As filed with the Securities and Exchange Commission on June 15, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VITECH AMERICA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0419086
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
8807 Northwest 23rd Street
Miami, Florida 33172
(305) 477-1161
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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William C. St. Laurent With copies to: James D. Schneider, Esq.
Vitech America, Inc. Joel D. Mayersohn, Esq.
8807 Northwest 23rd Street Atlas, Pearlman, Trop & Borkson, P.A.
Miami, Florida 33172 200 East Las Olas Blvd., Suite 1900
(305) 477-1161 Fort Lauderdale, Florida 33301
Telecopier: (305) 477-1379 (954) 763-1200
Telecopier: (954) 766-7800
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount Of
Title Of Each Class Of To Be Offering Price Aggregate Registration
Securities To Be Registered Registered Per Share(1) Offering Price Fee
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Common Stock, no par value per
share reserved for issuance upon
conversion of Convertible
Debentures(2) 2,181,818 $11.00 $23,999,998 $6,672
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Common Stock, no par value per
share reserved for issuance upon
exercise of Common Stock Purchase
Warrants(3) 100,000 $11.50 $1,150,000 $320
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Common Stock, no par value per
share reserved for issuance upon
conversion of Convertible Notes(4) 45,000 $10.00 $450,000 $126
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TOTAL $7,118
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(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) To be offered and sold by selling security holders upon conversion of two
year $10,000,000 aggregate principal amount convertible debentures.
(3) To be offered and sold by selling security holders upon exercise of common
stock purchase warrants.
(4) To be offered and sold by a selling security holder upon conversion of a
$450,000 convertible promissory note.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS SUBJECT TO COMPLETION DATED JUNE 15, 1999
2,326,818 Shares of Common Stock
VITECH AMERICA, INC.
The shareholders of Vitech America, Inc. listed in this prospectus are
offering and selling up to 2,326,818 shares of our common stock. The shares
include up to 45,000 shares issuable upon conversion of a $450,000 convertible
promissory note and up to 2,181,818 issuable upon conversion of $10,000,000
aggregate principal amount of 10% convertible debentures and 100,000 warrants to
purchase common stock held by selling security holders. We expect that
shareholders using this prospectus will sell the stock
o in ordinary brokers' transactions;
o in transactions directly with market makers; or
o in privately negotiated sales or otherwise.
The selling security holders will determine when they will sell shares,
and in all cases they will sell shares at the current market price or at
negotiated prices at the time of the sale. We will pay the expenses incurred to
register the shares for resale, but the selling security holders will pay any
underwriting discounts, concessions, or brokerage commissions associated with
the sale of their shares. The selling security holders and any brokers and
dealers that they use may be considered to be "underwriters" within the meaning
of the securities laws, and any commission received and any profits realized by
them on the sale of shares may be considered to be underwriting compensation.
See "Plan of Distribution."
We will not receive any of the proceeds from the sales by selling
security holders. Securities laws and SEC regulations may require selling
security holders to deliver this prospectus to purchasers when they resell their
shares of common stock.
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You should consider the "Risk Factors" beginning on page 4 for a discussion of
certain matters that should be considered by a potential investor.
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The common stock offered or sold under this prospectus has not been
approved or disapproved by the Securities and Exchange Commission or any State
Securities Commission, nor have these organizations determined that this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is __________, 1999
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION.................................................................. 2
RISK FACTORS......................................................................................... 4
BUSINESS............................................................................................. 13
SELLING SECURITY HOLDERS............................................................................. 14
PLAN OF DISTRIBUTION................................................................................. 15
DESCRIPTION OF SECURITIES............................................................................ 17
LEGAL MATTERS........................................................................................ 17
EXPERTS.............................................................................................. 17
INDEMNIFICATION...................................................................................... 18
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission ("SEC"). You may
read and copy any document we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on public reference rooms. Our SEC
filings are also available to the public from the SEC's website at
"http://www.sec.gov." The SEC also allows us to "incorporate by reference" the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus and the
information that we file later with the SEC will automatically update and
supersede this information. We will incorporate by reference the documents
listed below and any future filings we make we will make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
(b) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
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You may request a copy of these filings, at no cost by writing or
telephoning our chief financial officer at the following address: Vitech
America, Inc., 8807 Northwest 23rd Street, Miami, Florida 33172 (305-477- 1161).
Except for the historical information contained herein, the matters
discussed in this prospectus under "Risk Factors", in addition to certain
statements contained elsewhere in this prospectus or in our filings under the
Securities Exchange Act of 1934, (the "Exchange Act"), are "Forward-Looking
Statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such forward-looking statements are subject to
risks, uncertainties and other factors which could cause actual future results
or trends to differ materially from future results or trends expressed or
implied by such forward-looking statements. The most significant of such risks,
uncertainties and other factors are discussed in this prospectus under "Risk
Factors" and prospective investors are urged to carefully consider such factors.
Updated information will be periodically provided by us as required by the
Securities Act and the Exchange Act. We, however, undertake no obligation to
publicly release the results of any revisions to such forward-looking statements
which may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
This prospectus is part of a Registration Statement we filed with the
SEC. You should rely only on the information and representations provided in
this prospectus. We have authorized no one to provide you with different
information. We are not making offers for the securities in any state where the
offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
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RISK FACTORS
Prospective investors should carefully consider the following Risk
Factors, in addition to the other information set forth in this prospectus in
evaluating an investment in the securities offered hereby.
FACTORS RELATING TO US
We may not be able to sustain our current growth
Although we experienced a loss in sales for the quarter ended March 31,
1999, since inception we have experienced substantial growth through both
internal operations and acquisitions. Consolidated net sales and consolidated
net income increased to $195 million and $17.9 million, respectively, for the
year ended December 31, 1998, from $117.5 million and $12.8 million,
respectively, for the year ended December 31, 1997. Consolidated net sales and
consolidated net income increased to $117.5 million and $12.8 million,
respectively, for the year ended December 31, 1997, from $73.3 million and $8.2
million, respectively, for the year ended December 31, 1996. For the year ended
December 31, 1995, consolidated net sales and consolidated net income increased
to $48.5 million and $6.9 million, respectively, from $17.5 million and $0.15
million, respectively, for the year ended December 31, 1994. There can be no
assurance that such growth will continue, and if such growth continues, that our
infrastructure will be sufficient to support such a larger enterprise.
We depend upon key personnel for our operations
Our ability to attract and retain highly skilled personnel is critical
to our operations. To date, we have been able to attract and retain the
personnel necessary for our operations. Because of our expansion plans, there
can be no assurance that we will be able to do so in the future. If we are
unable to attract and retain skilled personnel our business and expansion plans
could be materially adversely affected. We are dependent upon the efforts and
abilities of Georges C. St. Laurent III, the Chairman of the Board and Chief
Executive Officer, and William C. St. Laurent, the President and Chief Operating
Officer. Each of these individuals is a substantial shareholder of the Company.
The loss or unavailability of the services of either of these individuals for
any significant period of time could have a material adverse effect on our
business prospects. We are the sole beneficiary of key-person life insurance in
the amount of $2 million on the life of each of Messrs. St. Laurent. There can
be no assurance that such insurance will continue to be available on reasonable
terms, or at all.
Fluctuation in our operating results may affect our stock price
Our operating results have been subject to seasonality and to
significant quarterly and annual fluctuations. Our quarterly net sales and
operating results may vary significantly as a result of, among other things:
o historical seasonal purchasing patterns and the general economic
climate in Brazil;
o the volume and timing of orders received during a quarter;
o variations in sales mix;
o delays in production schedules;
o new product developments or introductions;
o availability of components;
o changes in product mix and pricing;
o product reviews and other media coverage.
Our sales plan provides for approximately forty percent (40%) of our sales to be
made to federal, state, and municipal government customers. Such sales at times
may involve large contracts that can be a significant part of our sales. Our
sales to the consumer and small business markets fluctuate seasonally and are
dependent in part on the spending patterns of our customers, which in turn are
subject to prevailing economic conditions. Historically, our sales have
increased in the third and fourth quarters due, in part, to holiday spending.
Accordingly, our historical financial performance is not necessarily a
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meaningful indicator of future results and, in general, management expects that
our financial results may vary materially from period to period.
We may not be able to obtain additional capital on acceptable terms
We may need to seek additional funding through public or private
financing and may elect to obtain capital in anticipation of such needs.
Adequate funds for growth through internal expansion and through acquisitions
may not be available when needed or may not be available on terms favorable to
us. If additional funds are raised by issuing equity securities or related
instruments with conversion or warrant features, dilution to existing
shareholders may result. If funding is insufficient, we may be required to
delay, reduce the scope of or eliminate some or all of our expansion programs.
In addition, we have in the past sought funding through third parties related to
our management and there can be no assurance that these sources can be relied
upon in the future. More recently, we have entered into a receivables financing
facility with Technology Acceptance Corp. ("TAC"), an independently owned
special purpose corporation, pursuant to which TAC issues and sells senior notes
to investors collateralized by certain receivables of the Company. We are
required to repurchase these receivables under certain circumstances, including
their non-payment.
Additionally, at the end of June and July we have approximately $11
million and $10 million, respectively, in debt maturing. We believe that the
projected cash flows from continuing operations and existing and contemplated
sources of credit will be sufficient to satisfy our capital requirements. Such
belief is based on certain assumptions, and there can be no assurance that such
assumptions are correct. Accordingly, there can be no assurance that such
resources will be sufficient to satisfy our capital requirements or expansion
plans. There can be no assurance that such contemplated sources will be
available at the time they are needed or that the receivables financing facility
with TAC will be available to us for financing accounts receivable at favorable
terms.
We may not be able to compete effectively in our industry
The manufacturing and sale of computer equipment and related products
is highly competitive and requires substantial capital. We compete with, and
will compete with, numerous international, national, and regional companies,
many of which have significantly larger operations and greater financial,
marketing, human, and other resources than us, which may give such competitors
competitive advantages. Competitors in the computer hardware market include
internationally recognized companies such as IBM, Acer, Dell, Hewlett Packard
and Compaq. Additionally, we compete in the systems integration market with
internationally recognized systems integrators such as IBM, EDS and Unisys.
Competition is based on price, product quality, customer support and the ability
to deliver products in a timely fashion. No assurance can be given that we will
successfully compete in any market in which we conduct or may conduct
operations.
In addition, we compete with other small manufacturers of computer
equipment sold on the "gray market" in Brazil. Such manufacturers are able to
sell products at prices that are often significantly lower than those offered by
us and other legitimate manufacturers. Gray market manufacturers are able to
offer lower prices because of the avoidance of import duties and other taxes,
and the avoidance of necessary software licensing fees. There can be no
assurance that gray market activity will not continue to flourish, putting
downward pressures on our profit margins as result of low pricing strategies.
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We depend on credit sales and there are risks to customer lending
Credit sales are an important component of our results of operations.
In 1998, approximately ninety percent (90%) of our net sales revenue was
accounted for by sales on credit (with terms from 1 to 24 months). Our results
of operations could be materially and adversely affected if demand for customer
credit falls, or if Brazilian Government policies curtail our ability to extend
credit or to fund our extensions of credit. In addition, our customer credit
activities expose it to significant risks. At March 31, 1999, our outstanding
exposure to customer credit risk was approximately $83.3 million, including the
balance of accounts receivable sold to TAC. While an allowance for doubtful
accounts (including those sold to TAC) is made monthly based on management's
reviews of prior period losses and anticipated losses, there can be no assurance
that such allowances would be sufficient to cover actual losses.
We depend on our suppliers for quality components for our manufacturing process
Our manufacturing process requires a high volume of quality components
that are procured from third party suppliers. Reliance on suppliers, as well as
industry supply conditions, generally involves several risks, including:
o the possibility of defective parts (which can adversely affect
the reliability and reputation of our products);
o a shortage of components and reduced control over delivery
schedules (which can adversely affect our manufacturing
efficiencies);
o increases in component costs (which can adversely affect our
profitability).
We have several single-sourced supplier relationships, either because
alternative sources are not available or the relationship is advantageous due to
performance, quality, support, delivery, capacity or price considerations. If
these sources are unable to provide timely and reliable supply, we could
experience manufacturing delays or inefficiencies, adversely affecting our
results of operations. During the year ended December 31, 1998, we had one
supplier which accounted for more than ten percent (10%) of purchases.
Substantially all of our inventory has, and will be, purchased from
manufacturers and distributors with whom we have entered into non-exclusive
agreements, which are typically cancellable upon 30 days written notice. There
can be no assurance that such agreements will not be canceled. The loss of, or
significant disruptions in relationships with, suppliers could have a material
adverse effect on our business since there can be no assurance that we will be
able to replace lost suppliers on a timely basis.
We depend on our tax-exempt status in Brazil
The government of the State of Bahia, Brazil has issued a decree that
exempts companies such as our subsidiary, Bahiatech - Bahia Tecnologia, Ltda.,
from the payment of state import duties, state sales tax, and state services
tax. Bahiatech has received an exemption from such taxes through and including
the year 2003. Additionally, Bahiatech is exempted from the payment of Brazilian
federal income tax through and including the year 2004, provided that we meet
certain budgeted production goals. We are not exempted from the payment of a
federal social contribution tax of approximately eight percent (8%) of pre-tax
income. The normal rate of federal taxation on a non-exempt basis is
thirty-three percent (33%). If we are unable to extend such tax-exempt status,
our after-tax earnings as a percentage of net sales would decline by the amount
of the tax benefit, which may be substantial.
In December of 1997, as a result of our plan to consolidate the
manufacturing operations of Microtec Sistemas Industria e Comercio S.A. by
relocating it to the State of Bahia, Microtec applied with the State of Bahia
and the federal government of Brazil for the same tax incentives that have been
granted to Bahiatech. Microtec has been granted the state tax incentives from
the state of Bahia and will enjoy such state tax holiday through 2005. Should
Microtec be granted the federal incentive, it would enjoy the federal income tax
holiday through 2007. While we believe that Microtec will be granted this
federal incentive, there is no assurance that Microtec's eligibility will be
approved.
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Our products are characterized by continuous and rapid technological advances
and evolving industry standards
Compatibility with industry standards in areas such as operating
systems and communications protocols is material to our marketing strategy and
product development efforts. In order to remain competitive, we must respond
effectively to technological changes by continuing to enhance and improve our
existing products to incorporate emerging or evolving standards, and by
successfully developing and introducing new products that meet customer
requirements. There can be no assurance that we will successfully develop,
market, or support such products or that we will respond effectively to
technological changes or new product announcements or introductions by others.
If we do not enhance and improve our products, our sales and financial results
could be materially adversely affected. In addition, there can be no assurance
that, as a result of technological changes, all or a portion of our inventory
would not be rendered obsolete.
Our transactions with related parties creates conflicts of interest
We have, since 1995, received loans and sold securities and certain of
our accounts receivable to Georges C. St. Laurent Jr. ("GSL Jr."), the father of
Georges C. St. Laurent III, our Chairman of the Board and Chief Executive
Officer, and William C. St. Laurent, our President and Chief Operating Officer.
We believe that the terms of these transactions were no less favorable to us
than what could have been obtained from unaffiliated third parties. To the
extent that we enter into transactions with affiliated persons and entities in
the future, we will do so only on terms no less favorable to us than those
available from unaffiliated third parties.
Our assets are located outside the U.S. and enforceability of civil liabilities
against foreign persons is difficult
While we are a U.S. corporation with executive offices in Florida, our
principal operations are conducted by our Brazilian subsidiaries. A substantial
portion of our assets will be held or used outside the U.S. (in Brazil).
Consequently, enforcement by investors of civil liabilities under the Federal
securities laws may be adversely affected by the fact that, while we are located
in the U.S., our principal subsidiaries and operations are located in Brazil.
Although our executive officers and directors are residents of the U.S., except
for Messrs. Touma Makdassi Elias and William R. Blackhurst, who are residents of
Brazil, all or a substantial portion of our assets are located outside the U.S.
Repatriation of excess retained earnings through the floating rate market is
volatile
For the foreseeable future, Bahiatech does not intend to distribute any
excess retained earnings to Vitech, but intends to reinvest such earnings, if
any, in the development and expansion of its business. Up to now, substantially
all of our retained earnings on a consolidated basis have been attributable to
Bahiatech. Bahiatech is exempted from the payment of Brazilian federal income
tax through and including the year 2004, provided that Bahiatech meets certain
budgeted production goals. Tax exemption benefits cannot be distributed as
dividends to the parent company in U.S. Dollars and are segregated for capital
reserves and offsetting accumulated losses in accordance with Brazilian law. For
the years ended December 31, 1998, 1997 and 1996 the tax exemption benefits
amounted to approximately $5,600,000 ($0.42 per share), $3,000,000 ($0.25 per
share) and $2,200,000 ($0.22 per share), respectively.
In the future, should Bahiatech wish to remit retained earnings in
excess of the tax exemption benefits in U.S. Dollars, it may do so only in Reais
convertible into U.S. Dollars in the floating rate exchange market. There are
two legal foreign exchange markets in Brazil: the Commercial Market and the
Floating Market. The "Commercial Market Rate" is the commercial selling rate for
Brazilian currency into U.S. Dollars, as reported by the Central Bank. The
"Floating Market Rate" generally applies to transactions to which the Commercial
Market Rate does not apply. Prior to the implementation of the Real Plan, the
Commercial Market Rate and the Floating Market Rate differed significantly at
times. Since the introduction of the Real, the two rates have not differed
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significantly. However, there can be no assurance that there will not be
significant differences between the two rates in the future. Both the Commercial
Market Rate and the Floating Market Rate are reported by the Central Bank on a
daily basis.
In order for a company to remit retained earnings abroad in U.S.
dollars at the Commercial Market Rate, Brazilian law first requires the
registration of the foreign capital upon which those retained earnings were
made. Bahiatech has not made such registration and therefore is only able to
remit excess retained earnings at the Floating Market Rate. We use the
Commercial Market Rate for the translation of Bahiatech's results into U.S.
Dollars. In the event that Bahiatech remits excess retained earnings at the
Floating Market Rate, there can be no assurance that such remittance will not
vary from our reported results because of the differences between the Commercial
Market Rate and the Floating Market Rate. Although Microtec does not currently
intend to distribute any retained earnings to Vitech, it is currently eligible
to remit retained earnings in U.S. Dollars at the Commercial Market Rate.
The exercise of options and warrants will have dilutive effect
We have issued and outstanding, options and warrants to purchase an
aggregate of 5,430,214 shares of common stock at exercise prices between $8.18
and $22.73 per share, including 4,635,827 options issued to directors,
consultants, and employees. The existence of such options and warrants may
adversely affect the terms under which we could obtain additional equity
capital. The exercise of these options and warrants may cause significant
dilution and materially and adversely affect the market price of the common
stock.
Shares eligible for future sale
As of the date of this prospectus, we have 14,635,655 shares of common
stock outstanding, and 5,566,578 shares of common stock issuable upon the
exercise of options and warrants. Of such shares outstanding or issuable,
13,199,880 are not registered and are held by our "affiliates" within the
meaning of the Securities Act and are subject to the resale limitations of Rule
144 promulgated under the Securities Act (the "Restricted Shares"). We issued
the Restricted Shares in private transactions in reliance upon one or more
exemptions contained in the Securities Act. The Restricted Shares are or will be
deemed to be "restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act and may be publicly sold if registered under the Act or
held by the holder thereof for a prescribed amount of time, if the other
conditions of Rule 144 are satisfied. As of the date of this prospectus,
8,457,757 of the Restricted Shares, will have either been held for more than one
year and are eligible for public sale in accordance with the requirements of
Rule 144, or are eligible for resale pursuant to currently effective
registration statements. In addition to the Restricted Shares, we have 1,832,689
shares of common stock that may be issued pursuant to the conversion of certain
convertible notes. Such shares upon conversion will be eligible for resale
pursuant to a resale registration statement on file with the SEC.
We are controlled by principal shareholders
Our principal shareholders (Georges C. St. Laurent III and William C.
St. Laurent) together beneficially own approximately fifty eight percent (58%)
of the outstanding shares of common stock. Accordingly, the principal
shareholders are able to elect our entire Board of Directors and control the
outcome of all matters submitted to a vote of the shareholders of the Company.
See "Description of Securities".
We are subject to burdensome government regulation
The manufacture of computer equipment and related products is subject
to various forms of government regulation in the United States and Brazil
including, but not limited to, the following:
o technology transfer and licensing regulations;
o tariff regulations;
o regulations governing currency conversion and transfers of
profits between jurisdictions;
o labor regulations.
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We do not believe that such regulations adversely affect us or our business
presently; however, there can be no assurance that such regulations will not
materially adversely affect us in the future. In addition, the government of
Brazil has exercised, and continues to exercise, substantial influence over many
aspects of the private sector in Brazil.
We have implemented anti-takeover provisions that could prevent an acquisition
of Vitech America at a premium price
The Board of Directors is authorized to issue shares of preferred stock
and to determine the dividend, liquidation, conversion, redemption, and other
rights, preferences, and limitations of such shares without any further vote or
action of the shareholders. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect
the voting power or other rights of the holders of the common stock. In the
event of issuance, the preferred stock could be used as a method of discouraging
and delaying or preventing a change in control of the Company. We have no
present intention to issue any shares of its preferred stock, although there can
be no assurance that we will not do so in the future. See "Description of
Securities Preferred Stock".
We expect to experience volatility in our stock price
The market for securities of technology companies and companies that
participate in emerging markets historically has been more volatile than the
market for stocks in general. The price of the common stock may be subject to
wide fluctuations in response to the following:
o quarter-to-quarter variations in operating results;
o announcement of acquisitions, vendor additions or cancellations;
o creation or elimination of banking or other funding opportunities;
o favorable or unfavorable coverage of the Company or its officers by
the press;
o the availability of new products, technology, or services.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly affected the market price for
many technology and emerging market companies, both related and unrelated to the
operating results of such companies. These market fluctuations and other factors
may affect the market for the common stock.
We have only one manufacturing facility
We operate one manufacturing facility in Brazil, in Ilheus, Bahia. In
the event such facility were to experience substantial damage or disruption of
its operations for any reason, we may be required to suspend manufacturing
operations or transfer manufacturing operations to an independent facility for
an indefinite period of time. While we maintain insurance covering various
contingencies, any such suspension or disruption of our manufacturing operations
could have a material adverse effect on us and our results of operations.
Year 2000 Compliance
Many existing computer systems and applications, and other control
devices, use only two digits to identify a year in the date code field, and were
not designed to account for the upcoming change in the century. As a result,
such systems and applications could fail or create erroneous results unless
corrected so that they can process data related to the year 2000. We rely on our
systems, applications and devices in operating and monitoring all major aspects
of its business, including financial systems (such as general ledger, accounts
payable and accounts receivable modules), inventory and receivables systems,
customer services, infrastructure, embedded computer chips, networks and
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telecommunications equipment and end products. We also rely, directly and
indirectly, on systems of external business enterprises such as distributors,
suppliers, creditors, financial organizations, and governmental entities, for
accurate exchange of data. Although we are in contact with our suppliers to
assess their compliance, there can be no assurance that there will not be a
material adverse effect on us if third parties do not convert their systems in a
timely manner and in a way that is compatible with our systems, as we could be
affected through disruptions in the operation of the enterprises with which we
interact. Based on the information currently available, we believe that the
costs associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on our business, financial condition and results of operations in any
given year; however, there can be no assurance that year 2000 issues will not
have a material adverse effect on our business, financial condition or results
of operations.
FACTORS RELATING TO BRAZIL
We are subject to political and economic conditions
The Brazilian economy has been characterized by frequent and
occasionally drastic intervention by the Brazilian government. The Brazilian
government has often changed monetary, credit, tariff and other policies to
influence the course of Brazil's economy. The Brazilian government's actions to
control inflation and effect other policies have often involved wage and price
controls as well as other measures, such as freezing bank accounts, imposing
capital controls and limiting imports into Brazil. Changes in policy involving
tariffs, exchange controls, and other matters could have a material adverse
effect on the Company, as could inflation, devaluation, social instability and
other political, economic or diplomatic developments, and the Brazilian
government's response to such developments.
The Brazilian political environment has been marked by high levels of
uncertainty since the country returned to civilian rule in 1985 after 20 years
of military government. The death of a President-elect in 1985 and the
resignation of another President in 1992 during his impeachment trial, as well
as frequent turnovers at and immediately below the cabinet level, particularly
in the economic area, historically have contributed to the absence of a coherent
and sustained policy to confront Brazil's economic problems.
Mr. Fernando Henrique Cardoso, the Finance Minister at the time of the
implementation of Brazil's latest economic stabilization plan, was elected
President in October 1994. The Real Plan, which has significantly reduced
inflation since the introduction of the Real in July 1994, has been continued by
the Cardoso government. See "Brazil has historically experienced high rates of
inflation" below. President Cardoso has continued to support free market and
privatization measures of recent years, and his government has taken steps in
this regard, such as proposing measures for the liberalization of the state
petroleum and telecommunications monopolies and the privatization of a number of
state-owned enterprises. Although these liberalization measures have enjoyed
broad political and public support, some important political factions remain
opposed to significant elements of the reform program. In addition, President
Cardoso was elected as the leader of a coalition of political parties and
governs Brazil by coalition government. As a result, President Cardoso's
leadership of Brazil is likely to be subject to more compromises and
accommodations than if his party alone had received support from the majority of
voters. Furthermore, the Brazilian government's desire to control inflation and
to reduce budget deficits may cause it to take actions that will slow or halt
Brazilian economic growth.
Brazil has historically experienced extremely high rates of inflation
Inflation itself, as well as certain governmental measures to combat
inflation, have in the past had significant negative effects on the Brazilian
economy. Inflation, actions taken to combat inflation and public speculation
about possible future actions have also contributed significantly to economic
uncertainty in Brazil and to heightened volatility in the Brazilian securities
markets. Beginning in December 1993, the Brazilian government introduced the
Real Plan, an economic stabilization plan designed to reduce inflation by
reducing certain public expenditures, collecting liabilities owed to the
Brazilian government, increasing tax revenues, continuing the privatization
-10-
<PAGE>
program and introducing a new currency. On July 1, 1994, as part of the Real
Plan, the Brazilian government introduced the Real. Since the introduction of
the Real, Brazil's inflation rate has been substantially lower than in previous
periods. Inflation, as measured by the IGP-DI, was approximately 2,708%, 910%,
15.7%, 9.3%, 7.5% and 1.7% in 1993, 1994, 1995, 1996, 1997 and 1998,
respectively. There can be no assurance, however, that the recent lower level of
inflation will continue or that future Brazilian governmental actions (including
actions to adjust the value of the Brazilian currency such as the devaluation of
the Real in January 1999) will not trigger an increase in inflation or that any
such increase will not have a material adverse effect on the Company.
We are subject to exchange rate fluctuations
The relationship of Brazil's currency to the value of the U.S. Dollar,
and the rates of devaluation of Brazil's currency relative to the prevailing
rates of inflation have affected, and may affect, the Company's financial
condition and results of operations. Principally all of the Company's sales are
denominated in the Real, while the Company's operating results are recorded in
U.S. Dollars. Any significant devaluation of the Real relative to the U.S.
Dollar could have a material adverse effect on the Company's operating results.
Although the Company had used Real futures and options contracts during 1996, in
an effort to hedge against currency risks, its highest coverage at any one time
had only met 20% of its exposure, consisting of accounts receivable denominated
in Reais, net of accounts payable and other current liabilities denominated in
Reais. Currently, the Company is not engaged in any hedging activities. Currency
transaction losses for the years ended December 31, 1998 and 1997 were
$1,603,670 and $2,665,224, respectively, and were associated with
dollar-denominated monetary assets and liabilities held by the Company's
Brazilian subsidiaries. For the quarter ended March 31, 1999 we experienced a
currency translation loss of $16,656,880 due to the devaluation of the Real
against the U.S. dollar which occurred in January 1999.
In the event of a significant devaluation of the Brazilian currency in
relation to the U.S. Dollar or other currencies, our ability to meet our foreign
currency denominated obligations could be adversely and materially affected.
Increases in the rate of inflation in Brazil subsequent to such a devaluation of
the Brazilian currency could adversely affect our business, results of
operations and financial condition. Although the exchange rate between the Real
and the U.S. dollar had been relatively stable from mid-July 1994 through late
1998, the spread of the Asian and Russian economic difficulties to South America
culminated in the devaluation of the Real in mid-January 1999. By the end of
January 1999, the real dropped against the dollar by approximately 45% compared
to the end of December 1998. Although some recent economic measures have been
taken by the Brazilian Federal Government in an effort to stabilize the Real,
the potential for future devaluation or volatility continues to persist.
Our exchange controls and restrictions
Brazilian law provides that, whenever there is a serious imbalance in
Brazil's balance of payments or serious reasons to foresee such imbalance, the
Brazilian government may impose restrictions on the remittance to foreign
investors of the proceeds of their investments in Brazil, as it did for
approximately six months in 1989 and early 1990, and on the conversion of
Brazilian currency into foreign currencies. No assurance can be given that the
international transfer of Reais or the Floating Market will remain legally or
commercially available to Brazilian residents. There can be no assurance that
the Brazilian government will not in the future impose more restrictive foreign
exchange regulations that would have the effect of preventing or restricting our
access to foreign currency that it may require to meet its foreign currency
obligations under foreign currency denominated liabilities.
Brazil's economic environment is subject to change
Despite the success to date of the Real Plan in reducing inflation in
Brazil, the fiscal adjustment program necessary to reduce government
expenditures is not complete after the fifth year of the Real Plan. There can be
no assurance that the Real Plan will be more successful than previous economic
programs in reducing inflation over the long term, especially in light of (i)
the Brazilian congress' delay in the Real Plan
-11-
<PAGE>
and in the reform of the social security system, and (ii) the negative effects
of the Asian, Russian and Latin American crises on Brazil, which has caused a
flight of foreign investment, the devaluation of the Real and new inflationary
pressures on the Brazilian economy. Accordingly, periods of substantial
inflation may once again have significant adverse effects on the Brazilian
economy, on the value of the Real and on the Company's financial condition,
results of operations and future prospects.
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<PAGE>
BUSINESS
The Company
Vitech America, Inc. and subsidiaries are engaged in the manufacture
and direct marketing of PCs and related products, business systems integration
products and turn-key business solutions, as well as the financing of the
purchase thereof, in the Federal Republic of Brazil. Our principal operations
are conducted in Brazil by our Brazilian subsidiaries. The parent company,
Vitech America, Inc., is based in Miami, Florida and sources components in the
United States and throughout the world and engages in the distribution of those
components to its subsidiaries' manufacturing operations in Brazil.
Substantially all of our revenues have been recognized in Brazil by our
subsidiaries. Our products, which include desktop PCs, notebooks, workstations,
network servers, peripherals, software, business systems integration products
and turn-key business solutions, are marketed under brand names owned or
licensed by the us directly to end-users through a variety of channels in the
Brazilian marketplace. In addition, we maintain an engineering support service
dedicated to assisting customers in effecting networking and systems integration
solutions, and to providing technical support to the end-users of our products.
-13-
<PAGE>
SELLING SECURITY HOLDERS
On May 21, 1999 (the "Original Issue Date"), we issued $10,000,000
aggregate principal amount of two year 10% convertible debentures. The
debentures are initially convertible at a conversion price of $11.00 (the
"Initial Conversion Price"), subject to stock splits, stock dividends, rights
offering by us in certain combinations, capitalizations, reclassifications,
extraordinary distributions and other similar events. In the event that we shall
decline to repay in full, following the exercise by the debenture holder of the
put right (as defined below), the Initial Conversion Price shall be the lesser
of (i) .85 multiplied by the 10-day volume weighted average closing price as
reported on Nasdaq as reported by Bloomberg Informational Services, Inc. (or
other principal exchange on which our securities are traded) for the lowest
10-day consecutive day period during the 30 consecutive trading day period
ending one trading day prior to the conversion date, and (ii) $11.00 per share.
We are authorized to issue up to 2,927,130 shares of common stock in connection
with this transaction without seeking shareholder approval. In addition the 10%
convertible debentures prohibit each holder from converting in excess of 4.999%
and 9.999%, respectively, of the outstanding shares of common stock following
such conversion. Either restriction may be waived by a holder of 10% convertible
debentures upon not less than 75 days' notice to us.
Beginning February 21, 2000, and continuing for a period of 10 days
thereafter, each debenture holder shall have the right to request that we
repurchase all, but not less than all, of the outstanding debentures held by
such holder at a price equal to 112% of the principal amount thereof (the "Put
Price"), plus accrued and unpaid interest thereon. The Put Price shall be
adjusted as follows: (i) one hundred and sixteen percent (116%) of the principal
amount of the Debentures to be repaid, plus all accrued and unpaid interest
thereon if the Put Date occurs on or after the 361st day after the Original
Issue Date and prior to the 450th day after the Original Issue Date, (ii) one
hundred and twenty percent (120%) of the principal amount of the Debentures to
be repaid, plus all accrued and unpaid interest thereon if the Put Date occurs
on or after the 451st day after the Original Issue Date and prior to the 540th
day after the Original Issue Date, (iii) one hundred and twenty-four percent
(124%) of the principal amount of the Debentures to be repaid, plus all accrued
and unpaid interest thereon if the Put Date occurs on or after the 541st day
after the Original Issue Date and prior to the 630th day after the Original
Issue Date, and (iv) one hundred and twenty-eight percent (128%) of the
principal amount of the Debentures to be repaid, plus all accrued and unpaid
interest thereon if the Put Date occurs on or after the 631st day after the
Original Issue Date.
We are also obligated under the terms of the agreement to prepare and
file a registration statement providing for the resale of the shares of common
stock issuable upon conversion of the convertible debenture within 30 days of
May 21, 1999, and to use our best efforts to have such registration statement
declared effective on or before August 19, 1999.
On September 30, 1998, we issued a two year ten percent (10%)
convertible note for the total amount of $450,000 to Little Wing LP. The note is
convertible into 45,000 shares of our common stock. We have agreed to register
the resale of such shares issuable upon conversion of the note.
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<PAGE>
The shares listed below represent all of the shares which each selling
security holder currently owns, or which each selling security holder may own,
on conversion of a ten percent (10%) convertible note.
<TABLE>
<CAPTION>
Number of Shares Shares Owned
Name of Selling Security Holder Shares Owned Being Offered After Offering
- ------------------------------- ------------ ------------- --------------
<S> <C> <C> <C>
Advantage Fund II Ltd. 833,637(1)(2) 1,597,274(1)(2) 0
Koch Investment Group Ltd. 357,272(2)(3) 684,544(2)(3) 0
Little Wing LP(4) 217,473 45,000 172,473
</TABLE>
- --------------------
(1) Includes (i) 636,364 shares of Common Stock issued upon conversion of
the 10% convertible debentures, assuming conversion at $11.00 per share
(which price will fluctuate after February 21, 2000 in the event the
put price is not paid after the debentures are put to the Company),
(ii) 127,273 shares of common stock as payment of interest, assuming
all such interest is paid in shares of common stock and the debentures
remain outstanding for two years and (iii) 70,000 shares of common
stock issuable upon the exercise of warrants.
(2) Because the number of shares of common stock issuable upon conversion
of the debentures and as payment of interest thereon may be dependent
in part upon the market price of the common stock prior to a
conversion, the actual number of shares of common stock that will be
issued in respect of such conversions or interest payments and,
consequently, offered for sale under this registration statement,
cannot be determined at this time. However, the Company has
contractually agreed to include herein 200% of the shares of common
stock issuable upon conversion of the debentures and as payment of
interest thereon.
(3) Includes (i) 272,727 shares of common stock issued upon conversion of
the 10% convertible debentures, assuming conversion at $11.00 per share
(which price will fluctuate after February 21, 2000 in the event the
put price is not paid after the debentures are put to the Company),
(ii) 54,545 shares of common stock as payment of interest, assuming all
such interest is paid in shares of common stock and the debentures
remain outstanding for two years and (iii) 30,000 shares of common
stock issuable upon the exercise of warrants.
(4) Represents shares of common stock issuable upon conversion of the two
year ten percent (10%) convertible note in the principal amount of
$450,000.
We will pay all costs and expenses related to sale and delivery of the
shares, the Registration Statement and prospectus. We will not pay selling
commissions and expenses associated with any sale by the selling security
holders.
PLAN OF DISTRIBUTION
The selling security holders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling security holders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
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<PAGE>
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling security holders
to sell a specified number of such shares at a stipulated
price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling security holders may also sell shares under Rule 144 under
the Securities Act, if available, rather than under this prospectus.
The selling security holders may also engage in short sales against the
box, puts and calls and other transactions in our securities or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The selling security holders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling security holder defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares.
Broker-dealers engaged by the selling security holders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling security holders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the purchaser) in
amounts to be negotiated. The selling security holders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling security holders. We have agreed to indemnify the selling security
holders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
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<PAGE>
DESCRIPTION OF SECURITIES
General
As of the date of this prospectus, our articles of incorporation
authorize us to issue 30,000,000 shares of common stock, no par value, and
3,000,000 shares of preferred stock, no par value (the "Preferred Stock"). As of
June 10, 1999, there were outstanding 14,635,655 shares of common stock and no
shares of Preferred Stock.
Common Stock
Each shareholder has the right to one vote per share on all matters
which require their vote. Holders of common stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution, or
winding up of Vitech, holders of common stock are entitled to share ratably all
assets remaining after payment of liabilities. Holders of common stock have no
preemptive rights and have no rights to convert their common stock into any
other securities.
Preferred Stock
Our preferred stock may be issued in one or more series, the terms of
which may be determined at the time of issuance by the Board of Directors,
without further action by shareholders, and may include voting rights (including
the right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion rights, redemption rights, and sinking
fund provisions. The issuance of any such preferred stock could adversely affect
the rights of the holders of common stock and, therefore, reduce the value of
the common stock. The ability of the Board of Directors to issue preferred stock
could discourage, delay, or prevent a takeover of Vitech. See "Risk Factors - We
have implemented anti-takeover provisions that could prevent an acquisition of
Vitech America at a premium price."
NASDAQ National Market
Our common stock is traded on the Nasdaq National Market under the
symbol "VTCH".
Transfer and Warrant Agent and Register
Our transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005.
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Atlas, Pearlman, Trop & Borkson P.A., Fort
Lauderdale, Florida. Atlas, Pearlman, Trop & Borkson own shares of common stock.
EXPERTS
The audited Consolidated Financial Statements of Vitech America, Inc.,
as of December 31, 1998 and 1997, and for each of the three fiscal years in the
period ended December 31, 1998, incorporated by reference into this prospectus,
have been audited by Pannell Kerr Forster PC, independent certified public
accountants, as indicated in their report with respect thereto, and incorporated
by reference herein in reliance upon the authority of said firm as experts in
giving said reports.
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<PAGE>
INDEMNIFICATION
The Articles of Incorporation of the Company provide that every
director and every officer of the corporation, every former director and former
officer of the corporation, and every person who may have served at the request
of the corporation as a director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, and the
heirs, executors, administrators, and assignors of all of the above persons
shall be indemnified by the corporation for expenses actually and necessarily
incurred by him in connection with the defense of any action, suit, or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the corporation or of such other corporation regardless
of whether or not he continues to be a director or officer at the time of
incurring such expenses, except with respect to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duty. The rights of indemnification set
forth in the Articles of Incorporation shall not be exclusive of any other
rights to which such person may be entitled by law or otherwise.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of the director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for: (a) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for, or
assenting to, an unlawful distribution; and (d) willful misconduct or conscious
disregard for the best interests of the Company in a proceeding by, or in the
right of, the Company to procure a judgment in its favor or in a proceeding by,
or in the right of, a shareholder. The statute does not effect the director's
responsibilities under any other law.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE>
PART II
II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.*
Registration Fees - Securities and
Exchange Commission $ 6,562
Cost of Printing and Engraving $ 1,000
Legal Fees and Expenses $ 15,000
Accounting Fees and Expenses $ 5,000
Blue Sky Fees and Expenses $ 500
Miscellaneous $ 1,938
------------
Total $ 30,000
*Estimated
Item 15. Indemnification of Directors and Officers.
The Articles of Incorporation of the Company provide that every
director and every officer of the corporation, every former director and former
officer of the corporation, and every person who may have served at the request
of the corporation as a director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, and the
heirs, executors, administrators, and assignors of all of the above persons
shall be indemnified by the corporation for expenses actually and necessarily
incurred by him in connection with the defense of any action, suit, or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the corporation or of such other corporation regardless
of whether or not he continues to be a director or officer at the time of
incurring such expenses, except with respect to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for negligence
or misconduct in the performance of his duty. The rights of indemnification set
forth in the Articles of Incorporation shall not be exclusive of any other
rights to which such person may be entitled by law or otherwise.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of the director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for: (a) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for, or
assenting to, an unlawful distribution; and (d) willful misconduct or conscious
disregard for the best interests of the Company in a proceeding by, or in the
right of, the Company to procure a judgment in its favor or in a proceeding by,
or in the right of, a shareholder. The statute does not effect the director's
responsibilities under any other law.
Item 16. Exhibits and Consolidated Financial Statement Schedules.
<TABLE>
<CAPTION>
a. The exhibits constituting part of the Registration Statement
are as follows:
<S> <C>
(1.1) Form of Underwriting Agreement. (1)
(1.2) Form of Representative's Warrant Agreement. (1)
(2.1) Contract for Discontinuation of Company Participations and other
Agreements between Vitech America, Inc., Microtec Holding USA, Inc. and Microhold Partipacoes e
Empreendimentos S/C Ltda. dated July 10, 1997. (2)
(2.2) Purchase agreement between Vitech America, Inc. and Microtec Holdings
USA, Inc. dated July 10, 1997. (2)
(2.3) Buy-Sell Contract between Vitech America, Inc. and Tech Shop Holdings
USA, Inc. dated November 17, 1997.(4)
II-1
<PAGE>
(2.4) Buy-Sell Contract between Vitech America, Inc. and Recife Holdings USA,
Inc. dated November 18, 1997. (4)
(3.1) Articles of Incorporation dated June 24, 1993.(1)
(3.2) Amendments to the Company's Articles of Incorporation dated November 13, 1995 and July 26, 1996. (1)
(3.3) By-Laws of the Company. (1)
(4.1) Form of Common Stock Certificate. (1)
(10.1) Stock Option Plan. (1)
(10.5) Option Agreements for William C. St. Laurent and Georges St. Laurent, III. (1)
(10.13) Senior convertible note payable to Georges St. Laurent Jr. dated June 26, 1997. (2)
(10.15) Senior Convertible Note dated August 19, 1997 to Georges C. St. Laurent Jr. (5)
(10.16) Senior Convertible Note dated October 10, 1997 to Georges C. St. Laurent Jr. (5)
(10.17) Securities Purchase Agreement dated October 10, 1997, by and between the Company, H.W. Partners, L.P., as
Purchaser's Representative and Investor. (3)
(10.18) Form of Convertible Promissory Note dated October 10, 1997 for the Investors. (3)
(10.19) Put and Call Agreement dated October 10, 1997 between the Company and the Investors. (3)
(10.20) Registration Rights Agreement dated October 10, 1997 between the Company and the Investors. (3)
(10.21) Form of Convertible Promissory Note dated October 10, 1997. (3)
(10.22) Master Sales and Servicing Agreement among Technology Acceptance Corp., Technology Trust S.A.,
Bahiatech-Bahia Tecnologia Ltda., Banco Credibanco, S.A. and Vitech America, Inc. dated April 16, 1998.(7)
(10.23) Form of Convertible Promissory Note dated September 30, 1998 for Little Wing LP. *
(10.24) Convertible Debenture Purchase Agreement dated May 21, 1999, by and between the Company and Advantage
Fund II Ltd. and Koch Investment Group Ltd., as Investors.*
(10.25) Form of Convertible Debenture dated May 21, 1999.*
(10.26) Registration Rights Agreement dated May 21, 1999 between the Company, Advantage Fund II Ltd. and Koch
Investment Group Ltd.*
(10.27) Form of Warrant dated May 21, 1999.*
(21) Subsidiaries of the Company. (6)
(23.1) Consent of Pennell Kerr Forster PC. *
- --------------------
* Filed herewith.
(1) Incorporated by reference to exhibit filed with the Company's Registration Statement on Form S-1, file #333-11505.
(2) Incorporated by reference to exhibit filed with the Company's Form 8-K dated July 10, 1997 as amended.
(3) Incorporated by reference to exhibit filed with the Company's Form 8-K dated October 10, 1997.
(4) Incorporated by reference to exhibit filed with the Company's Form 8-K dated November 17, 1997.
(5) Incorporated by reference to exhibit filed with the Company's Form 10-Q for the quarterly period ended September 30,
1997.
(6) Incorporated by reference to exhibit filed with the Company's Form 10-K for the year ended December 31, 1998.
(7) Incorporated by reference to exhibit filed with the Company's Form 10-Q for the quarterly period ended March 31, 1998.
</TABLE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement which includes any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
II-2
<PAGE>
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Miami, State
of Florida on this 14 day of June, 1999.
<TABLE>
<CAPTION>
<S> <C>
VITECH AMERICA, INC.
By: /s/ WILLIAM C. ST. LAURENT
---------------------------------
William C. St. Laurent, President
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ GEORGES C. ST. LAURENT, III Chairman of the Board of Directors June 14, 1999
- ------------------------------------------ and Chief Executive Officer
Georges C. St. Laurent, III (Principal Executive Officer)
/s/ WILLIAM C. ST. LAURENT President, Chief Operating Officer June 14, 1999
- ------------------------------------------ and Director
William C. St. Laurent
/s/ EDWARD A. KELLY Chief Financial Officer June 14, 1999
- ------------------------------------------ (Principal Accounting Officer)
Edward A. Kelly
/s/ JOSEPH K. MEYER
- ------------------------------------------
Joseph K. Meyer Director June 14, 1999
/s/ H.R. SHEPHERD
- ------------------------------------------
H.R. Shepherd Director June 14, 1999
/s/ TOUMA MAKDASSI ELIAS
- ------------------------------------------
Touma Makdassi Elias Director June 14, 1999
/s/ WILLIAM ROBIN BLACKHURST
- ------------------------------------------
William Robin Blackhurst Director June 14, 1999
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
Exhibits:
(10.23) Form of Convertible Promissory Note dated September 30, 1998 for
Little Wing LP.
(10.24) Convertible Debenture Purchase Agreement dated May 21, 1999, by
and between the Company and Advantage Fund II Ltd. and Koch Investment
Group Ltd., as Investors.
(10.25) Form of Convertible Debenture dated May 21, 1999.
(10.26) Registration Rights Agreement dated May 21, 1999 between the Company,
Advantage Fund II Ltd. and Koch Investment Group Ltd.
(10.27) Form of Warrant dated May 21, 1999.
(23.1) Consent of Pannell Kerr Forster PC.
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.
$450,000
VITECH AMERICA, INC.
(Incorporated Under the Laws of the State of Florida)
10% CONVERTIBLE PROMISSORY NOTE
On or before September 30, 2000, VITECH AMERICA, INC., a Florida
corporation (hereinafter called the "Company"), for value received, hereby
promises to pay to:
LITTLE WING LP
(the "Holder") the principal sum of Four Hundred and Fifty Thousand Dollars
($450,000) 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 quarterly in arrears on the 5th day of the month following the end
of each quarter (each, an "Interest Payment Date") beginning on January 5, 1999.
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.
The Note is 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 Ten
Dollars ($10.00) per share (the "Conversion Price"), subject to adjustment in
certain events.
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.
1
<PAGE>
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.
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 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 Note for ten (15) calendar days after the
same became due, or (b) to pay principal on the Note for ten (15) 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 Note.
2
<PAGE>
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.
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 Note.
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: September 30, 1998
VITECH AMERICA, INC.
(Corporate Seal)
By: ___________________________
Name: Edward A. Kelly
Its: Chief Financial Officer
3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
Among
VITECH AMERICA, INC.,
ADVANTAGE FUND II LTD.
and
KOCH INVESTMENT GROUP LTD.
Dated as of May 21, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"), dated
as of May 21, 1999, among Vitech America, Inc., a Florida corporation (the
"Company"), Advantage Fund II Ltd., a British Virgin Islands corporation
("Advantage"), and Koch Investment Group Ltd., a Delaware corporation ("Koch").
Advantage and Koch are each referred to herein as a "Purchaser" and are
collectively referred to herein as the "Purchasers".
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to purchase from the Company, an aggregate principal amount of
$10,000,000 of the Company's 10% Convertible Debentures, due May 21, 2001 (the
"Debentures"), which are convertible into shares of the Company's common stock,
no par value (the "Common Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchasers and
the Purchasers shall purchase the Debentures for an aggregate purchase price of
$10,000,000. The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of Robinson Silverman Pearce Aronsohn
& Berman LLP ("RSPAB"), 1290 Avenue of the Americas, New York, New York 10104,
immediately following the execution hereof or such later date as the parties
shall agree. The date of the Closing is hereinafter referred to as the "Closing
Date."
(ii) Prior to the Closing, the parties shall deliver
or shall cause to be delivered the following: (A) the Company shall deliver (i)
to Advantage, (1) the Debentures registered in the name of Advantage, (2) a
common stock purchase warrant (the "Warrant"), in the form of Exhibit D,
registered in the name of Advantage, pursuant to which Advantage shall have the
right at any time and from time to time thereafter through the fifth anniversary
date of the Original Issue Date to acquire 70,000 shares of Common Stock at an
exercise price per share of $11.50, (3) the legal opinion of Atlas, Pearlman,
Trop & Borkson outside counsel to the Company, and of Freitas e Rodrigues
Advogados, special Brazilian counsel to the Company, substantially in the form
of Exhibit C, and (4) all other documents, instruments and writings required to
have been delivered at or prior to the Closing Date by the Company to Advantage
pursuant to this Agreement, including an executed Registration Rights Agreement,
dated the date hereof, among the Company and the Purchasers, in the form of
Exhibit B (the "Registration Rights Agreement"), and the Irrevocable Transfer
Agent Instructions, in the form of Exhibit E, delivered to and acknowledged by
the Company's transfer agent (the "Transfer Agent Instructions") and (ii) to
Koch (1) the Debentures registered in the name of Koch, (2) a Warrant registered
in the name of Koch, pursuant to which
-1-
<PAGE>
Koch shall have the right at any time and from time to time thereafter through
the fifth anniversary date of the Original Issue Date to acquire 30,000 shares
of Common Stock at an exercise price per share of $11.50, (3) the legal opinion
of Atlas, Pearlman, Trop & Borkson outside counsel to the Company and of Freitas
e Rodrigues Advogados, special Brazilian counsel to the Company, substantially
in the form of Exhibit C, and (4) all other documents, instruments and writings
required to have been delivered at or prior to the Closing Date by the Company
to Koch pursuant to this Agreement, including an executed Registration Rights
Agreement, dated the date hereof, among the Company and the Purchasers, in the
form of Exhibit B and the Irrevocable Transfer Agent Instructions, in the form
of Exhibit E, delivered to and acknowledged by the Company's transfer agent (the
"Transfer Agent Instructions"); and (B) the Purchasers shall deliver (1)
$10,000,000 in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose,
and (2) all documents, instruments and writings required to have been delivered
at or prior to the Closing Date by the Purchasers pursuant to this Agreement,
including, without limitation, an executed Registration Rights Agreement; and
(C) each party hereto shall deliver all other executed instruments, agreements
and certificates as are required to be delivered hereunder by or on their behalf
at the Closing.
1.2 Form of Debentures. The Debentures shall be in the form of Exhibit
A.
1.3 Certain Defined Terms. For purposes of this Agreement, "Conversion
Price," "Original Issue Date" and "Trading Day" shall have the meanings set
forth in Exhibit A; "Business Day" shall mean any day except Saturday, Sunday
and any day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York and the State of Florida are authorized or
required by law or other governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Florida, with the requisite corporate power and authority
to (i) own and use its properties and assets, (ii) carry on its business as
currently conducted, and (iii) enter into and perform the transactions
contemplated by this Agreement, the Debentures, the Registration Rights
Agreement, the Warrant and the Transfer Agent Instructions (collectively, the
"Transaction Documents"). The Company has no subsidiaries other than as set
forth in Schedule 2.1(a) (collectively the "Subsidiaries"). Each of the
Subsidiaries is an entity, duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the full power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. Each of the Company and the Subsidiaries is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property owned by
it makes such qualification necessary, except where the failure to be so
-2-
<PAGE>
qualified or in good standing, as the case may be, would not, individually or in
the aggregate, (x) adversely affect the legality, validity or enforceability of
the Securities (as defined below) or any of the Transaction Documents, (y) have
or result in a material adverse effect on the results of operations, assets or
financial condition of the Company and the Subsidiaries, taken as a whole, or
(z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any of the Transaction Documents (any of (x), (y) or (z),
a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company. Each of the Transaction Documents has been duly executed by the Company
and, when delivered (or filed, as the case may be) in accordance with the terms
hereof, will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principals of general application. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and
outstanding capital stock of the Company is set forth in Schedule 2.1(c). No
shares of Common Stock are entitled to preemptive rights, nor is any holder of
the Common Stock entitled to preemptive rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2.1(c), there are no outstanding options,
warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Debentures and the Warrant, securities, rights or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or acquire
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the Company,
except as specifically disclosed in the SEC Documents (as defined below) or
Schedule 2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock. A "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Debentures and the Warrant. The Debentures
and the Warrant are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights
-3-
<PAGE>
of first refusal of any kind (collectively, "Liens"). The Company has on the
date hereof and will, at all times while the Debentures and the Warrant are
outstanding, maintain an adequate reserve of duly authorized shares of Common
Stock, reserved for issuance to the holders of the Debentures and the Warrant,
to enable it to perform its conversion, exercise and other obligations under
this Agreement, the Debentures and the Warrant. Such number of reserved and
available shares of Common Stock is not less than the sum of (i) 200% of the
number of shares of Common Stock which would be issuable upon conversion in full
of the Debentures, assuming such conversion occurred on the Original Issue Date,
(ii) the number of shares of Common Stock issuable upon exercise of the Warrant,
and (iii) the number of shares Common Stock which would be issuable upon payment
of interest on the Debentures, assuming each Debenture is outstanding for two
years and all interest is paid in shares of Common Stock (such number of shares,
the "Initial Minimum"). All such authorized shares of Common Stock shall be duly
reserved for issuance to the holders of such Debentures and Warrant. The shares
of Common Stock issuable upon conversion of the Debentures, as payment of
interest thereon and upon exercise of the Warrant are collectively referred to
herein as the "Underlying Shares." The Debentures, the Warrant and the
Underlying Shares are, collectively, the "Securities." When issued in accordance
with the Debentures and the Warrant, in accordance with their respective terms,
the Underlying Shares shall have been duly authorized, validly issued, fully
paid and nonassessable, free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument (evidencing
a Company debt or otherwise) which has been filed as an exhibit to any SEC
Documents (as defined in Section 2.1(j)) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, or (iii) result in a violation of any law, rule, regulation,
order, judgment, injunction, decree or other restriction of any court or
governmental authority to which the Company is subject (including Federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected, except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.12, (ii) the filing of the Underlying Securities Registration Statement with
the Securities and Exchange Commission (the "Commission") meeting the
requirements set forth in the Registration Rights Agreement and
-4-
<PAGE>
covering the resale of the Underlying Shares by the Purchasers, (iii) the
application(s) to the Nasdaq National Market (the "NASDAQ") for the listing of
the Underlying Shares for trading on NASDAQ (and with any other national
securities exchange or market on which the Common Stock is then listed), (iv)
applicable Blue Sky filings and, and (v) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a Material Adverse Effect (the consents, waivers, authorizations,
orders, notices and filings referred to in (i)-(v) of this Section are,
collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents, (a) there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its Subsidiaries or any of
their respective properties (an "Action") before or by any court, governmental
or administrative agency or regulatory authority (Federal, state, county, local
or foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect, (b) neither the Company nor any Subsidiary, nor to the Company's
knowledge any director or officer thereof, is or has been the subject of any
Action involving (i) a claim of violation of or liability under federal or state
securities laws or (ii) a claim of breach of fiduciary duty; (c) the Company
does not have pending before the Commission any request for confidential
treatment of information; and (d) there has not been, and to the best of the
Company's knowledge, there is not pending or contemplated, any investigation by
the Commission involving the Company or any current director or officer of the
Company.
(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any material indenture, loan or credit agreement or any
other material agreement or instrument to which it is a party or by which it or
any of its properties is bound, (ii) is in violation of any order of any court,
arbitrator or governmental body, except as could not individually or in the
aggregate, have or result in a Material Adverse Effect or (iii) is in violation
of any statute, rule or regulation of any governmental authority, except as
could not individually or in the aggregate, have or result in a Material Adverse
Effect.
(i) Private Offering. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(h), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act").
(j) SEC Documents; Financial Statements. The Company has filed
all reports required to be filed by it under the Exchange Act, including
pursuant to Section 13(a) or 15(d) thereof, for the three years preceding the
date hereof (or such shorter period as the Company was required by law to file
such material) (the foregoing materials being collectively referred to herein as
the "SEC Documents" and, together with the Schedules to this Agreement the
"Disclosure
-5-
<PAGE>
Materials") on a timely basis or has received a valid extension of such time of
filing and has filed any such SEC Documents prior to the expiration of any such
extension. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act and the Exchange
Act and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Documents, when filed, contained any untrue statement of a
material fact or knowingly omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Documents as
required. The financial statements of the Company included in the SEC Documents
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with
generally accepted accounting ("GAAP") principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of and for the dates thereof and the results of operations and cash flows for
the periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
Since December 31, 1998, except as specifically disclosed in
the SEC Documents, (a) there has been no event, occurrence or development that
has had or that could have or result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans or salary paid in accordance with existing employment
agreements or otherwise made in the ordinary course consistent with prior
practice) with respect to its capital stock, or purchased, redeemed (or made any
agreements to purchase or redeem) any shares of its capital stock. The Company
last filed audited financial statements with the Commission on April 15, 1999,
and has not received any comments from the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) ) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the
Company to Wharton Capital Markets, LLC and Wharton Capital Partners, Ltd., no
fees or commissions will be payable by the Company to any broker, financial
advisor or consultant, finder, placement agent, investment banker, or bank with
respect to the transactions contemplated by this Agreement. The Purchasers shall
have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless
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the Purchasers, their employees, officers, directors, agents, and partners, and
their respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney's fees) and expenses suffered
in respect of any such claimed or existing fees, as such fees and expenses are
incurred.
(m) Solicitation Materials. Neither the Company nor any Person
acting on the Company's behalf has (i) distributed any offering materials in
connection with the offering and sale of the Securities, or (ii) solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Exclusivity. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of the Purchasers.
(p) Seniority. Except as set forth in Schedule 2.1(p), no
indebtedness of the Company or any Subsidiary is senior to the Debentures in
right of payment, whether with respect to interest, damages or upon liquidation
or dissolution, or otherwise.
(q) Listing and Maintenance Requirements Compliance. The
Company has not, in the two years preceding the date hereof, received notice
(written or oral) from the NASDAQ or any other stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it has
been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such exchange or market. The Company is,
and has no reason to believe that it will not in the foreseeable future continue
to be, in compliance with all such maintenance requirements.
(r) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary or material for use in
connection with its business, and which the failure to so have would have a
Material Adverse Effect. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(s) Registration Rights; Rights of Participation. Except as
set forth on Schedule 6(b) to the Registration Rights Agreement, (i) the Company
has not granted or agreed to grant to any Person any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has not
been satisfied and (ii) no Person, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by the Transaction Documents.
(t) Regulatory Permits. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities
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necessary to conduct their respective businesses as described in the SEC
Documents, except where the failure to possess such permits could not,
individually or in the aggregate, have or result in a Material Adverse Effect
("Material Permits"), and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any Material Permit.
(u) Title. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property and personal property owned
by them which is material to the business of the Company and its Subsidiaries,
in each case free and clear of all Liens, except (i) as set forth in Schedule
2.1(u) or (ii) for liens, claims or encumbrances as do not materially affect the
value of such property and do not interfere with the use made and proposed to be
made of such property by the Company and its Subsidiaries. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its Subsidiaries.
(v) Disclosure. The Company confirms that it has not provided
the Purchasers or their agents or counsel with any information that constitutes
or might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosure provided
to the Purchasers regarding the Company, its business and the transactions
contemplated hereby, including the Schedules to this Agreement, furnished by or
on behalf of the Company are true and correct in all material respects and do
not contain any untrue statement of a material fact or knowingly omit to state
any material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. The Purchasers
hereby jointly and severally represent and warrant to the Company as follows:
(a) Organization; Authority. Such Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate power and
authority, to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by each Purchaser of the Securities hereunder has been duly authorized
by all necessary action on the part of each Purchaser. Each of this Agreement
and the Registration Rights Agreement has been duly executed and delivered by
such Purchaser and constitutes the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to such Purchaser's right, subject
to the provisions of this Agreement and the Registration Rights Agreement, at
all times to sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the Securities Act and in
compliance with applicable state securities laws or under an exemption from such
registration.
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<PAGE>
(c) Purchaser Status. At the time such Purchaser was offered
the Debentures and the Warrant, it was, and at the date hereof it is, and at
each exercise date under the Warrant, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchasers. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) Ability of the Purchasers to Bear Risk of Investment. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) 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 risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Debentures as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Debentures published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar.
(h) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
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ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act. In connection
with any transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register on the books of the Company and with any transfer agent
for the securities of the Company any transfer of Securities by such Purchaser
to an Affiliate of such Purchaser or to one or more funds under common
management with such Purchaser, and any transfer among any such Affiliates or
one or more funds, provided that the transferee certifies to the Company that it
is an "accredited investor" as defined in Rule 501(a) under the Securities Act
and that it is acquiring the Securities solely for investment purposes. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Registration
Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Debentures, the payment of interest
thereon, and exercise of the Warrant or other issuances of Underlying Shares as
contemplated hereby, by the Debentures or the Warrant occurs at any time while
an Underlying Securities Registration Statement is effective under the
Securities Act (subject to the representation by the Purchasers that they will
comply with all prospectus delivery requirements) or, in the event there is not
an effective Underlying Securities Registration Statement at such time, if in
the opinion of counsel to the Company such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall cause its counsel to issue the legal
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<PAGE>
opinion included in the Transfer Agent Instructions to the Company's transfer
agent no later than the third Business Day after the Underlying Securities
Registration Statement is declared effective by the Commission. The Company
agrees that, in the event any Underlying Shares are issued with a legend in
accordance with this Section 3.1(b), it will, within three (3) trading days
after request therefor by such Purchaser, provide such Purchaser with a
certificate or certificates representing such Underlying Shares, free from such
legend at such time as such legend would not have been required under this
Section 3.1(b) had such issuance occurred on the date of such request. The
Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures, and
(ii) exercise of the Warrant in accordance with its terms, may result in
dilution of the outstanding shares of Common Stock, which dilution may be
substantial under certain market conditions. The Company further acknowledges
that its obligation to issue Underlying Shares upon (x) conversion of the
Debentures and payment of interest thereon in accordance with the terms of the
Debentures, and (y) exercise of the Warrant in accordance with its terms, is
unconditional and absolute, subject to the limitations set forth herein and
under applicable law, in the Debentures or pursuant to the Warrant, regardless
of the effect of any such dilution, subject to stockholder approval requirements
of NASDAQ that are not required to be obtained prior to the issuance of
Underlying Shares.
3.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to such Purchaser and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for such Purchaser to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Underlying
Shares without registration under the Securities Act within the limitation of
the exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon the request
of any such Person, the Company shall deliver to such Person a written
certification of a duly authorized officer as to whether it has complied with
such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions in
the United States as the Purchasers may reasonably request and shall continue
such qualification or exemption at all times until the Purchasers notify the
Company in writing that it no longer owns Securities; provided, however, that
neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then subject.
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3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that, no Affiliate shall, sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.6 Increase in Authorized Shares. At such times as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) issuing 200% of the number of
Underlying Shares as would then be issuable upon a conversion in full of the
principal amount of Debentures and as payment of any accrued and unpaid interest
in respect thereof in shares of Common Stock, or (b) honoring the exercise in
full of the Warrant, in either case, due to the unavailability of a sufficient
number of shares of authorized but unissued or reserved Common Stock, the Board
of Directors of the Company shall promptly (and in any case, within 30 Business
Days from such date, subject to the ability of the Company to have any such
proxy statement approved by the Commission) prepare and mail to the stockholders
of the Company proxy materials requesting authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
which the Company is authorized to issue to at least such number of shares as
reasonably requested by the Purchasers in order to provide for such number of
authorized and unissued shares of Common Stock to enable the Company to comply
with its conversion exercise and reservation of shares obligations as set forth
in this Agreement, the Debentures and the Warrant (the sum of (x) the number of
shares of Common Stock then authorized, (y) the number of shares of Common Stock
then outstanding plus all shares of Common Stock issuable upon exercise of all
outstanding options, warrants and convertible instruments, and (z) the sum of
(i) 200% of the number of Underlying Shares as are then issuable upon a
conversion in full of the principal amount of Debentures and as payment of
interest thereon, and (ii) the number of Underlying Shares as are issuable upon
exercise in full of the Warrant, shall be a reasonable number). In connection
therewith, the Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts to promptly
and duly obtain stockholder approval to carry out such resolutions (and hold a
special meeting of the stockholders no later than the 60th day after delivery of
the proxy materials relating to such meeting) and (c) within five (5) Business
Days of obtaining such stockholder authorization, file an appropriate amendment
to the Company's Certificate of Incorporation to evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) not later than the fifth Business Day following the Closing Date hereunder
prepare and file with the NASDAQ (and such other national securities exchange or
market or trading or quotation facility on which the Common Stock is then
listed) an additional shares listing application covering a number of shares of
Common Stock which is at least equal to the number of shares required to be
reserved pursuant to Section 2.1(d), (ii) take all steps necessary to cause such
shares to be approved for listing in the NASDAQ (as well as on any such other
national securities exchange or market or trading or quotation facility on which
the Common Stock is then listed) as soon as possible thereafter, and (iii)
provide to the Purchasers evidence of such listing, and the Company shall
maintain the listing of its Common Stock thereon. If the number of Underlying
Shares as are issuable upon conversion in full of the then outstanding principal
amount of Debentures, as payment of interest thereon, and upon exercise of the
then unexercised portion of the Warrant exceeds 85% of the number of Underlying
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Shares previously listed on account thereof with NASDAQ (and such other required
exchanges), the Company shall take the necessary actions to immediately list a
number of Underlying Shares as equals the sum of (x) 200% of the number of
Underlying Shares then issuable upon conversion of the principal amount of the
Debentures and as payment of interest thereon and (y) the number of Underlying
Shares as are then issuable upon exercise of the Warrant.
(b) The Company shall maintain a reserve of Common Stock for
issuance upon conversion of the Debentures and for payment of interest thereupon
in shares of Common Stock pursuant to the terms of the Debentures and upon
exercise of the Warrant in accordance with its terms, in such amount as may be
required to fulfill obligations in full under the Transaction Documents, which
reserve shall include a number of shares of Common Stock equal to no less than
the Initial Minimum.
3.8 Conversion Procedures. The Transfer Agent Instructions, Conversion
Notice (as defined in Exhibit A) and Notice of Exercise under the Warrant set
forth the totality of the procedures with respect to the conversion of the
Debentures and exercise of the Warrant, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such other
information and instructions as may be reasonably necessary to enable the
Purchasers to convert its Debentures and exercise the Warrant as contemplated in
the Debentures and the Warrant (as applicable).
3.9 Notice of Breaches. (a) Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach by it of any
representation, warranty or other agreement contained in any Transaction
Document. However, no disclosure by either party pursuant to this Section shall
be deemed to cure any breach of any representation, warranty or other agreement
contained in any Transaction Document.
(b) Notwithstanding the generality of Section 3.9(a), the
Company shall promptly notify the Purchasers of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.10 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrant and shall
deliver Underlying Shares in accordance with the respective terms, conditions
and time periods set forth in the respective Debentures and the Warrant.
3.11 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities in a transaction substantially similar in nature to the transaction
hereunder and intended to be exempt or not subject to registration under the
Securities Act (a "Subsequent Placement") for a period of 180 days after the
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Closing Date, except (i) the granting of options or warrants to employees,
officers and directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter duly adopted by
the Company, (ii) shares of Common Stock issued upon exercise of any currently
outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in Schedule
2.1(c), (iii) shares of Common Stock issued upon conversion of Debentures and as
payment of interest thereon and upon exercise of the Warrant in accordance with
the Debentures or the Warrant, respectively, and (iv) securities which may be
issued in connection with a joint venture, strategic alliance or a financing
with a commercial bank unless (A) the Company delivers to the Purchasers a
written notice (the "Subsequent Placement Notice") of its intention to effect
such Subsequent Placement, which Subsequent Placement Notice shall describe in
reasonable detail the proposed terms of such Subsequent Placement, the amount of
proceeds intended to be raised thereunder, the Person with whom such Subsequent
Placement shall be affected, and attached to which shall be a term sheet or
similar document relating thereto and (B) the Purchasers shall not have notified
the Company by 5:00 p.m. (New York City time) on the fifth (5th) Trading Day
after its receipt of the Subsequent Placement Notice of its willingness to cause
the Purchasers to provide (or to cause its sole designee to provide), subject to
completion of mutually acceptable documentation (which, if the Purchasers shall
have indicated willingness to provide such financing, the Purchasers shall use
its reasonable and good faith effort to complete prior to twenty (20) Trading
Days from the date of its notice to the Company to provide such financing),
financing to the Company on substantially the terms set forth in the Subsequent
Placement Notice. If the Purchasers shall fail to notify the Company of its
intention to enter into such negotiations within such time period, the Company
may effect the Subsequent Placement substantially upon the terms and to the
Persons (or Affiliates of such Persons) set forth in the Subsequent Placement
Notice; provided, that the Company shall provide the Purchasers with a second
Subsequent Placement Notice, and the Purchasers shall again have the right of
first refusal set forth above in this paragraph (a), if the Subsequent Placement
subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Placement Notice.
(b) Except for (x) Underlying Shares, (y) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered, and securities of the Company permitted pursuant to Schedule 6(b) of
the Registration's Rights Agreement to be registered in the Underlying
Securities Registration Statement in accordance with the Registration Rights
Agreement, and (z) Common Stock to be registered for resale in connection with
financings permitted pursuant to paragraph (a)(i) and (iv) of Section 3.11(a),
the Company shall not, without the prior written consent of the Purchasers (i)
issue or sell any of its or any of its Affiliates' equity or equity-equivalent
securities pursuant to Regulation S promulgated under the Securities Act, or
(ii) register for resale any securities of the Company for a period of not less
than 60 days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission. Any days that a Purchaser is
unable to sell Underlying Shares under the Underlying Securities Registration
Statement shall be added to such 60 day period for the purposes of (i) and (ii)
above.
3.12 [INTENTIONALLY OMITTED]
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3.13 Use of Proceeds. The Company shall use (i) up to $4,000,000 of the
net proceeds from the sale of the Securities hereunder to redeem those certain
10% convertible promissory notes issued by the Company on October 10, 1997 (the
"1997 Notes") and (ii) the remainder of the net proceeds from the sale of the
Securities hereunder for working capital purposes. The Company shall within
three (3) Business Days of the date hereof, provide to the Purchasers evidence
of the retirement of all of the 1997 Notes. Pending application of the proceeds
of this placement in the manner permitted hereby, the Company will invest such
proceeds in interest bearing accounts and/or short-term, investment grade
interest bearing securities.
3.14 Transfer of Intellectual Property Rights. Except in connection
with the sale of all or substantially all of the assets of the Company, the
Company shall not transfer, sell or otherwise dispose of any Intellectual
Property Rights, or, except as set forth on Schedule 3.14, allow any of the
Intellectual Property Rights to become subject to any Liens, or fail to renew
such Intellectual Property Rights (if renewable and it would otherwise lapse if
not renewed), without the prior written consent of the Purchasers.
3.15 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. The reimbursement
obligations of the Company under this paragraph shall be in addition to any
liability which the Company may otherwise have, shall extend upon the same terms
and conditions to any Affiliates of such Purchaser who are actually named in
such action, proceeding or investigation, and partners, directors, agents,
employees and controlling persons (if any), as the case may be, of such
Purchaser and any such Affiliate, and shall be binding upon and inure to the
benefit of any successors, assigns, heirs and personal representatives of the
Company, such Purchaser and any such Affiliate and any such Person. The Company
also agrees that neither such Purchaser nor any such Affiliates, partners,
directors, agents, employees or controlling persons shall have any liability to
the Company or any person asserting claims on behalf of or in right of the
Company in connection with or as a result of the consummation of the Transaction
Documents except to the extent that any losses, claims, damages, liabilities or
expenses incurred by the Company result from the gross negligence or willful
misconduct of such Purchaser or entity in connection with the transactions
contemplated by this Agreement.
The Company shall pay on demand all expenses incurred by the
Purchasers, including reasonable attorneys' fees and expenses, as a consequence
of, or in connection with (1) the negotiation, preparation or execution of any
amendment, modification or waiver of the Transaction Documents requested by the
Company, (2) any default or breach of any of the Company's obligations set forth
in any of the Transaction Documents and (3) the enforcement or restructuring of
any right of, including the collection of any payments due, the Purchasers under
any of the Transaction Documents, including any action or proceeding relating to
such enforcement or any order, injunction or other process seeking to restrain
the Company from paying any amount due the Purchasers, in which the Purchasers
prevail.
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ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. The parties hereto agree that the Company shall
pay at Closing the legal fees and disbursements of RSPAB in connection with the
preparation and negotiation of the Transaction Documents in the amount of
$15,000. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement, the
Debentures, the Transfer Agent Instructions and the Warrant contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 5:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 5:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
If to the Company: Vitech America, Inc.
8807 Northwest 23rd St.
Miami, Florida 33172-2419
Facsimile No.: (305) 477-1379
Attn: Edward Kelly
With copies to: Atlas, Pearlman, Trop & Borkson
New River Center, Suite 1900
200 East Las Olas Blvd.
Ft. Lauderdale, Florida 33301
Facsimile No.: (954) 766-7800
Attn: Joel D. Mayersohn
If to Advantage: Advantage Fund II Ltd.
c/o CITCO
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<PAGE>
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
If to Koch: Koch Investment Group Ltd.
4111 East 37th Street North
Wichita, Kansas 67220
Facsimile No.: (316) 828-7947
Attn: Josh Taylor
With copies with respect
to either Purchaser to: Genesse International, Inc.
10500 N.E. 8th Street
Suite 1920
Bellevue, Washington 98004-4332
Facsimile No.: (425) 462-4645
Attn: Christopher R. Purrier
and
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
</TABLE>
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
4.4 Amendments; Waivers. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by both the Company and the Purchasers; or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers., which consent shall not be
unreasonably withheld. Except as set forth in Section 3.1(a), the Purchasers may
not assign this Agreement or any of the rights or obligations hereunder (other
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than to an Affiliate of the Purchasers) without the consent of the Company,
except that any Purchaser may assign its rights hereunder and under the
Transaction Documents without the consent of the Company as long as such
assignee demonstrates to the reasonable satisfaction of the Company its
satisfaction of the representations and warranties set forth in Section 2.2.
This provision shall not limit such Purchaser's right to transfer securities or
transfer or assign rights hereunder or under the Registration Rights Agreement.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and the delivery and conversion or
exercise (as the case may be) of the Debentures and the Warrant.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements or
filings and other communications with the Commission or any regulatory agency or
stock market or trading facility with respect to the transactions contemplated
hereby and neither party shall issue any such press release or otherwise make
any such public statement, filings or other communications without the prior
written consent of the other, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing
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<PAGE>
party shall provide the other party with prior notice of such public statement,
filing or other communication. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser, or include the name of any
Purchaser in any filing with the Commission, or any regulatory agency, trading
facility or stock market without the prior written consent of such Purchaser,
which consent shall not be unreasonably withheld, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, in which case the Company shall provide such Purchaser with
prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
VITECH AMERICA, INC.
By:_________________________________
Name:
Title
ADVANTAGE FUND II LTD.
By:_________________________________
Name:
Title:
KOCH INVESTMENT GROUP LTD.
By:_________________________________
Name:
Title:
-20-
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. A-[ ] $[___________]
VITECH AMERICA
10% CONVERTIBLE DEBENTURE DUE MAY 21, 2001
THIS DEBENTURE is one of a series of duly authorized issued debentures
of Vitech America, Inc., a Florida corporation, having a principal place of
business at 8807 Northwest 23rd Street, Miami, Florida 33172 (the "Company"),
designated as its 10% Convertible Debentures, due May 21, 2001 (the
"Debentures"), in an aggregate principal amount of $10,000,000.
FOR VALUE RECEIVED, the Company promises to pay to
[_______________________], or registered assigns (the "Holder"), the principal
sum of [________________] Dollars ($___________), on or prior to May 21, 2001 or
such earlier date as the Debentures are required to be repaid as provided
hereunder (the "Maturity Date") and to pay interest to the Holder on the
principal sum at the rate of 10% per annum, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year during the term
hereof, commencing on June 30, 1999, but in no event later than the earlier to
occur of a Conversion Date (as defined in Section 4(a)(i)) for such principal
amount or the Maturity Date. Interest shall accrue daily commencing on the
Original Issue Date (as defined in Section 6) until payment in full of the
principal sum, together with all accrued and unpaid interest and other amounts
which may become due hereunder, has been made. Interest shall be calculated on
the basis of a 360-day year and for the actual number of days elapsed. Interest
hereunder will be paid to the Person (as defined in Section 6) in whose name
this Debenture is registered on the records of the Company regarding
registration and transfers of the Debentures (the "Debenture Register"). All
overdue, accrued and unpaid interest and other amounts due hereunder shall bear
interest at the rate of 18% per annum (to accrue daily) from the date such
interest is due hereunder through and including the date of payment. The
principal of, and interest on, this Debenture are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, at the address of the Holder
last appearing on the Debenture Register, except that interest due on the
principal amount (but not overdue interest) may, at the Company's option, be
paid in shares of Common Stock (as defined in Section 6) calculated based upon
the lower of (i) the Per Share Market Value (as defined in Section 6) or (ii)
the Conversion Price (as defined below) on the date such interest was due. All
amounts due
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<PAGE>
hereunder other than such interest shall be paid in cash. Notwithstanding
anything to the contrary contained herein, the Company may not issue shares of
Common Stock in payment of interest on the principal amount if: (i) the number
of shares of Common Stock at the time authorized, unissued and unreserved for
all purposes, is insufficient to pay interest hereunder in shares of Common
Stock; (ii) such shares of Common Stock are not either registered for resale
pursuant to an Underlying Securities Registration Statement (as defined in
Section 6) or freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), as determined by counsel to the Company pursuant to a written opinion
letter addressed and in form and substance acceptable to the Holder and the
transfer agent for such shares; (iii) such shares of Common Stock are not then
listed or quoted on the Nasdaq National Market ("NASDAQ") or on the New York
Stock Exchange, American Stock Exchange or the Nasdaq SmallCap Market (each, a
"Subsequent Market"); (iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or (v) the issuance of such shares would
result in the recipient thereof beneficially owning more than 4.999% of the
issued and outstanding shares of Common Stock as determined in accordance with
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Payment of
interest on the principal amount in shares of Common Stock is further subject to
the provisions of Section 4(a)(ii).
This Debenture is subject to the following additional provisions:
Section 1. This Debenture is exchangeable for an equal
aggregate principal amount of Debentures of different authorized denominations,
as requested by the Holder surrendering the same but shall not be issuable in
denominations of less than integral multiplies of One Thousand Dollars ($1,000)
unless such amount represents the full principal balance of Debentures
outstanding to such Holder. No service charge will be made for such registration
of transfer or exchange.
Section 2. This Debenture has been issued subject to certain
investment representations of the original Holder set forth in the Purchase
Agreement (as defined in Section 6) and may be transferred or exchanged only in
compliance with the Purchase Agreement. Prior to due presentment to the Company
for transfer of this Debenture, the Company and any agent of the Company may
treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
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<PAGE>
(i) any default in the payment of the principal of, interest
on or liquidated damages in respect of this Debenture (free of any
claim of subordination), as and when the same shall become due and
payable (whether on the applicable quarterly interest payment date, a
Conversion Date or the Maturity Date or by acceleration or otherwise.
Notwithstanding anything to the contrary, no Event of Default shall
exist upon the occurrence of a default in payment of interest on this
Debenture that the Company cures within five (5) days following receipt
of written notice of such default;
(ii) the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been
remedied within 10 days after the date on which notice of such failure
or breach shall have been given;
(iii) the Company or any of its subsidiaries shall commence,
or there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Company or any subsidiary thereof or there is commenced
against the Company or any subsidiary thereof any such bankruptcy,
insolvency or other proceeding which remains undismissed for a period
of 60 days; or the Company or any subsidiary thereof is adjudicated
insolvent or bankrupt; or any order of relief or other order approving
any such case or proceeding is entered; or the Company or any
subsidiary thereof suffers any appointment of any custodian or the like
for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any
subsidiary thereof makes a general assignment for the benefit of
creditors; or the Company shall state that it is unable to pay its
debts generally as they become due; or the Company or any subsidiary
thereof shall call a meeting of its creditors with a view to arranging
a composition or adjustment of its debts; or the Company or any
subsidiary thereof shall by any act or failure to act indicate its
consent to, approval of or acquiescence in any of the foregoing; or any
corporate or other action is taken by the Company or any subsidiary
thereof for the purpose of effecting any of the foregoing;
(iv) the Company shall default, after the lapse of any
applicable grace period, in any of its obligations under any mortgage,
credit agreement or other facility, indenture agreement or other
instrument under which there may be issued, or by which there may be
secured or evidenced any indebtedness of the Company in an amount
exceeding five hundred thousand dollars ($500,000), whether such
indebtedness now exists or shall hereafter be created and such default
shall result in such indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and
payable;
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<PAGE>
(v) the Common Stock shall fail to be listed for trading on
the NASDAQ or on a Subsequent Market or the Common Stock shall be
suspended from trading on the NASDAQ or on a Subsequent Market, in
either case, for more than three (3) days (which need not be
consecutive days);
(vi) an Underlying Securities Registration Statement shall not
have been declared effective by the Securities and Exchange Commission
(the "Commission") on or prior to the 180th day after the Original
Issue Date;
(vii) an Event (as hereinafter defined) shall not have been
cured to the reasonable satisfaction of the Holder prior to the
expiration of thirty (30) days from the Event Date (as hereinafter
defined) relating thereto (other than an Event resulting from a failure
of an Underlying Securities Registration Statement to be declared
effective by the Commission on or prior to the Effective Date (as
defined in the Registration Rights Agreement);
(viii) the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after the
Conversion Date pursuant to Section 4(b) or the Company shall provide
notice to the Holder, including by way of public announcement, at any
time, of its intention not to comply with requests for conversions of
any Debentures in accordance with the terms hereof; or
(ix) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In (as defined below) within ten (10)
days after notice is deemed delivered hereunder.
(b) If during the time that any portion of this Debenture remains
outstanding, any Event of Default occurs and is continuing, then the Holders of
a majority in interest of the outstanding principal amount of Debentures may, by
notice to the Company declare the full principal amount of this Debenture,
together with interest and other amounts owing in respect thereof, to the date
of acceleration, due and payable in cash. The aggregate amount payable upon an
Event of Default shall be equal to the sum of (i) the Mandatory Prepayment
Amount (as defined below) plus (ii) the product of (A) the number of Underlying
Shares issued in respect of conversions hereunder or as payment of interest
hereunder, in either case, within thirty (30) days of the date of a declaration
of an Event of Default and then held by the Holder and (B) the Per Share Market
Value on the date prepayment is due or the date the full prepayment price is
paid, whichever is greater. Interest shall accrue on the prepayment amount
hereunder from the seventh day after such amount is due (being the date of an
Event of Default) through the date of payment in full thereof at the rate of 18%
per annum. All Debentures and Underlying Shares for which the full repayment
price hereunder shall have been paid in accordance herewith shall be promptly
surrendered to or as directed by the Company. The Holder need not provide and
the Company hereby waives any presentment, demand, protest or other notice of
any kind, and the Holder may immediately and without expiration of any grace
period enforce any and all of its rights and remedies hereunder and all other
remedies available to it under applicable law. Such declaration may be rescinded
and annulled by Holder at any time prior to payment
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<PAGE>
hereunder. No such rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) This Debenture shall be convertible into shares of
Common Stock (subject to the limitations set forth in Section 4(a)(ii) hereof)
at the option of the Holder, in whole or in part at any time and from time to
time following the Original Issue Date. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon (to the extent that the Company has elected and is
permitted to pay interest in shares of Common Stock), by the Conversion Price,
each as subject to adjustment as provided hereunder. The Holder shall effect
conversions by surrendering the Debentures (or such portions thereof) to be
converted, together with the form of conversion notice attached hereto as
Exhibit A (a "Conversion Notice") to the Company. Each Conversion Notice shall
specify the principal amount of Debentures to be converted and the date on which
such conversion is to be effected, which date may not be prior to the date such
Conversion Notice is deemed to have been delivered hereunder (a "Conversion
Date"). If no Conversion Date is specified in a Conversion Notice, the
Conversion Date shall be the date that such Conversion Notice is deemed
delivered hereunder. If the Holder is converting less than all of the principal
amount represented by the Debenture(s) tendered by the Holder with the
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) Certain Conversion Restrictions.
(A) (1) The Holder may not convert Debentures or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest would result in the Holder
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the then issued
and outstanding shares of Common Stock, including shares issuable upon
conversion of, and payment of interest on, the Debentures held by the Holder
after application of this Section. The Holder shall have the sole authority and
obligation to determine whether the restriction contained in this Section
applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 75 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(2) The Holder may not convert Debentures or
receive shares of Common Stock as payment of interest hereunder to the extent
such conversion or receipt of such interest would result in the Holder
beneficially owning (as determined in accordance with Section
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<PAGE>
13(d) of the Exchange Act and the rules thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares issuable
upon conversion of, and payment of interest on, the Debentures held by the
Holder after application of this Section. The Holder shall have the sole
authority and obligation to determine whether the restriction contained in this
Section applies and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which Debentures are
convertible shall be in the sole discretion of the Holder. The provisions of
this Section may be waived by a Holder (but only as to itself and not to any
other Holder) upon not less than 75 days prior notice to the Company. Other
Holders shall be unaffected by any such waiver.
(B) Notwithstanding anything to the contrary set
forth herein, the Company shall not be obligated to issue in excess of 2,927,130
shares of Common Stock upon conversion of Debentures and payment of interest
hereunder, which number of shares shall be subject to adjustment pursuant to
Sections 4(c)(ii), (iii), and (v) (such number of shares, the "Issuable
Maximum"). The Issuable Maximum equals 19.99% of the number of shares of Common
Stock outstanding immediately prior to the Closing. Shares of Common Stock
issued in respect of liquidated damages hereunder shall not count towards the
2,927,130 share limit set forth in this paragraph and shall be paid in cash as
provided herein unless otherwise agreed to by the Holders. If on any Conversion
Date (A) the Conversion Price then in effect is such that the aggregate number
of shares of Common Stock that would then be issuable upon conversion in full of
all then outstanding Debentures and as payment of interest thereon in shares of
Common Stock, together with any shares of Common Stock previously issued upon
conversion of Debentures and as payment of interest thereon, would equal or
exceed the Issuable Maximum, and (B) the Company shall not have previously
obtained the vote of shareholders (the "Shareholder Approval"), if any, as may
be required by the applicable rules and regulations of NASDAQ or other exchange
or market on which the Common Stock is then listed or quoted for trading to
approve the issuance of shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Company shall issue to the Holder so
requesting a conversion a number of shares of Common Stock equal to its pro-rata
share of the Issuable Maximum (determined by reference to the aggregate
principal amount of Debentures issued to all Holders on the Original Issue Date)
and, with respect to the remainder of the aggregate principal amount of
Debentures then held by such Holder for which a conversion in accordance with
the Conversion Price would result in an issuance of shares of Common Stock in
excess of the Issuable Maximum (the "Excess Value"), the Company shall have the
option to either (1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 75th day after such request, or (2)(i) issue and deliver to such Holder
a number of shares of Common Stock as equals (x) the Excess Value, plus accrued
interest on all Debentures being converted, divided by (y) the closing sales
price of the Common Stock as reported by the NASDAQ on the Original Issue Date,
and (ii) cash in an amount equal to the product of (x) the Per Share Market
Value on the Conversion Date and (y) the number of shares of Common Stock in
excess of such Holder's pro rata portion of the Issuable Maximum that would have
otherwise been issuable to the Holder in respect of such conversion but for the
provisions of this Section (such amount of cash being hereinafter referred to as
the "Discount Equivalent"), or (3) pay cash to the converting Holder in an
amount equal to the Mandatory Prepayment Amount (as
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defined in Section 6) for the Excess Value. If the Company fails to pay the
Discount Equivalent or the Mandatory Redemption Amount, as the case may be, in
full pursuant to this Section within ten (10) days after the date payable, the
Company will pay interest thereon at a rate of 18% per annum to the converting
Holder, accruing daily from the Conversion Date until such amount, plus all such
interest thereon, is paid in full. If the Company fails to obtain the
Shareholder Approval by the 75th day, then the Holders shall have the right to
require the Company to perform under, at the sole option of such Holder, clause
(2) or (3) of this Section 4(a)(iii)(B). The Company and the Holders understand
and agree that shares of Common Stock issued to and then held by the Holders as
a result or conversion of Debentures and as payment of interest thereon shall
not be entitled to cast votes on any resolution to obtain Shareholder Approval
pursuant hereto.
(b) (i) Not later than three Trading Days after the Conversion
Date, the Company will deliver or cause to be delivered to the Holder (i) a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement and as required by law) representing the number of shares of
the Common Stock being acquired upon the conversion of Debentures (subject to
the limitations set forth in Section 4(a)(ii) hereof), (ii) Debentures in a
principal amount equal to the principal amount of Debentures not converted;
(iii) a bank check or wire transfer in the amount of all accrued and unpaid
interest (if the Company has elected to pay accrued interest in cash), together
with all other amounts then due and payable in accordance with the terms hereof,
in respect of Debentures tendered for conversion, and (iv) if the Company has
elected and is permitted hereunder to pay accrued interest in shares of the
Common Stock, certificates, which shall be free of restrictive legends and
trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement and as required by law), representing such number of shares
of the Common Stock as equals such interest divided by the Conversion Price
calculated on the Conversion Date; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of the Common Stock
issuable upon conversion of the principal amount of Debentures until Debentures
are delivered for conversion to the Company or the Holder notifies the Company
that such Debenture has been mutilated, lost, stolen or destroyed and complies
with Section 9 hereof. If in the case of any Conversion Notice such certificate
or certificates, including for purposes hereof, any shares of the Common Stock
to be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, are not delivered to or as directed by the Holder by the third (3rd)
Trading Day after a Conversion Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion in which event the
Company shall immediately return the Debentures tendered for conversion. If the
Company fails to deliver to the Holder such certificate or certificates pursuant
to this Section, including for purposes hereof, any shares of the Common Stock
to be issued on the Conversion Date on account of accrued but unpaid interest
hereunder, prior to the third (3rd) Trading Day after the Conversion Date, the
Company shall pay to such Holder, in cash, as liquidated damages and not as a
penalty, $2,500 for each day thereafter until the Company delivers such
certificates (such amount shall be also be due for each Trading Day after the
date that the Holder may rescind such conversion until such date as the Holder
shall have received the return of the principal amount of Debentures relating to
such rescission). Nothing herein shall limit a Holder's right to pursue actual
damages or declare an Event of Default
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pursuant to Section 3 herein for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity including, without limitation, a decree of specific
performance and/or injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to any other
Section hereof or under applicable law. Further, if the Company shall not have
delivered any cash due in respect of conversions of Debentures or as payment of
interest thereon by the fifth (5th) Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to issue shares of
Common Stock pursuant to Section 4(c), except that for such purpose the
Conversion Price applicable thereto shall be the lesser of the Conversion Price
on the Conversion Date and the Conversion Price on the date of such Holder
demand. Any such shares will be subject to the provision of this Section.
(ii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 4(b)(i), including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
interest hereunder, prior to the fifth (5th) Trading Day after the Conversion
Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by such Holder of the Underlying Shares which the Holder
was entitled to receive upon such conversion (a "Buy-In"), then the Company
shall (A) pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (i) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) either return the aggregate principal amount
of Debentures for which such conversion was not honored or deliver to such
Holder the number of shares of Common Stock that would have been issued had the
Company timely complied with its conversion and deliver obligations under
Section 4(b)(i). For example, if the Holder purchases Common Stock having a
total purchase price of $11,000 to cover a Buy-In with respect to an attempted
conversion of $10,000 aggregate principal amount of Debentures, the Company
shall be required to pay the Holder $1,000. The Holder shall provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Buy-In and evidence of the Holder's purchase as described above. Notwithstanding
anything contained herein to the contrary, if a Holder requires the Company to
make payment in respect of a Buy-In for the failure to timely deliver
certificates hereunder and the Company timely pays in full such payment, the
Company shall not be required to pay such Holder liquidated damages under
Section 4(b)(i) in respect of the certificates resulting in such Buy-In.
(c) (i) The conversion price (the "Conversion Price") in
effect on any Conversion Date shall be $11.00 per share (the "Initial Conversion
Price"); PROVIDED THAT, if the Company shall have declined to repay in full this
Debenture following the exercise by the Holder of the Put Right at the Put Price
(as each such term is defined in Section 5 herein), the
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Conversion Price shall be the LESSER OF (i) 0.85 multiplied by the average of
the lowest ten (10) VWACS during the thirty (30) consecutive Trading Days
immediately preceding such Conversion Date, and (ii) the Initial Conversion
Price (subject, in each case, to equitable adjustments set forth herein).
If: (a) an Underlying Securities Registration
Statement is not filed on or prior to the Filing Date (as defined in the
Registration Rights Agreement) (if the Company files such Underlying Securities
Registration Statement without affording the Holder the opportunity to review
and comment on the same as required by Section 3(a) of the Registration Rights
Agreement, the Company shall not be deemed to have satisfied this clause (a)),
or (b) the Company fails to file with the Commission a request for acceleration
in accordance with Rule 12d1-2 promulgated under the Securities Exchange Act of
1934, as amended, within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that an
Underlying Securities Registration Statement will not be "reviewed," or not
subject to further review, or (c) the Underlying Securities Registration
Statement is not declared effective by the Commission on or prior to the
Effectiveness Date (as defined in the Registration Rights Agreement), or (d)
except as set forth in the Registration Rights Agreement, such Underlying
Securities Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as defined in the Registration Rights Agreement) at any time prior
to the expiration of the "Effectiveness Period" (as defined in the Registration
Rights Agreement), without being succeeded within fifteen (15) days by an
amendment to such Underlying Securities Registration Statement or a subsequent
Underlying Securities Registration Statement filed with and declared effective
by the Commission, or (e) trading in the Common Stock shall be suspended from
the NASDAQ or a Subsequent Market for more than three (3) Business Days (which
need not be consecutive days), (f) the conversion rights of the Holders are
suspended for any reason, subject to the exceptions set forth herein or in the
Registration Rights Agreement or (g) an amendment to the Underlying Securities
Registration Statement is not filed by the Company with the Commission within
fifteen (15) days of the Commission's notifying the Company that such amendment
is required in order for the Underlying Securities Registration Statement to be
declared effective (any such failure or breach being referred to as an "Event,"
and for purposes of clauses (a), (c), (f) the date on which such Event occurs,
or for purposes of clause (b) the date on which such five (5) day period is
exceeded, or for purposes of clauses (d) and (g) the date which such 15
day-period is exceeded, or for purposes of clause (e) the date on which such
three (3) Business Day-period is exceeded, being referred to as "Event Date"),
then the Company shall pay to the Holder [2.0%] of the aggregate principal
amount of Debentures then held by such Holder, in cash, as liquidated damages
and not as a penalty, on the first day of each monthly anniversary of the Event
Date, until such time as the applicable Event is cured. The provisions of this
Section are not exclusive and shall in no way limit the Company's obligations
under the Registration Rights Agreement.
(iii) If the Company, at any time while any
Debentures are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Common Stock or any other equity
or equity equivalent securities payable in shares of the Common Stock, (b)
subdivide outstanding shares of the Common Stock into a larger number of shares,
(c) combine
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outstanding shares of the Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of the Common Stock any shares of capital
stock of the Company, the Initial Conversion Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding before such event and of
which the denominator shall be the number of shares of the Common Stock
outstanding after such event. Any adjustment made pursuant to this Section shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iv) If the Company, at any time while any Debentures
are outstanding, shall issue rights or warrants to all holders of the Common
Stock (and not to Holders of Debentures) entitling them to subscribe for or
purchase shares of the Common Stock at a price per share less than the Per Share
Market Value of the Common Stock at the record date mentioned below, the Initial
Conversion Price shall be multiplied by a fraction, of which the denominator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of additional shares of the
Common Stock offered for subscription or purchase, and of which the numerator
shall be the number of shares of the Common Stock outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would purchase
at such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. However, upon the expiration of any right or warrant to
purchase shares of the Common Stock the issuance of which resulted in an
adjustment in the Initial Conversion Price pursuant to this Section, if any such
right or warrant shall expire and shall not have been exercised, the Initial
Conversion Price shall immediately upon such expiration be recomputed and
effective immediately upon such expiration be increased to the price which it
would have been (but reflecting any other adjustments in the Initial Conversion
Price made pursuant to the provisions of this Section 4 after the issuance of
such rights or warrants) had the adjustment of the Initial Conversion Price made
upon the issuance of such rights or warrants been made on the basis of offering
for subscription or purchase only that number of shares of the Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(v) If the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while Debentures are outstanding, shall issue shares of Common Stock or
rights, warrants, options or other securities or debt that is convertible into
or exchangeable for shares of Common Stock, other than stock options to
employees, directors or officers of the Company and outstanding convertible
debentures issued on October 10, 1997 in the aggregate principal amount of
$11,080,535 ("Common Stock Equivalents") entitling any Person to acquire shares
of Common Stock at a price per share less than the Conversion Price then in
effect, then the Conversion Price shall be multiplied by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of shares of Common Stock or such Common Stock
Equivalents plus the number of shares of
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Common Stock which the offering price for such shares of Common Stock or Common
Stock Equivalents would purchase at the Conversion Price, and the denominator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock so
issued or issuable, provided, that for purposes hereof, all shares of Common
Stock that are issuable upon exercise or exchange of Common Stock Equivalents
shall be deemed outstanding immediately after the issuance of such Common Stock
Equivalents. Such adjustment shall be made whenever such shares of Common Stock
or Common Stock Equivalents are issued.
(vi) If the Company, at any time while Debentures are
outstanding, shall distribute to all holders of the Common Stock (and not to
Holders of Debentures) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security, then in each such case the
Initial Conversion Price at which Debentures shall thereafter be convertible
shall be determined by multiplying the Initial Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of the Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to the holders
of Debentures of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of the Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(vii) In case of any reclassification of the Common
Stock or any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, the Holder of this Debenture
shall have the right thereafter to, at its option, (A) convert the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture only into
the shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of the Common Stock following such reclassification
or share exchange, and the Holders of the Debentures shall be entitled upon such
event to receive such amount of securities, cash or property as the shares of
the Common Stock of the Company into which the then outstanding principal
amount, together with all accrued but unpaid interest and any other amounts then
owing hereunder in respect of this Debenture
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could have been converted immediately prior to such reclassification or share
exchange would have been entitled or (B) require the Company to prepay the
aggregate of its outstanding principal amount of Debentures, plus all interest
and other amounts due and payable thereon, at the then effective Put Price
adjusted to reflect at least a 16% annualized return. The entire prepayment
price shall be paid in cash. This provision shall similarly apply to successive
reclassifications or share exchanges.
(viii) All calculations under this Section 4 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(ix) Whenever the Conversion Price is adjusted
pursuant to any of Section 4(c)(ii) - (v), the Company shall promptly mail to
each Holder of Debentures a notice setting forth the Initial Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(x) If (A) the Company shall declare a dividend (or
any other distribution) on its Common Stock; (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock; (C)
the Company shall authorize the granting to all holders of the Common Stock
rights or warrants to subscribe for or purchase any shares of capital stock of
any class or of any rights; (D) the approval of any stockholders of the Company
shall be required in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is a party, any
sale or transfer of all or substantially all of the assets of the Company, of
any compulsory share of exchange whereby the Common Stock is converted into
other securities, cash or property; (E) the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Company; then, and in each case, the Company shall cause to be filed at
each office or agency maintained for the purpose of conversion of the
Debentures, and shall cause to be mailed to the Holders of Debentures at their
last addresses as they shall appear upon the stock books of the Company, at
least 15 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holders are entitled
to convert Debentures during the 15-day period commencing the date of such
notice to the effective date of the event triggering such notice.
(xi) In case of any (1) merger or consolidation of
the Company with or into another Person that would constitute a Change of
Control Transaction, or (2) sale, directly or indirectly, by the Company of more
than 40% of the assets of the Company (on an as valued basis)
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in one or a series of related transactions, or (3) tender or other offer or
exchange (whether by the Company or another Person) pursuant to which holders of
Common Stock are permitted to tender or exchange their shares for other
securities, stock, cash or property of the Company or another Person; then, if a
Holder has not exercised its Put Right or rights of redemption, if any, such
Holder shall have the right thereafter to convert its Debentures into shares of
Common Stock at any time prior to the effective day of such transaction and
thereafter to (A) require the Company to prepay the aggregate of its outstanding
principal amount of Debentures, plus all interest and other amounts due and
payable thereon at the then effective Put Price adjusted to reflect at least a
16% annualized return, or (B) convert its Debentures into the shares of stock
and other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such merger, consolidation or sale, and such
Holder shall be entitled upon such event or series of related events to receive
such amount of securities, cash and property as the shares of Common Stock into
which such Debentures could have been converted immediately prior to such
merger, consolidation or sales would have been entitled
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued shares of the Common Stock
solely for the purpose of issuance upon conversion of the Debentures and payment
of interest on the Debentures, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Company as to reservation of such
shares set forth in the Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 4(c)) upon the conversion of the
outstanding principal amount of the Debentures and payment of interest
hereunder. The Company covenants that all shares of the Common Stock that shall
be so issuable shall, upon issue, be duly and validly authorized, issued and
fully paid, nonassessable and, if the Underlying Securities Registration
Statement has been declared effective under the Securities Act, registered for
public sale in accordance with such Underlying Securities Registration
Statement.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
(f) The issuance of certificates for shares of the Common
Stock on conversion of the Debentures shall be made without charge to the
Holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such Debentures so
converted and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
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(g) Any and all notices or other communications or deliveries
to be provided by the Holders of the Debentures hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile, sent by a nationally recognized overnight courier service or sent
by certified or registered mail, postage prepaid, addressed to the Company, at
8807 Northwest 23rd Street, Miami, Florida 33172, facsimile number (305)
477-1379, attention CFO, with a copy to Atlas, Pearlman, Trop & Borkson, New
River Center, Suite 1900, 200 East Las Olas Boulevard, Ft. Lauderdale, Florida
33301, facsimile number (954) 766-7800, attention Joel D. Mayersohn, or such
other address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any and all
notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to each Holder of the Debentures at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the principal place of business of the holder. Any notice or other communication
or deliveries hereunder shall be deemed given and effective on the earliest of
(i) the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
5:00 p.m. (New York City time), (ii) the date after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section later than 5:00 p.m. (New York City
time) on any date and earlier than 11:59 p.m. (New York City time) on such date,
(iii) four days after deposit in the United States mail, (iv) the Business Day
following the date of mailing, if send by nationally recognized overnight
courier service, or (v) upon actual receipt by the party to whom such notice is
required to be given.
Section 5. Put Option.
(a) Commencing on the nine (9) month anniversary of the
Original Issue Date and on each three (3) month anniversary of such nine (9)
month anniversary of the Original Issue Date, if the Holder has not yet
exercised such Put Right (as defined below) (the "Put Date"), and continuing for
a period of ten (10) days thereafter, the Holder shall have the right (the "Put
Right") to request that the Company repurchase all, but not less than all, of
the outstanding principal balance of such Holder's Debentures (the "Put Option")
at a price equal to the Put Price (as defined below), by delivering to the
Company a written notice specifying (i) the aggregate principal amount of
Debentures subject to the Put Option which shall be all such Debentures of the
Holder, (ii) the aggregate Put Price, and (iii) the date, not earlier than
twenty (20) days and not later than thirty (30) days after the Put Date, on
which the Put Option may be exercised (the "Put Exercise Date"). The Put Price
is payable in four (4) equal monthly installments commencing on Put Exercise
Date. "Put Price" means (i) one hundred and twelve percent (112%) of the
principal amount of the Debentures to be repaid, plus all accrued and unpaid
interest thereon if the Put Date occurs on or prior to the 360th day after the
Original Issue Date, (ii) one hundred and sixteen percent (116%) of the
principal amount of the Debentures to be repaid, plus all accrued and unpaid
interest thereon if the Put Date occurs on or after the 361st day after the
Original Issue Date and prior to the 450th day after the Original Issue Date,
(iii) one hundred and twenty percent (120%) of the principal amount of the
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Debentures to be repaid, plus all accrued and unpaid interest thereon if the Put
Date occurs on or after the 451st day after the Original Issue Date and prior to
the 540th day after the Original Issue Date, (iv) one hundred and twenty-four
percent (124%) of the principal amount of the Debentures to be repaid, plus all
accrued and unpaid interest thereon if the Put Date occurs on or after the 541st
day after the Original Issue Date and prior to the 630th day after the Original
Issue Date, and (v) one hundred and twenty-eight percent (128%) of the principal
amount of the Debentures to be repaid, plus all accrued and unpaid interest
thereon if the Put Date occurs on or after the 631st day after the Original
Issue Date.
(b) Upon receipt by the Company of a notice exercising the Put
Right, the Company shall, within the time periods required in Sections 5(a),
deliver to the Holder exercising the Put Right a notice stating whether the
Company agrees to repurchase all, but not less than all, of the outstanding
principal amount of the Debentures subject to the Put Right. In the event the
Company delivers notice of its agreement to effect such repurchase (a "Company
Acceptance Notice"), the provisions in subsection (c) below shall apply. In the
event the Company declines to repurchase the outstanding Debentures subject to
the Put Right, the Debentures shall remain convertible pursuant to Section 4(c)
at the option of the Holder hereof.
(c) Assuming the Company has delivered a Company Acceptance
Notice, on the Put Exercise Date and on each monthly anniversary of the Put
Exercise Date terminating on the second monthly anniversary of the Put Exercise
Date, (i) the Holder shall deliver to the Company the principal amount of
Debentures, properly endorsed, representing one-quarter of the Debentures
subject to the Put Option, and (ii) the Company shall deliver to the Purchasers,
in immediately available funds, the applicable portion of Put Price. The
purchase price for any Put Right shall be in cash and shall be free of any claim
of subordination. If any portion of the purchase price for any Put Right shall
not be paid within the time set forth in this Section 5, as an alternative to
any other rights or remedies set fort herein and not in addition to such other
rights or remedies, such purchase price shall be increased by 15% per annum (to
accrue daily) until paid (which amount shall be paid as liquidated damages and
not as a penalty) and the Holder shall have the right to convert the Debentures
subject to the Put Option pursuant to Section 4(c).
Section 6. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by those individuals who are members of the board of directors on
the date hereof
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in one or a series of related transactions, (iii) the merger of the Company with
or into another entity, the direct or indirect consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, unless following such transaction, the holders of the Company's
securities continue to hold at least 40% of such securities following such
transaction or (iv) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii) or (iii).
"Common Stock" means the common stock, $.01 par value, of the
Company and stock of any other class into which such shares may hereafter have
been reclassified or changed.
"Mandatory Prepayment Amount" for any Debentures shall equal
the sum of (i) the principal amount of Debentures to be prepaid, plus all
accrued and unpaid interest thereon, divided by the Conversion Price on (x) the
date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is less,
multiplied by the closing sale price per share of the Common Stock on NASDAQ or
on such Subsequent Market on which the Common Stock is listed or quoted on (x)
the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the
date the Mandatory Prepayment Amount is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
such Debentures.
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on which the Common Stock is then listed or quoted on
the date nearest preceding such date, or (b) if the Common Stock is not then
listed or quoted on the NASDAQ or on a Subsequent Market, the closing bid price
for a share of Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or agency
succeeding to its functions of reporting prices) at the close of business on
such date, or (c) if the Common Stock is not then reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding to
its functions of reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith by the Holder,
or (d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser selected in good faith by
the Holders of a majority interest of the principal amount of Debentures. .
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
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<PAGE>
"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holder of Debentures, as amended, modified or supplemented from time to
time in accordance with its terms.
"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common Stock is
then listed or quoted, as the case may be, or (b) if the Common Stock is not
listed on the NASDAQ or on a Subsequent Market, a day on which the Common Stock
is traded in the over-the-counter market, as reported by the OTC Bulletin Board,
or (c) if the Common Stock is not quoted on the OTC Bulletin Board, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices); provided, however, that in
the event that the Common Stock is not listed or quoted as set forth in (a), (b)
and (c) hereof, then Trading Day shall mean any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other government
action to close
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
"VWACS" means the weighted daily average bid price per share
of the Common Stock on NASDAQ or any Subsequent Market as reported by Bloomberg
Informational Services, Inc. or its successor to its function of reporting
prices.
Section 7. Except as expressly provided herein, no provision
of this Debenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, interest and liquidated
damages (if any) on, this Debenture at the time, place, and rate, and in the
coin or currency, herein prescribed. This Debenture is a direct obligation of
the Company. This Debenture ranks pari passu with all other Debentures now or
hereafter issued under the terms set forth herein. The Company may only
voluntarily prepay the outstanding principal amount on the Debentures in
accordance with Section 5 hereof.
Section 8. This Debenture shall not entitle the Holder to any
of the rights of a stockholder of the Company, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive any
notice of, or to attend, meetings of stockholders or any other
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<PAGE>
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof. As long as there are
Debentures outstanding, the Company shall not and shall cause it subsidiaries
not to, without the consent of the Holders, (i) amend its certificate of
incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Holders; (ii) except with respect to the redemption of the
outstanding convertible promissory notes issued by the Company on October 10,
1997 in the aggregate principal amount of $11,080,535, repay, repurchase or
offer to repay, repurchase or otherwise acquire shares of its Common Stock or
other equity securities other than as to the Underlying Shares to the extent
permitted or required under the Transaction Documents; or (iii) enter into any
agreement with respect to any of the foregoing
Section 9. If this Debenture shall be mutilated, lost, stolen
or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Debenture, or in lieu of
or in substitution for a lost, stolen or destroyed debenture, a new Debenture
for the principal amount of this Debenture so mutilated, lost, stolen or
destroyed but only upon receipt of evidence of such loss, theft or destruction
of such Debenture, and of the ownership hereof, and indemnity, if requested, all
reasonably satisfactory to the Company.
Section 10. Except as set forth in Schedule 2.1(p) to the
Purchase Agreement ("Permitted Liens"), no indebtedness of the Company is senior
to this Debenture in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. The Company will not and will
not permit any of its subsidiaries to, directly or indirectly, enter into,
create, incur, assume or suffer to exist any Liens (as defined in the Purchase
Agreement) of any kind, other than Permitted Liens, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom.
Section 11. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
conflicts of laws thereof. The Company and the Holders hereby irrevocably submit
to the non-exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, or that such suit, action or proceeding is
improper. Each of the Company and the Holder hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by receiving a copy thereof sent to the Company at the address in
effect for notices to it under this instrument and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law.
Section 12. Any waiver by the Company or the Holder of a
breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company
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<PAGE>
or the Holder to insist upon strict adherence to any term of this Debenture on
one or more occasions shall not be considered a waiver or deprive that party of
the right thereafter to insist upon strict adherence to that term or any other
term of this Debenture. Any waiver must be in writing.
Section 13. If any provision of this Debenture is invalid,
illegal or unenforceable, the balance of this Debenture shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
Section 14. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next calendar month, the preceding Business Day in the appropriate
calendar month).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
VITECH AMERICA, INC.
By:________________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert the Debenture)
The undersigned hereby elects to convert Debenture No. A-[ ] into shares of
common stock, no par value (the "Common Stock"), of Vitech America, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
______________________________________________
Date to Effect Conversion
______________________________________________
Principal Amount of Debentures to be Converted
______________________________________________
Number of shares of Common Stock to be Issued
______________________________________________
Applicable Conversion Price
______________________________________________
Signature
______________________________________________
Name
______________________________________________
Address
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EXHIBIT B
---------
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made
and entered into as of May 21, 1999, among Vitech America, Inc., a Florida
corporation (the "Company"), Advantage Fund II Ltd., a British Virgin Islands
corporation ("Advantage"), and Koch Investment Group Ltd., a Delaware
corporation ("Koch"). Advantage and Koch are each referred to herein as a
"Purchaser" and are collectively referred to herein as the "Purchasers".
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof among the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
states of New York and Florida generally are authorized or required by law or
other government actions to close.
"Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, no par value.
"Debentures" means the Company's 10% Convertible Debentures
due May 21, 2001, issued pursuant to the Purchase Agreement.
"Effectiveness Date" means the 90th day following the Closing
Date.
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<PAGE>
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable (i) upon conversion in full of the Debentures, (ii) as payment of
interest in respect of the Debentures, assuming all such interest is paid in
shares of Common Stock and that the Debentures remain outstanding for two years,
and (iii) upon exercise of the Warrants; provided, however that in order to
account for the fact that the number of shares of Common Stock issuable upon
conversion of the Debentures (together with the payment of interest thereon) is
determined in part upon the market price of the Common Stock prior to the time
of conversion, Registrable Securities contemplated by clauses (i) and (ii) above
shall include (but not be limited to) a number of shares of Common Stock equal
to no less than 200% of the number of shares of Common Stock into which the
Debentures (together with the payment of interest thereon) are convertible,
assuming such conversion occurred on the Closing Date or the Filing Date,
whichever yields a lower Conversion Price (as defined in the Debentures). The
Company shall be required to file additional Registration Statements to the
extent the sum of (i) the number of the shares of Common Stock into which the
Debentures are convertible
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<PAGE>
(together with the payment of interest thereon), and (ii) the number of shares
of Common Stock issuable upon exercise in full of the Warrants, exceeds the
number of shares of Common Stock initially registered in accordance with the
immediately prior sentence. The Company shall have fifteen (15) days to file
such additional Registration Statements after notice of the requirement thereof,
which the Holders may give at such time when the number of shares of Common
Stock as are issuable upon conversion of Debentures (together with the payment
of interest thereon) and upon exercise of the Warrants, exceeds 90% of the
number of shares of Common Stock to be registered in a Registration Statement
hereunder.
"Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means collectively (i) the common stock purchase
warrant issued to the Purchasers pursuant to the Purchase Agreement, and (ii)
the common stock purchase warrant issued to Wharton Capital Partners, Ltd. in
connection with the transactions contemplated by the Purchase Agreement.
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<PAGE>
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering the
resale of all Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if otherwise directed by the Holders of a majority in interest of the
applicable Registrable Securities in accordance herewith or if the Company is
not then eligible to register for resale the Registrable Securities on Form S-3,
in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall use its best efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is two years after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all Registrable Securities
covered by such Registration Statement have been sold or may be sold without
volume restrictions pursuant to Rule 144(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent (the "Effectiveness Period"),
provided, however, that the Company shall not be deemed to have used its best
efforts to keep the Registration Statement effective during the Effectiveness
Period if it voluntarily takes any action that would result in the Holders not
being able to sell the Registrable Securities covered by such Registration
Statement during the Effectiveness Period, unless such action is required under
applicable law, the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective or the
Company incorporated such documents by reference into the Registration Statement
within 15 days of the date giving rise to the obligation to make such filing.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
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<PAGE>
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities) which shall contain
the "Plan of Distribution" attached hereto as Annex A (except if otherwise
directed by the Holders), and cause the Registration Statement to become
effective and remain effective as provided herein; provided, however, that not
less than three (3) Business Days prior to the filing of the Registration
Statement or any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated or deemed to be incorporated
therein by reference), the Company shall, (i) furnish to the Holders, their
Special Counsel and any managing underwriters, copies of all such documents
proposed to be filed, which documents (other than those incorporated or deemed
to be incorporated by reference) will be subject to the review of such Holders,
their Special Counsel and such managing underwriters, and (ii) cause its
officers and directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The Company
shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period and prepare and
file with the Commission such additional Registration Statements in order to
register for resale under the Securities Act all of the Registrable Securities;
(ii) cause the related Prospectus to be amended or supplemented by any required
Prospectus supplement, and as so supplemented or amended to be filed pursuant to
Rule 424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as reasonably possible to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the Commission
relating to the Registration Statement; and (iv) comply in all material respects
with the provisions of the Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters as promptly as reasonably
possible (and, in the case of (i)(A) below,
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<PAGE>
not less than three (3) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) Business Day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing on
such Registration Statement (the Company shall provide true and complete copies
thereof and all written responses thereto to each of the Holders); and (C) with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective; (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any time any of the
representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspen sion of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that makes any statement made
in the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
that requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its reasonable best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending the
effectiveness of the Registration Statement, or (ii) any suspension of the
qualification (or exemption from qualification) of any of the Registrable
Securities for sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein, and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as soon as practicable
after the Company has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment; provided, however, that
the Company shall not be required to take any action pursuant to this Section
3(e) that would, in the opinion of counsel for the Company, violate applicable
law or be materially detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including
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<PAGE>
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its reasonable best efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least two Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain 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, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market ("NASDAQ") and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
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<PAGE>
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or not an
underwriting agreement is entered into, (i) make such representations and
warranties to such Holders and such underwriters as are customarily made by
issuers to underwriters in underwritten public offerings, and confirm the same
if and when requested; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to each Holder and the managing underwriters, if any, of
opinions of counsel to the Company and updates thereof addressed to each Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel to the selling Holders
covering the matters customarily covered in opinions requested in Underwritten
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
best reasonable efforts to obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the under writers, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reason ably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and the Special Counsel or accountant retained by
such selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes
-8-
<PAGE>
available to such Person from a source other than the Company and such source is
not known by such Person to be bound by a confidentiality agreement with the
Company.
(n) Comply in all material respects with all applicable rules
and regulations of the Commission.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if 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 in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any
Registrable Securities under the Registration Statement until it has received
copies of the Prospectus as then amended or supplemented as contemplated in
Section 3(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or Affiliates, if any, will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Pro spectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing
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<PAGE>
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ and any subsequent market on which the
Common Stock is then listed for trading, and (B) in compliance with state
securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as the managing underwriters, if any, or the Holders of a
majority of Registrable Securities may designate)), (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriters, if any, or by the
holders of a majority of the Registrable Securities included in the Registration
Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for the Holders not
to exceed $5,000, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons retained
by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Holders shall be responsible for all costs, fees and
expenses in connection therewith.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), investment advisors and employees of each of them, each Person who
con trols any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that such untrue
statements or omissions are based solely upon information regarding such Holder
furnished in writing to the Company by such Holder expressly for use therein,
which information was reasonably relied on by the Company for use therein or to
the extent that such information relates to such Holder or such Holder's
proposed method of distribution of Registrable Securities and was reviewed and
expressly approved in writing
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<PAGE>
by such Holder expressly for use in the Registration Statement, such Prospectus
or such form of Prospectus or in any amendment or supplement thereto. The
Company shall notify the Holders promptly of the institution, threat or
assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons, to
the fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus or
such form of prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3)
the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party,
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<PAGE>
and such Indemnified Party shall have been advised by counsel that a conflict of
interest is likely to exist if the same counsel were to represent such
Indemnified Party and the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense thereof and such counsel
shall be at the expense of the Indemnifying Party). The Indemnifying Party shall
not be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld. No
Indemnifying Party shall, without the prior written consent of the Indemnified
Party, effect any settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability on claims that are the
subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid promptly to the Indemnified Party,
as incurred (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), 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 Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limita tions set forth in Section 5(c), any reasonable attorneys' or
other reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allo cation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess of the amount
by which the proceeds actually received by such Holder from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason
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<PAGE>
of such untrue or alleged untrue statement or omission or alleged 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.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 6(b) hereto, neither the
Company nor any of its subsidiaries has previously entered into any agreement
granting any registration rights with respect to any of its securities to any
Person.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all of the Registrable Securities
and the Underlying Shares, the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission.
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<PAGE>
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 5:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 5:00
p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service, or (iv) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as follows:
If to the Company: Vitech America, Inc.
8807 Northwest 23rd St.
Miami, Florida 33172-2419
Facsimile No.: (305) 477-1379
Attn: Edward Kelly
With copies to: Atlas, Pearlman, Trop & Borkson
New River Center, Suite 1900
200 East Las Olas Blvd.
Ft. Lauderdale, Florida 33301
Facsimile No.: (954) 766-7800
Attn: Joel D. Mayersohn
If to Advantage: Advantage Fund II Ltd.
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Facsimile No.: 011-599-9732-2008
If to Koch: Koch Investment Group Ltd.
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<PAGE>
4111 East 37th Street North
Wichita, Kansas 67220
Facsimile No.: (316) 828-7947
Attn: Josh Taylor
With copies with respect
to either Purchaser to: Genesse International, Inc.
10500 N.E. 8th Street
Suite 1920
Bellevue, Washington 98004-4332
Facsimile No.: (425) 462-4645
Attn: Christopher R. Purrier
and
Robinson Silverman Pearce
Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson
If to any other Person who is then the registered Holder:
To the address of such Holder as it
appears in the stock transfer books
of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder if: (i) the Holder agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further disposition of such securities by the
transferee or assignees is restricted under the Securities Act and
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<PAGE>
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
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<PAGE>
(n) Shares Held by the Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required pursuant to this Agreement, Registrable Securities held
by the Company or its Affiliates (other than any Holder or transferees or
successors or assigns thereof if such Holder is deemed to be an Affiliate solely
by reason of its holdings of such Registrable Securities) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
VITECH AMERICA, INC.
By:________________________________
Name:
Title:
ADVANTAGE FUND II LTD.
By:________________________________
Name:
Title:
KOCH INVESTMENT GROUP LTD.
By:________________________________
Name:
Title:
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<PAGE>
Annex A
-------
Plan of Distribution
--------------------
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-
dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares
as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-
dealer for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser)
<PAGE>
in amounts to be negotiated. The Selling Stockholders do not expect these
commissions and discounts to exceed what is customary in the types of
transactions involved.
The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
VITECH AMERICA, INC.
WARRANT
Warrant No. A-001 Dated: May 21, 1999
Vitech America, Inc., a Florida corporation (the "Company"), hereby
certifies that, for value received, Advantage Fund II Ltd., or its registered
assigns ("Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company up to a total of 70,000 shares of Common Stock, no par
value (the "Common Stock"), subject to reduction as set forth in Section 14, of
the Company (each such share, a "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $11.50 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the date hereof and through and including
May 21, 2004 (the "Expiration Date"), and subject to the following terms and
conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this Warrant,
with the Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company at the office specified in or pursuant to
Section 3(b). Upon any such registration or transfer, a new warrant to purchase
Common Stock, in substantially the form of this Warrant (any such new warrant, a
"New Warrant"), evidencing the portion of this Warrant so transferred shall be
issued to the transferee and a New Warrant evidencing the remaining portion of
this Warrant not so transferred, if any, shall be issued
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to the transferring Holder. The acceptance of the New Warrant by the transferee
thereof shall be deemed the acceptance of such transferee of all of the rights
and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder.
Any such New Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the
registered Holder on any business day before 5:00 P.M., New York City time, at
any time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:00 P.M., New York City time on the Expiration Date, the
portion of this Warrant not exercised prior thereto shall be and become void and
of no value. Prior to the Expiration Date, the Company may not call or otherwise
redeem this Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in the manner
provided hereunder, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 business days
after the Date of Exercise (as defined herein)) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
issuable upon such exercise, free of restrictive legends except (i) either in
the event that a registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder is not then
effective or the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or (ii) if this Warrant shall have been
issued pursuant to a written agreement between the original Holder and the
Company, as required by such agreement. Any person so designated by the Holder
to receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares.
If less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause
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to be issued, at its expense, a New Warrant evidencing the right to purchase the
remaining number of Warrant Shares for which no exercise has been evidenced by
this Warrant.
4. Piggyback Registration Rights. During the Effectiveness
Period (as defined in the Registration Rights Agreement, of even date herewith,
between the Company and the original Holder), the Company may not file any
registration statement with the Securities and Exchange Commission (other than
registration statements of the Company filed on Form S-8 or Form S-4, each as
promulgated under the Securities Act, pursuant to which the Company is
registering securities pursuant to a Company employee benefit plan or pursuant
to a merger, acquisition or similar transaction including supplements thereto,
but not additionally filed registration statements in respect of such
securities) at any time when there is not an effective registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder, unless the Company provides the Holder with not less
than 20 days notice of its intention to file such registration statement and
provides the Holder the option to include any or all of the applicable Warrant
Shares therein. The Company will pay all registration expenses in connection
therewith, including without limitation, fees and expenses of one Counsel of the
Holder.
5. Demand Registration Rights. Except as permitted in the
Registration Rights Agreement, at any time during the term of this Warrant when
the Warrant Shares are not registered pursuant to an effective registration
statement, the Holder may make a written request for the registration under the
Securities Act (a "Demand Registration"), of all of the Warrant Shares (the
"Registrable Securities"), and the Company shall use its best efforts to effect
such Demand Registration as promptly as possible, but in any case within 90 days
thereafter. Any request for a Demand Registration shall specify the aggregate
number of Registrable Securities proposed to be sold and shall also specify the
intended method of disposition thereof. The right to cause a registration of the
Registrable Securities under this Section 5 shall be limited to one such
registration. In any registration initiated as a Demand Registration, the
Company will pay all of its registration expenses in connection therewith,
including without limitation, fees and expenses of one Counsel of the Holder. A
Demand Registration shall not be counted as a Demand Registration hereunder
until the registration statement filed pursuant to the Demand Registration has
been declared effective by the Securities and Exchange Commission and maintained
continuously effective for a period of at least 360 days or such shorter period
when all Registrable Securities included therein have been sold in accordance
with such registration statement, provided, however that any days on which such
registration statement is not effective or on which the Holder is not permitted
by the Company or any governmental authority to sell Warrant Shares under such
registration statement shall not count towards such 360 day period.
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6. Payment of Taxes. The Company will pay all U.S. documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant or
receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the
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number of shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding after such event.
Any adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common
Stock, any consolidation or merger of the Company with or into another person,
the sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company, which determination shall be binding
absent manifest error (an "Appraiser").
(d) If, at any time while this Warrant is
outstanding, the Company shall issue or cause to be issued rights or warrants to
acquire or otherwise sell or distribute shares of Common Stock for a
consideration per share less than the Exercise Price then in effect, other than
issuances pursuant to any (a) stockholder approved stock option or stock
purchase program solely to employees, directors or officers of the Company, (b)
any acquisition, licensing joint venture or strategic partnership not primarily
for the purpose of raising capital, or (c) conversion
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of any options, warrants or other convertible securities outstanding on the date
hereof, then, forthwith upon such issue or sale, the Exercise Price shall be
reduced to the price (calculated to the nearest cent) determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance, and (ii) the number of shares of
Common Stock which the aggregate consideration received (or to be received,
assuming exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(e) For the purposes of this Section 9, the following
clause shall also be applicable:
(i) Record Date. In case the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them (A) to receive a dividend or other distribution payable in Common Stock or
in securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(f) All calculations under this Section 9 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant
to Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right, at its own expense, to select an additional
appraiser (which shall be a nationally recognized accounting firm), in which
case the adjustment shall be equal to the average of the adjustments recommended
by each of the Appraiser and such appraiser, and which adjustment shall be
binding absent manifest error. The Holder shall promptly mail or cause to be
mailed to the Company, a notice setting forth the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such adjustment shall become effective immediately after the record
date mentioned above.
(h) If:
(i) the Company shall declare a
dividend (or any other
distribution) on its Common
Stock; or
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(ii) the Company shall declare a
special nonrecurring cash
dividend on or a redemption
of its Common Stock; or
(iii) the Company shall authorize
the granting to all holders
of the Common Stock rights
or warrants to subscribe
for or purchase any shares
of capital stock of any
class or of any rights; or
(iv) the approval of any
stockholders of the Company
shall be required in
connection with any
reclassification of the
Common Stock of the
Company, any consolidation
or merger to which the
Company is a party, any
sale or transfer of all or
substantially all of the
assets of the Company, or
any compulsory share
exchange whereby the Common
Stock is converted into
other securities, cash or
property; or
(v) the Company shall authorize
the voluntary dissolution,
liquidation or winding up
of the affairs of the
Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 20 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder may pay the Exercise
Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds; or
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(b) Cashless Exercise. The Holder shall surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing bid prices of
the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 11,
be issuable on the exercise of this Warrant, the Company shall either pay an
amount in cash equal to the Exercise Price multiplied by such fraction or issue
an additional Warrant Share.
12. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 5:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
8807 Northwest 23rd Street, Miami, Florida, Attention: Chief Financial Officer,
or to facsimile no. (305) 477-1379, with a copy to Atlas, Pearlman, Trop &
Borkson, New River Center, Suite 1900,
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<PAGE>
200 East Las Olas Blvd., Ft. Lauderdale, Florida 33301, Attention: Joel D.
Mayersohn, or to facsimile no. (954) 766-7800, or (ii) if to the Holder, to the
Holder at the address or facsimile number appearing on the Warrant Register or
such other address or facsimile number as the Holder may provide to the Company
in accordance with this Section 12.
13. Warrant Agent. The Company shall serve as warrant agent
under this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Warrant may be amended only in writing signed by the Company and the Holder and
their successors and assigns.
(b) Subject to Section 14(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. The Company and
the Holder hereby irrevocably submit to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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<PAGE>
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
VITECH AMERICA, INC.
By:______________________________________
Name:____________________________________
Title:___________________________________
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FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Vitech America, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), no par value, of Vitech America, Inc.
and , if such Holder is not utilizing the cashless exercise provisions set forth
in this Warrant, encloses herewith $________ in cash, certified or official bank
check or checks, which sum represents the aggregate Exercise Price (as defined
in the Warrant) for the number of shares of Common Stock to which this Form of
Election to Purchase relates, together with any applicable taxes payable by the
undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
____________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:_____________,__ Name of Holder:
(Print)_______________________________________
(By:)_________________________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Vitech America, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Vitech America, Inc.
with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated April 12, 1999 appearing in the Form
10-K annual report of Vitech America, Inc. as of December 31, 1998 and 1997 and
for the three years ended December 31, 1998, and the reference to our firm under
the caption "Experts" in the Registration Statement.
/s/ Pannell Ken Forster PC
- --------------------------
PANNELL KERR FORSTER PC
New York, New York
June 11, 1999
New York, New York
March 3, 1998
