S-8 or its equivalent), (ii) all
reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the
Company or any Subsidiary has filed with the Commission and (iii) any
material press releases issued by the Company or any Subsidiary;
(b) within five Business Days after any officer of the Company
obtains knowledge of a Default or Event of Default , a certificate of
the chief financial officer of the Company setting forth the details
thereof and the action which the Company is taking or proposes to take
with respect thereto;
(c) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and
proxy statements so mailed and any other document generally distributed
to shareholders;
(d) if and when any member of the ERISA Group (i) gives or is
required to give notice to the PBGC of any "reportable event" (as
defined in Section 4043 of ERISA) with respect to any Plan which might
constitute grounds for a termination of such Plan under Title IV of
ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, a copy of the
notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability
under Title IV of ERISA or notice that any Multiemployer Plan is in
reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of
an intent to terminate, impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or appoint a trustee to
administer any Plan, a copy of such notice; (iv) applies for a waiver
of the minimum funding standard under Section 412 of the Code, a copy
of such application; (v) gives notice of intent to terminate any Plan
under Section 4041(c) of ERISA, a copy of such notice and other
information filed with the PBGC; (vi) gives notice of withdrawal from
any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or
(vii) fails to make any required payment or contribution to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement or makes
any amendment to any Plan or Benefit Arrangement which has resulted or
could result in the imposition of a Lien or the posting of a bond or
other security, a certificate of the chief financial officer or the
chief accounting officer of the Company setting forth details as to
such occurrence and action, if any, which the Company or applicable
member of the ERISA Group is required or proposes to take; and
(e) promptly following the commencement thereof, notice and a
description in reasonable detail of any material litigation or
proceeding to which the Company or any Subsidiary is a party which the
Company is required to disclose in its SEC Reports.
<PAGE>
SECTION 7.2. PAYMENT OF OBLIGATIONS. The Company and its Subsidiaries
will pay and discharge, at or before maturity, all their respective material
obligations, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings and will
maintain, in accordance with GAAP, appropriate reserves for the accrual of any
of the same.
SECTION 7.3. MAINTENANCE OF PROPERTY; INSURANCE. The Company and each
Subsidiary will keep, all property useful and reasonably necessary in its
business in good working order and condition, ordinary wear and tear excepted.
In addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
SECTION 7.4. MAINTENANCE OF EXISTENCE. The Company will continue, and
each Subsidiary will continue, to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 7.5. COMPLIANCE WITH LAWS. The Company and each Subsidiary will
comply, in all material respects, with all federal, state, municipal, local or
foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
SECTION 7.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company and
each Subsidiary will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to their respective businesses and activities; and will permit, during normal
business hours upon reasonable notice, the Purchasers' Representative or an
affiliate thereof, as representatives of the Purchasers, to visit and inspect
any of their respective properties, upon reasonable prior notice, to examine and
make abstracts from any of their respective books and records and to discuss
their respective affairs, finances and accounts with their respective executive
officers and independent public accountants, all at such reasonable times at
Purchasers' expense.
SECTION 7.7. INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 7.8. SUPPLEMENTAL INFORMATION. If at any time the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 7.9. USE OF PROCEEDS. The proceeds from the issuance and
sale of the Securities by the Company shall be used (i) to refinance the
indebtedness of the Company to George St. Laurent, Jr. in the aggregate
principal amount of $10,000,000, (ii) to fund the purchase price of the
acquisition of Microtech Sistemas Industria E Comercio SA in an amount equal to
approximately $5,000,000, and (iii) for general corporate purposes. None of the
proceeds from the issuance and sale of Securities by the Company pursuant to
this Agreement will be used directly or indirectly for the purpose, whether
immediate, incidental
<PAGE>
or ultimate, of purchasing or carrying any "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
SECTION 7.10. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL
CONTRACTS. The Company will comply, in all material respects, with all terms and
conditions of all material contracts to which it is subject.
SECTION 7.11. RESERVED SHARES AND LISTINGS
(a) The Company shall at all times have authorized, and reserved
for the purpose of issuance, a sufficient number of shares of Common
Stock to provide for the full conversion of the outstanding Convertible
Notes and issuance of the Conversion Shares (based on the conversion
price of the Convertible Notes in effect from time to time), and the
exercise in full of the Warrants and the issuance of the Warrant Shares
(based on the exercise price of the Warrants in effect from time to
time). The Company shall not reduce the number of shares of Common
Stock reserved for issuance upon conversion of the Convertible Notes
and exercise of the Warrants without the prior written consent of each
Purchaser. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance
(x) prior to the exercise of the Put Rights, the number that is then
issuable upon full conversion of the Convertible Notes and issuance of
the Conversion Shares and full exercise of the Warrants and issuance of
the Warrant Shares and (y) following exercise of the Put Rights, the
Sum of (I) at no less than two (2) times the number that is then
actually issuable upon full conversion of the outstanding Convertible
Notes and issuance of the Conversion Shares (based on the conversion
price of the Convertible Notes in effect from time to time) plus (II)
the number that is then issuable upon exercise of the Warrants and the
issuance of the Warrant Shares. If at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number
of Conversion Shares issued and issuable upon conversion of the
Convertible Notes and exercise of the Warrants, the Company will
promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a
special meeting of shareholders to authorize additional shares, in the
case of an insufficient number of authorized shares, and using its best
efforts to obtain shareholder approval of an increase in such
authorized number of shares.
(b) The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which the shares
of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and
Warrant Shares from time to time issuable upon conversion or exercise
of the Convertible Notes and Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on the Nasdaq
Market, the Nasdaq SmallCap Market, the New York Stock Exchange, Inc.,
or the American Stock Exchange Inc., and will comply in all respects
with the Company's reporting, filing and other obligations under the
bylaws or rules of the National Association of Securities Dealers, Inc.
(the "NASD") and such exchanges, as applicable. The Company shall
promptly provide to each Purchaser and the Purchasers' Representative
copies of any notices it receives from Nasdaq regarding the continued
eligibility of the Common Stock for listing on the Nasdaq Market.
(c) On or prior to the date that the Commission declares effective
the Registration Statement, the Company shall properly file all Listing
Applications with the Nasdaq Market associated with the shares of
Common Stock covered by such registration statement.
<PAGE>
SECTION 7.12. ISSUANCE OF SHARES OF COMMON STOCK. Upon receipt of a
Notice of Conversion or Notice of Exercise, as applicable, the Company shall
immediately issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of each Purchaser or its nominee, for the
Conversion Shares or Warrant Shares, as applicable, in such amounts as specified
from time to time by each Purchaser to the Company upon proper conversion of the
Convertible Notes or exercise of the Warrants. Upon conversion of any
Convertible Notes in accordance with their terms, and/or exercise of any Warrant
in accordance with their terms, the Company will, and will use its best lawful
efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Registration Statement contemplated
by the Registration Rights Agreement shall remain effective, the shares of
Common Stock issuable upon conversion of Convertible Notes or exercise of the
Warrants shall be issued to any transferee of such shares from a Purchaser
without any restrictive legend. The Company further warrants and agrees that no
instructions other than these instructions have been or will be given to its
transfer agent. Nothing in this Section 7.12 shall affect in any way a
Purchaser's obligations to comply with all securities laws applicable to such
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
SECTION 7.13 FORM D; BLUE SKY LAWS. The Company agrees to file a "Form
D" with respect to the Securities as required under Regulation D of the
Securities Act and to provide a copy thereof to each Purchaser promptly after
such filing. The Company shall, on or before the Closing Date, take such action
as the Company shall reasonable determine is necessary to qualify the Securities
for sale to the Purchasers at the Closing pursuant to this Agreement under
applicable securities or "blue sky" laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to each Purchaser and the Purchasers' Representative on
or prior to the Closing Date.
SECTION 7.14. RESTRICTIONS ON CERTAIN STOCKHOLDERS. Each of George C.
St. Laurent, III and William C. St. Laurent (collectively, the "Majority
Stockholders") covenants and agrees that he will not (and the Company agrees to
use its best efforts to ensure that such Majority Stockholders will not),
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of (a "Disposition") more than an aggregate of ten
percent (10%) of the shares of the Common Stock legally or beneficially owned by
such Majority Stockholders on the date of this Agreement (other than Transfers
(i) among such Majority Stockholders or their immediate families, (ii) in
connection with estate planning (subject to prior approval by the Purchasers,
which approval will not be unreasonably withheld) and (iii) Dispositions in
compliance with Rule 144 promulgated under the Securities Act) until the
Convertible Notes have been paid in full, redeemed, fully converted or otherwise
cease to be outstanding obligations of the Company, without the prior written
obtaining consent of the Majority Holders and (iv) Dispositions in connection
with options granted to employees of the Company or its Subsidiaries to acquire
in the aggregate not more than 250,000 of Common Stock held by the Majority
Stockholders.
SECTION 7.15 OBSERVER RIGHTS. As long as the Purchasers own, in the
aggregate, not less than twenty five percent (25%) of the Convertible Notes
purchased hereunder (or an equivalent amount of Common Stock issued upon
conversion thereof), the Company shall use its best efforts to cause and
maintain the election of a representative of the Purchasers' Representative as
an advisory director of the Company (the "Advisory Director"). The Advisory
Directory will have all the rights of a director (exclusive of payment of
director fees) pursuant to the Company's Corporate Documents but will not attend
meetings of the Company's Board of Directors and will not be entitled to vote on
matters submitted for the Board's approval. The Company shall provide to the
Advisory Director copies of all notices, minutes, consents, and other materials
that it provides to its Directors (including but not limited to the minutes of
shareholders' meetings); provided, however, that the Advisory Director shall
agree to hold in confidence and trust and to act in a fiduciary manner with
respect to all information so provided; and,
<PAGE>
provided further, that the Company reserves the right to withhold any
information or portion thereof if access to such information or attendance at
such meeting could adversely affect the attorney-client privilege between the
Company and its counsel or would result in disclosure of trade secrets to the
Advisory Director. At the request of the Purchasers' Representative, key members
of the Company's management and executive officers will meet with the Advisory
Director no less than four (4) times per calendar year, at the Company's
facilities and at the Company's expense. For purposes of the preceding sentence
of this Section 7.15, a board of directors meeting shall constitute a meeting of
key members of the Company's management; provided, such key members of the
Company's management shall be available to meet with the Advisory Director for a
reasonable period of time prior to or following such board meetings.
SECTION 7.16 RIGHT OF FIRST REFUSAL. During the period beginning on the
date hereof and ending on the earliest to occur of (i) the completion of the
First Put Right (as defined in the Put and Call Agreement), (ii) completion of
the Second Put Right (as defined in the Put and Call Agreement), (iii) the date
that a mandatory redemption is completed as described in Sections 3.3 and 3.4 of
this Agreement, (iv) the date that all of the Convertible Notes have been called
pursuant to the Call Option (as defined in the Put and Call Agreement) and such
transaction is completed or (v) the date that all of the Convertible Notes are
paid in full, (the "Lock-Up Period"), the Company will not conduct any equity
financing (including debt with an equity component) ("Future Offerings") unless
it shall have first delivered to each Purchaser and the Purchasers'
Representative, at least fifteen (15) Business days prior to the closing of such
Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing each Purchaser an
option during the ten (10) day period following delivery of such notice to
purchase its pro rata share (based on the ratio that the number of Convertible
Notes purchased hereunder bears to the total number of Convertible Notes) of the
securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence are collectively referred to as the "Capital Raising Limitations"). The
Purchasers may exercise the right of first refusal set forth herein (x) for
Future Offerings in excess of $20,000,000, for all or any portion thereof, and
(y) for Future Offerings of $20,000,000 or less, for all, but not less than all,
of the Future Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the Securities Act) or (ii) issuances of securities in connection with
(A) a merger, consolidation or sale of assets, (B) in connection with any
strategic partnership or joint venture (the primary purpose for which is not to
raise equity capital), or (C) in connection with the disposition or acquisition
of a business, product or license by the Company. The Capital Raising
Limitations also shall not apply to (i) the issuance of securities upon exercise
or conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof, (ii) the grant of additional options or
warrants, or the issuance of additional securities under any Company stock
option or restricted stock plan existing on the date hereof, or, if established
hereafter, approved by a majority of the Company's disinterested Directors or
(iii) the issuance of Common Stock at the market price prevailing on the date of
issuance to employees and Directors wishing to purchase additional shares on
terms approved by a majority of the disinterested members of the Board of
Directors.
ARTICLE VIII
NEGATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so
long as any Convertible Notes remain outstanding and for the benefit of the
Purchasers:
<PAGE>
SECTION 8.1. LIMITATION ON DEBT OR OTHER LIABILITIES. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at any
time after the Closing Date, after giving effect to the application of the
proceeds of the issuance of the Securities) any Debt if, following the
incurrence thereof, the ratio of the Company's Debt to its Consolidated Net
Worth is greater than 1.75 to 1.00; PROVIDED, the following items of Debt shall
be excluded from such calculation (such Debt being referred to as "Permitted
Debt"):
(i) Non-recourse Debt which Debt, by its terms, bars the lender thereof
from action against the Company or any Subsidiary, as borrower, if the security
value falls below the amount required to repay such Debt;
(ii) Debt incurred in connection with equipment leases to which the
Company or its Subsidiaries are a party incurred in the ordinary course of
business; and
(iii) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business.
SECTION 8.2. RESTRICTED PAYMENTS. [RESERVED]
SECTION 8.3. INVESTMENTS. [RESERVED]
SECTION 8.4. TRANSACTIONS WITH AFFILIATES. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment in (whether by acquisition of stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, any Debt, or otherwise), lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (i) pursuant
to those agreements specifically identified on SCHEDULE 8.4 attached hereto
(with a copy of such agreements annexed to such SCHEDULE 8.4) or (ii) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms' length, as determined in good
faith by the Board of Directors of the Company; PROVIDED that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
SECTION 8.5. MERGER OR CONSOLIDATION. The Company will not, in a single
transaction or a series of related transactions, (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless (w) either (A) the Company shall be the survivor
of such merger or consolidation or (B) the surviving Person shall expressly
assume by supplemental agreement all of the obligations of the Company under the
Securities and this Agreement; (x) immediately before and immediately after
giving effect to such transaction (including any indebtedness incurred or
anticipated to be incurred in connection with the transaction), no Default or
Event of Default shall have occurred and be continuing; (y) if the Company is
not the surviving entity, such surviving entity's common shares shall be listed
on either The New York Stock Exchange, American Stock Exchange, or the Nasdaq
Stock Market's National Market or the Nasdaq Small Cap Market and (z) the
Company has delivered to the Purchasers an officers' certificate stating that
such consolidation, merger or transfer complies with this Agreement, that the
surviving Person agrees to be bound by all of the agreements and covenants set
forth in the Transaction Agreements as if such surviving Person is the Company,
and that all conditions precedent in this Agreement relating to such transaction
have been satisfied.
<PAGE>
SECTION 8.6. RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company
nor any Subsidiary will waive any provision of, amend, or suffer to be amended,
any provision of such entity's existing indebtedness, any material contract or
agreement previously or hereafter filed by the Company with the Commission as
part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate
Document if such amendment, in the Company's reasonable judgment, would
materially adversely affect the Purchasers or the holders of the Securities
without the prior written consent of the Majority Holders, which such consent
shall not be unreasonably withheld.
SECTION 8.7. LIMITATION ON ASSET SALES. Neither the Company nor any
Subsidiary will consummate an Asset Sale unless (a) it receives consideration in
cash at the time of such Asset Sale at least equal to the fair market value of
the assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors) and (b) the Net Cash Proceeds of such sale are
used either (i) to purchase similar assets in the same line of business of
equivalent value within twelve (12) months of the date of the Asset Sale or (ii)
to immediately redeem or prepay the Convertible Notes or (iii) for a combination
of purchases and prepayment permitted by the foregoing clauses (i) and (ii). As
used herein, "Asset Sale" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
capital stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition"), including any disposition by means of a merger,
consolidation or similar transaction (other than as permitted under Section
8.5), other than a disposition of property or assets in the ordinary course of
business.
SECTION 8.8. LIMITATION ON SUBSIDIARIES. Neither the Company nor any
Subsidiary shall permit the creation of any Subsidiaries in which the Company,
directly or indirectly, does not own at least a majority of the outstanding
equity interests, unless approved by the Majority Holders, which such consent
shall not be unreasonably withheld.
SECTION 8.9. LIMITATION ON STOCK REPURCHASES. So long as any of the
Convertible Notes are outstanding, the Company shall not, without the prior
written consent of the Majority Holders, redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
in any rolling twelve (12) month period more than five percent (5%) of the
shares of capital stock of the Company or any warrants, rights or options to
purchase or acquire any such shares held by persons others than the Majority
Holders.
ARTICLE IX
LIMITATION ON TRANSFERS
SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
SECTION 9.2. RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 7.12 and Section
9.1 hereof) include a legend in substantially the following form:
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities other than a transfer (i) registered under the
Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act, provided
that any such transferee shall agree to be bound by the terms of this Agreement,
and (iii) to be made in reliance on Rule 144 under the Securities Act, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such Transfer, setting forth the manner and circumstances of
the proposed Transfer, which shall be accompanied by (A) an opinion of counsel
to the Company, confirming that such transfer does not give rise to a violation
of the Securities Act, (B) representation letters in form and substance
reasonably satisfactory to the Company to ensure compliance with the provisions
of the Securities Act and (C) letters in form and substance reasonably
satisfactory to the Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the Company shall have
received such notice of transfer, opinion of counsel, representation letters and
other letters referred to in the immediately preceding sentence, whereupon the
holder of such Securities shall be entitled to Transfer such Securities in
accordance with the terms of the notice delivered by the holder to the Company.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. LIQUIDATED DAMAGES.
(a) The Company shall, and shall use its best efforts to cause its
transfer agent to, issue and deliver shares of Common Stock within five
(5) New York Stock Exchange Trading Days of delivery of a properly
completed Notice of Conversion or Notice of Exercise, as applicable
(the "Deadline") to the Purchaser (or any party receiving Securities by
Transfer from such Purchaser) at the address of the Purchaser set forth
in the Notice of Conversion or Notice of Exercise, as the case may be.
Consistent with Section 7.12 hereof, if such Notice of Conversion or
Notice of Exercise, as applicable, is delivered while the Registration
Statement is effective, such certificates shall be delivered without
restrictive legend. The Company understands that a delay in the
issuance of such certificates after the Deadline could result in
economic loss to the Purchaser.
(b) Without in any way limiting the Purchaser's right to pursue
other remedies, including actual damages and/or equitable relief, the
Company agrees that if delivery of the Conversion Shares or Warrant
Shares following delivery of a properly completed Notice of Conversion
or Notice of Exercise is more than one (1) Business Day after the
Deadline (other than a failure due to the circumstances described in
Section 4.3 of the Convertible Notes, which failure shall be governed
by such Section) the Company shall pay to each Purchaser as liquidated
damages and not a penalty $1,000 per day in cash, for each of the first
two (2) days beyond the Deadline and $2,500 per day in cash for each
day thereafter that the Company fails to deliver such Common Stock.
Such cash amount shall be paid to each Purchaser by the fifth day of
the month following
<PAGE>
the month in which it has accrued or, at the option of the Purchaser
(by written notice to the Company by the first day of the month
following the month in which it has accrued), shall be added to the
principal amount of the Convertible Note payable to such Purchaser, in
which event interest shall accrue thereon in accordance with the terms
of the Convertible Notes and such additional principal amount shall be
convertible into Common Stock in accordance with the terms of the
Convertible Notes.
SECTION 10.2. CONVERSION NOTICE. The Company agrees that, in addition
to any other remedies which may be available to the Purchasers, including, but
not limited to, the remedies available under Section 10.1, in the event the
Company fails for any reason (other than as a result of actions taken by a
Purchaser in breach of this Agreement) to effect delivery to a Purchaser of
certificates as contemplated by Section 10.1 representing the shares of Common
Stock on or prior to the Deadline after conversion of any Convertible Notes, or
certificates contemplated by Section 10.1 after exercise of any Warrant, such
Purchaser will be entitled, if prior to the delivery of such certificates, to
revoke the Notice of Conversion or Notice of Exercise, as applicable, by
delivering a notice to such effect to the Company whereupon the Company and the
Purchaser shall each be restored to their respective positions immediately prior
to delivery of such Notice of Conversion or Notice of Exercise.
SECTION 10.3 CONVERSION LIMIT.
(a) Notwithstanding the conversion rights under the Convertible
Notes and exercise rights under the Warrants, unless the Purchaser
delivers a waiver in accordance with the immediately following
sentence, in no event shall the Holder be entitled to convert any
portion of the Convertible Notes (or exercise any portion of the
Warrants) in excess of that portion of the Convertible Notes or
Warrants upon conversion and exercise, as applicable, of which the sum
of (i) the number of shares of Common Stock beneficially owned by the
Purchaser and its affiliates (other than shares of Common Stock which
may be deemed beneficially owned through the ownership of the
unconverted portion of the Convertible Note and exercised portion of
the Warrants) plus (ii) the number of shares of Common Stock issuable
upon the conversion of the portion of the Convertible Note (or issuable
upon exercise the portion of the Warrants) with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by such Purchaser and its affiliates of more than 4.9% of the
outstanding shares of Common Stock (the "Limitation on Conversion").
For purposes of the first proviso to the immediately preceding
sentence, (i) beneficial ownership shall be determined in accordance
with Section 13(d) of the Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder, except as otherwise provided in clause (1)
of such proviso and (ii) the Holder may waive the limitations set forth
therein by written notice to the Company upon not less than sixty-one
(61) days prior notice (with such waiver taking effect only upon the
expiration of such 61-day notice period). The foregoing limitation
shall not apply and shall be of no further force or effect (i) upon the
occurrence of any voluntary or mandatory redemption transaction
described herein or in the Convertible Notes or Put and Call Agreement,
(ii) on the Maturity Date or (iii) following the occurrence of any
Event of Default which is not cured within the greater of the
applicable time period specified either in (A) such written notice of
Purchaser or (B) Section 12.1 hereof.
(b) Upon the occurrence of a Nasdaq Redemption Event, the Company
shall (x) repay the remaining balance of the Convertible Notes at the
Formula Price as required by Section 4.3(d) of each Convertible Note
and (y) redeem the Warrants contemporaneous with the repayment of the
Convertible Notes at the Warrant Redemption Price. The term "Warrant
Redemption Price" shall mean the greater of (x) the appraised value of
the Warrants on the date they are required to be redeemed (determined
with reference to the "Black Scholes" or similar option pricing model)
and
<PAGE>
(y) the product of the excess of (i) the Market Value of the Common
Stock on the date that the Warrants are redeemed over (ii) the exercise
price of the Warrants.
SECTION 10.4 REGISTRATION RIGHTS.
(a) The Company shall grant the Purchasers registration rights
covering the Conversion Shares and Warrant Shares (the "Registrable
Securities") on the terms set forth in the Registration Rights
Agreement.
(b) The Company shall prepare and file, no later than November 20,
1997, a registration statement (the "Registration Statement") on Form
S-3 (or such other form as is then available for registration) covering
the sale of the Registrable Securities. The Company shall use its best
efforts to cause the Registration Statement to be declared effective by
the Commission no later than January 15, 1998 (the "Required
Effectiveness Date"). The Company shall pay all expenses of
registration (other than underwriting fees and discounts, if any, in
respect of Registrable Securities offered and sold under such
Registration Statement by the Purchasers).
(c) If the Registration Statement is (i) not declared effective by
the Commission by the Required Effectiveness Date, or (ii) such
effectiveness is not maintained for a period of six (6) years after the
Closing Date (subject to the right of the Company to suspend the
effectiveness thereof for not more than thirty (30) consecutive days or
an aggregate of ninety (90) days during such six year period) (the
"Registration Maintenance Period"), and provided the Purchasers have
not unreasonably delayed providing any information concerning the
Purchasers as selling shareholders as may be reasonably requested by
the Company for inclusion in the Registration Statement, the Company
shall pay to each Purchaser monthly, as liquidated damages and not as a
penalty, the greater of (x) its pro rata portion of an amount equal to
1.5% of the aggregate outstanding principal amount of the Convertible
Notes, which monthly amount will be increased to 2% in the event that
the Registration Statement is not declared effective by the Commission
by February 15, 1998, or (y) $2,500 for each day the Registration
Statement (A) is not declared effective by the Commission by the
Required Effectiveness Date or (B) such effectiveness is not maintained
for the Required Maintenance Period (the "Default Fee").
(d) Any such Default Fee shall be paid in cash by the Company to
the Purchasers by wire transfer in immediately available funds on the
last day of each calendar week following the event requiring its
payment.
(e) If, for any reason (including but not limited to the issuance
of all shares of Common Stock covered by the prospectus included in the
Registration Statement), the Default Fee is incurred for a period of
thirty (30) days (a "Registration Default"), the holders of a majority
of the Convertible Notes then outstanding may elect to cause the
Company to repay the Convertible Notes in full at the Formula Price.
SECTION 10.5 PROHIBITION ON DISCOUNTED EQUITY OFFERINGS.
(a) Until such time as all of the Convertible Notes have been repaid or
converted in full, the Company agrees that it will not issue (or, unless such
issuance would, upon the closing thereof, result in the repayment in full of the
Convertible Notes, agree to issue) any of its equity securities (or securities
convertible into or exchangeable or exercisable for equity securities
(collectively, the "Derivative Securities"), on terms that allow a holder
thereof to acquire such equity securities (or Derivative Securities) at a
discount to the Market Price of the Common Stock at the time of issuance or, in
the case of Derivative Securities (other than the Convertible Notes), at a
conversion price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of issuance
so long as such conversion is not below the
<PAGE>
Market Price on the date of issuance (each such event, a "Discounted Equity
Offering"). As used herein, "discount" shall include, but not be limited to, (i)
any warrant, right or other security granted or offered in connection with such
issuance which, on the applicable date of grant, is offered with an exercise or
conversion price, as the case may be, at less than the then current Market Price
of the Common Stock or, if such security has an exercise or conversion price
based on any formula (other than standard anti-dilution provisions) based on the
Market Price on a date later than the date of issuance, then at a price below
the Market Price on such date of exercise or conversion, as the case may be, or
(ii) any commissions, fees or other allowances paid in connection with such
issuances (other than customary underwriter or placement agent commissions, fees
or allowances). For the purposes of determining the Market Price at which Common
Stock is acquired under this Section, normal underwriting commissions and
placement fees (including underwriters' warrants) shall be excluded.
(b) Until such time as all of the Convertible Notes have been repaid or
converted in full, the Company agrees it will not issue (or, unless such
issuance would, upon the closing thereof, result in the repayment in full of the
Convertible Notes, agree to issue) any of its equity securities (or Derivative
Securities), unless any shares of Common Stock issued or issuable in connection
therewith are "restricted securities". As used herein "restricted securities"
shall mean securities which may not be sold by virtue of contractual
restrictions imposed by the Company either pursuant to an exemption from
registration under the Securities Act or pursuant to a registration statement
filed by the Company with the Commission, in each case prior to eighteen (18)
months following the date of issuance of such securities.
(c) The restrictions contained in this Section 10.5 shall not apply to
the issuance by the Company of (or the agreement to issue) Common Stock or
Derivative Securities in connection with (i) the acquisition (including by
merger) of a business or of assets otherwise permitted under this Agreement,
(ii) stock option or other compensatory plans, or (iii) the existing convertible
note issued to George St. Laurent, Jr. and warrants issued to the underwriters
in the Company's initial public offering.
(d) Notwithstanding the foregoing, the restrictions contained in this
Section 10.5 shall not apply if (i) the Purchasers exercise the Put Rights, (ii)
the Company exercises its rights to repurchase the Convertible Notes following
such exercise and (iii) the Company remains timely in all of its payment
obligations under the Put and Call Agreement related to such repayment. If the
Company defaults in clause (iii) above, or if the Company does not apply 100% of
the Net Cash Proceeds from the applicable offering to repay the Convertible
Notes, then the Convertible Notes shall be repayable pursuant to the terms of
this Agreement and the Put and Call Agreement, together with the "additional
prepayment amount". The "additional prepayment amount" shall mean a dollar
amount based upon the amount of the discount to the Market Price in such
offering multiplied by the amount of shares issued or issuable as Derivative
Securities in such offering.
ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. REORGANIZATION. The exercise price of the Warrants set
forth therein and the Initial Conversion Price, and the Maximum Number of Shares
(collectively, the "Fixed Prices") shall be adjusted as hereafter provided.
<PAGE>
SECTION 11.2. SHARE REORGANIZATION. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock
or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization", then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(i) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to
the transaction); and
(ii) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into
or exchangeable for shares of Common Stock, the number of shares of
Common Stock that would have been outstanding if such securities had
been converted into or exchanged for Common Stock on such record or
effective date.
SECTION 11.3. RIGHTS OFFERING. If and whenever the Company shall issue
to all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than forty-five (45) days after the record date of such issue, to subscribe
for or purchase Common Stock (or Derivative Securities), at a price per share
(or, in the case of Derivative Securities, at an exchange or conversion price
per share at the date of issue of such securities) of less than 95% of the
Market Price of the Common Stock on such record date (any such event being
herein called a "Rights Offering"), then in each such case the applicable Fixed
Price shall be adjusted, effective immediately after the record date at which
holders of Common Stock are determined for the purposes of the Rights Offering,
by multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the sum of:
(A) the number of shares of Common Stock outstanding on such
record date; and
(B) a number obtained by dividing:
(I) either,
<PAGE>
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at which
such shares are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and
the conversion or exchange price of such securities,
or, as the case may be, by
(II) the Market Price of the Common Stock on such record date; and
(ii) the denominator shall be the sum of:
(A) the number of shares of Common Stock outstanding on such
record date; and
(B) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of Derivative Securities),
the maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the applicable Fixed Price shall be readjusted
effective immediately after such expiry time to the applicable Fixed Price which
would then have been in effect upon the number of shares of Common Stock (or
Derivative Securities) actually delivered upon the exercise of such rights,
options or warrants.
SECTION 11.4. SPECIAL DISTRIBUTION. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary
course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of
the shares, rights, options, warrants, evidences of indebtedness or
other assets issued or distributed in the Special Distribution (net of
any consideration paid therefor by the holders of Common Stock), and
<PAGE>
(ii) the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of
the Common Stock on such date.
SECTION 11.5. CAPITAL REORGANIZATION. If and whenever there shall
occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares,
other than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets of
the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Notes or
exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion of the Convertible Notes; provided, however, that no such
Capital Reorganization shall be consummated in effect unless all necessary steps
shall have been taken so that such holders of the Convertible Notes shall
thereafter be entitled to receive such number of shares or other securities of
the Company or of the body corporate resulting from such Capital Reorganization,
subject to adjustment thereafter in accordance with provisions the same, as
nearly as may be possible, as those contained above.
SECTION 11.6. ADJUSTMENT RULES. The following rules and procedures
shall be applicable to adjustments made in this Article XI:
(a) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect; provided, however, that any
adjustments which, but for the provisions of this clause would
otherwise have been required to be made, shall be carried forward and
taken into account in any subsequent adjustment;
(b) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article XI in respect of the issue from time to time
of Common Stock to holders of Common Stock who exercise an option to
receive substantially equivalent dividends in Common Stock in lieu of
receiving cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
accountants selected by the Directors of the Company and any such
determination shall be binding upon the Company and Purchasers.
SECTION 11.7. CERTIFICATE AS TO ADJUSTMENT. The Company shall from time
to time promptly after the occurrence of any event which requires an adjustment
in the applicable Fixed Price
<PAGE>
deliver to the Purchasers a certificate specifying the nature of the event
requiring the adjustment, the amount of the adjustment necessitated thereby, the
applicable Fixed Price after giving effect to such adjustment and setting forth,
in reasonable detail, the method of calculation and the facts upon which such
calculation is based.
SECTION 11.8. NOTICE TO NOTEHOLDERS. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of
shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII
EVENTS OF DEFAULT
SECTION 12.1. EVENTS OF DEFAULT. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any
part of the principal on any of the Convertible Notes (whether by
virtue of the agreements specified in this Agreement, the Convertible
Notes or in the Put and Call Agreement);
(b) failure by the Company to pay (i) within three (3) Business
Days of the due date thereof any interest on any Convertible Notes or
(ii) within five (5) Business Days following the delivery of notice to
the Company of any fees or any other amount payable (not otherwise
referred to in (a) above or this clause (b)) by the Company under this
Agreement;
(c) failure by the Company to timely comply with the requirements
of Section 10.1(a) or (b) hereof, which failure is not cured within
seven (7) days of such failure;
(d) an event of default shall have occurred and is continuing
under any Transaction Document;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 7.9, 7.12, 7.14 or 7.16 or any section
of Article VIII of this Agreement;
<PAGE>
(f) failure on the part of the Company to observe or perform any
covenant contained in any Transaction Agreement (other than those
covered by clauses (a), (b), (c), (d) or (e) above) for thirty (30)
days from the date of such occurrence;
(g) the trading in the Common Stock shall have been suspended by
the Commission or by the Nasdaq Market (except for any suspension of
trading of limited duration solely to permit dissemination of material
information regarding the Company and except if, at the time there is
any suspension on the Nasdaq Market, the Common Stock is then listed
and approved for trading on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock Market's SmallCap Market, or
the Nasdaq Market within two (2) Trading Days thereof);
(h) failure of the Company to file the Listing Applications, which
failure is not cured within fifteen (15) Business Days of such failure;
(i) the Company shall have its Common Stock delisted from the
Nasdaq Market for at least ten (10) consecutive Trading Days and is
unable to obtain a listing on either the New York Stock Exchange, the
American Stock Exchange, the Nasdaq Stock Market's SmallCap Market or
the Nasdaq Market within such ten (10) Trading Days;
(j) the Registration Statement shall not have been declared
effective by the Commission, or if declared effective, such
effectiveness was not maintained for the Registration Maintenance
Period, in either case, which results in the Company incurring the
Default Fee for a period in excess of thirty (30) days;
(k) the Company has commenced a voluntary case or other proceeding
seeking liquidation, winding-up, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency,
moratorium or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or has
consented to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or has made a general assignment for
the benefit of creditors, or has failed generally to pay its debts as
they become due, or has taken any corporate action to authorize any of
the foregoing;
(l) an involuntary case or other proceeding has been commenced
against the Company seeking liquidation, winding-up, reorganization or
other relief with respect to it or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of sixty (60) days, or an
order for relief has been entered against the Company under the federal
bankruptcy laws as now or hereafter in effect;
(m) default in respect of any Debt in excess of $1,000,000 of the
Company or any Subsidiary, or the Company or any Subsidiary has failed
to pay at maturity or within any applicable period of grace any such
Debt;
(n) judgments or orders for the payment of money which in the
aggregate at any one time exceed $1,000,000 and are not covered by
insurance have been rendered against the Company or any Subsidiary by a
court of competent jurisdiction and such judgments or orders shall
continue unsatisfied and unstayed for a period of sixty (60) days;
<PAGE>
(o) any representation, warranty, certification or statement made
by the Company in any Transaction Agreement or which is contained in
any certificate, document or financial or other statement furnished at
any time under or in connection with any Transaction Agreement shall
prove to have been untrue in any material respect when made; or
(p) any member of the ERISA Group has failed to pay when due an
amount or amounts aggregating in excess of $100,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan has been filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of
the foregoing; or the PBGC has instituted proceedings under Title IV of
ERISA to terminate, to impose liability (other than for premiums under
Section 4007 of ERISA) in respect of, or to cause a trustee to be
appointed to administer any Material Plan; or a condition has existed
by reason of which the PBGC is entitled to obtain a decree adjudicating
that any Material Plan must be terminated; or there has occurred a
complete or partial withdrawal from, or a default, within the meaning
of Section 4219(c) (5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more members of the ERISA
Group to incur a current payment obligation in excess of $100,000.
then, and in every such occurrence, the Majority Holders may, with respect to an
Event of Default specified in paragraphs (a) or (b), and the Majority Holders
may, with respect to any other Event of Default, by notice to the Company,
declare the Convertible Notes to be, and the Convertible Notes shall thereon
become immediately due and payable; provided that in the case of any of the
Events of Default specified in paragraph (k) or (l) above with respect the
Company or any Subsidiary, then, without any notice to the Company or any other
act by any Purchaser, the entire amount of the Convertible Notes shall become
immediately due and payable, provided further, if any Event of Default has
occurred and is continuing, and irrespective of whether any Convertible Note has
been declared immediately due and payable hereunder, any Purchaser of the
Convertible Notes may proceed to protect and enforce the rights of such
Purchaser by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Convertible Note, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise, and provided further, in the case of any Event
of Default, the amount declared due and payable on the Convertible Notes shall
be the Formula Price thereof.
SECTION 12.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Notes or by law
may be exercised from time to time, and as often as shall be deemed expedient,
by the Purchasers.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its
<PAGE>
address set forth on the signature pages hereof, or such other address as such
party may hereafter specify for the purpose to the other parties. Each such
notice, demand or other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified on
the signature page hereof, (ii) if given by mail, four (4) days after such
communication is deposited in the mail with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in or pursuant to this Section.
SECTION 13.2. NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any
other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented
or waived if, but only if, such amendment, supplement or waiver is in
writing and is signed by the Company and the Majority Holders;
provided, that without the consent of each holder of any Convertible
Note affected thereby, an amendment or waiver may not (a) reduce the
aggregate principal amount of Convertible Notes whose holders must
consent to an amendment or waiver, (b) reduce the rate or extend the
time for payment of interest on any Convertible Note, (c) reduce the
principal amount of or extend the stated maturity of any Convertible
Note or (d) make any Convertible Note payable in money or property
other than as stated in such Convertible Note. In determining whether
the holders of the requisite principal amount of Convertible Notes have
concurred in any direction, consent, or waiver as provided in any
Transaction Agreement, Convertible Notes which are owned by the Company
or any other obligor on or guarantor of the Convertible Notes, or by
any Person Controlling, Controlled by, or under Common Control with any
of the foregoing, shall be disregarded and deemed not to be outstanding
for the purpose of any such determination; and provided further that no
such amendment, supplement or waiver which affects the rights of the
Purchasers and their affiliates otherwise than solely in their
capacities as holders of Convertible Notes shall be effective with
respect to them without their prior written consent.
SECTION 13.3. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Purchaser, its Affiliates, and each Person, if any, who controls such
Purchaser, or any of its Affiliates, within the meaning of the
Securities Act or the Exchange Act (each a "Controlling Person"), and
the respective partners, agents, employees, officers and directors of
each Purchaser, their Affiliates and any such Controlling Person (each
an "Indemnified Party" and collectively, the "Indemnified Parties"),
from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation, and as incurred, reasonable
costs of investigating, preparing or defending any such claim or
action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs
to any Indemnified Party other than the Purchasers unless it has
received from such Indemnified Party an undertaking to repay to the
Company the costs so advanced if it should be determined by final
judgment of a court of competent jurisdiction that such Indemnified
Party was not entitled to indemnification hereunder with respect to
such costs) which may be incurred by such Indemnified Party in
connection with any investigative, administrative or judicial
proceeding brought or threatened that relates to or arises out of, or
is in connection with any activities contemplated by any Transaction
Agreement or any other services rendered in connection herewith;
provided that the Company will not be responsible for any claims,
liabilities losses, damages or expenses that are determined by final
<PAGE>
judgment of a court of competent jurisdiction to result from such
Indemnified Party's gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party
with respect to which indemnity may be sought against the Company under
this Agreement, such Indemnified Party shall promptly notify the
Company in writing and the Company, at its option, may, assume the
defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party and payment of all reasonable
fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party
under this Agreement or otherwise unless the Company is materially
adversely affected by such failure. Such Indemnified Party shall have
the right to employ separate counsel in such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Party, unless: (i) the Company has
failed to assume the defense and employ counsel or (ii) the named
parties to any such action (including any impleaded parties) include
such Indemnified Party and the Company, and such Indemnified Party
shall have been advised by counsel that there may be one or more legal
defenses available to it which are different from or additional to
those available to the Company, in which case, if such Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not,
in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be responsible hereunder for the reasonable fees and
expenses of more than one such firm of separate counsel, in addition to
any local counsel, which counsel shall be designated by the Purchasers.
The Company shall not be liable for any settlement of any such action
effected without the written consent of the Company (which shall not be
unreasonably withheld) and the Company agrees to indemnify and hold
harmless each Indemnified Party from and against any loss or liability
by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written
consent of the Purchasers, settle or compromise or consent to the entry
of any judgment in or otherwise seek to terminate any pending or
threatened action, claim, suit or proceeding in respect to which
indemnification or contribution may be sought hereunder (whether or not
any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties,
satisfactory in form and substance to the Purchasers, from all
liability arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party
harmless, then in lieu of indemnifying such Indemnified Party, the
Company shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claims, liabilities, losses,
damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand
and by the Purchasers on the other from the transactions contemplated
by this Agreement or (ii) if the allocation provided by clause (i) is
not permitted under applicable law, in such proportion as is
appropriate to reflect not only the relative benefits received by the
Company on the one hand and the Purchasers on the other, but also the
relative fault of the Company and the Purchasers as well as any other
relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified
Parties shall not exceed the amount of interest and fees actually
received by the Purchasers pursuant to this Agreement. It is hereby
further agreed that the relative benefits to the Company on the one
hand and the Purchasers on the other with respect to the transactions
<PAGE>
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact
or the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchasers and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to
any liability the Company may have to any Indemnified Party at common
law or otherwise, (ii) shall survive the termination of this Agreement
and the other Transaction Agreements and the payment in full of the
Convertible Notes and (iii) shall remain operative and in full force
and effect regardless of any investigation made by or on behalf of the
Purchasers or any other Indemnified Party.
SECTION 13.4. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay
(i) (i) the Expense Reimbursement Fee, (ii) all reasonable out-of-pocket
expenses of the Purchasers, including fees and disbursements of counsel, in
connection with any waiver or consent hereunder or under any other Transaction
Document or any amendment hereof or thereof and (iii) all reasonable
out-of-pocket expenses of the Purchasers and each holder of Securities,
including fees and disbursements of counsel, in connection with any collection,
bankruptcy, insolvency and other enforcement proceedings resulting therefrom. In
addition, the Company agrees to pay any and all stamp, transfer and other
similar taxes, assessments or charges payable in connection with the execution
and delivery of any Transaction Agreement or the issuance of the Securities to
the Purchasers, excluding their assigns.
SECTION 13.5. PAYMENT. The Company agrees that, so long as a Purchaser
shall own any Convertible Notes purchased by it from the Company hereunder, the
Company will make payments to such Purchaser of all amounts due thereon by wire
transfer by 1:00 P.M. (New York City time) on the date of payment.
SECTION 13.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and upon the Purchasers and their respective successors and
assigns; provided that the Company shall not assign or otherwise transfer its
rights or obligations under this Agreement to any other Person without the prior
written consent of the Majority Holders. All provisions hereunder purporting to
give rights to Purchasers and their affiliates or to holders of Securities are
for the express benefit of such Persons and their successors and assigns.
SECTION 13.7. BROKERS. The Company represents and warrants that it has
not employed any broker, finder, financial advisor or investment banker who
would be entitled to any brokerage, finder's or other fee or commission payable
by the Company or the Purchasers in connection with the sale of the Securities.
Each Purchaser hereby warrants that it has not employed any broker, finder,
financial advisor or investment banker who would be entitled to any brokerage,
finder's or other fee or commission payable by the Company in connection with
the sale of the Securities.
SECTION 13.8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY
HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE
COURT SITTING IN NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE
<PAGE>
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.
SECTION 13.9. FURTHER ASSURANCE. The Company, the Purchasers
Representative and the Purchasers shall each take such further actions as
requested by any party hereto which are necessary, desirable or proper to carry
out the purposes of this Agreement and each Transaction Agreement.
SECTION 13.10. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
SECTION 13.11 SURVIVAL. All provisions contained in this Agreement
(unless specifically noted to the contrary) shall survive the payment in full of
the Convertible Notes and shall remain operative and in full force and effect.
SECTION 13.12. COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[SIGNATURE PAGES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
VITECH AMERICA, INC.
By: /s/ EDWARD KELLY
------------------------
Name: Edward Kelly
Title: CFO
Address: 8807 Northwest 23rd Street
Miami, Florida 33172-2419
Telephone: (305) 477-1161
Fax: (305)477-1379
Attn: Edward Kelly
With a copy to: Atlas, Pearlman, Trop & Borkson
New River Center, Ste. 1900
200 East Las Olas Blvd.
Fort Lauderdale, Florida 33301
Fax: (954) 766-7800
Attn: Joel Mayersohn, Esq.
IF TO PURCHASERS:
INFINITY INVESTORS LIMITED
By: /s/ CLARK HUNT
-------------------------
Name:
--------------------
Title:
-------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: /s/ CLARK HUNT
-------------------------
Name:
--------------------
Title:
-------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
<PAGE>
GLACIER CAPITAL LIMITED
By: /s/ CLARK HUNT
------------------------
Name:
-------------------
Title:
------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
SUMMIT CAPITAL LIMITED
By: /s/ CLARK HUNT
-------------------------
Name:
--------------------
Title:
-------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
1601 Elm Street
Dallas, Texas 75201
Telephone: (214)720-1689
Fax: (214)720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1689
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
<PAGE>
ACKNOWLEDGED AND AGREED:
PURCHASERS' REPRESENTATIVE:
HW PARTNERS, L.P.
By: HW Finance, L.L.C.,
its general partner
By: /s/ CLARK HUNT
-------------------
Title:
----------------
MAJORITY STOCKHOLDERS' ACKNOWLEDGEMENT OF SECTION 7.14
The undersigned persons hereby acknowledge Section 7.14 of this
Agreement and agree to be bound by the restrictions imposed by such Section in
their individual capacities.
/s/ WILLIAM ST. LAURENT
-----------------------
William C. St. Laurent
/s/ GEORGES C. ST. LAURENT III
- ------------------------------
George C. St. Laurent, III
EXHIBIT 10.2
FORM OF CONVERTIBLE PROMISSORY NOTE DATED OCTOBER 10, 1997 FOR THE INVESTORS.
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A SECURITIES
PURCHASE AGREEMENT AND PUT AND CALL AGREEMENT, EACH DATED AS OF THE DATE HEREOF,
COPIES OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE
OFFICE, CONTAIN CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES, INCLUDING,
WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS OF THE
HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION
RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE
REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. __ $___________
VITECH AMERICA, INC.
10% Convertible Note due October 10, 2000
VITECH AMERICA, INC., a Florida corporation (together with its
successors, the "Company"), for value received hereby promises to pay to:
[INSERT NAME OF PURCHASER HERE]
(the "Holder") and registered assigns, the principal sum of ___________
($__________) or, if less, the principal amount of this Note then outstanding,
on the Maturity Date by wire transfer of immediately available funds to the
Holder in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay interest, monthly in arrears, on (i) the last day of each month until
the Maturity Date, commencing December 31, 1997 (unless such day is not a
Business Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as
hereafter defined, and (iv) the date the principal amount of the Convertible
Notes shall be declared to be or shall automatically become due and payable, on
the principal sum hereof outstanding in like coin or currency, at the rates per
annum set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest has been paid
on this Convertible Note, from the date of this Convertible Note until payment
in full of the principal sum hereof has been made.
The interest rate shall be ten percent (10%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus five percent (5%) per annum or, if less, the
maximum rate permitted by applicable law, and will be payable on demand
<PAGE>
("Default Interest"). Interest on this Convertible Note will be calculated on
the basis of a 360-day year of twelve 30-day months. All payments of principal
and interest hereunder shall be made for the benefit of the Holder at the
Holder's account at Bears Stearn & Co., New York, New York, pursuant to the
terms of the Purchase Agreement (hereafter defined).
This Convertible Note is one of a duly authorized issuance of
$20,000,000 aggregate principal amount of 10% Convertible Notes of the Company
(the "Convertible Note") referred to in that (i) Securities Purchase Agreement
(the "Purchase Agreement") and (ii) Put and Call Agreement (the "Put and Call
Agreement"), each dated as of the date hereof between the Company, the
Purchasers named therein and HW Partners, L.P., as the Purchasers'
Representative (collectively, the "Agreements"). The Agreements contain certain
additional agreements among the parties with respect to the terms of this
Convertible Note, including, without limitation, provisions which (i) limit the
conversion rights of the Holder, (ii) specify voluntary and mandatory repayment,
prepayment and redemption rights and obligations and (iii) specify Events of
Default (as defined in the Purchase Agreement) following which the remaining
balance due and owing hereunder may be accelerated. All such provisions are an
integral part of this Convertible Note and are incorporated herein by reference.
This Convertible Note is transferable and assignable to one or more purchasers
(in minimum denominations of $100,000 or larger multiples of $1,000), in
accordance with the limitations set forth in the Agreements.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as the registered holder of such
Convertible Notes. The ownership of this Convertible Note shall be proven by the
Register.
1. CERTAIN TERMS DEFINED. All terms defined in the Purchase Agreement
and not otherwise defined herein shall have for purposes hereof the meanings
provided for therein.
2. COVENANTS. Unless the Majority Holders otherwise consent in writing,
the Company covenants and agrees to observe and perform each of its obligations
and undertakings contained in the Agreements, which obligations and undertakings
are expressly assumed herein by the Company and made for the benefit of the
holder hereof.
3. PAYMENT OF PRINCIPAL. The Company shall repay the remaining unpaid
balance on this Convertible Note on the Maturity Date. The Company may, and
shall be obligated to, prepay all or a portion of this Convertible Note on the
terms specified in the Agreements.
4.1 CONVERSION OF CONVERTIBLE NOTE. (a) The Holder shall have the
right, at its option, at any time and from time to time, after the date hereof
to convert the principal amount of this Convertible Note, or any portion of such
principal amount in the minimum amount of $1,000 or any integral multiple
thereof, into that number of fully paid and nonassessable shares of Common Stock
(as such shares shall then be constituted) determined pursuant to this Section
4.1. The number of shares of Common Stock to be issued upon each conversion of
this Convertible Note shall be determined by dividing the Conversion Amount (as
defined below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is
<PAGE>
delivered to the Company by the Holder by facsimile or other reasonable means of
communication dispatched prior to 11:00 p.m., New York City Time. The term
"Conversion Amount" means, with respect to any conversion of this Convertible
Note, the sum of (i) the principal amount of this Convertible Note to be
converted in such conversion plus (ii) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Convertible Note to
the Conversion Date plus (iii) Default Interest, if any, on the interest
referred to in the immediately preceding clause (ii) PLUS (iv) at the Holder's
option, any amounts owed to the Holder pursuant to Section 4.2 hereof, Section
10.1 of the Purchase Agreement or Section 10.4 of the Purchase Agreement.
4.2 CONVERSION PRICE. The Conversion Price of this Convertible Note
(the "Conversion Price") shall be $16.50 per share (the "Initial Conversion
Price"); PROVIDED THAT, if the Company shall have declined to repay in full this
Convertible Note following the exercise by the Holder of either the First Put
Right or Second Put Right at the Put Price or Second Put Price, as applicable
(as each such term is defined in the Put and Call Agreement), the Conversion
Price shall be the LESSER OF (i) 0.85 multiplied by the Market Price, where the
Market Price means the 10-Day VWASP (as defined below) of the Common Stock on
the Nasdaq Stock Market's National Market ("Nasdaq"), or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded during the thirty (30) consecutive Trading Day period ending one
Trading Day prior to the Conversion Date, and (ii) the Initial Conversion Price
(subject, in each case, to equitable adjustments for stock splits, stock
dividends or rights offerings by the Company relating to the Company's
securities or the securities of any Subsidiary of the Company, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events). The term "10-Day VWASP" means, for any security as of any date, the
volume-weighted average sales price on Nasdaq as reported by Bloomberg, L.P.
("Bloomberg") or, if Nasdaq is not the principal trading market for such
security, the volume-weighted average sales price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the
volume-weighted average sales price of such security in the over-the-counter
market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no volume-weighted average sales price is reported for such
security by Bloomberg, then the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc., in each case for the lowest ten (10) consecutive day period during
such 30-day period. If the 10-Day VWASP cannot be calculated for such security
on such date on any of the foregoing basis, the 10-Day VWASP of such security on
such date shall be the fair market value as mutually determined by the Company
and the Holders of a majority in interest of Convertible Notes being converted
for which the calculation of the closing bid price is required in order to
determine the Conversion Price of such Convertible Notes.
4.3 AUTHORIZED SHARES.
(a) Consistent with Section 7.12 of the Purchase Agreement, the
Company (i) acknowledges that it has irrevocably instructed its
transfer agent to issue certificates for the Common Stock issuable upon
conversion of this Convertible Note and (ii) agrees that its issuance
of this Convertible Note shall constitute full authority to its
officers and agents who are charged with the duty of executing stock
certificates to execute and issue the
<PAGE>
necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Convertible Note.
(b) If at any time a Holder of this Convertible Note submits a
Notice of Conversion, (i) the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in full in accordance with the provisions of this Article 4
or (ii) the Company is prohibited by the applicable rules of Nasdaq to
effect such conversion in full in accordance with the provisions of
this Article 4 without stockholder approval (each, a "Conversion
Default"), the Company shall issue to the Holder all of the shares of
Common Stock which are then available to effect such conversion. The
portion of this Convertible Note which the Holder included in its
Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the "Excess Amount")
shall, notwithstanding anything to the contrary contained herein, not
be convertible into Common Stock in accordance with the terms hereof
until (and at the Holder's option at any time after) the date
additional shares of Common Stock are authorized by the Company, or its
stockholders, as applicable, at which time the Conversion Price in
respect thereof shall be the lower of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in
respect thereof. The Company shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount
of (N/365) x .24 x the Excess Amount on the Conversion Date in respect
of the Conversion Default (the "Conversion Default Date"), where N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company, or its stockholders, as
applicable, authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Convertible Note. The Company shall use its best efforts to authorize,
or cause its stockholders to authorize, as applicable, a sufficient
number of shares of Common Stock as soon as practicable following the
earlier of (i) such time that the Holder notifies the Company or that
the Company otherwise becomes aware that there are or likely will be
insufficient shares of Common Stock to allow full conversion thereof
and (ii) a Conversion Default. The Company shall send notice to the
Holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default Payments for each
calendar month shall be paid in cash or shall be convertible into
Common Stock (at such time as there are sufficient authorized shares of
Common Stock) at the Market Price, at the Holder's option, as follows:
(i) In the event the Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth day of the
month following the month in which it has accrued; and
(ii) In the event the Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth day of the month following
the month in which it has accrued (at such time as there are
sufficient authorized shares of Common Stock) in accordance with
the terms of this Article 4.
<PAGE>
(c) The Holder's election pursuant to this Section 4.3 shall be
made in writing to the Borrower at any time prior to 9:00 p.m., New
York City Time, on the third day of the month following the month in
which Conversion Default payments have accrued. If no election is made,
the Holder shall be deemed to have elected to receive cash. Nothing
herein shall limit the Holders right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) due to the
Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(d) In no event shall the Company issue more than the Maximum
Number of Shares upon conversion of this Convertible Note, unless the
Company shall have obtained Stockholder Approval (as defined below) or
a waiver of such requirement by the Nasdaq Market. As used herein,
Stockholder Approval means approval by the stockholders of the Company
in accordance with Rule 4460(i) of the rules of the Nasdaq Market. Once
the Maximum Number of Shares has been issued (the date of which is
hereinafter referred to as the "Maximum Conversion Date"). Unless the
Company shall have obtained Stockholder Approval or a waiver of such
requirement by the Nasdaq Market within 90 days of the Maximum
Conversion Date, the Company shall pay to the Holder within 10 Business
Days of the Maximum Conversion Date (or, if the Company is, in good
faith, using its best efforts to obtain Stockholder Approval, then the
earlier of (x) 90 days following the Maximum Conversion Date, and (y)
such date that it becomes reasonably apparent that Stockholder Approval
will not be obtained within such 90 day period), this Convertible Note
in full at the Formula Price. The Maximum Number of Shares shall be
subject to adjustment from time to time for stock splits, stock
dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the date hereof as
contemplated by Article XI of the Agreement. With respect to each
Holder of Convertible Notes, the Maximum Number of Shares shall refer
to such Holder's pro rata share thereof based upon the aggregate
principal balance of the convertible Notes then outstanding. In the
event that the Company obtains Stockholder Approval, the approval of
the Nasdaq Market or otherwise is able to increase the number of shares
to be issued above the Maximum Number of Shares (such increased number
being the "New Maximum Number of Shares"), the references to Maximum
Number of Shares above shall be deemed to be, instead, references to
the New Maximum Number of Shares.
4.4 METHOD OF CONVERSION
(a) Notwithstanding anything to the contrary set forth
herein, upon conversion of this Convertible Note in accordance
with the terms hereof, the Company shall not be required to
physically surrender this Convertible Note to the Holder unless
the entire unpaid principal amount of this Convertible Note is so
converted. The Company and the Holder shall maintain records
showing the principal amount so converted and the date of such
conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require
physical surrender of this Convertible Note upon each such
conversion. In the event of any dispute or discrepancy, such
records of the Company shall be controlling and determinative in
the absence of manifest error. Notwithstanding the foregoing, if
any portion of this Convertible Note is converted as aforesaid,
the Company may not transfer this Convertible Note unless the
Holder first physically
<PAGE>
surrenders this Convertible Note to the Company, whereupon the
Company will forthwith issue and deliver upon the order of the
Holder a new note of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes), may
request, representing in the aggregate the remaining unpaid
principal amount of this Convertible Note. The Holder and any
assignee, by acceptance of this Convertible Note, acknowledge and
agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Convertible Note, the
unpaid and unconverted principal amount of this Convertible Note
represented by this Convertible Note may be less than the amount
stated on the face hereof.
(b) The Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance
and delivery of shares of Common Stock or other securities or
property on conversion of this Convertible Note in a name other
than that of the Holder (or in street name), and the Company shall
not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons
(other than the Holder or the custodian in whose street name such
shares are to be held for the Holder's account) requesting the
issuance thereof shall have paid to the Company the amount of any
such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
(c) Upon receipt by the Company of a Notice of Conversion,
the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding
principal amount and the amount of accrued and unpaid interest on
this Convertible Note shall be reduced to reflect such conversion,
and, unless the Company defaults on its obligations under this
Article 4, all rights with respect to the portion of this
Convertible Note being so converted shall forthwith terminate
except the right to receive the Common Stock or other securities,
cash or other assets, as herein provided, on such conversion. If
the Holder shall have given a Notice of Conversion as provided
herein, the Company's obligation to issue and deliver the
certificates for shares of Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any
person or any action by the Holder to enforce the same, any waiver
or consent with respect to any provision thereof, the recovery of
any judgment against any person or any action to enforce the same,
any failure or delay in the enforcement of any other obligation of
the Company to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Company, and
irrespective of any other circumstance which might otherwise limit
such obligation of the Company to the Holder in connection with
such conversion. The date of receipt of such Notice of Conversion
shall be the Conversion Date so long as it is received before
11:00 p.m., New York City Time, on such date.
(d) Notwithstanding the foregoing, if a Holder has not
received certificates for all shares of Common Stock prior to the
second (2nd) business day
<PAGE>
after the expiration of the Deadline with respect to a conversion
of any portion of this Convertible Note following delivery of a
properly completed Notice of Conversion for any reason, then
(unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Company), the Holder
shall regain the rights of a Holder of this Convertible Note with
respect to such unconverted portions of this Convertible Note and
the Company shall, as soon as practicable, return such unconverted
Convertible Note to the holder or, if the Convertible Note has not
been surrendered, adjust its records to reflect that such portion
of this Convertible Note has not been converted. In all cases, the
Holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Conversion Default
Payments to the extent required thereby for such Conversion
Default and any subsequent Conversion Default and (ii) the right
to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 4.3) for the
Company's failure to convert this Convertible Note.
(e) In lieu of delivering physical certificates representing
the shares of Common Stock assessable upon conversion, provided
the Company's transfer agent is participating in the Depository
Trust Company ("DTC") Fast Automated Securities Transfer program,
upon request of the Holder and its compliance with the provisions
contained in Section 4.1 and in this Section 4.4, the Company
shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock assessable upon
conversion to the Holder by crediting the account of Holder's
Prime Broker with DTC through its Deposit Withdrawal Agent
Commission system.
5. MODIFICATION OF CONVERTIBLE NOTE. This Convertible Note may be
modified without prior notice to any Holder but with the written consent of the
Majority Holders and the Company. However, without the consent of each Holder
affected, an amendment, supplement or waiver may not (i) reduce the principal
amount of Convertible Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the rate or extend the time for payment of
interest on any Convertible Note, (iii) reduce the principal amount of or extend
the fixed maturity of any Convertible Note or alter the redemption or conversion
provisions with respect thereto or (iv) make any Convertible Note payable in
money or property other than as stated in the Convertible Note.
6. MISCELLANEOUS. This Convertible Note shall be deemed to be a
contract made under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of said State.
The parties hereto, including all guarantors or endorsers, hereby waive
presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Convertible Note, except as specifically provided herein, and assent to
extensions of the time of payment, or forbearance or other indulgence without
notice. The Company hereby submits to the exclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Convertible Note. The Company irrevocably
waives, to the fullest extent permitted by law, any objection which it may now
or hereafter have to the laying of the venue of
<PAGE>
any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
The Holder of this Convertible Note by acceptance of this Convertible
Note agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: October 10, 1997.
VITECH AMERICA, INC.
By: /s/ EDWARD KELLY
------------------
Name: Edward Kelly
Title: CFO
EXHIBIT 10.3
PUT AND CALL AGREEMENTS DATED OCTOBER 10, 1997 BETWEEN THE COMPANY AND THE
INVESTORS
<PAGE>
PUT AND CALL AGREEMENT
This PUT AND CALL AGREEMENT (this "Agreement") dated as of October 10,
1997, is entered into by and among VITECH AMERICA, INC. (the "Company"), a
Florida corporation, and INFINITY INVESTORS LIMITED, a Nevis, West Indies
corporation, INFINITY EMERGING OPPORTUNITIES LIMITED, a Nevis, West Indies
corporation, and GLACIER CAPITAL LIMITED, a Nevis, West Indies corporation and
SUMMIT CAPITAL LIMITED, a Nevis West Indies corporation (collectively, the
"Purchasers").
WITNESSETH
WHEREAS, the Purchasers are entering into a Securities Purchase
Agreement with the Company (the "Securities Purchase Agreement"), in respect of
which the Purchasers have agreed to purchase $20,000,000 aggregate principal
amount of the Company's 10% Convertible Notes due October 10, 2000 (the
"Notes");
WHEREAS, the Notes are convertible into common stock of the Company
(the "Common Stock") at the conversion price defined in the Notes (such Common
Stock, when issued upon conversion of the Notes, being referred to herein as
"Conversion Shares"); and
WHEREAS, the Company has agreed to grant the Purchasers certain rights
with respect to the Notes and Conversion Shares as an inducement to, and a
condition of, the Purchasers' purchase of the Notes.
NOW THEREFORE, the parties hereto agree as follows:
1. GENERAL. Capitalized terms not otherwise defined herein have the meaning
defined in the Securities Purchase Agreement.
2. PUT OPTION.
(a) Commencing one year after the date hereof (the "First Put Date"),
and continuing for a period of thirty (30) days thereafter, each holder of the
Notes shall have the right (the "First Put Right") to request that the Company
repurchase all, but not less than all, of the outstanding Notes (the "Put
Option") at a price equal to one hundred and ten percent (110%) of the principal
amount thereof, plus accrued and unpaid interest thereon (the "Put Price"), by
delivering to the Company a written notice specifying (i) the number of
Conversion Shares that are subject to the Put Option which shall be all the
Notes of the Noteholder, (ii) the aggregate Put Price, and (iii) the date, not
earlier than twenty (20) Trading Days and not later than thirty (30) days after
the First Put Date, on which the Put Option shall be exercised (the "First Put
Exercise Date").
(b) Commencing one hundred eighty (180) days after the First Put Date
and continuing for a period of thirty (30) days thereafter, each holder of the
Notes shall have a second right (the "Second Put Right") to request that the
Company repurchase all, but not less than all, of
<PAGE>
the outstanding Notes at a price equal to one hundred and fifteen percent (115%)
of the principal amount thereof plus accrued and unpaid interest thereon (the
"Second Put Price" and together with the First Put Right sometimes referred to
collectively as the "Put Rights"), by delivering to the Company a written notice
specifying (i) the number of Conversion Shares that are subject to the Put
Option, (ii) the Second Put Price, and (iii) the date, not earlier than twenty
(20) days and not later than thirty (30) days on which the Put Option shall be
exercised (the "Second Put Exercise Date").
(c) Upon receipt by the Company of a notice exercising the First Put
Right and/or Second Put Right, the Company shall, within fifteen (15) days of
receipt of such notice, deliver to each holder of the Notes exercising the First
Put Right or Second Put Right, as applicable, a notice stating whether the
Company agrees to repurchase all, but not less than all, of the outstanding
Notes subject to the First Put Right or Second Put Right, as applicable. In the
event the Company delivers notice of its agreement to effect such repurchase (a
"Company Acceptance Notice"), the provisions in subsection (d) below shall
apply. In the event the Company declines to repurchase the outstanding Notes
subject to the First Put Right and/or Second Put Right, as applicable, the Notes
shall remain convertible pursuant to their terms at the option of the holders
thereof.
(d) Assuming the Company has delivered a Company Acceptance Notice, on
the First Put Exercise Date or the Second Put Exercise Date, as applicable, (i)
the Purchaser shall deliver to the Company the Notes, properly endorsed,
representing the Notes subject to the Put Option, and (ii) the Company shall
deliver to the Purchasers, in immediately available funds, the applicable Put
Price. The purchase price for any Put Right shall be paid in four (4) equal
monthly installments on the last Business Day of each month commencing on the
first full month following the First Put Exercise Date or the Second Put
Exercise Date, as the case may be, with interest on each installment at the rate
of ten percent (10%) per annum.
3. CALL OPTION.
(a) The Company shall have the right, at any time and from time to time
commencing one (1) year after the Closing Date, to purchase from any holder of
the Notes (the "Call Option") the Notes at a call price of one hundred and
twelve percent (112%) of the principal amount, plus accrued and unpaid interest
thereon (the "Call Price") by delivering to the Purchasers a written notice
specifying (i) the number of Conversion Shares that are subject to the Call
Option, (ii) the Call Price, and (iii) the date, not earlier than twenty (20)
Trading Days and not later than thirty (30) days, on which the Call Option shall
be exercised (the "Call Exercise Date"). Commencing on the first day of the
thirteenth (13th) month from the date hereof (November 1, 1998) and on each
month thereafter until the Maturity Date, the Call Price shall be increased by
one percent (1%) per month.
(b) On the Call Exercise Date (i) the Purchasers shall deliver to the
Company the Notes, properly endorsed, representing the Notes subject to the Call
Option and (ii) the Company shall deliver to the Purchasers, in immediately
available funds, the applicable Call Price.
<PAGE>
(c) The Call Option provisions described in this Section 3 shall at all
times be subject to (i) the prior Conversion Rights of the Purchasers and (ii)
the following limitations: (A) no more than 8.33% of the outstanding principal
balance of the Notes may be called at any one time; (B) at least thirty (30)
calendar days must elapsed between Call Options; (C) Call Options will be
effected pro rata among the Purchasers in the manner set forth in Section 3.4 of
the Securities Purchase Agreement; and (D) the shares of Common Stock underlying
the Notes must be covered by an effective resale registration statement pursuant
to the terms of the Securities Purchase Agreement at the time of the Call Notice
and on the Call Exercise Date.
4. MISCELLANEOUS.
(a) PAYMENT METHOD. The payment of the Put Price or the Call Price, as
the case may be, shall be made by wire transfer or bank draft in immediately
available funds to each applicable Purchaser.
(b) NO ASSIGNMENT OR TRANSFER. Neither this Agreement, nor the Put
Option or the Call Option granted hereby, nor any other rights under this
Agreement, shall be assignable or transferable, directly or indirectly.
(c) NOTICES. All notices, requests and demands to or upon the parties
hereto shall be in writing and shall be delivered by any method that shall
provide a written acknowledgment of receipt at the addresses shown below.
If to Vitech America, Inc. Vitech America, Inc.,
8807 Northwest 23rd Street
Miami, Florida 33172-2419
Attn: Mr. William St. Laurent
Telefax:
With a copy to: Atlas, Perlman, Trop & Borkson
New River Center, Ste. 1900
200 East Las Olas Blvd.
Fort Lauderdale, Florida 33301
Attn: Joel Mayersohn, Esq.
Telefax: (954) 766-7800
If to any Purchaser 38 Hertford Street
London, England WIY 7TG
Attn: J. A. Loughran
Telefax: 011-44-171-355-4975
<PAGE>
with a copy to: HW Partners, L.P.
1601 Elm Street, Ste. 4000
Dallas, Texas 75201
Attn: Stuart Chasanoff, Esq.
Telefax: (214)720-1662
For purposes of this Agreement, a "Notice Date" shall be the date which
is two (2) business days after the date on which any notice hereunder is sent by
telecopy (provided, however, that it is telephonically or electronically
confirmed).
(f) FURTHER ASSURANCES. The parties agree to do all things and to
deliver all instruments and documents necessary to accomplish the purposes of
this Agreement, and to provide to one another such information and assistance
necessary to enable one another to do the same.
(g) GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the laws
of the State of New York.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement this 10th
day of October, 1997.
INFINITY INVESTORS LIMITED
By: /s/ CLARK HUNT
-----------------------
Title:
------------------
INFINITY EMERGING OPPORTUNITIES
LIMITED
By: /s/ CLARK HUNT
-----------------------
Title:
------------------
GLACIER CAPITAL LIMITED
By: /s/ CLARK HUNT
-----------------------
Title:
------------------
SUMMIT CAPITAL LIMITED
By: /s/ CLARK HUNT
-----------------------
Name:
Title:
------------------
ACCEPTED AND ACKNOWLEDGED:
VITECH AMERICA, INC.
By: /s/ EDWARD KELLY
- ------------------------
Title: CFO
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT DATED OCTOBER 10, 1997 BETWEEN THE COMPANY
AND THE INVESTORS.
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
October 10, 1997, among VITECH AMERICA, INC., a Florida corporation (the
"Company"), the Purchasers listed on the signature page attached hereto,
(collectively, the "Funds") and HW PARTNERS, L.P. as the Purchasers'
Representative (the "Purchaser's Representative").
1. INTRODUCTION. As of the date hereof, the Company and the Funds have
executed that certain Securities Purchase Agreement (the "Securities Purchase
Agreement"), pursuant to which the Company has agreed, among other things, to
issue an aggregate of $20,000,000 (U.S.) principal amount of 10% Convertible
Notes of the Company (the "Notes") to the Funds or their successors, assigns or
transferees (collectively, the "Holders"). The Notes are convertible into an
indeterminable number of shares (the "Note Conversion Shares") of the Company's
common stock, no par value per share (the "Common Stock"), pursuant to the terms
of the Notes. In addition, pursuant to the terms of the Securities Purchase
Agreement and the transactions contemplated thereby, the Company has issued to
the Funds Common Stock Purchase Warrants exercisable for an aggregate 121,212
shares of Common Stock (the "Warrant Shares"). The number of Note Conversion
Shares and Warrant Shares (collectively, the "Securities") is subject to
adjustment upon the occurrence of stock splits, recapitalizations and similar
events occurring after the date hereof. The Company represents and warrants that
the Company's Common Stock is currently eligible for trading on the Nasdaq Stock
Market's National Market ("National Market") under the symbol "VTCH". Certain
capitalized terms used in this Agreement are defined in Section 3 hereof;
references to sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 REGISTRATION ON REQUEST.
(a) REGISTRATION OF REGISTRABLE SECURITIES. As soon as practicable
after the Closing Date (as defined in the Securities Purchase Agreement), but in
any event, within twenty (20) days after November 4, 1997, demand for which is
hereby given and acknowledged, the Company shall prepare and file a registration
statement to effect the registration under the Securities Act of all, but not
less than all, of the Registrable Securities which relate (or, because of the
indeterminable number thereof, which could reasonably be deemed to relate) to
the Securities; all to the extent requisite to permit the public disposition of
such Registrable Securities so to be registered. The Company shall use its best
efforts to cause the Registration Statement which is the subject of this Section
2.1(a) (the "Registration Statement") to be declared effective by the Commission
upon the earlier to occur of (i) January 15, 1998 and (ii) five (5) days after
receipt of a "no review" or similar letter from the Commission. Nothing
contained herein shall be deemed to limit the number of Registrable Securities
to be registered by the Company hereunder (the "Required Effectiveness Date").
As a result, should the Registration Statement not relate to the maximum number
of Registrable Securities acquired by (or potentially acquirable by) the holders
thereof upon conversion of the Notes or the exercise of Warrants, the Company
shall be required to file a separate registration statement (utilizing Rule 462
promulgated under the Exchange Act, where applicable) relating to such
Registrable Securities which then remain unregistered. The
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provisions of this Agreement shall relate to such separate registration
statement as if it were an amendment to the Registration Statement.
(b) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on Form S-3 or such other appropriate registration form of the
Commission as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified by the
Funds.
(c) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
(d) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective within
the time period specified herein, PROVIDED that a registration which does not
become effective after the Company has filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any holder of
Registrable Securities (other than a refusal to proceed based upon the advice of
counsel relating to a disclosure matter unrelated to such holder) shall be
deemed to have been effected by the Company unless the holders of the
Registrable Securities shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason, (iii) if, after it has become effective, such registration
ceases to be effective or useful to the sellers of the Registrable Securities
for more than an aggregate of ninety (90) days or (iv) the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied, other than by reason of
some act or omission by the Holders.
(e) SELECTION OF UNDERWRITERS. The offerings requested may be, at
the option of a majority (by number of Securities ) of the holders of the
Registrable Securities so included, an underwritten offering and the underwriter
or underwriters thereof shall be selected by the holders of at least a majority
(by number of Securities) of the Registrable Securities as to which registration
has been requested and shall be acceptable to the Company.
(f) PRIORITY IN REQUESTED REGISTRATIONS. If a registration
pursuant to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities) that, in its opinion, the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, to the extent of the
number which the Company is so advised can be sold in such offering, Registrable
Securities, PRO RATA among such holders on the basis of the number of such
securities held (or then acquirable upon conversion of the Securities) by such
holders.
2.2 INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after
January 1, 1998 but before the fifth anniversary of the date hereof the Company
proposes to register any of its securities under the Securities Act (other than
by a registration in connection with an
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acquisition in a manner which would not permit registration of Registrable
Securities for sale to the public, on Form S-8, or any successor form thereto,
on Form S-4, or any successor form thereto and other than pursuant to Section
2.1), on an underwritten basis (either best-efforts or firm-commitment) the
Company will each such time give prompt written notice to all Holders of its
intention to do so and of such Holders' rights under this Section 2.2. Upon the
written request of any such Holder made within twenty (20) days after the
receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will, subject to the terms of this Agreement,
effect the registration under the Securities Act of up to that number of
Registrable Securities equal to that number of Note Conversion Shares acquirable
upon conversion of up to 75% of the original principal amount of the Notes which
the Company has been so requested to register by the Holders thereof, to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of such Registrable Securities so to be
registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which the Company proposes to register,
PROVIDED that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason either not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon request under Section 2.1, nor shall
any such registration hereunder be deemed to have been effected pursuant to
Section 2.1. The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities requested pursuant to this Section
2.2. The right provided the Holders of the Registrable Securities pursuant to
this Section shall be exercisable at their sole discretion and will in no way
limit any of the Company's obligations to pay the Securities according to their
terms.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in (or
during the time of) such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in (or during the time of) such offering, (i) first securities proposed by
the Company to be sold for its own account, and (ii) second Registrable
Securities and securities of other selling security holders requested to be
included in such registration pro rata on the basis of the number of shares of
such securities so proposed to be sold and so requested to be included;
PROVIDED, HOWEVER, the holders of Registrable Securities shall have priority to
all shares sought to be included by officers and directors of the Company as
well as holders of ten percent (10%) or more of the Company's Common Stock.
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2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as
expeditiously as possible:
(i) prepare and file with the Commission the Registration
Statement to effect such registration (including such audited financial
statements as may be required by the Securities Act or the rules and
regulations promulgated thereunder) and thereafter use its best efforts
to cause such registration statement to be declared effective by the
Commission, as soon as practicable, but in any event no later than the
Required Effectiveness Date, PROVIDED, HOWEVER, that before filing such
registration statement or any amendments thereto, the Company will
furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of all
such documents proposed to be filed;
(ii) 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 and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement until the earlier to occur of
six (6) years after the date of this Agreement (subject to the right of
the Company to suspend the effectiveness thereof for not more than
thirty (30) consecutive days or an aggregate of ninety (90) days in
such six (6) year period) or such time as all of the securities which
are the subject of such registration statement cease to be Registrable
Securities (such period, in each case, the "Registration Maintenance
Period"); PROVIDED, HOWEVER, that if the Common Stock Purchase Warrants
have been exercised, the Registration Maintenance Period shall be
reduced to two (2) years;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement and each underwriter, if any, of the
Registrable Securities being sold by such seller such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such seller and underwriter, if any,
may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws as any seller thereof
and any underwriter of the securities being sold by such seller shall
reasonably request, to keep such registrations or qualifications in
effect for so long as such registration statement remains in effect,
and take any other action which may be reasonably necessary or
advisable to enable such seller and underwriter to consummate the
disposition in such jurisdictions of the securities owned by such
seller, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of
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this subdivision (iv) be obligated to be so qualified or to consent to
general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any,
of:
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller, and
(B) with respect to any Registration Statement pursuant to
Section 2.2, a "comfort" letter (or, in the case of any such
Person which does not satisfy the conditions for receipt of a
"comfort" letter specified in Statement on Auditing Standards No.
72, an "agreed upon procedures" letter), dated the effective date
of such registration statement (and, if such registration includes
an underwritten public offering, a letter of like kind dated the
date of the closing under the underwriting agreement), signed by
the independent public accountants who have certified the
Company's financial statements included in such registration
statement, covering substantially the same matters with respect to
such registration statement (and the prospectus included therein)
and, in the case of the accountants' letter, with respect to
events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities (with, in the case of an "agreed
upon procedures" letter, such modifications or deletions as may be
required under Statement on Auditing Standards No. 35) and, in the
case of the accountants' letter, such other financial matters,
and, in the case of the legal opinion, such other legal matters,
as such seller (or the underwriters, if any) may reasonably
request;
(vii) notify the holders of Registrable Securities, their counsel
and the managing underwriter or underwriters, if any, promptly and
confirm such advice in writing promptly thereafter:
(A) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment
to the registration statement has been filed, and, with respect to
the registration statement or any post-effective amendment
thereto, when the same has become effective;
(B) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
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(C) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings by any Person for that purpose;
(D) if at any time the representations and warranties of the
Company made herein cease to be true and correct in all material
respects; and
(E) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for
such purpose;
(viii) notify each seller of Registrable Securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller
promptly prepare and furnish to such seller and each underwriter, if
any, a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall not include
an 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 the light of the circumstances then existing;
(ix) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the
earliest possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not more
than eighteen months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xi) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on
which any of the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement or amendment
thereto or any prospectus or any supplement thereto (including such documents
incorporated by reference and
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proposed to be filed after the initial filing of the registration statement) to
which the holders of at least a majority of the Registrable Securities covered
by such registration statement or the underwriter or underwriters, if any, shall
reasonably object, PROVIDED that the Company may file such document in a form
required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
If any such registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
then such holder shall have the right to require (a) the insertion therein of
language, in form and substance satisfactory to such holder, to the effect that
the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (b)
in the event that such reference to such holder by name or otherwise is not
required by the Securities Act or any similar federal statute then in force, the
deletion of the reference to such holder.
2.4 UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.7.
The holders of the Registrable Securities will cooperate with the Company in the
negotiation of the underwriting agreement and will give consideration to the
reasonable suggestions of the Company regarding the form thereof, PROVIDED that
nothing herein contained shall diminish the foregoing obligations of the
Company. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. Any such
holder of Registrable Securities shall not be
<PAGE>
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations and warranties contained
in a writing furnished by such holder expressly for use in such registration
statement or representations, warranties and agreements regarding such holder,
such holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any holder
of Registrable Securities as provided in section 2.2 and subject to the
provisions of section 2.2(b), use its best efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters,
PROVIDED that if the managing underwriter of such underwritten offering shall
inform the holders of the Registrable Securities requesting such registration,
in respect of such underwritten offering, by letter of its belief that inclusion
in such underwritten distribution of all or a specified number of such
Registrable Securities requested to be included would interfere with the
successful marketing of the securities (other than such Registrable Securities
and other securities so requested to be included which may be included in such
underwritten offering without such effect) then, the Company may, upon written
notice to all holders of such Registrable Securities (and of such other shares
so requested to be included) exclude PRO RATA from such underwritten offering
(if and to the extent stated by such managing underwriter to be necessary to
eliminate such effect) the number of such Registrable Securities and shares of
such other securities so requested to be included in the registration of which
shall have been requested by each holder of Registrable Securities and by the
holders of such other securities so that the resultant aggregate number of such
Registrable Securities and of such other shares or securities requested to be
included which are included in such underwritten offering shall be equal to the
approximate number of shares stated in such managing underwriter's letter. The
holders of Registrable Securities to be distributed by such underwriters shall
be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such other underwriters shall also be made to
and for the benefit of such holders of Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representations required
by law.
(c) HOLDBACK AGREEMENTS.
(i) Subject to such other reasonable requirements as may be
imposed by the underwriter as a condition of inclusion of a holder's
Registrable Securities in the registration statement, each holder of
Registrable Securities agrees by acquisition of such Registrable
Securities, if so required by the managing underwriter, not to sell,
make any short sale of, loan, grant any option for the purchase of,
effect any public sale or distribution of or otherwise dispose of,
except as part of such underwritten registration,
<PAGE>
any equity securities of the Company, during such reasonable period of
time requested by the underwriter; provided however, such period shall
not exceed the 120 day period commencing 30 days prior to the
commencement of such underwritten offering and ending 90 days following
the completion of such underwritten offering.
(d) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person may participate
in any underwritten offering hereunder unless such Person (i) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved, subject to the terms and conditions hereof, by the holders of a
majority of Registrable Securities to be included in such underwritten offering
and (ii) completes and executes all questionnaires, indemnities, underwriting
agreements and other documents (other than powers of attorney) required under
the terms of such underwriting arrangements. Notwithstanding the foregoing, no
underwriting agreement (or other agreement in connection with such offering)
shall require any holder of Registrable Securities to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by such holder
expressly for use in the related registration statement or representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by law.
2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel and accountants, the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment thereof or
supplement thereto, and will give each of them such access to its books and
records and such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary, in the reasonable opinion of such holders' and
such underwriters' respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
2.6 [INTENTIONALLY LEFT BLANK]
2.7 INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does agree to, indemnify and hold harmless the holder
of any Registrable Securities covered by such registration statement, its
directors and officers, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such holder or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact in light of the circumstances under which they are made contained
in any registration statement under which such securities were registered under
the
<PAGE>
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, or any
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
the Company will reimburse such holder and each such director, officer,
underwriter and controlling person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding, PROVIDED that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such holder or underwriter stating that it is for use in the
preparation thereof and, PROVIDED FURTHER that the Company shall not be liable
to any Person who participates as an underwriter in the offering or sale of
Registrable Securities or to any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
within the time required by the Securities Act to the Person asserting the
existence of an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such holder
or any such director, officer, underwriter or controlling person and shall
survive the transfer of such securities by such holder.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.7) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such seller.
(c) NOTICES OF CLAIMS. ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement of
such action, PROVIDED that the failure of any indemnified party to give notice
as provided herein
<PAGE>
shall not relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 2.7, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the consent of the indemnified party, consent to entry of
any judgment or enter into any settlement of any such action which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability, or a covenant not to
sue, in respect to such claim or litigation. No indemnified party shall consent
to entry of any judgment or enter into any settlement of any such action the
defense of which has been assumed by an indemnifying party without the consent
of such indemnifying party.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.7(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.7 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
initial sale of the Registrable Securities by the Company to the purchasers
pursuant to the
<PAGE>
Securities Purchase Agreement and the Warrants bear to the gain, if any,
realized by the selling holder or the underwriting discounts and commissions
received by the underwriter, as the case may be. The relative fault of the
Company on the one hand and of the holder or underwriter, as the case may be, on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or omission to state a
material fact relates to information supplied by the Company, by the holder or
by the underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission,
PROVIDED that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.7, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (f) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (b) of
this Section 2.7 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this subdivision (f)
were determined by PRO RATA allocation (even if the holders and any underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth in the preceding sentence and subdivision
(c) of this Section 2.7, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"COMMISSION" The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"COMMON STOCK": As defined in Section 1.
"COMPANY": As defined in the introductory paragraph of this Agreement.
"CONVERSION SHARES": As defined in Section 1.
<PAGE>
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
"NOTES": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"PERSON": A corporation, association, partnership, organization,
business, individual, governmental or political subdivision thereof or a
governmental agency.
"REGISTRABLE SECURITIES": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, or (e) on the expiration of
the applicable Registration Maintenance Period.
"REGISTRATION EXPENSES": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and NASD fees, all stock exchange and National Market
listing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of not more than one law firm
(not to exceed $25,000) retained by the holder or holders of more than 50% of
the Registrable Securities, premiums and other costs of policies of insurance of
the Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, PROVIDED
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
"SECURITIES ACT": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"SECURITIES PURCHASE AGREEMENT": As defined in Section 1.
<PAGE>
4. RULE 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and will take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any similar rule or regulation hereafter adopted by
the Commission. Upon the request of any holder of Registrable Securities, the
Company will deliver to such holder a written statement as to whether it has
complied with the requirements of this Section 4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the
Company may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent is sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all
notices, requests and other communications to any Person provided for hereunder
shall be in writing and shall be given to such Person (a) in the case of a party
hereto other than the Company, addressed to such party in the manner set forth
in the Securities Purchase Agreement or at such other address as such party
shall have furnished to the Company in writing, or (b) in the case of any other
holder of Registrable Securities, at the address that such holder shall have
furnished to the Company in writing, or, until any such other holder so
furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) in the case of the Company, at the address set forth on the
signature page hereto, to the attention of its President, or at such other
address, or to the attention of such other officer, as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding. Each
such notice, request or other communication shall be effective (i) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid,
<PAGE>
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address specified
above, PROVIDED that any such notice, request or communication shall not be
effective until received.
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
or percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions. contained herein.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and may
be signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
14. SEVERABILITY. If any provision of this Agreement, or the
application of such provisions to any Person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to Persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
VITECH AMERICA, INC.
By: /s/ EDWARD KELLY
-----------------
Name: Edward Kelly
Title: CFO
Address: 8807 Northwest 23rd Street
Miami, Florida 33172-2419
Telephone: (305) 477-1161
Fax: (305) 477-1379
Attn: William St. Laurent
Edward Kelly
With a copy to: Atlas, Pearlman, Trop & Bockson
1000 Southeast Second Street
Suite 3550
Miami, Florida 33131
Fax: (305) 789-5987
Attn: Joel D. Mayersohn, Esq.
INFINITY INVESTORS LIMITED
By: /s/ CLARK HUNT
---------------------
Name:
-------------------
Title:
------------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff
INFINITY EMERGING OPPORTUNITIES
LIMITED
<PAGE>
By: /s/ CLARK HUNT
---------------
Name:
-------------
Title:
------------
Address: 38 Hertford Street
London, England WIY 7TG
Fax: 011-44-171-355-4975
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff
GLACIER CAPITAL LIMITED
By: /s/ CLARK HUNT
---------------
Name:
-------------
Title:
------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
SUMMIT CAPITAL LIMITED
By: /s/ CLARK HUNT
---------------
Name:
-------------
Title:
------------
<PAGE>
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Stuart Chasanoff, Esq.
EXHIBIT 10.5
FORM OF CONVERTIBLE PROMISSORY NOTE DATED OCTOBER 10, 1997.
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS.
NO. ___ $_____________
VITECH AMERICA, INC.
-----------------------------------------------------
(Incorporated Under the Laws of the State of Florida)
10% CONVERTIBLE PROMISSORY NOTES
On or before October 1, 2000, VITECH AMERICA, INC., a Florida
corporation (hereinafter called the "Company"), for value received, hereby
promises to pay to:
[INSERT BUYER NAME]
(the "Holder") the principal sum of ___________ ($__________) and to pay
interest thereon from the date hereof at the rate of Ten percent (10%) per annum
until the principal hereof is paid in full. Interest shall be paid monthly in
arrears on the 5th day of each month (each, an "Interest Payment Date")
beginning on November 5, 1997. Such interest payments will include interest
accrued through the end of the calendar month next preceding each Interest
Payment Date.
The interest so payable, and punctually paid, on any Interest Payment
Date will be paid to the person in whose name this Note is registered at the
close of business on the record date for such interest, which shall be the first
day of each month (whether or not a business day), as the case may be (the
"Regular Record Date"), next preceding the Interest Payment Date. Past due
amounts will accrue interest at fifteen (15%) percent per annum.
The Company shall pay the principal of and interest on this Note by
check mailed to the address of the person entitled thereto as such address shall
appear in the Note register.
This Note is one of a duly authorized issue of Notes of the Company
(the "Notes"), issued and to be issued in one or more series. This Note is one
of the series designated hereon, limited in aggregate principal amount of up to
Twenty Million Dollars ($20,000,000).
The Notes are subject to conversion at any time, into shares of the
Company's Common Stock, at the option of the holder at a Conversion Price of
Sixteen and 50/100 Dollars ($16.50) per share (the "Conversion Price"), subject
to adjustment in certain events.
<PAGE>
In no event shall the Company issue more than 2,075,050 shares of the
Company's Common Stock (the "Maximum Number of Shares") upon conversion of this
Note and the series of which it is a part, unless the Company shall have
obtained Stockholder Approval (as defined below) or a waiver of such requirement
by the Nasdaq Stock Market. As used herein, Stockholder Approval means approval
by the stockholders of the Company in accordance with Rule 4460(i) of the rules
of the Nasdaq Stock Market. Once the Maximum Number of Shares has been issued
(the date of which is hereinafter referred to as the "Maximum Conversion Date"),
unless the Company shall have obtained Stockholder Approval or a waiver of such
requirement by the Nasdaq Stock Market within 90 days of the Maximum Conversion
Date, the Company shall pay to the holder within ten (10) Business Days of the
Maximum Conversion Date (or, if the Company is, in good faith, using its best
efforts to obtain Stockholder Approval, then the earlier of (x) 90 days
following the Maximum Conversion Date, and (y) such date that it becomes
reasonably apparent that Stockholder Approval will not be obtained within such
90 day period) this Note in full at the Formula Price (as defined). The Maximum
Number of Shares shall be subject to adjustment from time to time for stock
splits, stock dividends, combinations, consolidations or mergers relating to the
Common Stock occurring after the date hereof as contemplated by this Note. With
respect to each holder of the Notes, the Maximum Number of Shares shall refer to
such holder's pro rata share thereof based upon the aggregate principal balance
of the Notes then outstanding. In the event that the Company obtains Stockholder
Approval, the approval of the Nasdaq Stock Market or otherwise is able to
increase the number of shares to be issued above the Maximum Number of Shares
(such increased number being the "New Maximum Number of Shares"), the references
to Maximum Number of Shares above shall be deemed to be, instead, references to
the New Maximum Number of Shares.
The Formula Price shall mean the dollar amount equal to the greater of
(i) the aggregate principal amount of the Notes then outstanding, together with
all accrued and unpaid interest thereon, and (ii) the sum of (A) the product of
(x) the number of shares of Company Common Stock into which the Notes being
redeemed are then convertible at the then current Conversion Price and (y) the
average of the volume weighted average closing sales price for the Company's
Common Stock as reported on the Nasdaq National Stock Market, if traded thereon,
or if not traded thereon, the average of the volume weighted average closing
sales price as listed on a National Securities Exchange (or other reporting
system that provides the last sales price). On the applicable date the Notes are
being redeemed, plus (B) accrued and unpaid interest on the Notes through the
date of repayment. The Par Value Redemption Price shall mean the unpaid
principal balance, plus all accrued and unpaid interest thereon.
In the event the Holder Put Right (as defined herein) is exercised by
the holder and the Company does not pay the redemption price (or any installment
thereof), at its option when such amount would be due upon the exercise of the
Holder Put Right, the Conversion Price shall be adjusted, with respect to any
unconverted or unredeemed principal amount of the Notes, to the lesser of (i)
the Conversion Price or (ii) eighty-five percent (85%) of the average of the
volume weighted average closing sales price for the Company's Common Stock as
reported on the Nasdaq National Stock Market, if traded thereon, or if not
traded thereon, the average of the volume weighted average closing sales price
if listed on a national securities exchange (or other reporting system that
provides the last sales price) for the ten (10) lowest consecutive trading days
during the
<PAGE>
thirty (30) trading day period prior to delivery of the notice of conversion by
the holder to the Company.
Before the Holder shall be entitled to convert this Note into shares of
Common Stock, it shall surrender this Note at the office of the Company and
shall give written notice by mail, postage prepaid, to the Company at its
principal corporate office of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as practicable
thereafter, issue and deliver at such office to the Holder of this Note a
certificate or certificates for the number of shares of Common Stock to which
the Holder of this Note shall be entitled as aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of this Note. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holder of such shares of Common Stock as of
such date.
If this Note is redeemed pursuant to the terms hereof, written notice
shall be delivered to the Holder of this Note at the address last shown on the
records of the Company for the Holder or given by the Holder to the Company for
the purposes of notice or, if no such address appears or is given, the place
where the principal, executive office of the Company is located, notifying the
Holder of the conversion to be effected, specifying the Redemption Price, the
principal amount of the Note to be converted, the amount of accrued interest to
be converted, the date on which such conversion will occur and calling upon such
Holder to surrender to the Company, in the manner and at the place designated in
the Note.
As promptly as practical after the conversion of this Note, the Company
at its expense will issue and deliver to the Holder of this Note a certificate
or certificates for the number of full shares of Common Stock issuable upon such
conversion.
No fractional shares of Common Stock shall be issued upon conversion of
this Note. In lieu of the Company issuing any fractional shares to the Holder
upon the conversion of this Note, the Company shall round such number of shares
to be issued to the Maker to the next highest number of shares.
Beginning October 1, 1998 (the "First Put Date"), for a period of
thirty (30) days, the holder of a Note shall have the right (the "First Put
Right") to cause the Company to repurchase all, but not less than all, of the
outstanding principal amount of the Notes then outstanding at a price equal to
one hundred ten percent (110%) of the principal amount thereof plus accrued and
unpaid interest. Commencing one hundred eighty (180) days after the First Put
Date (the "Second Put Date") if the Company has not previously paid the
repurchase price, the holder of a Note will have a second put right (the "Second
Put Right") for a thirty (30) day period to cause the Company to repurchase all,
but not less than all, of the outstanding Notes at a price equal to one hundred
fifteen percent (115%) of the then outstanding principal amount of the Notes
plus accrued and unpaid interest. The First Put Right and the Second Put Right
are collectively referred to herein as the "Holder Put Right."
<PAGE>
The Company may pay the repurchase price for any Holder Put Right
exercised by a holder in four (4) equal monthly installments beginning twenty
(20) trading days after delivery of the notice of Holder Put Right by the
holder. Such repurchase price shall include interest at a rate of ten percent
(10%) per annum.
The Notes will be redeemable as a whole or in part, at any time or
times, at the option of the Company, on not less than twenty (20) trading days
prior written notice, upon payment of the applicable percentage of the principal
amounts so redeemed set forth below in case of any redemption, together in any
case with interest accrued thereon to the redemption date, provided that the
Notes shall not be redeemed prior to October 1, 1998. The initial call ("Call
Price") shall be one hundred twelve percent (112%) of the principal amount and
such Call Price shall be increased by one percent (1%) per month thereafter
until the maturity date of the Notes. A holder of the Note will have conversion
rights until the close of business on the date immediately preceding the date
fixed for redemption. Redemption shall not be effective unless a current
Registration Statement exists for the shares of Company Common Stock underlying
the Note.
In the event the Company should at any time or from time to time after
the date of issuance hereof fix a record date for the effectuation of a split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as the
"Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date, (or the date of such dividend
distribution, split or subdivision if no record date is fixed), the Conversion
Price of this Debenture shall be appropriately decreased so that the number of
shares of Common Stock issuable upon conversion of this Note shall be increased
in proportion to such increase of outstanding shares.
If the number of shares of Common Stock outstanding any time after the
date hereof is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion Price
of this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion hereof shall be decreased in proportion to
such decrease in outstanding shares.
The Company shall at times reserve and keep available out of its
authorized but unissued shares of Common Stock solely for the purposes of
effecting the conversion of this Note such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of this Note.
In case of any consolidation or merger of the Company with any other
corporation (other than a wholly-owned subsidiary of the Company) in which the
Company is not the surviving corporation, or in case of any sale or transfer of
all or substantially all of the assets of the Company, or in the case of any
share exchange pursuant to which all of the outstanding shares of Common Stock
are converted into other securities or property, the Company shall make
appropriate
<PAGE>
provision or cause appropriate provision to be made so that the Holder shall
have the right thereafter to convert this Note into the kind of shares of stock
and other securities and property receivable upon such consolidation, merger,
sale, transfer or share exchange by the persons who were holders of Common Stock
immediately prior to the effective date of such consolidation, merger, sale,
transfer or share exchange on a basis as nearly as practical as such rights
existed prior to such consolidation, merger, sale, transfer or share exchange.
If, in connection with any such consolidation, merger, sale, transfer or share
exchange each holder of Shares of Common Stock is entitled to elect to receive
either securities, cash or other assets upon completion of such transaction, the
Company shall provide or cause to be provided to the Holder the right to elect
the securities, cash or other assets into which this Note shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election.). The Company shall not effect any such transaction unless the
provision so this paragraph have been complied with. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
An "Event of Default" for purposes of the Notes is (1) a failure by the
Company (a) to pay interest on the Notes for ten (10) calendar days after the
same became due, or (b) to pay principal on the Notes for ten (10) calendar days
after the same became due; (2) the Company shall make an assignment for the
benefit of creditors or commence proceedings for its dissolution; or apply for
or consent to the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; (3) A trustee, liquidator or
receiver shall be appointed for the Company or for a substantial part of its
property or business without its consent and shall not be discharged within
sixty (60) days after such appointment; or (4) Bankruptcy, reorganization,
insolvency or liquidation proceedings or other proceedings for relief under any
bankruptcy law or for the relief of debtors shall be instituted by or against
the Company and, if instituted against the Company, shall not be dismissed
within sixty (60) days after such instruction, or (5) a material breach of the
terms of this Note which breach shall not have been corrected within thirty (30)
days of the notice by the Holders of the Notes..
If an Event of Default with respect to Notes of this series shall occur
and be continuing, Holders of at least Fifty Percent (50%) in principal amount
of the Notes then outstanding may declare all of the Notes to be due and payable
immediately.
No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the times and rate herein prescribed.
The transfer of this Note is registerable in this Note register, upon
surrender of this Note for registration or transfer at the offices of the
Company, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company duly executed by, the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Notes of this
series, of authorized denominations and for the same aggregate principal amount,
will be issued to the designated transferee or transferees.
<PAGE>
No service charge will be made for any such transfer or exchange, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and the Company
shall not be affected by notice to the contrary.
A shareholder, director, officer or employee of the Company shall not
have any liability for any obligations of the Company pursuant to the Notes or
for any claim based on, in respect of, or by reasons of such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
IN WITNESS WHEREOF, the Company has caused this Note to be executed in
its name, and its corporate seal to be hereunto affixed by its proper officers
thereunder duly authorized.
Date: October 10, 1997
VITECH AMERICA, INC.
(Corporate Seal)
By: /s/ EDWARD KELLY
------------------------
Name: Edward A. Kelly
Its: Chief Financial Officer
