UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 2000
Commission File Number 0-21369
VITECH AMERICA, INC
(Exact name of registrant as specified in its charter)
FLORIDA 65 041 9086
(State of incorporation) (I.R.S. Employer ID No.)
2190 Northwest 89th Place
Miami, Florida 33172-2427
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (305) 477-1161
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
As of May 15, 2000, there were 16,345,939 shares of the Common Stock of
the Company, no par value, outstanding.
<PAGE>
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
VITECH AMERICA, INC.
Consolidated Balance Sheet
Assets
December 31, March 31,
1999 2000
-------------- -------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,024,420 $ 4,087,839
Accounts receivable, net 58,772,833 59,892,438
Inventories, net 28,678,882 32,184,017
Deferred tax asset 1,510,000 1,510,000
Taxes receivable credits 2,468,391 3,575,657
Due from officers 179,093 307,432
Other current assets 1,321,502 1,092,771
------------- -------------
Total current assets 93,955,121 102,650,154
Property and equipment, net 24,113,528 24,565,820
Investments 1,104,222 1,113,906
Goodwill, net 19,097,686 18,824,196
Other assets 10,167,620 13,169,351
------------- -------------
Total assets $ 148,438,177 $ 160,323,427
------------- -------------
Liabilities and Shareholders' Equity
Current liabilities
Trade accounts payable $ 25,208,408 $ 23,258,639
Accrued expenses 1,986,919 1,941,723
Deferred tax liability 940,000 940,000
Notes payable - related party 13,564,505 13,564,505
Note payable -- 10,000,000
Convertible note -- 31,000,000
Current maturities of long-term debt 1,371,757 1,371,757
Short-term debt 4,949,846 8,670,246
------------- -------------
Total current liabilities 48,021,435 90,746,870
------------- -------------
Long-term liabilities
Convertible notes 43,882,921 11,007,765
Long-term debt 2,808,789 2,528,233
------------- -------------
Total long-term liabilities 46,691,710 13,535,998
------------- -------------
Commitments and contingencies
Shareholders' equity
Preferred stock, no par value, 3,000,000 shares authorized, no shares issued -- --
Common stock, no par value, 30,000,000 shares authorized,
Accumulated other comprehensive loss (43,541,146) (41,240,469)
Retained earnings 24,880,460 24,895,310
------------- -------------
Total shareholders' equity 53,725,032 56,040,559
------------- -------------
Total liabilities and shareholders' equity $ 148,438,177 $ 160,323,427
------------- -------------
</TABLE>
See notes to consolidated financial statements
2
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<TABLE>
<CAPTION>
VITECH AMERICA, INC.
Consolidated Statement of Operations
(unaudited)
Three Months Ended March 31,
--------------------------------------------
1999 2000
---------------------- ---------------------
<S> <C> <C>
Net sales $ 15,302,714 $ 22,560,161
Cost of sales 8,359,136 15,052,880
-------------------- ---------------------
Gross profit 6,943,578 7,507,281
Selling, general and administrative expenses 6,743,260 6,179,169
-------------------- ---------------------
Income from operations 200,318 1,328,112
-------------------- ---------------------
Other (income) expenses
Interest expense, net 4,003,200 2,857,563
Discount on sale of receivables 2,262,496 -
Foreign currency exchange loss (gain) 16,656,880 (1,544,301)
-------------------- ---------------------
Total other expenses 22,922,576 1,313,262
-------------------- ---------------------
Income (loss) before provision for
Provision for income taxes -- --
-------------------- ---------------------
Net income (loss) $ (22,722,258) $ 14,850
-------------------- ---------------------
Net income per common share - Basic:
Weighted common shares 14,635,655 16,345,939
Net income (loss) per common share $ (1.55) $ 0.001
-------------------- ---------------------
Net income per common share - Assuming dilution:
Weighted common shares 14,670,538 16,345,939
Net income (loss) per common share $ (1.55) $ 0.001
-------------------- ---------------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
VITECH AMERICA, INC.
Consolidated Statement of Cash Flows
(unaudited)
Three Months Ended March 31,
---------------------------------------------
1999 2000
---------------------- ----------------------
<S> <C> <C>
Cash flows from operating activities
Net income / (loss) $ (22,722,258) $ 14,850
Adjustments to reconcile net income / (loss) to net cash
Depreciation 814,258 798,015
Amortization of goodwill 273,490 273,490
Amortization of deferred costs - 72,845
Provision for doubtful accounts - 181,227
Provision for inventory obsolescence (10,052)
Changes in assets and liabilities
Accounts receivable 17,991,667 961,568
Inventories 7,662,891 (2,369,783)
Other assets 4,296,925 (2,569,805)
Trade accounts payable (3,692,850) 8,009,807
Accrued expenses (3,231,463) (67,655)
Due to/from officers - (128,339)
Taxe receivable credits (506,579) (981,834)
------------------- -------------------
Net cash provided from operating activities 886,081 4,184,334
------------------- -------------------
Cash flows from investing activities
Purchases of property and equipment (592,275) (763,060)
Other investments 113,282 -
------------------- -------------------
Net cash used in investing activities (478,993) (763,060)
------------------- -------------------
Cash flows from financing activities
Net (payments)/proceeds under short-term bank borrowings (10,633,035) 3,511,151
Net payments of taxes payable (309,762) -
Payment of convertible notes (2,200,000) (1,875,156)
Proceeds from note payable - related party 10,500,000 -
Net (payments) of notes payable (686,123) (297,125)
------------------- -------------------
Net cash provided by / (used) in financing activities (3,328,920) 1,338,870
------------------- -------------------
Foreign exchange effect on cash and cash equivalents -- (1,696,725)
------------------- -------------------
Net increase / (decrease) in cash and cash equivalents (2,921,832) 3,063,419
Cash and cash equivalents - beginning of period 7,719,185 1,024,420
------------------- -------------------
Cash and cash equivalents - end of period $ 4,797,353 $ 4,087,839
------------------- -------------------
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest and discount on sale of receivables $ 5,979,045 $ 2,518,450
------------------- -------------------
Income taxes $ 256,762 $ --
------------------- -------------------
Supplemental schedule of non-cash investing and financing activities
Satisfaction of accounts payable and purchase of inventory
through issuance of note payable $ -- $ 10,000,000
------------------- -------------------
</TABLE>
4
See notes to consolidated financial statements
<PAGE>
Vitech America, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
Note 1 - Basis of presentation
- ------------------------------
The accompanying unaudited consolidated financial statements of Vitech America,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. In the opinion of
management, all adjustments necessary for a fair presentation of the interim
consolidated financial statements have been included, and all adjustments are of
a normal and recurring nature. The consolidated financial statements as of and
for the interim period ended March 31, 2000 should be read in conjunction with
the Company's consolidated financial statements as of and for the year ended
December 31, 1999, which are included in the Company's Annual Report on Form
10-K/A filed with the Securities and Exchange Commission. Operating results for
the three months ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The consolidated financial statements for the three months ended March 31, 1999
and 2000 include the accounts of the Company and its subsidiary. All of the
Company's sales are concentrated in Brazil.
Note 2 - Net income per share
- -----------------------------
Basic and diluted earnings (loss) per share ("EPS") are calculated in accordance
with SFAS 128, "Earnings Per Share". Basic EPS is computed by dividing reported
net income (loss) by the weighted average shares outstanding. Diluted EPS
assumes the conversion of outstanding convertible debt and the dilutive effect
of stock options and warrants. The following table sets forth the computation of
basic and diluted earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1999 2000
--------------- --------------
<S> <C> <C>
Net income (loss) for basic and diluted
income per common share $ (22,722,258) $ 14,850
--------------- --------------
Weighted average number of shares
Dilutive securities:
Stock options 8,588 --
Warrants 26,295 --
--------------- --------------
Weighted average number of shares
for diluted income per share 14,670,538 16,345,939
--------------- --------------
Net income (loss) per common share:
Basic $ (1.55) $ 0.001
Diluted $ (1.55) $ 0.001
</TABLE>
For the three months ended March 31, 1999 and 2000, the effects on earnings
(loss) per share of the $11,530,535 and $42,007,765 aggregate principal amount
of 10% convertible notes, respectively, would have been antidilutive and
therefore are not included in the computations.
For the three months ended March 31, 1999, there were outstanding 4,577,427
stock options and 461,387 warrants not included in the computation of diluted
earnings (loss) per share of common stock because the options' and warrants'
exercise prices were greater than the average market price of the common shares.
For the three months ended March 31, 2000, there were outstanding 4,832,347
stock options and 870,251 warrants not included in the computation of diluted
earnings per share
5
<PAGE>
of common stock because the options' and warrants' exercise prices were greater
than the average market price of the common shares.
Note 3 - Accounts receivable
- ----------------------------
Accounts receivable consisted of the following:
March 31,
2000
-----------------
Trade accounts receivable $ 63,929,492
Allowance for doubtful accounts (4,037,054)
-----------------
Total $ 59,892,438
-----------------
In April 1998, the Company formed a special purpose securitization entity that
was established solely to participate in a $150.0 million accounts receivable
securitization program. The special purpose entity was formed to acquire and
hold designated accounts receivable from the Company and to issue collateralized
notes to third party investors. Through December 1998, the Company sold
approximately $140.0 million of its accounts receivable to this entity under the
program. As a result of the devaluation of the Brazilian currency, the Real, in
January 1999, the securitization program became in default. While the program
remains in default, the Company is not allowed to transfer additional accounts
receivable to the special purpose entity other than pursuant to the Company's
repurchase obligation under the program. The program remains in default and the
Company does not believe that it will be a viable financing source in the
future.
Under the terms of the securitization program, the Company is required to
repurchase the accounts receivable sold to the special purpose entity under
certain circumstances. The repurchase obligation may be satisfied by
transferring to the entity, for no additional consideration, an aggregate amount
of additional receivables, the net present value of which is equal to the
repurchase price in exchange for the subject receivables. If the net present
value of the accounts receivable available to affect this substitution is less
than the repurchase price thereof, then a cash payment must be paid for the
excess of the repurchase price over the net present value of the additional
accounts receivable transferred to the special purpose entity. As a result of
the structure of the program, at March 31, 2000, there is a contingent liability
in the amount of approximately $41.3 million which represents the balance, at
face value, of the accounts receivable sold to the special purpose entity. The
Company maintains an allowance for doubtful accounts on its balance sheet with
respect to the sold accounts receivable.
Note 4 - Inventories
- --------------------
Inventories are summarized as follows:
March 31,
2000
---------------
Finished goods $ 6,172,406
Work in process 1,084,525
Components in the factory 21,948,127
Components in transit (a) 3,170,157
---------------
32,375,215
Allowance for obsolescence (191,198)
---------------
Total $ 32,184,017
---------------
(a) Components in transit consist of inventories in the Company's
Miami, Florida facility and inventories in route to the
Company's factory in Brazil.
Note 5 - Comprehensive Income
- -----------------------------
The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS
130"), "Reporting Comprehensive Income" during the year ended December 31, 1998.
SFAS 130 establishes new rules for the reporting and presentation of
comprehensive income and its components. The Company's comprehensive income is
comprised of net income adjusted for foreign currency translation. For the three
months ended March 31, 1999, the Company had a comprehensive loss of $58.2
million as compared to a reporting net loss of $22.7 million. The comprehensive
loss includes a cumulative translation adjustment of $35.5 million associated
with the translation of the Company's subsidiary financial statements to the
U.S. Dollar. For the three months ended March 31, 2000, the Company had
comprehensive net income
6
<PAGE>
of $2.3 million as compared to a reporting net income of $14,850. Comprehensive
net income includes a cumulative translation adjustment of $2.3 million
associated with the translation of the Company's subsidiary financial statements
to the U.S. Dollar.
Note 6 - Note payable
- ---------------------
In March 2000, the Company entered into a $10.0 million loan agreement with
Gateway Companies, Inc. for the purchase of components. The one year loan bears
interest at 10% per year payable quarterly. At the option of Gateway, the
principal and/or interest on the note is convertible into the common stock of
the Company if not repaid by us at maturity by dividing the conversion amount by
the weighted daily average bid price per share of the Company's common stock
during the 30 consecutive day trading period, immediately before the date of
determination. The conversion price is subject to adjustments for stock splits,
stock dividends and other similar transactions.
Note 7 - Significant supplier
- -----------------------------
For the three months ended March 31, 1999 and 2000, one unrelated supplier
accounted for 0% and 35.5% of the Company's total purchases, respectively.
7
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
information contained in the Company's Financial Statements and the Notes
thereto appearing elsewhere in this report.
In this report, the terms "company," "Vitech," "we," "us," and "our"
refer to Vitech America, Inc., a Florida corporation, and, unless the context
otherwise requires, "common stock" refers to the common stock, no par value, of
Vitech America, Inc.
Results of Operations
The following table sets forth for the periods indicated certain line
items from our consolidated statement of operations as a percentage of our
consolidated net sales:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------
1999 2000
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $ 15,302,714 100% $ 22,560,161 100%
Cost of sales 8,359,136 54.6 15,052,880 66.7
Gross profit 6,943,578 45.4 7,507,281 33.3
Selling, general and
Income from operations 200,318 1.3 1,328,112 5.9
Interest and financing expense, net 6,265,696 40.9 2,857,563 12.7
Foreign currency exchange loss (gain) 16,656,880 108.8 (1,544,301) (6.8)
Net income (loss) (22,722,258) (148.5) 14,850 0.01
</TABLE>
Net sales increased by $7.3 million, or 47.4%, to $22.6 million for the
three months ended March 31, 2000, as compared to $15.3 million for the
comparable fiscal period in 1999. For the three months ended March 31, 2000, we
sold approximately 14,000 personal computer units as compared to approximately
9,500 personal computer units during 1999. Such increases were primarily
attributable to the improved business conditions in 2000 as compared to the 1999
conditions which were effected by the devaluation of the Brazilian currency, the
Real, in the first quarter of 1999.
Cost of sales during the three months ended March 31, 2000 increased by
$6.7 to $15.1 million as compared to $8.4 million for the comparable fiscal
period in 1999. The increase in cost of sales as a percentage of net sales was
primarily attributable to our sales mix which included a higher percentage of
low-end personal computers that have lower gross margins than our higher-end
products. The increase in cost of sales as a percentage of net sales was also
attributable to the downward pressures on our unit sales prices as expressed in
U.S. Dollars which exceeded decreases in component costs.
Selling, general, and administrative expenses decreased by $564,000, or
8.4%, to $6.2 million for the three months ended March 31, 2000, as compared to
$6.7 million for the comparable fiscal period in 1999. The decrease was
primarily attributable to our expense reduction plans which included the closure
of a factory and the elimination of redundant positions. Selling, general, and
administrative expense as a percentage of net sales was 27.4% for the three
months ended March 31, 2000, compared to 44.1% for the comparable fiscal period
in 1999. Such decrease was primarily attributable to the increased level of net
sales.
Income from operations increased by $1.1 million, or 563.0%, to $1.3
million for the three months ended March 31, 2000, as compared to $200,000 for
the comparable fiscal period in 1999. Such increase was primarily attributable
to the increase in net sales. Income from operations as a percentage of net
sales increased to 5.9% for the three months ended March 31, 2000 from 1.3% for
the comparable fiscal period in 1999. This increase was primarily attributable
to the decrease in selling, general, and administrative expense as a percentage
of net sales.
Interest and financing expense, net decreased by $3.4 million, or
54.4%, to $2.9 million for the three months ended March 31, 2000, as compared to
$6.3 million for the comparable fiscal period in 1999. Interest and financing
expense as a percentage of net sales decreased to 12.7% for the three months
ended March 31, 2000 from 40.9% for the comparable fiscal period in 1999. These
decreases were primarily attributable to reductions in our cost of financing.
During the three months ended March 31, 2000, we experienced a foreign
currency exchange gain of $1.5 million, or 6.8% of net sales, associated with
certain U.S. Dollar denominated monetary assets and liabilities of our Brazilian
8
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operations. During the period, the Real appreciated from R$1.802 per U.S.$1.00
to R$1.73 per U.S.$1.00. This is compared to a foreign currency exchange loss of
$16.7 million, or 108.8% of net sales for the comparable fiscal period in 1999
which was a direct result of the devaluation of the Real in January 1999.
We had net income for the three months ended March 31, 2000 of $14,850
as compared to a net loss of $22.7 million for the comparable fiscal period in
1999.
Liquidity and Capital Resources
During the first quarter of 2000 our primary cash requirements were to
fund increased levels of inventory, for the payment of accounts payable and to
meet certain debt maturities. During the first quarter of 2000, we principally
used cash flow from operations and debt financing to satisfy our working capital
requirements.
At March 31, 2000, we had a working capital surplus of $11.9 million
compared to $45.9 million at December 31, 1999. This decrease in working capital
was primarily attributable to the increases in short-term debt and the
reclassification of convertible debt maturing within one year.
Net cash provided from operating activities during the first quarter of
2000 was $4.2 million as compared to $886,000 in cash provided from operating
activities during the comparable fiscal period in 1999 and resulted primarily
from the increase in trade accounts payable.
Net cash used in investing activities was $763,000 during the first
quarter of 2000 as compared to $479,000 during the comparable fiscal period in
1999. The investments during the first quarter of 2000 primarily related to the
acquisition of equipment for our manufacturing operation. Net cash provided from
financing activities was $1.3 million during the first quarter of 2000 as
compared to $3.3 million used in financing activities during the comparable
fiscal period in 1999. The increase resulted primarily from short-term debt
borrowings from banks in Brazil.
We have a revolving line of credit in the amount of $2.0 million with
Eastern National Bank in Miami, Florida, with which we maintain our primary
banking relationship. This credit line is secured by a lien on certain property
owned by us. The credit line bears interest at a floating rate equal to prime
plus two percent. As of March 31, 2000, there was $1.8 million owed under the
facility.
As of March 31, 2000, we had approximately $6.9 million in short-term
borrowings from various banks in Brazil with rates of interest averaging 2.5%
per month and maturing on a revolving basis. As of March 31, 2000, we had
available approximately $15.0 million in unused credit facilities at various
banks in Brazil at rates of approximately 2.5% per month and subject to certain
collateral requirements as defined.
In October 1999, the holders of convertible notes in the principal
amount of $3.6 million exercised their put right to require us to repurchase the
notes at 120% of the principal amount. In November 1999, we began to repay the
notes in accordance with their terms over a four month period. We repaid the
notes in full during the first quarter of 2000.
In April 1998, we formed a special purpose securitization entity that
was established solely to participate in a $150.0 million accounts receivable
securitization program. We formed the special purpose entity to acquire and hold
designated accounts receivable from us and to issue collateralized notes to
third party investors. Through December 1998, we sold approximately $140.0
million of our accounts receivable to this entity under the program. As a result
of the devaluation of the Real in January 1999, the securitization program
became in default. While the program remains in default, we are not allowed to
transfer additional accounts receivable to the special purpose entity other than
pursuant to our repurchase obligation under the program. The program remains in
default and we do not believe that it will be a viable financing source for us
in the future.
Under the terms of the securitization program, we are required to
repurchase the accounts receivable sold to the special purpose entity under
certain circumstances. The repurchase obligation may be satisfied by
transferring to the entity, for no additional consideration, an aggregate amount
of additional receivables, the net present value of which is equal to the
repurchase price in exchange for the subject receivables. If the net present
value of the accounts receivable available to affect this substitution is less
than the repurchase price thereof, then a cash payment must be paid for the
excess of the repurchase price over the net present value of the additional
accounts receivable transferred to the special purpose entity. As a result of
the structure of the program, at March 31, 2000, there is a contingent liability
in the amount of approximately $41.3 million which represents the balance, at
face value, of the accounts receivable sold to the special purpose entity. We
maintain an allowance for doubtful accounts on our balance sheet with respect to
the sold accounts receivable.
9
<PAGE>
As of March 31, 2000, we had $13.6 million in loans from a related
party. The loans bear interest at the annual rate of 10% and are payable upon
demand with 90 days notice. $10.5 million of the loans are evidenced by a
promissory note and, at the maker's option, can be exchanged for a convertible
note, convertible at $9.25 per share, should the loan not be repaid at maturity.
In connection with the loan, we issued four year warrants to purchase 300,000
shares of our common stock at a purchase price of $9.25 per share.
In May 1999, we completed a private placement of a $10.0 million
convertible debenture. The debenture is a two year 10% note convertible into our
common stock at an initial conversion price of $11.00. The debenture contains a
provision whereby the holder may require us to repurchase the debenture after
nine months at a price equal to 112% of the principal amount and on a quarterly
basis thereafter at a price adjusted accordingly. Should the holder elect to
require us to repurchase the debentures, we may repay the debentures in four
equal monthly payments. If we elect not to repurchase the notes, the conversion
price of the debentures will be adjusted to equal 85% times the market price, as
defined, at the time of conversion. We issued 100,000 warrants to purchase
shares of our common stock in connection with this financing and 36,000 warrants
to the placement agent.
In September 1999, we formed a strategic alliance with Gateway which
resulted in a $31.0 million investment by Gateway. Pursuant to a convertible
loan agreement, the investment was in the form of a 10% Convertible Promissory
Note. The note bears interest at 10% per annum with interest payable quarterly.
The note matures on March 16, 2001. The Note is initially convertible at $11.02
subject to adjustment. Each of William C. St. Laurent and Georges C. St.
Laurent, III, our President and Chief Executive Officer, have personally
guaranteed $11.0 million of the note. We also granted an option, exercisable at
our election, to acquire certain exclusive territorial rights in Brazil, and
other rights, from Gateway. For this option, we issued 538,284 shares of our
common stock to Gateway.
We have also granted an option to Gateway, exercisable until September
16, 2001, to engage in the following transactions with us: (i) extend an
additional $40.0 million convertible loan to us on the same terms and conditions
as the initial $31.0 million note, with a conversion price equal to the lower of
(x) $11.02 per share or (y) a 20% premium over the then market value of our
common stock as defined in the agreement and/or (ii) enter into a merger
agreement whereby our shareholders have the option to (x) exchange their shares
for $14.00 per share in cash or (y) receive one share of a new callable and
putable common stock. The new stock shall have a call provision whereby Gateway
will have the right to call 100%, but not less than 100% of the new stock, which
it does not already own, at a price which shall be determined by our
performance. The new stock shall also have a put provision whereby the new
stockholders will have the right to put annually to Gateway 100% but not less
than 100% of their new stock, at a price which shall be determined by our
performance.
In March 2000, we entered into a $10.0 million loan agreement with
Gateway for the purchase of components. The one year loan bears interest at 10%
per year payable quarterly. At the option of Gateway, the principal and/or
interest on the note is convertible into our common stock if not repaid by us at
maturity by dividing the conversion amount by the weighted daily average bid
price per share of our common stock during the 30 consecutive day trading
period, immediately before the date of determination. The conversion price is
subject to adjustments for stock splits, stock dividends and other similar
transactions.
Impact of Inflation on Results of Operations, Liabilities and Assets
For many years prior to July 1994, the Brazilian economy was
characterized by high rates of inflation and devaluation of the Real against the
U.S. Dollar and other currencies. However, since the implementation in July of
1994 of the Brazilian government's latest stabilization plan, the "Real Plan",
inflation, while continuing, has been significantly reduced. We have no
assurance that the Real Plan or current strategies will continue to be effective
at combating inflation. Inflation affects us by increasing the cost of goods and
services we use in the operation of our business and by increasing our financing
costs. The reaction of the Brazilian government to economic uncertainties such
as rising inflation can lead to adverse conditions for our business.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 2000. The objective of the
statement is to establish accounting and reporting standards for derivative
instruments and hedging activities. We may use foreign currency forward
contracts, a derivative instrument, to hedge foreign currency transactions and
anticipated foreign currency transactions. The adoption of this new accounting
pronouncement is not expected to be material to our consolidated financial
position or results of operations.
10
<PAGE>
Hedging Activities
Although our consolidated financial statements are presented in U.S.
Dollars in accordance with U.S. generally accepted accounting principles, our
transactions are consummated in both the Real and the U.S. Dollar. Inflation and
fluctuations in exchange rates have had, and may continue to have, an effect on
our results of operations and financial condition. Currently, we are not engaged
in any hedging activities. We are, however, analyzing our exposure to currency
risks and developing a plan to use hedging activities to offset currency risks
as deemed appropriate. Any significant devaluation, such as occurred during the
first quarter of 1999, of the Real relative to the U.S. Dollar would have a
material adverse effect on our operating results.
Foreign Currency Translation
Our financial statements have been prepared in accordance with U.S.
generally accepted accounting principles and are stated in U.S. Dollars. Until
December 31, 1997, amounts in Real were re-measured into U.S. Dollars in
accordance with the methodology set forth in Statement of Financial Accounting
Standards No. 52 ("SFAS 52") as it applies to entities operating in highly
inflationary economies. The assets and liabilities of our subsidiaries were
translated into U.S. Dollars at exchange rates in effect at the balance sheet
date for monetary items and at historical rates for non-monetary items. Revenue
and expense accounts are translated at the average exchange rate in effect
during each month, except for those accounts that relate to non-monetary assets
and liabilities which are translated at historical rates.
Effective January 1, 1998, we determined that Brazil ceased to be a
highly inflationary economy under SFAS 52. Accordingly, as of January 1, 1998,
we began using the Real as the functional currency of our Brazilian
subsidiaries. As a result, all assets and liabilities are translated into
Dollars at period-end exchange rates and all income and expense items are
translated into U.S. Dollars at the average exchange rate prevailing during the
period. Any translation adjustments are reflected as a component of
shareholders' equity.
11
<PAGE>
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by item 601 of Regulation S-K
The following exhibits are filed as part of this report:
Exhibits:
(10.26) Loan Agreement Dated March 24, 2000 between Vitech America,
Inc. and Gateway Companies, Inc.
(27.1) Financial Data Schedule
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Vitech America, Inc.
By: /s/ Edward A. Kelly
- -----------------------------------
Edward A. Kelly
Chief Financial Officer
(authorized officer and chief accounting officer)
Date: May 15, 2000
12
LOAN AGREEMENT DATED MARCH 24, 2000 BETWEEN
VITECH AMERICA, INC.
AND
GATEWAY COMPANIES, INC.
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT dated as of March 24, 2000 between VITECH
AMERICA, INC., a corporation duly organized and validly existing under the laws
of the State of Florida (the "Borrower"), and GATEWAY COMPANIES, INC. (the
"Lender").
The Borrower has requested that the Lender make a loan to the
Borrower in the principal amount of $10,000,000, and the Lender is prepared to
make such loan upon the terms and conditions hereof. Accordingly, the parties
hereto agree as follows:
Section 1. Definitions.
"Bankruptcy Code" shall mean 11 U.S.C.ss.101 et seq.
"Business Day" shall mean any day on which commercial banks
are not authorized or required to close in the State of New York.
"Capital Lease Obligation" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) property to the extent such
obligations are required to be classified and accounted for as a capital lease
on the balance sheet of such Person under generally accepted accounting
principles.
"Closing Date" shall mean the initial date on which the
conditions precedent to the making of the Loan hereunder shall have been
satisfied by the Borrower or waived by the Lender.
"Common Stock" shall mean common shares of the Borrower's
capital stock, no par value.
"Default" shall mean any Event of Default or any event or
condition specified in Section 8 hereof, which with the giving of notice or
lapse of time or both would constitute an Event of Default.
"Dollars" and "$" shall mean lawful currency of the United
States of America.
"Existing Loan Agreement" shall mean the Convertible Loan
Agreement dated as of September 16, 1999, between the Borrower and the Lender,
as the same shall be amended, modified and supplemented and in effect from time
to time.
"Indebtedness" shall mean, for any Person, (a) obligations
created, issued or incurred by such Person for borrowed money (whether by loan,
the issuance and sale of debt securities or the sale of property to another
Person subject to an understanding or agreement, to repurchase such property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of property or services, other than trade accounts payable
arising, and accrued expenses incurred, in the ordinary course of business so
long as such trade accounts payable are payable within 60 days of the date the
respective goods are delivered or the respective services are rendered; (c)
Indebtedness of others secured by a Lien on the property of such Person; (d)
obligations of such Person in respect of letters of credit or similar
instruments issued or accepted by banks and other financial institutions for
account of such Person; (e) Capital Lease Obligations of such Person, and (f)
Indebtedness of others guaranteed by such Person.
"Interest Payment Dates" shall mean June 24, 2000, September
24, 2000, December 24, 2000 and March 24, 2001.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, and the
filing of or agreement to give any financing statement or other similar form of
public notice under the laws of any jurisdiction).
"Loan" shall mean the loan made by the Lender to the Borrower
pursuant to Section 2 hereof.
"Loan Documents" shall mean, as in effect at any time, this
Agreement and the Note.
"Maturity Date" shall mean the date that is 12 months from the
Closing Date.
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<PAGE>
"Note" shall mean the promissory note provided for in Section
2 hereof and in substantially the form of Exhibit A hereto, and any note or
notes issued in exchange or substitution therefor.
"Option Extension" shall mean that certain letter agreement
between ITC.net and the Lender dated the date hereof amending such parties'
letter agreement dated September 16, 1999.
"Person" shall mean any individual, corporation, company,
voluntary association, partnership, limited liability company, partnership,
joint venture, trust, unincorporated organization or government (or any agency,
instrumentality or political subdivision thereof).
"Post-Default Rate" shall mean, in respect of any principal of
or interest on the Loan or any other amount payable by the Borrower under this
Agreement or the Note that is not paid when due (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date such amount is paid in full, equal to 15 percent.
Section 2. The Loan.
2.01. Loan. On the terms and conditions set forth in this
Agreement, the Lender agrees to make a loan to the Borrower in Dollars in the
principal amount of $10,000,000, such loan to be made on the Closing Date in the
form of a single book-entry disbursement by the Lender.
2.02. Note. The Loan shall be evidenced by a single promissory
note of the Borrower in the form of Exhibit A hereto, dated the Closing Date,
payable to the order of the Lender in the principal amount of $10,000,000 and
otherwise duly completed.
2.03. Interest. The Borrower hereby promises to pay to the
order of the Lender interest on the unpaid principal amount of the Loan, for the
period from and including the date of the Loan to but excluding the date the
Loan shall be paid in full, at a rate per annum equal to ten percent.
Notwithstanding the foregoing, the Borrower hereby promises to pay interest at
the Post-Default Rate on the principal of the Loan and on any other amount
payable by Borrower to the Lender hereunder or under the Note that shall not be
paid in full when due (whether at stated maturity, by acceleration, by optional
or mandatory prepayment or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on the Loan shall be payable quarterly in arrears on each Interest
Payment Date and upon the payment or prepayment thereof (but only on the
principal amount so paid or prepaid), except that interest payable at the
Post-Default Rate shall be payable from time to time upon demand and that the
amount due and payable to the Lender on the first Interest Payment Date
immediately succeeding the Closing Date shall be reduced by $24,986.68.
2.05. Principal. The Borrower hereby promises to pay the
entire outstanding principal amount of the Loan, and the Loan shall mature, on
the Maturity Date.
2.06 Conversion. The principal of and interest on the Loan
shall be convertible into shares of the Borrower's Common Stock on the terms and
conditions set forth in the Note.
Section 3. Prepayments.
(a) Voluntary Prepayments.
(i) The Borrower shall have the right to prepay the
Loan without premium or penalty in whole or in part (but subject to a minumum
amount of $100,000) on any Business Day, subject to this Section 3.
(ii) Each prepayment shall be pursuant to a notice
from the Borrower to the Lender given pursuant to Section 9.02 hereof, which
notice: shall specify the principal amount of the Loan to be prepaid and the
date of prepayment (which shall be a Business Day); shall be irrevocable when
and shall obligate the Borrower to prepay the Loan in the amount and on the date
specified therein; and shall be effective only if received by the Lender not
later than 1:00 p.m. New York time on a date falling not later than five
Business Days prior to the prepayment date specified therein.
(b) Mandatory Prepayments.
Upon the payment or prepayment by the Borrower of any
Indebtedness other than Indebtedness under this Agreement, the Existing Loan
Agreement and the Borrower's 10% Convertible Debentures due May 21, 2001, the
2
<PAGE>
Borrower shall prepay the the Loan in an amount equal to the amount of such
payment or prepayment, such prepayment to be made simultaneously with such
payment or prepayment of other Indebtedness and otherwise in accordance with
Section 4 hereof.
Section 4. Payments; Computations; Etc.
4.01. Payments. All payments of principal, interest and other
amounts to be made by the Borrower under this Agreement or the Note shall be
made in Dollars, in immediately available funds, to the Lender no later than
1:00 p.m. New York time on the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding Business Day). If a Default has occurred and is
continuing, the Lender may apply any such payment as it may elect in its
discretion. If the due date of any payment under this Agreement or the Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day and interest shall be payable for
any principal so extended for the period of such extension. Any amount of
principal not paid when due hereunder shall accrue interest at the Post-Default
Rate.
4.02. Computations. Interest shall be computed on the basis of
the actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable, relative to a year of 365 or 366
days, as the case may be.
Section 5. Conditions Precedent.
5.01. Documents. The obligation of the Lender to make the Loan
hereunder is subject to the receipt by the Lender of the following documents on
or prior to March 27, 2000, each of which shall be satisfactory in form and
substance to the Lender:
(a) The Note, duly executed and delivered by the Borrower..
(b) A signed opinion of counsel to the Borrower in form
satisfactory to the Lender.
(c) Certified copies of the articles of incorporation and
bylaws of the Borrower.
(d) A Certificate of Good Standing of the Borrower certified
by the appropriate governmental officer.
(e) Evidence that the agent referred to in Section 9.08 has
been duly appointed and holds such appointment without reservation until a date
not earlier than six months after the Maturity Date.
(f) A receipt from the Borrower confirming application of the
proceeds of such Loan in accordance with its instructions.
(g) The Amendment, Waiver and Discharge dated the date hereof
and relating to the Existing Loan Agreement, duly executed and delivered by the
Borrower.
(h) The Option Extension, duly executed and delivered by
ITC.net.
(i) Such other documents or information as the Lender may
request.
5.02. Additional Conditions. The obligation of the Lender to
make the Loan hereunder is further subject to each of the following additional
conditions precedent:
(a) No Default shall have occurred and be continuing, either
immediately prior to the making of the Loan or after giving effect to such
making and the intended use thereof.
(b) The representations and warranties made by the Borrower in
Section 6 hereof shall be true and correct on and as of the date of the making
of the Loan with the same force and effect as if made on and as of such date
(or, if any such representation or warranty is expressly stated to have been
made as of a specific date, as of such specific date).
Section 6. Representations and Warranties.
The Borrower represents and warrants to the Lender, as of the
Closing Date and at any time reaffirmed pursuant to the terms hereof, that:
3
<PAGE>
6.01. Existence, Etc. The Borrower: (a) is a corporation duly
organized and validly existing under the laws of the State of Florida and (b)
has all requisite power and has all material governmental licenses,
authorizations, consents and approvals necessary (at the time the representation
is made) to own its assets and carry on its business as now being conducted.
6.02. Financial Condition. The balance sheet and financial
statements of the Borrower as at December 31, 1999 heretofore furnished to the
Lender are complete and correct and fairly present it financial condition as at
such date. Since the dates of said balance sheet and financial statements there
has been no material adverse change in the financial condition of the Borrower
or in the operations, or the business taken as a whole, of the Borrower from
that set forth therein, except as otherwise specifically disclosed to the Lender
in writing prior to the date hereof or as set forth in documents filed with the
United States Securities and Exchange Commission.
6.03. Litigation. There are no legal or arbitral proceedings
or any proceedings by or before any governmental or regulatory authority or
agency now pending or, to the knowledge of the Borrower, threatened against the
Borrower, in which there is a probability of an adverse decision that could
materially and adversely affect the financial condition of the Borrower or its
operations or business taken as a whole, except as otherwise specifically
disclosed to the Lender in writing prior to the date hereof.
6.04. No Breach. None of the execution and delivery of the
Loan Documents, the consummation of the transactions therein contemplated and
compliance with the terms and provisions thereof will conflict with or result in
a breach of, or require any consent under any applicable law or regulation, or
any order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which the Borrower is a party or by
which it is bound or to which it is subject, or constitute a default under any
such agreement or instrument, or result in the creation or imposition of any
Lien upon any of the revenues or assets of the Borrower pursuant to the terms of
any such agreement or instrument.
6.05. Authority. The Borrower has all necessary authority to
execute, deliver and perform its obligations under the Loan Documents. The
execution, delivery and performance by the Borrower of the Loan Documents have
been duly authorized by all necessary action on its part, and this Agreement
constitutes, and the Note when executed and delivered will constitute, the
legal, valid and binding obligations of the Borrower, enforceable in accordance
with their respective terms.
6.06. Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any governmental or regulatory authority
or agency are necessary for the execution, delivery or performance by the
Borrower of the Loan Documents or for the validity or enforceability of any
thereof.
6.07. Employee Benefit Plans. The Borrower does not maintain
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974, other than as specifically disclosed to the Lender in writing prior to
the date hereof or as filed with the United States Securities and Exchange
Commission.
6.08. Taxes, Etc. The Borrower has filed all United States
federal and Florida state tax returns and all other tax returns that are
required to be filed by it and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by such party, except such taxes, the
payment of which is not yet due, or which if due, is not yet delinquent or is
being contested in good faith or which has not been finally determined. The
charges, accruals and reserves on the books of the Borrower in respect of taxes
and other governmental charges are, in the opinion of the Borrower, adequate in
all respects.
Section 7. Covenants of the Borrower.
The Borrower agrees that from the date hereof, until payment
in full of the Loan, all interest thereon and all other amounts payable by the
Borrower under the Loan Documents:
7.01. Information. The Borrower shall deliver to the Lender:
(a) promptly after the Borrower knows that any Default has
occurred, a notice of such Default, describing the same in detail;
(b) promptly after the Borrower knows that a material adverse
change in the financial condition of the Borrower has occurred, a notice of such
material adverse change, describing the same in detail; and
4
<PAGE>
(c) from time to time such other information regarding the
business, affairs or financial condition of the Borrower as the Lender may
request.
7.02. Disposition of Assets. The Borrower will not sell or
otherwise transfer or permit the sale or transfer (in a single transaction or
series of related transactions) of all or substantially all of its assets.
7.03. Existence, Etc. The Borrower shall: preserve and
maintain its existence and all of its material rights and privileges; comply
with the requirements of all applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to comply with such
requirements could materially and adversely affect the financial condition or
operations, or the business taken as a whole, of the Borrower; and pay and
discharge all taxes, assessments and governmental charges or levies imposed on
it or its income or profits or on any of its property prior to the date on which
penalties attach thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper proceedings.
7.04. Liens. Except as set forth in Schedule 7.04, the
Borrower will not create or suffer to be created or to exist any Lien upon any
of its property.
7.05. Use of Proceeds of the Loan. The Borrower shall use the
proceeds of the Loan solely for the purposes mutually agreed by the Borrower and
the Lender.
7.06. Inspection. The Borrower shall permit any authorized
representative designated by the Lender, upon reasonable notice, to visit and
inspect any properties of the Borrower, and to examine its books and records
(and to make extracts and copies therefrom) and to discuss its affairs, finances
and accounts with its officers and its independent auditors (and the Borrower
hereby authorizes such auditors to release any information about it to the
Lender), all at such times and as often as may be requested.
7.07. Other Documents. The Borrower shall furnish to the
Lender such other documents relating to the Borrower as the Lender shall
reasonably request.
Section 8. Events of Default.
If one or more of the following events or conditions (an
"Event of Default") shall occur and be continuing:
(a) The Borrower shall default in the payment when due
(whether at stated maturity or upon madatory or optional prepayment) of: (i) any
principal of or interest on the Loan or any other amount payable by it hereunder
or under the Note; (ii) any principal of or interest on the loan referred to in
the Existing Loan Agreement or any other amount payable by it thereunder or
under the note referred to therein; or (iii) any amount of securities and/or
cash payable by the Borrower to the Lender upon conversion of the principal of
or interest on the Loan as provided in the Note, or upon conversion of the loan
under the Existing Loan Agreement as provided in the note referred to therein;
(b) The Borrower shall default in the payment of any of its
other Indebtedness when due and payable pursuant to any other agreement;
(c) Any representation, warranty or certification made in any
of the Loan Documents or in any document furnished in connection herewith or
therewith by the Borrower shall prove to have been false or misleading as of the
time made or furnished in any material respect;
(d) The Borrower shall default in the performance of any of
its obligations under Section 7.01(a) (unless the Default giving rise to such
notice has been cured pursuant to the terms hereof), 7.02, 7.03, 7.04 or 7.05
hereof;
(e) The Borrower shall default in the performance of any of
its obligations (other than those previously described in clause (d) or covered
by another clause of this Section 8) hereunder and such default (if remediable)
shall continue unremedied for a period of 30 days;
(f) The Lender shall determine that a material adverse change
has occurred in the financial condition of the Borrower from the conditions set
forth in the most recent financial statements of the Borrower most recently
disclosed to the Lender;
(g) The Borrower shall: (i) apply for or consent to the
appointment of, or the taking of position by, a receiver, custodian, trustee or
liquidator of itself or of all or a substantial part of its property; (ii) make
a general assignment
5
<PAGE>
for the benefit of its creditors; (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect); (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of debts; (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in any involuntary case under the Bankruptcy Code; or
(vi) take any action for the purpose of effecting any of the foregoing;
(h) A proceeding or case shall be commenced, without the
application or consent of the Borrower in any court of competent jurisdiction,
seeking (i) liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of debts of the Borrower; (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower or of all
or any substantial part of the Borrower's assets; or (iii) similar relief in
respect of the Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered or an order for
relief against the Borrower shall be entered in an involuntary case under the
Bankruptcy Code;
(i) A final judgment or judgments for the payment of money
shall be rendered against the Borrower;
THEREUPON (i) in the case of an Event of Default, other than one referred to in
clause (g) or (h) of this Section 8, the Lender may, by notice to the Borrower,
declare the principal amount of, and the accrued interest on, the Loan and all
other amounts payable by the Borrower hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby waived
by the Borrower; and (ii) in the case of the occurrence of an Event of Default
referred to in clause (g) or (h) of this Section 8, the principal amount of, and
the accrued interest on, the Loan and all other amounts payable by the Borrower
hereunder shall automatically become immediately due and payable without notice,
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
Section 9. Miscellaneous.
9.01. Waiver. No failure on the part of the Lender to exercise
and no delay in exercising, and no course of dealing with respect to any right,
power or privilege under this Agreement or the Note shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein and in the other Loan Documents are cumulative and not
exclusive of any remedies provided by law.
9.02. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered to the intended recipient
at the "Address for Notices" specified below or at such other address as shall
be designated by a party in a notice to each other party. All notices and other
communications hereunder shall be deemed to have been duly given, in the case of
hand delivery, when received, or in the case of mail, three Business Days after
the date deposited in the mail, addressed as aforesaid.
Addresses for Notices:
If to the Borrower:
Vitech America, Inc.
8807 Northwest 23rd Street
Miami, FL 33172
Attn: Edward Kelly
Fax: (305) 477-1379
Phone: (305) 477-1161
If to the Lender:
Gateway Companies, Inc.
4545 Towne Centre Court
San Diego, CA 92121
Attn: General Counsel
Fax: (619) 799-3413
Phone: (619) 799-3419
6
<PAGE>
9.03. Expenses, Etc. The Borrower agrees to pay on demand (a)
all costs and expenses of the Lender, including counsels' fees, in connection
with the preparation, execution, delivery, operation and enforcement of the Loan
Documents; (b) all expenses of the Lender, including counsels' fees, in
connection with any actual or proposed waiver or amendment requested by the
Borrower to any of the foregoing, whether or not such waiver or amendment shall
become effective; and (c) all transfer, stamp, documentary or other similar
taxes, assessments or charges levied by any governmental or revenue authority in
respect of any of the foregoing or any other document referred to herein.
9.04. Amendments, Etc. Any provision of this Agreement may be
modified or waived by an instrument or instruments in writing signed by the
Borrower and the Lender.
9.05. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns except that the Borrower may not assign its rights or
delegate its obligations hereunder or under the Note without the prior consent
of the Lender.
9.06. Counterparts. This Agreement may be executed in
counterparts.
9.07. GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
(b) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM ESTABLISHED BY THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT AND ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT ENTERED INTO
IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
9.08. Jurisdiction and Consent to Suit.
(a) Any proceeding to enforce this Agreement or the Note may
be brought in any state or federal court of competent jurisdiction in the State
of New York. The Borrower hereby irrevocably waives any present or future
objection to any such venue, and irrevocably consents and submits
unconditionally to the non-exclusive jurisdiction for itself and in respect of
any of its property of any such court. The Borrower further agrees that final
judgment against it in any such action or proceeding arising out of or relating
to this Agreement or the Note, shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States of America by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of the fact and of the amount of its obligation.
(b) Prior to the Closing Date, the Borrower shall irrevocably
designate and appoint an agent satisfactory to the Lender for service of process
in The City of New York, New York as its authorized agent to receive, accept,
and forward on its behalf service of process in any such proceeding, and shall
provide the Lender with evidence of the prepayment in full of the fees of such
agent. The Borrower agrees that service of process, writ, judgment, or other
notice of legal process upon said agent shall be deemed and held in every
respect to be effective personal service upon it. The Borrower shall maintain
such appointment (or that of a successor satisfactory to the Lender)
continuously in effect at all times while the Borrower is obligated under this
Agreement or the Note. Nothing herein shall affect the Lender's right to serve
process in any other manner permitted by applicable law.
9.09. Severability. If any terms or provisions of this
Agreement or application thereof to any person or circumstance shall to any
extent by invalid or unenforceable, the remainder of this Agreement, or the
application of such terms or provisions to persons or circumstances other than
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this agreement shall be valid and enforceable to
the fullest extent permitted by law.
9.10. Entire Agreement. Other than as provided in Section 7.05
hereof, this Agreement and the other Loan Documents constitute the entire
agreement between the parties with respect to the subject matter hereof.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed as of the day and year first above written.
VITECH AMERICA, INC.
By: /s/ Edward Kelly
------------------
Name: Edward Kelly
Title: Chief Financial Officer
GATEWAY COMPANIES, INC.
By: /s/ John Todd
---------------
Name: John Todd
Title: Chief Financial Officer
8
<PAGE>
Exhibit A
to Loan Agreement
PROMISSORY NOTE
$10,000,000 March 24, 2000
FOR VALUE RECEIVED, VITECH AMERICA, INC. a Florida corporation
(the "Borrower"), hereby unconditionally promises to pay to the order of GATEWAY
COMPANIES, INC. (the "Lender"), at its head office at 4545 Towne Centre Court,
San Diego, CA 92121, the principal sum of TEN MILLION DOLLARS ($10,000,000) (or
such lesser amount as shall equal the unpaid principal amount of the Loan made
by the Lender to the Borrower under the Loan Agreement referred to below), in
lawful money of the United States of America and in immediately available funds,
on or before March 24, 2001 (the "Maturity Date") and as provided in the Loan
Agreement referred to below, and to pay interest on the unpaid principal amount
of the Loan, in like money and funds at such office, for the period commencing
on the date of the Loan until the Loan shall be paid in full, at the rate per
annum of ten percent (10%) and on the dates provided in such Loan Agreement.
This Promissory Note is the Note referred to in the Loan
Agreement dated as of the date hereof between the Borrower and the Lender (as in
effect from time to time, the "Loan Agreement"), and evidences the Loan made
thereunder. Unless otherwise defined herein, capitalized terms used in this
Promissory Note have the respective meanings assigned to them in the Loan
Agreement.
Unless all or part of the principal amount of the Loans is converted to
the Borrower's Common Stock by the Lender on or before the Maturity Date as
provided for herein, all outstanding principal of the Loan and accrued interest
thereon shall be due and payable, and the Loan shall mature, on the Maturity
Date.
Conversion: Subject to the terms and conditions of this
Promissory Note, upon the occurrence and during the continuance of an Event of
Default, at the option and upon demand of the Lender the outstanding principal
of the Loan plus all interest accrued thereon is convertible, in whole or in
part, into Common Stock of the Borrower as follows:
1. Mechanics of Conversion. The Lender shall notify the
Borrower in writing (the "Conversion Notice"), in the manner prescribed in
Section 9.02 of the Loan Agreement, of its desire to convert all or part of the
aggregate amount of principal of the Loan or interest accrued thereon, as
applicable, into Common Stock of the Borrower. The Conversion Notice shall
specify (i) the aggregate amount of principal of the Loan and/or interest
accrued thereon to be converted (the "Conversion Amount"), and (ii) the name(s)
which should appear on the stock certificate(s) to be issued by the Borrower
which represent the Common Stock acquired by the Lender upon conversion.
2. Common Stock Issuable Upon Conversion. Within three (3)
Business Days of receipt of a Conversion Notice, the Borrower shall issue to the
Lender that number of shares of Common Stock of the Lender, no par value,
determined by dividing the Conversion Amount by a price (the "Conversion Price")
determined from time to time and subject to adjustment as set forth in this
Promissory Note. For purposes hereof, the Conversion Price as of any date of
determination shall be the average of the VWACS during the thirty (30)
consecutive Trading Days immediately preceding such date of determination. For
purposes hereof, "VWACS" shall mean the weighted daily average bid price per
share of the Common Stock 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") as reported by Bloomberg Information Services,
Inc., or its successors to its function of reporting prices, and "Trading Day"
shall mean (i) 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 (ii) 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 (iii) 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 the
Common Stock is not listed or quoted as set forth in (i), (ii) or (iii) 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.
a. Adjustment for Stock Splits and Combinations. If, during
any period of 30 Trading Days referenced in determination of a Conversion
Price, the Borrower effects a subdivision of its outstanding Common Stock,
the VWACS for such Trading Days prior to such subdivision shall be
proportionately decreased to account for subdivision. Conversely, if during
any period of 30 Trading Days referenced in determination of a Conversion
Price,
9
<PAGE>
the Borrower combines the outstanding shares of Common Stock into a
smaller number of shares, the VWACS for such Trading Days prior to such
combination shall be proportionately increased.
b. Adjustment for Common Stock Dividends and Distributions.
If. during any period of 30 Trading Days referenced in determination of a
Conversion Price, the Borrower makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, in each
such event the VWACS for such Trading Days prior to the date of such
issuance or record date shall be proportionately decreased, by multiplying
each such VWACS by a fraction (i) the numerator of which is the total
number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date,
and (ii) the denominator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance
or the close of business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or distribution.
c. Adjustment for Reclassification, Exchange and Substitution.
If, during any period of 30 Trading Days referenced in determination of a
Conversion Price, the Common Stock issuable upon the conversion of the
principal of and/or interest on the Loan is changed into the same or a
different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than a
reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section 2), in any such event the holder of this
Promissory Note shall have the right thereafter to convert the principal of
and/or interest on the Loan into the kind and amount of stock and other
securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares
of Common Stock into which the principal of and/or interest on the Loan
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided
herein or with respect to such other securities or property by the terms
thereof.
d. Reorganizations, Mergers, Consolidations or Sales of
Assets. If, during any period of 30 Trading Days referenced in
determination of a Conversion Price, there is a capital reorganization of
the Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere
in this Section 2), as a part of such capital reorganization, provision
shall be made so that the holder of this Promissory Note shall thereafter
be entitled to receive upon conversion of the principal of and/or interest
on the Loan the number of shares of stock or other securities or property
of the Borrower to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 2 with
respect to the rights of the holder of this Promissory Note after the
capital reorganization to the end that the provisions of this Section 2
(including adjustment of the Conversion Price then being determined and the
number of shares issuable upon conversion of the principal of and/or
interest on the Loan) shall be applicable after that event and be as nearly
equivalent as practicable.
e. Sale of Shares Below Conversion Price.
(i) If, during any period of 30 Trading Days referenced in
determination of a Conversion Price, the Borrower issues or sells, or is deemed
by the express provisions of this subsection f to have issued or sold,
Additional Shares of Common Stock (as defined in subsection (iv) below)), other
than as a dividend or other distribution on any class of stock as provided in
Sections 2(b) or 2(c) above, and other than a subdivision or combination of
shares of Common Stock as provided in Section 2(a) above, for an Effective Price
(as defined in subsection f(iv) below) less than the average of the VWACS during
the ten (10) consecutive Trading Days immediately preceding such date of
issuance or sale, then and in each such case the VWACS for such Trading Days
prior to such issuance or sale shall be decreased, as of the opening of business
on the date of such issuance or sale, to a price equal to the Effective Price
for the Additional Shares of Common Stock.
(ii) For the purpose of making any adjustment required
under this Section 2(e), the consideration received by the Borrower for any
issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Borrower after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Borrower in connection with such issue or sale but without
deduction of any expenses payable by the Borrower, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as defined in subsection e(iii) below)
or rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Borrower for a consideration which covers
both, be computed as the portion of the consideration so received that may be
10
<PAGE>
reasonably determined in good faith by the Board of Directors to be allocable to
such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this
Section 2(e), if the Borrower issues or sells any (i) stock or other securities
convertible into Additional Shares of Common Stock (such convertible stock or
securities being herein referred to as "Convertible Securities") or (ii) rights
or options for the purchase of Additional Shares of Common Stock or Convertible
Securities, and if the Effective Price of such Additional Shares of Common Stock
is less than the average of the VWACS during such referenced Trading Days prior
to the date of issuance or sale, in each case the Borrower shall be deemed to
have issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Borrower for the issuance of such rights
or options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the Borrower
upon the exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the
Borrower (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) upon the conversion thereof; provided that if in
the case of Convertible Securities the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Borrower shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Borrower upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Borrower upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Borrower upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the VWACS for the relevant Trading Days, as adjusted upon
the issuance of such rights, options or Convertible Securities, shall be made as
a result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the VWACS as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the VWACS for the relevant Trading
Days which would have been in effect had an adjustment been made on the basis
that the only Additional Shares of Common Stock so issued were the Additional
Shares of Common Stock, if any, actually issued or sold on the exercise of such
rights or options or rights of conversion of such Convertible Securities, and
such Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Borrower upon such exercise, plus the
consideration, if any, actually received by the Borrower for the granting of all
such rights or options, whether or not exercised, plus the consideration
received for issuing or selling the Convertible Securities actually converted,
plus the consideration, if any, actually received by the Borrower (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities; provided that such
readjustment shall not apply to prior conversions of the principal of or
interest on the Loan.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Borrower or deemed to be issued pursuant to
this Section 2(e), whether or not subsequently reacquired or retired by the
Borrower other than (A) shares of Common Stock issued upon conversion of the
principal of and/or interest on the Loan; (B) shares of Common Stock and/or
options, warrants or other Common Stock purchase rights and the Common Stock
issued pursuant to such options, warrants or other rights (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like) after the
Closing Date to employees, officers or directors of, or consultants or advisors
to the Borrower or any subsidiary pursuant to stock purchase or stock option
plans (such plans being approved by at least one of the non-employee directors
of the Borrower) or other arrangements that are approved by the Board of
Directors of the Borrower (including at least one of the non-employee directors
of the Borrower); and (C) shares of Common Stock issued pursuant to the exercise
of options, warrants or convertible securities outstanding as of the Closing
Date. The "Effective Price" of Additional Shares of Common Stock shall mean the
quotient determined by dividing the total number of Additional Shares of Common
Stock issued or sold, or deemed to have been issued or sold by the Borrower
under this Section 2(e), into the aggregate consideration received, or deemed to
have been received by the Borrower for such issue under this Section 2(e), for
such Additional Shares of Common Stock.
(f) Adjustment following Event of Default. Upon the occurrence
and during such time as any Event of Default shall have occurred and shall
continue unremedied or unwaived, the Conversion Price shall, subject to
other or additional adjustments as provided in this Section 2, be equal to
the lesser of (1) $9.75 and (2) the product of (x) 0.88 multiplied by (y)
the average of the lowest ten (10) VWACS during the thirty (30) consecutive
Trading Days
11
<PAGE>
immediately preceding the relevant date of conversion.
g. Certificate of Adjustment. In each case of determination of
or adjustment to the Conversion Price for the number of shares of Common
Stock or other securities issuable upon conversion of the principal of
and/or interest on the Loan, the Borrower, at its expense, shall compute
such adjustment or readjustment in accordance with the provisions hereof
and prepare a certificate showing such adjustment or readjustment, and
shall mail such certificate pursuant to the notice provisions of Section
9.02 of the Loan Agreement. The certificate shall set forth such adjustment
or readjustment, showing in detail the facts upon which such adjustment or
readjustment is based.
h. Notices of Record Date. Upon (i) any taking by the Borrower
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any consolidation or merger of the Borrower
with or into any other corporation or other entity or other capital
reorganization of the Borrower, any reclassification or recapitalization of
the capital stock of the Borrower, any merger or consolidation of the
Borrower with or into any other corporation, or any sale, lease or other
disposition of all or substantially all of the assets of the Borrower or
any voluntary or involuntary dissolution, liquidation or winding up of the
Borrower, the Borrower shall deliver notice to the holder of this
Promissory Note (pursuant to the provisions of Section 9.02 of the Loan
Agreement) at least fifteen (15) days prior to the record date specified
therein a notice specifying (A) the date on which any such record is to be
taken for the purpose of such dividend or distribution and a description of
such dividend or distribution, (B) the date on which any such
reorganization, reclassification, transfer, consolidation, merger, sale,
lease, dissolution, liquidation, winding up or other disposition is
expected to become effective, and (C) the date, if any, that is to be fixed
as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, sale,
lease, dissolution, liquidation, winding up or other disposition.
i. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of the principal of and interest on the
Loan. If, in the aggregate, any conversion would result in the issuance of
any fractional share, the Borrower shall, in lieu of issuing the fractional
share, pay cash equal to the product of such fraction multiplied by the
Common Stock's fair market value (as determined by the closing price of the
Common Stock on the principal securities exchange or market on which it is
then being listed) on the date of conversion.
j. Reservation of Stock Issuable Upon Conversion. The Borrower
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the principal of and/or interest on the Loan, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding principal of and accrued but
unpaid interest on the Loan. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect a
conversion of principal of and accrued but unpaid interest on the Loan, the
Borrower will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such
purpose.
k. No Dilution or Impairment. Without the consent of the
holder of this Promissory Note, the Borrower shall not amend its articles
of incorporation (except as necessary to comply with the terms of the Loan
Agreement or the Convertible Loan Agreement) or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or take any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Borrower, but
shall at all times in good faith assist in carrying out all such action as
may be reasonably necessary or appropriate in order to protect the
conversion rights of the holder of this Promissory Note against dilution or
other impairment.
Upon the occurrence of an Event of Default, the principal
hereof and accrued interest hereon shall become, or may be declared to be,
forthwith due and payable in the manner, upon the conditions and with the effect
provided in the Loan Agreement.
The transfer of this Promissory Note may be registered on the
books maintained for that purpose by or on behalf of the Borrower.
None of the terms or provisions of this Promissory Note may be amended,
modified or waived except by a written agreement duly executed on behalf of the
Lender and the Borrower and specifically setting forth the provision so amended,
modified or waived. No course of dealing between the Lender and the Borrower
shall operate as a waiver of any right of any holder hereof and no delay on the
part of the holder hereof in exercising any right hereunder shall so operate.
12
<PAGE>
The Borrower hereby waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Promissory Note, and shall
pay all costs of collection when incurred, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
The Borrower may prepay all or any part of the principal amount of the
Loan evidenced by this Promissory Note as provided in the Loan Agreement. Notice
by the Borrower to the Lender of intent to effect such prepayment shall
represent a bona-fide prepayment commitment under this Promissory Note, with the
prepayment amount set forth therein deemed due and payable by the Borrower on
the prepayment date set forth in the notice.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
VITECH AMERICA, INC.
By /s/ Edward Kelly
-----------------
Name: Edward Kelly
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VITECH
AMERICA, INC.'S CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,087,839
<SECURITIES> 0
<RECEIVABLES> 59,892,438
<ALLOWANCES> 4,037,054
<INVENTORY> 32,184,017
<CURRENT-ASSETS> 102,650,154
<PP&E> 24,565,820
<DEPRECIATION> 798,015
<TOTAL-ASSETS> 160,323,427
<CURRENT-LIABILITIES> 90,746,870
<BONDS> 13,535,998
0
0
<COMMON> 72,385,718
<OTHER-SE> (16,345,159)
<TOTAL-LIABILITY-AND-EQUITY> 160,323,727
<SALES> 22,560,161
<TOTAL-REVENUES> 22,560,161
<CGS> 15,052,880
<TOTAL-COSTS> 21,232,049
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,857,563
<INCOME-PRETAX> 14,850
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,850
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,850
<EPS-BASIC> 0.001
<EPS-DILUTED> 0.001
</TABLE>
