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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Date of Report (Date of earliest event reported) January 30, 1998
MEHL/BIOPHILE INTERNATIONAL CORPORATION
(Exact Name of Company as Specified in its Charter)
Delaware 0-11969 22-2408186
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
4127 27th Lane N.W., Gainesville, Florida 32606
(Address of principal executive office) (Zip Code)
Company's telephone number, including area code (352) 373-2565
N/A
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
Amended Loan Agreement
Pursuant to an Amended and Restated Loan Agreement dated as of
January 30, 1998 (the "Amended Loan Agreement"), between MEHL/Biophile
International Corporation (the "Company") and Clearwater Fund IV, LLC
("Clearwater"), the Company has obtained a revolving line of credit whereby the
Company may borrow up to $2.5 million (the "Revolving Loan") from Clearwater, a
principal shareholder of the Company and the Company's principal creditor.
Amounts borrowed from time to time under the Revolving Loan bear interest at the
rate of 15% per annum and are to be paid in full on May 31, 1999.
The Amended Loan Agreement continues to cover the term loan of
$7,000,000 previously borrowed by the Company (the "Term Loan") pursuant to the
Loan Agreement dated as of August 5, 1997 and as amended on January 15, 1998
under the previously existing terms and conditions of such loan, as amended.
The Company is required to prepay all amounts borrowed under the
Revolving Loan in the event that the Company receives any proceeds from the sale
of any debt or equity securities (or any combination thereof). The Company will
also be required to prepay all amounts under the Term Loan and the Revolving
Loan in the event that a business plan through December 1999 has not been duly
adopted and approved by the Board of Directors prior to April 30, 1998.
The Revolving Loan and the Term Loan are secured by substantially
all of the Company's assets, are guaranteed by Thomas L. Mehl, Sr., Chairman of
the Company, and are further secured by a pledge by Mr. Mehl and his wife, Ann
Marie Mehl, of 8,425,000 shares of Common Stock of the Company owned by them. As
previously disclosed by the Company, Mr. and Mrs. Mehl have agreed to
recontribute up to four million shares of Common Stock to the Company upon the
release of the pledged shares by Clearwater upon full payment by the Company of
amounts due under the Term Loan and Revolving Loan.
In connection with entering into the Revolving Loan, the Company
agreed to exchange the 12,231 outstanding shares of 5% Cumulative Convertible
Preferred Stock, Series E ("Series E Preferred Stock) for an equivalent number
of shares of 5% Cumulative Convertible Preferred Stock, Series G ("Series G
Preferred Stock"). The Series E Preferred Stock was held by Clearwater and two
affiliates, Clearwater Offshore Fund, Ltd. and Clearwater Fund IV, Ltd. The
Series G Preferred Stock differs from the Series E Preferred Stock in that the
maximum conversion price at which the preferred stock could be converted into
Common Stock of the Company was reduced from $3.125 to $1.00, but otherwise has
the same rights and preferences as the Series E Preferred Stock.
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In connection with the Amended Loan Agreement, the holders of the
Series G Preferred Stock agreed not to sell or transfer prior to June 30, 1998
any shares of Series G Preferred Stock, any shares of Common Stock received
upon conversion of the Series G Preferred Stock or any shares of Common Stock
of the Company held by Clearwater Fund IV Ltd. upon conversion of the Company's
5 % Convertible Preferred Stock, Series C and held as of January 30, 1998.
Appointment of Executive Officers
On February 5, 1998, the Board of Directors appointed Jack W. Forrest
to serve as Chief Executive Officer of the Company and on February 16, 1998
appointed Gerard Melia to serve as Chief Financial Officer of the Company.
Messrs. Forrest and Melia had previously been appointed as directors of the
Company on January 16, 1998 in connection with Amendment No. 1 to the Loan
Agreement between Clearwater and the Company.
Jack W. Forrest is a financial and managerial consultant specializing
in the turnaround of distressed companies. He is Chairman, President and Chief
Executive Office of Bullet Golf Company, a manufacturer of golf equipment which
is wholly owned by Clearwater and was purchased by Clearwater out of
bankruptcy. Mr. Forrest is a Certified Public Accountant and also holds the
position of Senior Vice President of Finance of Clearwater. From 1985 through
1991, Mr. Forrest held senior executive positions with Environmental Systems
Company ("ESC"), an environmental services company trading on the New York
Stock Exchange, serving as Chief Executive Officer of ESC from 1989 through
1991.
Gerard Melia has served from 1996 to the present as the Chief Financial
Officer of Clearwater and affiliated investment funds. From 1993 to 1996, he
was employed by Salomon Brothers providing financial and operational support
for a division trading in international securities. Mr. Melia serves on the
board of directors of the Monterey Pasta Company, a publicly traded food
products company, and is a Certified Public Accountant.
Item 6. Exhibits.
Exhibit 3 Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock, Series G.
Exhibit 10.1 Amended and Restated Loan Agreement between the Company and
Clearwater Fund IV LLC.
Exhibit 10.2 Exchange Agreement dated as of January 30, 1998 between the
Company, Clearwater Fund IV Ltd., Clearwater Fund IV LLC and
Clearwater Offshore Fund Ltd.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
MEHL/BIOPHILE INTERNATIONAL CORPORATION
Registrant
Date: February 26, 1998 By: /s/ David Fowler
-----------------------------
Name: David Fowler
Title: President
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EXHIBIT INDEX
Item No. Description
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Exhibit 3 Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock, Series G.
Exhibit 10.1 Amended and Restated Loan Agreement between the Company and
Clearwater Fund IV LLC.
Exhibit 10.2 Exchange Agreement dated as of January 30, 1998 between the
Company, Clearwater Fund IV Ltd., Clearwater Fund IV LLC and
Clearwater Offshore Fund Ltd.
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CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF 5% CUMULATIVE CONVERTIBLE
PREFERRED STOCK, SERIES G
OF
MEHL/BIOPHILE INTERNATIONAL CORPORATION
MEHL/Biophile International Corporation (the "CORPORATION"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware, does hereby certify that, pursuant to authority conferred
upon the Board of Directors of the Corporation by the Certificate of
Incorporation, as amended, of the Corporation, and pursuant to Section 151 of
the General Corporation Law of the State of Delaware, the Board of Directors of
the Corporation on January 27, 1998, adopted resolutions providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of twelve-thousand
two-hundred and thirty-one (12,231) shares of 5% Cumulative Convertible
Preferred Stock, Series G, of the Corporation, as follows:
RESOLVED, that the Corporation is authorized to issue 12,231 shares
of 5% Cumulative Convertible Preferred Stock, Series G, $10 par
value (the "PREFERRED SHARES"), which shall have the following
powers, designations, preferences and other special rights:
1. Dividends. The holders of the Preferred Shares shall be
entitled to a dividend of five percent (5%) per annum of the Stated
Value (as defined below), payable in cash, on a cumulative basis
with quarterly compounding (prorated for any portion of the
applicable period during which the Preferred Shares are
outstanding). Dividends shall accrue from the date of issuance of
the Preferred Shares and shall be payable quarterly commencing
February 28, 1998,
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through and including the date on which the Preferred Shares are no
longer outstanding.
2. Conversion of Preferred Shares. The holders of the
Preferred Shares shall have the right, at their option, to convert
the Preferred Shares into shares of Common Stock on the following
terms and conditions:
a. Conversion Right. Each Preferred Share shall be
convertible at any time into fully paid and nonassessable shares
(calculated to the nearest whole share) of Common Stock, at the
conversion price per share (the "CONVERSION PRICE"), as defined in
Section 2(b), below, in effect at the time of conversion determined
as hereinafter provided. Each Preferred Share shall have a value of
One Thousand Dollars ($1,000) (the "STATED VALUE") for the purpose
of such conversion and the number of shares of Common Stock issuable
upon conversion of each of the Preferred Shares shall be determined
by dividing the Stated Value thereof by the Conversion Price then in
effect. Every reference herein to the Common Stock of the
Corporation (unless a different intention is expressed) shall be to
the shares of the Common Stock of the Corporation, $.01 par value,
as such stock exists immediately after the issuance of the Preferred
Shares provided for hereunder, or to stock into which such Common
Stock may be changed from time to time thereafter.
b. Conversion Price. Subject to adjustment pursuant to
Sections 2(c) and 2(e), below, and subject to the "Ceiling Price,"
as defined below, the Conversion Price shall be 71.27% (the
"CONVERSION PERCENTAGE") of the Average Market Price (as defined
below) for the Common Stock for the five (5) consecutive trading
days ending one trading day prior to the date of the Conversion
Notice (as defined below); provided, however, that subject to
adjustment pursuant to Sections 2(c) and 2(e), below, in no event
shall the Conversion Price be greater than the product of the
Conversion Percentage times $1.00 (the "CEILING PRICE").
c. Adjustment to Conversion Percentage. (i) If the
Amended Registration Statement (the "AMENDED REGISTRATION
STATEMENT") which the Corporation is required to file pursuant to
Section 3 of the Exchange Agreement by and among the Corporation and
the "PREFERRED SHAREHOLDERS" named therein (the "EXCHANGE
AGREEMENT") has not been declared effective by the Securities and
Exchange Commission (the "SEC") on or before January 30, 1998 (the
date the Amended Registration Statement is declared effective by the
SEC herein referred to as the "EFFECTIVE DATE") or if, after the
Amended Registration Statement has been declared effective by the
SEC, sales cannot be made pursuant to the Amended Registration
Statement by reason of stop order, the Corporation's failure to
update the Amended Registration Statement in accordance with the
rules
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and regulations of the SEC or otherwise, or if the Common Stock is
not listed or included for quotation on the National Market of the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ-NM"), the New York Stock Exchange (the "NYSE"), the
American Stock Exchange (the "AMEX"), or the NASDAQ SmallCap Market
("NASDAQ SMALLCAP") then, (ii) as partial relief for the damages to
the holder by reason of any such delay in or reduction of its
ability to sell the underlying shares of Common Stock (which remedy
shall not be exclusive of any other remedies available at law or in
equity): the Conversion Percentage shall be reduced by a number of
basis points equal to two hundred (200) basis points multiplied by
the sum of: (A) the number of months (prorated for partial months)
after October 15, 1997 and prior to the date the Amended
Registration Statement is declared effective by the SEC; (B) the
number of months (prorated for partial months) that sales cannot be
made pursuant to the Amended Registration Statement (by reason of
stop order, the Corporation's failure to update the Amended
Registration Statement or otherwise) after the Amended Registration
Statement has been declared effective; and (C) the number of months
(prorated for partial months) that the Common Stock is not listed or
included for quotation on the NASDAQ-NM, NYSE, AMEX, or NASDAQ
SmallCap after the Amended Registration Statement has been declared
effective. If the holder converts Preferred Shares into Common Stock
and an adjustment to the Conversion Percentage is required
subsequent to such conversion, but prior to the sale of such Common
Stock by such holder, the Corporation shall pay to such holder,
within five (5) days after receipt of a notice of the sale of such
Common Stock from such holder, an amount equal to the Average Market
Price of the Common Stock obtained upon conversion of such Preferred
Shares for the five (5) trading days ending one (1) trading day
prior to the date of conversion multiplied by a fraction, the
numerator of which shall two (2) and the denominator of which shall
be one hundred (100), multiplied by the number of months (prorated
for partial months) for which an adjustment was required. Such
amount shall be paid, at the option of the holder, in cash or in
Common Stock ("DAMAGE SHARES"), whose value shall be the Conversion
Price, as adjusted pursuant to this subsection 2(c).
"AVERAGE MARKET PRICE" of any security for any period shall be
computed as the arithmetic average of the closing bid prices for
such security for each trading day in such period on the NASDAQ
SmallCap, or, if the NASDAQ SmallCap is not the principal trading
market for such security, on the principal trading market for such
security, or, if market value cannot be calculated for such period
on any of the foregoing bases, the average fair market value during
such period as reasonably determined in good faith by the Board of
Directors of the Corporation (all as appropriately adjusted for any
stock dividend, stock split, or other similar transaction during
such period or between the end of such period or
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between the end of such period and the date of conversion or
dividend payment, as applicable).
d. Conversion Notice. On presentation and surrender to
the Corporation (or at any office or agency maintained for the
transfer of the Preferred Shares) of the certificates of Preferred
Shares so to be converted, duly endorsed in blank for transfer or
accompanied by proper instruments of assignment or transfer in blank
(a "CONVERSION NOTICE"), the holder of such Preferred Shares shall
be entitled, subject to the limitations herein contained, to receive
in exchange therefor a certificate or certificates for fully paid
and nonassessable shares, which certificates shall be delivered by
the second trading day after the date of delivery of the Conversion
Notice, and cash for fractional shares, of Common Stock on the
foregoing basis. The Preferred Shares shall be deemed to have been
converted, and the person converting the same to have become the
holder of record of Common Stock, for all purposes as of the date of
delivery of the Conversion Notice.
e. (i) Adjustments for Dividends, Subdivisions or
Combinations. If the Corporation shall at any time subdivide the
outstanding shares of Common Stock or shall issue a stock dividend
on its outstanding shares of Common Stock, the Conversion Price
shall be appropriately decreased so that the number of shares of
Common Stock issuable upon conversion of the Preferred Shares shall
be increased by the same percentage as the percentage increase in
the number of outstanding shares of Common Stock as a result of the
subdivision or stock dividend, effective at the close of business on
the date of such subdivision or stock dividend. If the Corporation
shall at any time combine the shares of outstanding Common Stock,
the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable upon conversion of the
Preferred Shares shall be decreased by the same percentage as the
percentage decrease in the number of shares of outstanding Common
Stock as a result of the combination, effective at the close of
business on the date of such combination.
(ii) Adjustments for Reorganizations and
Reclassifications. In case, at any time after the date hereof, of
any capital reorganization (other than a merger or other
reorganization in which the Corporation is the continuing entity and
that does not result in any change in the Common Stock) or any
reclassification of the Common Stock of the Corporation (other than
as a result of a stock dividend or subdivision, split or combination
of shares), the Preferred Shares shall thereafter be convertible
into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock of the
Corporation deliverable upon conversion of the Preferred Shares
immediately prior to such reorganization or recapitalization would
have been entitled upon such reorganization or reclassification;
and, in any such case,
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appropriate adjustment (including, without limitation, adjustment to
the Conversion Price) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of Preferred Shares, to the end that the
provisions set forth herein shall thereafter be applicable, as
nearly as reasonably may be, in relation to any share of stock or
other property thereafter deliverable upon the conversion.
(iii) Adjustments of Conversion Price for Dilutive
Issuances. Upon the issuance by the Corporation of Common Stock, or
any right or option to purchase Common Stock, or any obligation or
any shares of stock convertible into or exchangeable for Common
Stock for a consideration per share less than the Conversion Price
in effect immediately prior to the time of such issue or sale, then
forthwith upon such issue or sale, the Conversion Price shall be
reduced to a price calculated (to the nearest cent) by dividing:
(A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding prior to such issuance or
sale plus shares of Common Stock issuable upon conversion or
exercise of any evidence of indebtedness, shares, options,
warrants or other securities or obligations of the Corporation
outstanding immediately prior to such issuance or sale
multiplied by the then existing Conversion Price, and (2) the
aggregate amount of consideration received by the Corporation
upon such issuance or sale, by
(B) the sum of (1) the number of shares of Common Stock
outstanding prior to such issuance or sale plus shares of
Common Stock issuable upon conversion or exercise of any
evidence of indebtedness, shares, options, warrants or other
securities or obligations of the Corporation outstanding
immediately prior to such issuance or sale and (2) the number
of shares of Common Stock issued or deemed to be issued
pursuant to Section 2(e)(iv), below, in such issuance or sale.
Expressed as an arithmetic formula, the new Conversion Price would
be calculated as follows:
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CP(1) = (CP(0)*CS) + C
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CS + AS
where:
CP(1) = the Conversion Price as adjusted pursuant to this
Section 2(e)(iii);
CP(0) = the Conversion Price in effect immediately prior to such
issue or sale;
CS = the number of shares of Common Stock outstanding
immediately prior to such issue or sale plus shares of
Common Stock issuable upon conversion or exercise of any
evidences of indebtedness, shares, options, warrants or
other securities or obligations of the Corporation
outstanding immediately prior to such issue or sale;
C = the aggregate amount of consideration received by the
Corporation upon such issue or sale;
AS = the number of shares of Common Stock issued or deemed to
be issued pursuant to Section 2(e)(iv), below in such
issue or sale.
* = the arithmetic function of multiplication.
(iv) Calculation of Issuance Price. For purposes of
Section 2(e)(iii) hereof the following provisions shall be
applicable:
(A) In the case of an issue or sale for cash of
shares of Common Stock, the consideration received by the
Corporation therefor shall be deemed to be the amount of cash
received, before deducting therefrom any commissions or expenses
paid or incurred by the Corporation.
(B) In case of the issuance (otherwise than upon
conversion or exchange of obligations or shares of stock of the
Corporation) of additional shares of Common Stock for a
consideration other than cash or a consideration partly other than
cash, the amount of the consideration other than cash received by
the Corporation for such shares shall be deemed to be the value of
such consideration as reasonably determined by the Board of
Directors.
(C) In case of the issuance by the Corporation in
any manner of any rights to subscribe for or options to purchase
shares of
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Common Stock, at a consideration per share (as computed below) less
than the Conversion Price for in effect immediately prior to the
date of the offering of such rights or the granting of such options,
as the case may be, the maximum number of shares of Common Stock to
which the holders of such rights or options shall be entitled to
subscribe for or purchase pursuant to such rights or options shall
be deemed to be issued or sold as of the date of the offering of
such rights or the granting of such options, as the case may be, and
the minimum aggregate consideration named in such rights or options
for the shares of Common Stock covered thereby, plus the
consideration, if any, received by the Corporation for such rights
or options, shall be deemed to be the consideration actually
received by the Corporation (as of the date of the offering of such
rights or the granting of such options, as the case may be) for the
issuance of such shares.
(D) In case of the issuance or issuances by the
Corporation in any manner of any obligations or of any shares of
stock of the Corporation that shall be convertible into or
exchangeable for Common Stock, at a consideration per share (as
computed below) less than the Conversion Price in effect immediately
prior to the date such obligation or shares are issued, the maximum
number of shares of Common Stock issuable upon the conversion or
exchange of such obligations or shares shall be deemed issued as of
the date such obligations or shares are issued, and the amount of
the consideration received by the Corporation for such additional
shares of Common Stock shall be deemed to be the total of (i) the
amount of consideration received by the Corporation upon the
issuance of such obligations or shares, as the case may be, plus
(ii) the minimum aggregate consideration, if any, other than such
obligations or shares, receivable by the Corporation upon such
conversion or exchange, except in adjustment of dividends.
(E) The amount of the consideration received by
the Corporation upon the issuance of any rights or options referred
to in Section 2(e)(iv)(C) hereof or upon the issuance of any
obligations or shares which are convertible or exchangeable as
described in Section 2(e)(iv)(D) hereof, and the amount of the
consideration, if any, other than such obligations or shares so
convertible or exchangeable, receivable by the Corporation upon the
exercise, conversion or exchange thereof shall be determined in the
same manner provided in Section 2(e)(iv)(A) and 2(e)(iv)(B) hereof
with respect to the consideration received by the Corporation in
case of the issuance of additional shares of Common Stock. On the
expiration of any rights or options referred to in Section
2(e)(iv)(C) hereof, or the termination of any right of conversion or
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exchange referred to in Section 2(e)(iv)(D) hereof, the Conversion
Price then in effect shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustments made
upon the issuance of such option, right or convertible or
exchangeable securities been made upon the basis of the delivery of
only the number of shares of Common Stock actually delivered upon
the exercise of such rights or options or upon the conversion or
exchange of such securities.
f. Fractional Shares. The Corporation shall not issue
any fraction of a share of Common Stock upon any conversion, but
shall pay in cash therefor at the Conversion Price then in effect
multiplied by such fraction.
g. Reservation of Shares. The Corporation shall, so long
as any of the Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares,
such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all of the Preferred Shares
then outstanding.
h. Taxes. The Corporation shall pay any and all taxes
which may be imposed upon it with respect to the issuance and
delivery of Common Stock upon the conversion of the Preferred Shares
as herein provided. The Corporation shall not be required in any
event to pay any transfer or other taxes by reason of the issuance
of such Common Stock in names other than those in which the
Preferred Shares surrendered for conversion are registered on the
Corporation's records, and no such conversion or issuance of Common
Stock shall be made unless and until the person requesting such
issuance has paid to the Corporation the amount of any such tax, or
has established to the satisfaction of the Corporation and its
transfer agent, if any, that such tax has been paid.
3. Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law and by Section 7 hereof.
4. Redemption. Subject to the following terms and conditions,
the Corporation, at any time after the Effective Date, at its
option, may redeem from time to time all or any portion of the then
outstanding Preferred Shares:
a. The Corporation may, at any time or times after the
Effective Date, redeem such Preferred Shares at the Redemption
Price, as defined in Section 4(b) below, payable in cash; provided,
however, that at the option of the holders of Preferred Shares, such
holders shall have the right to convert all or any portion of such
Preferred Shares to Common Stock pursuant to Section 2 at any
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time prior to the Redemption Date, as defined below. With respect to
any redemption of such shares, the Corporation must give written
notice (the "REDEMPTION NOTICE") by certified mail (postage prepaid,
return receipt requested) or by overnight courier to the holders of
the Preferred Shares to be redeemed at least thirty (30) days prior
to the scheduled date of redemption (the "REDEMPTION DATE"). The
Redemption Notice shall be addressed to each such shareholder at the
address of such holder appearing on the books of the Corporation or
given by such holder to the Corporation for the purpose of notice.
The Redemption Notice shall state the Redemption Date, the
Redemption Price (as hereinafter defined), and the number of
Preferred Shares of such holders to be redeemed and shall call upon
such holder to surrender to the Corporation on the Redemption Date
at the place designated in the Redemption Notice such holder's
certificate or certificates representing the shares to be redeemed.
On or after the Redemption Date, each holder of Preferred Shares
called for redemption shall surrender the certificate evidencing
such Preferred Shares to the Corporation (except that, if fewer
Preferred Shares are outstanding on the Redemption Date than were
called for redemption due to the Holder's conversion of some or all
of its outstanding Preferred Shares into Common Stock between the
date of the Redemption Notice and the Redemption Date, then such
number of Preferred Shares shall be reduced to the number of such
Preferred Shares which are still outstanding) at the place
designated in such notice and shall thereupon be entitled to receive
payment of the Redemption Price. If less than all of the outstanding
Preferred Shares are to be redeemed for any reason, then the
Corporation shall redeem a pro rata portion from each holder of
Preferred Shares according to the respective number of Preferred
Shares held by such holder.
b. The Preferred Shares shall be redeemed at a cash
price (the "REDEMPTION PRICE") equal to sum of (i) the Conversion
Price in effect on the Redemption Date multiplied by the number of
Preferred Shares actually redeemed, and (ii) all accrued but unpaid
dividends on the Preferred Shares being redeemed through the
Redemption Date. In the event fails to pay the Redemption Price in
full on the Redemption Date, interest shall accrue on the unpaid
portion at the rate of ten percent (10%) per annum, compounded
daily.
c. From and after the Redemption Date (unless default
shall be made by the Corporation in duly paying the Redemption
Price, in which case all the rights of the holders of such shares
shall continue) the holders of the shares of the Preferred Shares
called for redemption shall cease to have any rights as shareholders
of the Corporation relating to such shares, except (i) the right to
receive, without interest other than as payable under Section 4(b),
above, the Redemption Price and (ii) if less than all of the
Preferred Shares represented by the certificate(s) surrendered by
the holder for redemption are actually redeemed, the right to
receive forthwith from the Corporation a new certificate for the
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unredeemed shares, and the redeemed shares shall not thereafter be
transferred (except with the written consent of the Corporation) on
the books of the Corporation and shall not be deemed outstanding for
any purpose whatsoever. The Preferred Shares not redeemed shall
remain outstanding and entitled to all the rights and preferences
provided herein.
d. There shall be no redemption of any Preferred Shares
of the Corporation where such action would be in violation of
applicable law.
e. Upon any redemption of Preferred Shares pursuant to
this Section 4, the Preferred Shares which are so redeemed shall not
be reissued and, upon such redemption, the number of authorized
shares of the series to which the shares of such Preferred Shares
belonged shall be reduced by the number of shares so redeemed.
5. Liquidation, Dissolution, Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of the Preferred Shares shall be
entitled to receive in cash out of the assets of the Corporation,
whether from capital or from earnings available for distribution to
its stockholders (the "PREFERRED FUNDS"), before any amount shall be
paid to the holders of the Common Stock, an amount equal to the
Stated Value per Preferred Share plus any accrued and unpaid
dividends, provided that, if the Preferred Funds are insufficient to
pay the full amount due to the holders of Preferred Shares and
holders of shares of other classes or series of preferred stock of
the Corporation that are of equal rank with the Preferred Shares as
to payments of Preferred Funds (the "PARI PASSU SHARES"), then each
holder of Preferred Shares and Pari Passu Shares shall receive a
percentage of the Preferred Funds equal to the full amount of
Preferred Funds payable to such holder as a percentage of the full
amount of Preferred Funds payable to all holders of Preferred Shares
and Pari Passu Shares. The purchase or redemption by the Corporation
of stock of any class, in any manner permitted by law, shall not,
for the purposes hereof, be regarded as a liquidation, dissolution
or winding up of the Corporation. Neither the consolidation nor
merger of the Corporation with or into any other corporation or
corporations, nor the sale or transfer by the Corporation of less
than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of
the Corporation. No holder of Preferred Shares shall be entitled to
receive any amounts with respect thereto upon any liquidation,
dissolution or winding up of the Corporation other than the amounts
provided for herein.
6. Preferred Rank. All shares of Common Stock and any series
of preferred stock as may be issued after the date hereof by the
Corporation shall be of junior rank to all Preferred Shares in
respect to the preferences as to
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payments of dividends and/or other distributions, including, without
limitation, distributions and payments upon the liquidation,
dissolution or winding up of the Corporation. The rights of the
holders of shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares.
7. Vote to Change the Terms of Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares shall be
required to:
a. amend, alter, change or repeal any of the powers,
preferences, privileges or rights of the Preferred Shares; or
b. create any new class or series of shares having
preferences prior to the Preferred Shares as to dividends or assets;
or
c. amend the provisions of this Section 7; or
d. alter or change any of the powers, preferences,
privileges or rights of the Common Stock.
IN WITNESS WHEREOF, the Corporation has caused this certificate to
be signed by David Fowler its President, this 30th day of January, 1998.
MEHL/BIOPHILE INTERNATIONAL
CORPORATION
By: /s/ DAVID FOWLER
----------------
President
-11-
<PAGE> 1
EXHIBIT 10.1
$7,000,000 Term Loan
$2,500,000 Revolving Loan
AMENDED AND RESTATED LOAN AGREEMENT
between
Clearwater Fund IV, LLC, as Lender
and
MEHL/Biophile International Corporation, as Borrower
Dated: January 30, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. Definitions...................................................... 1
SECTION 2. Term Loan; Revolving Loan........................................ 7
2.1 Term Loan............................................................... 7
2.2 Revolving Loan.......................................................... 7
2.3 Borrowing Notices; Borrowings........................................... 7
2.4 Use of Proceeds......................................................... 8
2.5 Interest................................................................ 8
2.6 Repayment and Prepayment of Loans....................................... 9
SECTION 3. Conditions Precedent............................................. 11
3.1 Representations and Warranties.......................................... 11
3.2 Performance; No Default................................................. 11
3.3 Borrowing Notice........................................................ 11
3.4 Note.................................................................... 11
3.5 Security Documents...................................................... 11
3.6 Consents, etc........................................................... 11
3.7 Legal Matters........................................................... 12
3.8 Corporate Proceedings and Documents..................................... 12
3.9 Opinion of Counsel...................................................... 12
3.10 Other Items............................................................ 12
SECTION 4. Representations and Warranties................................... 12
4.1 Organizational Status................................................... 12
4.2 Organizational Power and Authority, Capital, etc........................ 12
4.3 No Violation............................................................ 12
4.4 Litigation.............................................................. 13
4.5 Use of Proceeds......................................................... 13
4.6 Governmental Approvals, etc............................................. 13
4.7 Investment Company Act.................................................. 13
4.8 Financial Condition; Financial Statements; Projections.................. 13
4.9 Security Interests...................................................... 14
4.10 Tax Returns and Payments............................................... 14
4.11 ERISA.................................................................. 14
4.12 Subsidiaries........................................................... 14
4.13 Patents, Copyrights, Trademarks, etc................................... 14
4.14 Compliance With Laws, etc.............................................. 15
4.15 Properties............................................................. 15
4.16 Collective Bargaining Agreements....................................... 15
4.17 Indebtedness Outstanding............................................... 15
4.18 Liens.................................................................. 15
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<PAGE> 3
4.19 Agreements............................................................. 15
4.20 Bank Accounts.......................................................... 15
4.21 Full Disclosure........................................................ 15
4.22 SEC Filings............................................................ 15
SECTION 5. Affirmative Covenants............................................ 15
5.1 Information Covenants................................................... 16
5.2 Books, Records and Inspections.......................................... 17
5.3 Maintenance of Property; Licenses; Insurance............................ 17
5.4 Payment of Taxes........................................................ 18
5.5 Maintain Existence...................................................... 18
5.6 Compliance With Statutes, etc........................................... 18
5.7 Performance of Obligations.............................................. 18
5.8 Notice of Litigation.................................................... 18
5.9 Bank Statements......................................................... 18
SECTION 6. Negative Covenants............................................... 19
6.1 Changes in Business..................................................... 19
6.2 Liens................................................................... 19
6.3 Indebtedness............................................................ 19
6.4 Advances, Investments and Notes......................................... 19
6.5 Modification of Organizational Documents................................ 19
6.6 Dividends, etc.......................................................... 19
6.7 Disbursements; Other Bank Accounts...................................... 20
6.8 Subsidiaries............................................................ 20
6.9 Disposition of Assets................................................... 20
6.10 ERISA.................................................................. 20
6.11 Mergers and Acquisitions............................................... 20
6.12 Limitations on Issuances of Common Stock............................... 20
6.13 Press Releases......................................................... 20
SECTION 7. Events of Default................................................ 20
7.1 Payments................................................................ 20
7.2 Representations, etc.................................................... 21
7.3 Covenants............................................................... 21
7.4 Default Under Other Agreements.......................................... 21
7.5 Bankruptcy, etc. ...................................................... 21
7.6 Security Documents...................................................... 21
7.7 Judgments............................................................... 22
SECTION 8. Miscellaneous.................................................... 22
8.1 Payment of Expenses, etc................................................ 22
8.2 Right of Set-off........................................................ 23
8.3 Notices................................................................. 23
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<PAGE> 4
8.4 Benefit of Agreement.................................................... 23
8.5 No Waiver; Remedies Cumulative.......................................... 23
8.6 Corporate Governance; Options........................................... 24
8.7 Governing Law; Submission to Jurisdiction; Venue........................ 24
8.8 Counterparts............................................................ 24
8.9 Headings Descriptive.................................................... 25
8.10 Amendment or Waiver.................................................... 25
8.11 WAIVER OF JURY TRIAL................................................... 25
8.12 Independence of Covenants.............................................. 25
8.13 Entire Agreement....................................................... 25
8.14 Execution by Facsimile Transmission.................................... 25
EXHIBITS
Exhibit A - Form of Cash Collateral Agreement
Exhibit B - Form of Guaranty
Exhibit C - Form of Pledge Agreement
Exhibit D - Form of Revolving Note
Exhibit E - Form of Security Agreement
Exhibit F - Form of Term Note
Exhibit G - Capital Contribution Agreement
SCHEDULES
Schedule 4.8 - Changes in Financial Position or Operations
Schedule 4.12 - Subsidiaries
Schedule 4.13 - Intellectual Property
Schedule 4.17 - Indebtedness
Schedule 4.20 - Bank Accounts
Schedule 6.2 - Permitted Liens
iii
<PAGE> 5
AMENDED AND RESTATED LOAN AGREEMENT, dated January 30, 1998, between
MEHL/Biophile International Corporation, a Delaware corporation (the
"Borrower"), and Clearwater Fund IV, LLC, a Delaware limited liability company
(the "Lender").
WITNESSETH:
WHEREAS, Borrower and Lender are party to that certain Loan Agreement,
dated as of August 5, 1997, as amended by Amendment No. 1 thereto dated January
16, 1998 (the "Original Loan Agreement"), pursuant to which Lender has advanced
loans to Borrower in the principal amount of $7,000,000 (the "Original Loan");
WHEREAS, Borrower desires to borrow up to an additional $2,500,000 from
Lender on a revolving credit basis, the proceeds of which shall be applied to
working capital needs of the Borrower, and Lender is prepared to loan up to such
additional amount to Borrower; and
WHEREAS, Borrower and Lender desire to amend and restate the Original
Loan Agreement in order to set forth the terms of the Original Loan and the
Revolving Loan.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree that the Original Loan Agreement is hereby amended and restated as
follows:
SECTION 1. Definitions. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires. Defined
terms in this Agreement shall include in the singular, the plural, and in the
plural, the singular:
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other interests, by contract or otherwise).
"Agreement" means this Amended and Restated Loan Agreement, as the same
may after its execution be amended, supplemented or otherwise modified from time
to time in accordance with the terms hereof.
"Bank Accounts" has the meaning provided in Section 4.20.
"Bankruptcy Code" means Chapter 11 U.S.C. Section 101 et seq. (as now
or hereinafter in effect or any successor thereto).
"Borrower" has the meaning ascribed to such term in the preamble.
"Borrowing Date" means the Business Day specified in each Borrowing
Notice as the date on which Borrower requests Lender to make a Revolving
Advance.
<PAGE> 6
"Borrowing Notice" has the meaning provided in Section 2.3.
"Borrowing Rate" has the meaning provided in Section 2.5.
"Business Day" means any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close.
"Capital Lease" of any Person means any lease of or other agreement
conveying the right to use any property (whether real, personal or mixed) by
that Person as lessee or other like user which, in conformity with GAAP, is, or
is required to be, accounted for as a capital lease on the balance sheet of that
Person, together with any renewals of such leases (or entry into new leases) on
substantially similar terms.
"Capitalized Lease Obligations" of any Person means all obligations
under Capital Leases of such Person, in each case taken at the amount thereof
accounted for as liabilities in accordance with GAAP.
"Cash" means money, currency or a credit balance in a deposit account.
"Cash Collateral Agreement" means the Cash Collateral Agreement to be
executed by Smith Barney Inc., Borrower and Lender substantially in the form of
Exhibit A, as the same may be amended from time to time.
"Cash Equivalents" means (i) securities issued, or directly and fully
guaranteed, or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than three years from the date of acquisition, (ii) marketable direct
obligations issued by any State of the United States of America, or any local
government, or other political subdivision thereof rated (at the time of
acquisition of such security) at least AA by Standard & Poor's Corporation
("S&P") or the equivalent thereof by Moody's Investors Service, Inc.
("Moody's"), having maturities of not more than one year from the date of
acquisition, (iii) U.S. dollar denominated time deposits, certificates of
deposit and bankers' acceptances of any domestic commercial bank of recognized
standing having capital and surplus in excess of $250,000,000 or any bank whose
short-term commercial paper rating (at the time of acquisition of such security)
by S&P is at least A-1 or the equivalent thereof or by Moody's is at least P-1
or the equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than six months from the date of acquisition, (iv)
commercial paper and variable or fixed rate notes issued by any Approved Bank or
by the parent company of any Approved Bank and (v) commercial paper and variable
rate notes issued by, or guaranteed by, any industrial or financial company with
a short-term commercial paper rating (at the time of acquisition of such
security) of at least A-1 or the equivalent thereof by S&P or at least P-1 or
the equivalent thereof by Moody's, or guaranteed by any industrial company with
a long-term unsecured debt rating (at the time of acquisition of such security)
of at least AA or the equivalent
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<PAGE> 7
thereof by S&P or at least the equivalent thereof by Moody's, and in each case
maturing within one year after the date of acquisition.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated thereunder.
"Collateral" means all of the Collateral as defined in the Security
Documents.
"Contingent Obligations" means, as to any Person, without duplication,
any obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the maximum amount that such Person may be obligated to expend
pursuant to the terms of such Contingent Obligation or, if such Contingent
Obligation is not so limited, the stated or determinable amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof (assuming such Person is required to perform thereunder) as determined
by such Person in good faith.
"Default" means any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Dollar(s)" means lawful money of the United States of America.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated thereunder. Section
references to ERISA are to ERISA, as in effect at the date of this Agreement,
and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto
or substituted therefor.
"ERISA Affiliate" means any entity, whether or not incorporated, which
is under common control or would be considered a single employer with Borrower
within the meaning of Section 414(b), (c), (m), (n) or (o) of the Code and
regulations promulgated under those sections or within the meaning of section
4001(b) of ERISA and regulations promulgated under that section.
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<PAGE> 8
"Event of Default" has the meaning ascribed to such term in Section 7.
"Financial Statements" has the meaning ascribe to such term in Section
4.8.
"GAAP" means generally accepted accounting principles in the United
States of America, as in effect from time to time.
"Governmental Authority" means any federal, state, local or other
governmental or administrative body, instrumentality, department or agency or
any court, tribunal, administrative hearing body, arbitration panel, commission,
or other similar dispute-resolving panel or body or any subdivision thereof.
"Guaranties" means the personal guaranties of the Obligations issued by
Thomas Mehl, Sr. and Ann Marie Mehl in favor of Lender, in the form of Exhibit
B, as each may be amended, supplemented or otherwise modified from time to time.
"Indebtedness" of any Person means, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed by such first Person, (v) all
Capitalized Lease Obligations of such Person, (vi) all obligations of such
Person to pay a specified purchase price for goods or services whether or not
delivered or accepted, i.e., take-or-pay and similar obligations, and (viii) all
Contingent Obligations of such Person; provided that Indebtedness shall not
include trade payables, accrued expenses, deferred taxes and accrued income
taxes, in each case arising in the ordinary course of business.
"Intellectual Property" has the meaning ascribed to such term in
Section 4.13.
"Inventory" means Borrower's presently owned and hereafter acquired
goods which are held for sale or lease.
"Knowledge" means with respect to Borrower, what the executive officers
of Borrower actually know or should have known given diligent inquiry.
"Lender" has the meaning ascribed to such term in the preamble.
"Lender Designees" means Mr. Hans Frederic Heye, Mr. Gerard Melia and
Mr. Jack Forrest.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, claim, hypothecation, assignment for security or charge of any kind
(including any agreement to give
4
<PAGE> 9
any of the foregoing, any conditional sale or other title retention agreement or
any lease in the nature thereof).
"Loan Documents" means this Agreement, the Security Documents and the
Notes.
"Loans" means the Term Loan and the Revolving Loan.
"Material Adverse Effect" means, (i) any material adverse effect with
respect to the operations, business, properties, assets, nature of assets,
liabilities (contingent or otherwise), financial condition of Borrower, or (ii)
any fact or circumstance as to which, singly or in the aggregate, there is a
reasonable likelihood of (x) a material adverse change described in clause (i)
with respect to Borrower, or (y) the inability of Borrower to perform in any
material respect its Obligations hereunder or under any of the other Loan
Documents or the inability of Lender to enforce in any material respect their
rights purported to be granted hereunder or under any of the other Loan
Documents or the Obligations (including realizing on the Collateral).
"Material Agreement" has the meaning ascribed to such term in Section
4.18 hereof.
"Mehl Directors" means the directors of Borrower who are not Lender
Designees.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA with respect to which Borrower or any of its ERISA
Affiliates is or has been required to contribute.
"Notes" means the Term Note and Revolving Note.
"Obligations" means all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to
Lender pursuant to the terms of this Agreement or any other Loan Document.
"Original Loan" has the meaning ascribed to such term in the preamble.
"Original Loan Agreement" has the meaning ascribed to such term in the
preamble.
"Pension Plan" means any employee benefit pension plan as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan) that is subject to Title
IV of ERISA and that is or has been maintained by or to which contributions are
or have been made by Borrower or any of its ERISA Affiliates.
"Permitted Liens" has the meaning provided in Section 6.2.
5
<PAGE> 10
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any governmental or political subdivision or any agency, department or
instrumentality thereof.
"Pledge Agreement" means the Pledge Agreement to be executed Thomas
Mehl, Sr. and Ann Marie Mehl in favor of Lender in the form of Exhibit C, as the
same may be amended from time to time.
"Public Filings" has the meaning ascribe to such term in Section 4.8.
"Revolving Advance" has the meaning ascribed to such term in Section
2.2 hereof.
"Revolving Loan" has the meaning ascribed to such term in Section 2.2
hereof.
"Revolving Loan Maturity Date" has the meaning ascribed to such term in
Section 2.6(b) hereof.
"Revolving Note" means the note to be executed by Borrower in favor of
Lender substantially in the form of Exhibit D, as the same may be amended or
otherwise modified from time to time.
"Security Agreement" means the Security Agreement to be executed by
Borrower in favor of Lender substantially in the form of Exhibit E, as the same
may be amended, supplemented or otherwise modified from time to time.
"Security Documents" means the Security Agreement, the Pledge
Agreements, the Cash Collateral Agreement and the Guaranties, and any other
agreements or instruments utilized to pledge as Collateral for the Obligations
any property or assets of whatever kind or nature.
"Subsidiary" of any Person means and includes (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person, directly or
indirectly through Subsidiaries, and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time.
"Taxes" has the meaning ascribed to such term in Section 2.6(h).
"The Cash Account" has the meaning ascribed to such term in the Cash
Collateral Agreement.
6
<PAGE> 11
"Term Loan Maturity Date" has the meaning ascribed to such term in
Section 2.6(a) hereof.
"Term Note" means the note to be executed by Borrower in favor of
Lender substantially in the form of Exhibit F, as the same may be amended or
otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as in effect in any applicable
jurisdiction.
SECTION 2. Term Loan; Revolving Loan.
2.1 Term Loan. Borrower and Lender acknowledge and agree that the
Original Loan shall be governed by the terms and conditions of this Agreement.
Concurrently with execution and delivery of the Term Note and other Loan
Documents, Lender shall cancel the Original Note and return same to Borrower and
the indebtedness represented by the Original Note, including any accrued and
unpaid interest on the principal amount thereof, shall thereupon be represented
by the Term Note and subject to the terms and conditions of this Agreement. The
Lender shall endorse on the schedule attached to the Term Note (or any
continuation thereof) the date and amount of all payments on account of the Term
Loan. All entries shall be presumed correct, absent manifest error.
Notwithstanding the foregoing, the failure by Lender to make such entries shall
not affect the rights of Lender or the obligations of Borrower under any of the
Loan Documents.
2.2 Revolving Loan. Subject to and upon the terms and conditions set
forth herein, Lender agrees to lend to Borrower, at any time or from time to
time on or after the date hereof and before the Revolving Loan Maturity Date,
such amounts as may be requested by Borrower in accordance with the terms of
this Agreement (each such borrowing, a "Revolving Advance" and the outstanding
principal balance of all Revolving Advances from time to time, the "Revolving
Loan"); provided, however, that the aggregate unpaid principal amount of the
Revolving Advances outstanding at any time shall not exceed $2,500,000. Each
Revolving Advance shall be in an amount equal to $50,000 or an integral multiple
of $50,000 in excess thereof and shall be made on the Borrowing Date specified
in the Borrowing Notice requesting such Revolving Advance. Subject to and upon
the terms and conditions set forth herein, Borrower may borrow, repay (without
premium or penalty) and reborrow the Revolving Loan. The Revolving Loan shall be
evidenced by, and be repayable with interest in accordance with the terms of,
the Revolving Note. Lender shall endorse on the schedule attached to the
Revolving Note (or any continuation thereof) the date and amount of all
Revolving Advances and payments on account of the Revolving Loan. All entries
shall be presumed correct, absent manifest error. Notwithstanding the foregoing,
the failure by Lender to make such entries shall not affect the rights of Lender
or the obligations of Borrower under any of the Loan Documents.
2.3 Borrowing Notices; Borrowings. (a) To request a Revolving Advance,
Borrower shall deliver to Lender written notice of such request (each such
written notice, a "Borrowing Notice"), which Borrowing Notice shall be
irrevocable and shall be effective only
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<PAGE> 12
if received by Lender not later than 1:00 P.M. Eastern Standard time one
Business Day prior to the requested Borrowing Date. A Borrowing Notice shall
state the principal amount of the requested Revolving Advance and the Borrowing
Date for such Revolving Advance, shall be accompanied by a certificate of the
Secretary or other executive officer of Borrower which certifies that such
request for a Revolving Advance was duly authorized and approved by the Board of
Directors of Borrower, and shall certify (i) that all representations and
warranties made by Borrower contained in the Loan Documents are true and correct
in all material respects with the same effect as though such representations and
warranties had been made on and as of the date of the applicable Borrowing
Notice (unless any such representation or warranty speaks as of a particular
date, in which case it shall be true as of such date), and (ii) that no Default
or Event of Default has occurred and is continuing as of the date of the
applicable Borrowing Notice, or would result from the proposed borrowing
requested by such Borrowing Notice as a result of the application of the
proceeds therefrom.
(b) Following receipt of a Borrowing Notice delivered in accordance
with Section 2.3(a) hereof, on the applicable Borrowing Date, Lender shall
deposit the amount of applicable Revolving Advance, by wire transfer of
immediately available funds, to the Cash Collateral Account, or to such other
account or Person for the account of Borrower, as Borrower shall request and
Lender shall approve in its sole and absolute discretion.
2.4 Use of Proceeds. Borrower shall use the proceeds of the Loans to
pay for working capital purposes.
2.5 Interest. (a) Borrower shall pay interest on the outstanding
principal amount of each Loan at the rate of fifteen (15%) percent per annum
(the "Borrowing Rate"), in arrears on the first Business Day of each month.
Notwithstanding the foregoing, Borrower shall, on demand, pay interest on each
Loan and any portion thereof, and on any other amount payable by Borrower
hereunder (to the extent permitted by law), which shall not be paid in full when
due (whether at stated maturity, by acceleration or otherwise) for the period
commencing on the due date thereof until the same are paid in full at a rate
equal to the Borrowing Rate plus two (2%) percent per annum. Interest payable
pursuant to this Agreement shall be calculated on the basis of actual days
elapsed over a 365 day year.
(b) Anything in this Agreement or the Note to the contrary
notwithstanding, the obligation of Borrower to make payments of interest shall
be subject to the limitation that payments of interest shall not be required to
be made to Lender to the extent that Lender's receipt thereof would not be
permissible under the law or laws applicable to Lender limiting rates of
interest which may be charged or collected by Lender. Any such payments of
interest which are not made by Borrower as a result of the limitation referred
to in the preceding sentence shall be made by Borrower to Lender on the earliest
interest payment date or dates on which the receipt thereof would be permissible
under the laws applicable to Lender limiting rates of interest which may be
charged or collected by Lender. Such deferred interest shall not bear interest.
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<PAGE> 13
2.6 Repayment and Prepayment of Loans. (a) Subject to mandatory
prepayment of the Loans as provided herein, the outstanding principal amount of
the Term Loan shall be repaid in full, together with all accrued and unpaid
interest thereon, on April 15, 1998 (the "Term Loan Maturity Date"); provided,
however, that, provided no Default or Event of Default shall have occurred and
be continuing immediately prior to the then current Term Loan Maturity Date, the
Term Loan Maturity Date shall be extended by an additional thirty (30) days for
each one million dollar ($1,000,000) prepayment of principal of the Term Loan
made by the Borrower in accordance with this Section 2.6. Partial payments
totalling less than one million dollars ($1,000,000) shall not result in an
extension of the Term Loan Maturity Date.
(b) Subject to mandatory prepayment of the Loans as provided herein,
the outstanding principal amount of the Revolving Loan shall be repaid in full,
together with all accrued and unpaid interest thereon, on May 31, 1999 (the
"Revolving Loan Maturity Date").
(c) Borrower shall, at any time, and from time to time, be entitled to
prepay any portion of the principal amount of the Loans, without premium or
penalty, provided, that (i) all such prepayments shall be made together with
accrued interest through the date of prepayment on the principal amount being
prepaid and (ii) the Lender shall have received at least one Business Days'
prior written notice of such prepayment which notice states the proposed date of
prepayment and the amount of principal and interest being prepaid. All principal
and interest payable by Borrower pursuant to this Agreement shall be paid in
Dollars to an account specified in writing by Lender from time to time, no later
than 1:00 p.m. on the date specified for payment.
(d) Borrower shall make a prepayment (without premium or penalty) with
respect to the principal amount of the Term Loan, and there shall immediately
become due and payable when received by the Borrower:
(i) an amount equal to ten percent (10%) of the gross proceeds of the
sale by the Borrower of any hair removal laser systems;
(ii) an amount equal to ten percent (10%) of the gross proceeds of the
financing by the Borrower of any hair removal laser systems (including the
Medcap financing and any similar financing program);
(iii) an amount equal to one hundred percent (100%) of the outstanding
principal amount of the Term Loan, and all accrued and unpaid interest
thereon (and any fees, costs and expenses payable pursuant to any of the
Loan Documents), from the net proceeds of any sale by the Borrower of its
debt or equity securities (or any combination thereof) in one or a series of
related transactions for an amount in excess of ten million dollars
($10,000,000); and
(iv) an amount equal to the lesser of (i) twenty five percent (25%) of
the outstanding principal amount of the Term Loan, and all accrued and
unpaid interest
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<PAGE> 14
thereon and (ii) the net proceeds of a sale by the Borrower of its debt
or equity securities (or any combination thereof) in one or a series of
related transactions which results in gross proceeds equal to or less than
ten million dollars ($10,000,000), in each case from the net proceeds of
such a sale of debt or equity securities.
(e) Borrower shall make a prepayment (without premium or penalty) with
respect to the principal amount of the Revolving Loan, and there shall
immediately become due and payable when received by the Borrower, an amount
equal to one hundred percent (100%) of the outstanding principal amount of the
Revolving Loan, and all accrued and unpaid interest thereon (and any fees, costs
and expenses payable pursuant to any of the Loan Documents) from the proceeds of
any sale by the Borrower of its debt or equity securities (or any combination
thereof) in one or a series of related transactions, to the extent such proceeds
are not required pursuant to Section 2.6(d) hereof to be applied towards a
prepayment of the Term Loan.
(f) Borrower shall make a prepayment (without premium or penalty) with
respect to the principal amount of the Revolving Loan, and there shall
immediately become due and payable, an amount equal to the sum of (x) one
hundred percent (100%) of the outstanding principal amount of the Term Loan and
(y) one hundred percent (100%) of the outstanding principal amount of the
Revolving Loan, together with all accrued and unpaid interest on each Loan (and
any fees, costs and expenses payable pursuant to any of the Loan Documents) on
April 30, 1998, unless Lender shall have received a certificate of the Secretary
or other executive officer of Borrower certifying that a business plan through
December 1999 has been duly adopted and approved by the Board of Directors of
Borrower.
(g) All payments received by Lender from Borrower shall be applied
first, to pay all fees, costs and expenses of Lender then due and payable under
the Loan Documents, second, to pay accrued and unpaid interest on each Loan and
third, to repay the outstanding principal balance of the applicable Loan.
(h) All payments by Borrower under this Agreement or under any other
Loan Document shall be made without set-off or counterclaim and in such amounts
as may be necessary in order that all such payments (after deduction or
withholding for or on account of any present or future taxes, levies, imposts,
duties or other charges of whatsoever nature imposed by any government or any
political subdivision or taxing authority thereof, other than any tax on or
measured by the income of Lender pursuant to the income tax laws of the United
States or of any other jurisdiction (collectively, "Taxes")) shall not be less
than the amounts otherwise specified to be paid under this Agreement and/or any
other Loan Document. A certificate as to the calculation of any additional
amounts payable to Lender under this Section 2.6(h) submitted to Borrower by
Lender shall, absent manifest error, be final, conclusive and binding for all
purposes upon all parties hereto. With respect to each deduction or withholding
for or on account of any Taxes, Borrower shall promptly furnish to Lender such
certificates, receipts and other documents as may be required (in the reasonable
judgment of Lender) to establish any tax credit to which Lender may be entitled.
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(i) Without prejudice to the provisions of paragraph (h) of this
Section 2.6, if Borrower is required by law to make any payment on account of
Taxes on or in relation to any sum received or receivable under this Agreement
and/or the other Loan Documents by Lender or any liability for Taxes in respect
of any such payment is imposed, levied or assessed against Lender, Borrower will
promptly indemnify Lender against such Tax payment or liability, together with
any interest, penalties and reasonable expenses (including counsel fees and
expenses) payable or incurred in connection therewith, including any tax arising
by virtue of payments under this Section 2.6(h), computed in a manner consistent
with paragraph (d) of this Section 2.6. A certificate by Lender as to the
calculation and amount of such payments shall, absent manifest error, be final,
conclusive and binding upon all parties hereto for all purposes.
SECTION 3. Conditions Precedent. The obligation of Lender to make each
Revolving Advance (unless otherwise specified) is subject to the satisfaction of
each of the following conditions precedent:
3.1 Representations and Warranties. The representations and warranties
of Borrower made in this Agreement and the other Loan Documents, and each of the
representations and warranties of Borrower or any officer of Borrower contained
in any certificate, document or financial or other statement furnished at any
time under or in connection with this Agreement, shall be true and correct when
made and on the Borrowing Date of each Revolving Advance (unless such
representations and warranties expressly relate to an earlier date).
3.2 Performance; No Default. Borrower shall have performed and complied
with all agreements and conditions contained in the Loan Documents required to
be performed or complied with by it and after giving effect to each Loan (and
the application of the proceeds thereof as contemplated by this Agreement) no
Default or Event of Default shall have occurred and be continuing.
3.3 Borrowing Notice. Lender shall have received a Borrowing Notice
relating to such Revolving Advance.
3.4 Note. As of the applicable Borrowing Date, the Notes shall be in
full force and effect and no challenge to the validity or enforceability thereof
shall have been threatened or initiated.
3.5 Security Documents. Each of the Security Documents shall be in full
force and effect and grant, create or perfect the Liens, rights, powers,
priorities, remedies and benefits contemplated therein, no default shall exist
thereunder and no challenge to the validity or enforceability thereof shall have
been threatened or initiated.
3.6 Consents, etc. All material Governmental Authority and third party
approvals and consents, if any, in connection with the transactions contemplated
by the Loan Documents shall have been obtained and remain in effect, and all
applicable waiting periods shall
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have expired without any action being taken by any competent authority, and
evidence thereof shall be delivered to Lender. There shall not exist any
judgment, order, injunction or other restraint issued or filed with respect to
the making of the Revolving Advance.
3.7 Legal Matters. All legal matters incident to the making of each
Loan shall be satisfactory to counsel to Lender.
3.8 Corporate Proceedings and Documents. With respect to the initial
Revolving Advance only, Lender shall have received a certificate executed by the
Secretary of Borrower, certifying as to evidence of all corporate action taken
by Borrower to authorize the borrowing of each Loan and the execution, delivery
and performance of each of the Loan Documents.
3.9 Opinion of Counsel. With respect to the initial Revolving Advance
only, counsel to Borrower shall have delivered its legal opinion, in form and
substance satisfactory to Lender's counsel, on such matters as shall be
requested by Lenders counsel.
3.10 Other Items. Borrower shall provide such other certificates,
approvals, documents, opinions and agreements as Lender shall reasonably
request.
All of the certificates and documents referred to in this Section 3 shall be
satisfactory in form and substance to Lender.
SECTION 4. Representations and Warranties. In order to induce Lender to
enter into this Agreement and make each Revolving Advance, Borrower makes the
following representations and warranties to Lender, all of which shall survive
the execution and delivery of this Agreement and the making of each Revolving
Advance.
4.1 Organizational Status. Borrower (i) is a duly organized and validly
existing corporation under the laws of the State of Delaware and has the power
and authority to own its property and assets and to transact the business in
which it is engaged and presently proposes to engage and (ii) is in good
standing in its jurisdiction of organization and is duly qualified or authorized
to do business and is in good standing in all jurisdictions where it is required
to be so qualified or authorized except where the failure to be so qualified or
authorized would not have a Material Adverse Effect.
4.2 Organizational Power and Authority, Capital, etc. Borrower has the
requisite power and authority to execute, deliver and carry out the terms and
provisions of the Loan Documents and has taken all necessary action to authorize
the execution, delivery and performance of the Loan Documents. This Agreement
constitutes, and each other Loan Document (when executed and delivered by
Borrower) will constitute, the legal, valid and binding obligation of Borrower
enforceable against Borrower in accordance with its terms.
4.3 No Violation. Neither the execution, delivery and performance by
Borrower of any of the Loan Documents, nor compliance with the terms and
provisions thereof, nor the
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consummation of the transactions contemplated herein or therein (i) will
contravene any applicable provision of any law, statute, rule, regulation,
order, writ, injunction or decree of any court or Governmental Authority, (ii)
will conflict or be inconsistent with or result in any breach of any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of Borrower (or the Liens created by
the Security Documents) pursuant to the terms of any indenture, mortgage, deed
of trust, agreement or other instrument to which Borrower is a party or by which
the property or assets are bound or to which they may be subject, or (iii) will
violate any provision of the bylaws or the certificate of incorporation of
Borrower.
4.4 Litigation. Other than as set forth in the Public Filings (as
defined below), there are no actions, judgments, suits or proceedings pending
or, to Borrower's Knowledge, threatened as to which there is a reasonable
possibility of a Material Adverse Effect.
4.5 Use of Proceeds. The use of the proceeds of each Loan will not
violate or be inconsistent with the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
4.6 Governmental Approvals, etc. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any third party or any Governmental Authority (other than those
orders, consents, approvals, licenses, authorizations or validations which have
previously been obtained and except for filings to perfect security interests
granted pursuant to the Security Documents), is required to authorize or is
required in connection with (i) the execution, delivery and performance of any
Loan Document or the transactions contemplated therein or (ii) the legality,
validity, binding effect or enforceability of any Loan Document.
4.7 Investment Company Act. Borrower is not, and after giving effect to
the transactions contemplated hereby will not be, an "investment company" or a
company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
4.8 Financial Condition; Financial Statements; Projections. The
financial statements (the "Financial Statements") included in Borrower's latest
Annual Report on Form 10-KSB and Borrower's latest Quarterly Report on Form
10-QSB (the "Public Filings") have been prepared in accordance with GAAP,
applied on a consistent basis, during the respective periods, except as therein
noted. The Financial Statements present fairly the financial position of
Borrower as of such dates and the results of operations and changes in cash
flows and shareholders' equity for such periods. Borrower does not have any
material obligation or liability, individually or in the aggregate, of the
nature required to be disclosed in financial statements prepared in accordance
with GAAP that is not disclosed in the Financial Statements. Other than as set
forth on Schedule 4.8, subsequent to date of the balance sheet included in the
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latest Public Filing of Borrower, there has been no change in the financial
position or operations of Borrower which could reasonably be expected to have a
Material Adverse Effect.
4.9 Security Interests. The Security Documents will create, in favor of
Lender, as security for the Obligations purported to be secured thereby, a valid
and enforceable first priority Lien upon all of the Collateral, superior to and
prior to the rights of all third persons and subject to no other Liens except as
provided in Section 6.2. No filings or recordings are required in order to
perfect the security interests created under any Security Document except for
filings or recordings required provided for in each such Security Document.
4.10 Tax Returns and Payments. Borrower has filed all tax returns
required to be filed by it. Borrower has paid all federal, state, local and
foreign income taxes (including, without limitation, franchise taxes based upon
income) which have become due. Borrower knows of no proposed tax assessment
against it that could reasonably be expected to have a Material Adverse Effect.
4.11 ERISA. (a) Borrower and each of its ERISA Affiliates, if any, are
in compliance in all material respects with all applicable provisions of ERISA
and the regulations and published interpretations thereunder with respect to all
employee benefit plans. Neither Borrower nor any of its ERISA Affiliates, if
any, maintains, contributes to or is obligated to contribute to, or during the
last five years has maintained, contributed to or was obligated to contribute
to, any Pension Plan or Multiemployer Plan.
(b) The execution, performance and delivery of the Loan Documents by
any party thereto will not involve any prohibited transaction within the meaning
of Section 406 of ERISA or Section 4975 of the Code for which an exemption
therefrom is not available.
4.12 Subsidiaries. Other than as set forth on Schedule 4.12, Borrower
has no Subsidiaries and is not a partner in any partnership.
4.13 Patents, Copyrights, Trademarks, etc. Schedule 4.13 sets forth all
patents, copyrights, trademarks and service marks owned, possessed or licensed
by Borrower. Borrower owns or possesses adequate licenses or other rights to use
all patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, trade secrets and
know-how (collectively, the "Intellectual Property"), that are necessary for the
operation of its business. No claim is pending, or to Borrower's Knowledge
threatened, to the effect that Borrower infringes upon or conflicts with the
asserted rights of any other person under any Intellectual Property, which, if
adversely determined, would have a Material Adverse Effect. Except as disclosed
in the Public Filings, no claim is pending, or to Borrower's Knowledge
threatened, to the effect that any such Intellectual Property owned or licensed
by Borrower or which Borrower otherwise has the right to use is invalid or
unenforceable by Borrower, which, if adversely determined, would have a Material
Adverse Effect.
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4.14 Compliance With Laws, etc. Borrower is in compliance with all
material laws and regulations of all Governmental Authorities, the violation of
which would have a Material Adverse Effect.
4.15 Properties. Borrower does not own any Real Property. Borrower owns
or has valid leasehold interests in all of its properties and assets, free and
clear of all Liens except for Permitted Liens. Borrower holds all material
licenses, permits, leases, certificates of occupancy or operation and similar
certificates and clearances of municipal and other authorities necessary to own
and operate its properties.
4.16 Collective Bargaining Agreements. There are not currently any
collective bargaining or similar agreements applicable to Borrower.
4.17 Indebtedness Outstanding. Schedule 4.17 sets forth all
Indebtedness of Borrower for borrowed money as of the date hereof.
4.18 Liens. There are no Liens affecting any of Borrower's assets or
properties, including the Collateral, other than Permitted Liens.
4.19 Agreements. Borrower has performed all obligations required to be
performed by it under each material agreement to which it is a party or by which
it or its assets or properties may be bound (the "Material Agreements") and no
event of default has occurred thereunder which would entitle the other party
thereto to terminate such Material Agreement or accelerate Borrower's
obligations thereunder, and no event has occurred which, with the lapse of time
or the giving of notice or both, would constitute an event of default by
Borrower thereunder, or to the Knowledge of Borrower, by any other party to any
Material Agreement.
4.20 Bank Accounts. Schedule 4.20 attached hereto lists each bank
account maintained by Borrower and its Subsidiaries (the "Bank Accounts").
4.21 Full Disclosure. No representation or warranty contained herein or
any exhibit hereto nor any other certificate, statement or opinion, made or
furnished in writing to Lender by or on behalf of Borrower in connection with
this Agreement or the transactions contemplated herein, contains (in each case,
as of its date) any untrue statement of a material fact, or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
4.22 SEC Filings. Borrower's Public Filings do not contain any untrue
statement of a material fact, or omit to state a material fact necessary in
order to make the statements contained therein or herein not misleading.
SECTION 5. Affirmative Covenants. Borrower covenants and agrees that
until payment in full of the Obligations:
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5.1 Information Covenants. Borrower will furnish or cause to be
furnished to Lender:
(a) As soon as available after the close of each monthly accounting
period, the balance sheet of Borrower as at the end of such monthly period
and the related statements of operations, of shareholders' equity and of
cash flows for such monthly period and for the elapsed portion of the fiscal
year ended with the last day of such monthly period, each such statement to
be certified by an appropriate officer of Borrower, which certificate shall
state that such statements present fairly the balance sheet and related
income, equity interests and cash flows of Borrower as of the dates and for
the periods indicated, in conformity with GAAP applied on a basis consistent
with prior years (except for such changes with which the independent
certified accountants concur) and in each case setting forth comparative
figures for the fiscal year budget, subject to normal year-end audit
adjustments.
(b) Before April 30, 1998, a budget of Borrower in reasonable detail
for each month of its fiscal year, as customarily prepared by management for
its internal use, setting forth, with appropriate discussion, the principal
assumptions upon which such budgets are based. Together with each delivery
of financial statements pursuant to Section 5.1(a), a comparison of the
current year to date financial results against the budgets required to be
submitted pursuant to this Section 5.1(b) shall be presented.
(c) At the time of the delivery of the financial statements provided
for in Section 5.1(a), a certificate of an appropriate officer of each of
Borrower to the effect that no Default or Event of Default exists, or, if
any Default or Event of Default does exist, specifying the nature and extent
thereof;
(d) Promptly upon receipt thereof, a copy of each "management letter"
submitted to Borrower by its independent accountants in connection with any
compilation, review or audit made by them of the books of Borrower.
(e) Promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by Borrower to its securityholders of all regular and periodic
reports and all registration statements and prospectuses, if any, filed by
Borrower with any securities exchange or with the United States Securities
and Exchange Commission and of all press releases and other statements made
available generally by Borrower to the public.
(f) Prompt written notice (x) of any condition or event which
constitutes a Default or Event of Default, (y) that any holder of any note
or other evidence of Indebtedness of Borrower has given any notice to
Borrower or taken any other action with respect to a claimed default or
event or condition of the type referred to in Section 7.4, or (z) of any
event which could reasonably be expected to have a Material Adverse Effect.
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(g) Prompt written notice of the institution of, or written threat of,
any action, suit, proceeding, governmental investigation or arbitration
against or affecting Borrower or any property of any of Borrower not
previously disclosed to Lender, which action, suit, proceeding, governmental
investigation or arbitration which seeks (or in the case of multiple
actions, suits, proceedings, governmental investigations or arbitrations
arising out of the same general allegations or circumstances which seek)
recovery from Borrower aggregating $100,000 or more. In addition to the
requirements set forth in the previous sentence, Borrower upon request shall
promptly give notice of the status of any action, suit, proceeding,
governmental investigation or arbitration covered by a report delivered to
Lender pursuant to this Section 5.1(g) and provide such other information as
may be reasonably available to it (exclusive of privileged documents) to
enable Lender and its counsel to evaluate such matters.
(h) On demand, such other information that Lender shall reasonably
request.
5.2 Books, Records and Inspections. Borrower will keep true books of
records and accounts in which full and correct entries will be made of all of
its business transactions and will reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP. Borrower
will permit officers and designated representatives of Lender to visit and
inspect any of the properties or assets of Borrower in whomsoever possession,
and to examine the books of account of Borrower (and to make copies thereof at
Borrower's expense) and discuss the affairs, finances and accounts of Borrower
with, and be advised as to the same by, appropriate officers of Borrower, all at
such reasonable times and intervals and to such reasonable extent as Lender may
reasonably request.
5.3 Maintenance of Property; Licenses; Insurance.
(a) Borrower will exercise commercially reasonable efforts to maintain
or cause to be maintained in good repair, working order and condition (subject
to normal wear and tear) all properties used in its businesses and from time to
time will make or cause to be made all appropriate repairs, renewals and
replacements thereof.
(b) Borrower will maintain in full force and effect all of its rights,
franchises, licenses and permits and other rights in or to use any licenses,
patents, processes, trademarks, trade names or copyrights owned or possessed by
it, except where such failure to keep in full force and effect such rights,
franchises, licenses or permits could not reasonably be expected to have a
Material Adverse Effect.
(c) Borrower will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to their properties and
business against loss or damage of the kinds customarily insured against by
Persons of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other Persons to the extent that such types
and such amounts of insurance are available at commercially reasonable rates.
Borrower
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will furnish to Lender, upon reasonable request, information as to the insurance
carried, and will not cancel, without replacement, any such insurance without
the consent of Lender, which consent shall not be unreasonably withheld.
5.4 Payment of Taxes. Borrower will pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon their
income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and Borrower will promptly pay and
discharge all other taxes, assessments and governmental charges or levies
imposed upon each of them or upon their income or profits, or upon any
properties belonging to it, and all lawful claims which, if unpaid, might become
a Lien or charge upon any properties of Borrower or cause a failure or
forfeiture of title thereto, prior to the date on which material penalties
attach thereto; provided that Borrower shall not be required to pay any such
tax, assessment, charge, levy or claim that is being contested in good faith and
by proper proceedings promptly instituted and diligently conducted, which
proceedings have the effect of preventing the forfeiture or sale of the property
or asset that may become subject to such Lien, if it has maintained adequate
reserves with respect thereto in accordance with and to the extent required
under GAAP.
5.5 Maintain Existence. Borrower will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
rights and authority.
5.6 Compliance With Statutes, etc. Borrower will comply with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all Governmental Authorities, the non compliance of which would have
a Material Adverse Effect.
5.7 Performance of Obligations. Borrower will perform in all material
respects all of their obligations under the terms of each Material Agreement,
except where such nonperformance would not reasonably be expected to have a
Material Adverse Effect.
5.8 Notice of Litigation. Borrower will promptly notify Lender if it
receives: (i) any notice of any violation or administrative or judicial
complaint or order having been filed or about to be filed against it, including
without limitation, all complaints or orders alleging violations of any law
material to its business, (ii) any notice from any Governmental Authority or any
other Person alleging that it is or may be subject to any liability under any
law material to its business; and promptly upon receipt thereof, provide Lender
with a copy of such notice together with a statement of the action it has or
intends to take with respect thereto.
5.9 Bank Statements. Borrower shall cause to be delivered to Lender
copies of all statements and reports relating to each Bank Account, at such time
as such statements and reports become available to Borrower.
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SECTION 6. Negative Covenants. Borrower covenants and agrees that while
each Loan is outstanding, until each Note is paid in full, and until full and
complete performance of the Obligations:
6.1 Changes in Business. Borrower will not engage in any business other
than business of Borrower currently conducted.
6.2 Liens. Borrower will not directly or indirectly create, incur,
assume or permit or suffer to exist any Lien upon or with respect to any item
constituting Collateral, whether now owned or hereafter acquired, or sell any
such Collateral subject to an understanding or agreement, contingent or
otherwise, to repurchase such Collateral or assign any right to receive income,
or file or permit the filing of any financing statement under the UCC or any
other similar notice of Lien under any similar recording or notice statute,
except for (i) Liens in favor of Lender, (ii) Liens expressly permitted by any
Security Document, and (iii) Liens set forth on Schedule 6.2 to this Agreement,
which are herein collectively referred to as "Permitted Liens."
6.3 Indebtedness. Borrower will not contract, create, incur, assume or
suffer to exist any Indebtedness, except the Indebtedness incurred or otherwise
contemplated by this Agreement.
6.4 Advances, Investments and Notes. Borrower will not lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to any Person, except:
(a) investments in Cash and Cash Equivalents;
(b) receivables owing to Borrower and advances to customers and
suppliers, in each case if created, acquired or made in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
and
(c) investments (including debt obligations) received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with, customers and
suppliers arising in the ordinary course of business.
6.5 Modification of Organizational Documents. Borrower will not amend,
modify or change any of its organizational documents including, without
limitation, its certificate of incorporation, or any agreement entered into by
Borrower with respect to its capital stock or enter into any new agreement with
respect to its capital stock, the result of which is reasonably likely to be
adverse to the interests of Lender.
6.6 Dividends, etc. Borrower will not declare or pay or authorize any
dividend, distribution, payment or delivery of property or cash to its
stockholders as such, or redeem,
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retire, purchase or otherwise acquire, directly or indirectly, for any
consideration, any of the capital stock or other equity interests of Borrower
now or hereafter outstanding (or any warrants or options in respect of such
equity interests), or set aside any funds for any of the foregoing purposes.
6.7 Disbursements; Other Bank Accounts. Borrower shall not cause any
funds in any Bank Account to be disbursed without the prior written consent of
Lender. Borrower shall not open any new bank account without the prior written
consent of Lender.
6.8 Subsidiaries. Borrower shall not form, acquire or permit any Person
to become its Subsidiary.
6.9 Disposition of Assets. Borrower will not engage in any sale,
transfer, assignment, lease or other disposition of any of its assets to any
Person, except that Borrower may sell, assign, transfer, convey, or otherwise
dispose of or lease all or any part of its Inventory, acquired and disposed of
in the ordinary course of business.
6.10 ERISA. Borrower will not adopt, or become obligated to contribute
to, or allow any of its ERISA Affiliates to adopt, maintain, or contribute to, a
Pension Plan, and Borrower will not become obligated to contribute to, or allow
any of its ERISA affiliates to become obligated to contribute to, any
Multiemployer Plan.
6.11 Mergers and Acquisitions. Borrower will not acquire any Person
(including through the purchase of all of the capital stock or other ownership
interests of such Person or through merger or consolidation or acquisition of
all or substantially all of the assets of such Person) or merge with any other
Person.
6.12 Limitations on Issuances of Common Stock. Borrower will not, nor
permit any Subsidiary to, issue, sell or otherwise dispose of any shares of any
of its capital stock, any option rights thereto or any securities convertible
into capital stock of Borrower or any Subsidiary to any vendor or other third
party provider of goods or services to the Company or any Subsidiary.
6.13 Press Releases. Borrower will not issue any press release which
contains the name of, or a reference to, Lender or any of its Affiliates without
the prior consent of Lender.
SECTION 7. Events of Default. Each of the following upon its occurrence
and during its continuance shall constitute an event of default ("Event of
Default"):
7.1 Payments. Borrower shall fail to pay when due any principal of, or
interest on, the Loans or any fee payable under this Agreement or any of the
other Loan Documents and such failure shall continue unremedied for five or more
Business Days.
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7.2 Representations, etc. Any representation, warranty or statement
made or deemed made by Borrower herein, or in any other Loan Document, or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove to be untrue in any material respect on the date as of
which made or deemed made.
7.3 Covenants. Borrower shall (a) default in the due performance or
observance by it of any term, covenant or agreement contained in Section 6, or
(b) default in the due performance or observance by it of any other term,
covenant or agreement contained in this Agreement or any Loan Document and such
default shall continue unremedied for a period of at least fifteen days after
the date of such default.
7.4 Default Under Other Agreements. (a) Borrower shall (i) default in
any payment with respect to any Indebtedness (other than the Obligations) in
excess of $50,000 beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created or (ii) default in the
observance or performance of any agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, any such Indebtedness to become due prior to its
stated maturity, or (b) any such Indebtedness of Borrower shall be declared to
be due and payable, or required to be prepaid other than by a regularly
scheduled required prepayment, prior to the stated maturity thereof.
7.5 Bankruptcy, etc. Borrower shall commence a voluntary case
concerning itself under the Bankruptcy Code; or an involuntary case is commenced
against Borrower and the petition is not controverted within ten days, or is not
dismissed or stayed within sixty days, after commencement of the case; or a
custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge
of, all or substantially all of the property of Borrower; or Borrower 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 Borrower; or there
is commenced against Borrower any such proceeding which remains undismissed and
unstayed for a period of sixty days; or Borrower is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or Borrower suffers any appointment of any custodian or
the like for it or any substantial part of its property to continue undischarged
or unstayed for a period of sixty days; or Borrower makes a general assignment
for the benefit of creditors; or any corporate action is authorized by Borrower
for the purpose of effecting any of the foregoing.
7.6 Security Documents. Any Security Document shall cease to be in full
force and effect, or shall cease to give Lender the Liens, rights, powers and
privileges purported to be created thereby, in favor of Lender, superior to and
prior to the rights of all third Persons and subject to no Liens other than
Liens expressly permitted by this Agreement and the applicable Security
Document.
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<PAGE> 26
7.7 Judgments. One or more judgments or decrees shall be entered
against Borrower involving a liability of $100,000 or more in the case of any
one such judgment or decree and $100,000 or more in the aggregate for all such
judgments and decrees (in either case in excess of the amount covered by
insurance as to which the insurance company has acknowledged coverage) and (i)
any such judgments or decrees shall not have been vacated, discharged, bonded or
enforcement thereof stayed pending appeal within sixty days from the entry
thereof or (ii) any enforcement proceeding therefor shall have been commenced.
Then, and in any such event, and at any time thereafter, if any Event
of Default shall then be continuing, Lender shall, by written notice to
Borrower, take any or all of the following actions, without prejudice to the
rights of Lender, to enforce its claims against Borrower; provided, however,
that, if an Event of Default specified in Section 7.5 shall occur, the result
which would occur upon the giving of written notice by Lender as specified in
clauses (i) and (ii) below shall occur automatically without the giving of any
such notice): (i) terminate the availability of any Loan not theretofore made to
Borrower and/or accelerate the maturity date of each Loan outstanding and
declare the principal of and accrued interest in respect of each such Loan, and
all other Obligations owing hereunder and under any Loan Document, to be
immediately due and payable, whereupon the same shall become, forthwith due and
payable without presentment, demand, protest or other notice of any kind, all of
which are hereby waived by Borrower, and/or (ii) enforce any or all of the
remedies created pursuant to the Security Documents.
SECTION 8. Miscellaneous.
8.1 Payment of Expenses, etc. Borrower agrees to: (i) pay all
reasonable out-of-pocket costs and expenses of Lender (including, without
limitation, the reasonable attorneys' fees and disbursements in connection with
the enforcement of, or the preservation of rights under, this Agreement and any
of the other Loan Documents (including, without limitation, in any bankruptcy,
insolvency, reorganization or similar proceedings); (ii) pay and hold Lender
harmless from and against any and all present and future stamp and other similar
taxes with respect to this Agreement and the other Loan Documents and save
Lender harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
Lender) to pay such taxes; (iii) pay all filing and recording fees relating to,
and taxes and other charges incurred in connection with, perfecting, maintaining
and protecting the Liens created or contemplated to be created pursuant to the
Security Documents; and (iv) indemnify Lender, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages, costs or expenses
incurred by any of them (except to the extent resulting from their gross
negligence or willful misconduct) as a result of, or arising out of, or in any
way related to, or by reason of, any investigation, litigation or other
proceeding (whether or not Lender is a party thereto) related to the entering
into and/or performance of any Loan Document or the use of the proceeds of each
Loan hereunder or the consummation of any other transactions contemplated in any
Loan Document, including, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding.
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<PAGE> 27
8.2 Right of Set-off. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, Lender is hereby authorized at any time or from time to time
thereafter, without presentment, demand, protest or other notice of any kind to
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by Lender to or
for the credit or the account of Borrower against and on account of the
Obligations of Borrower to Lender under this Agreement or under any of the other
Loan Documents, and all other claims of any nature or description arising out of
or connected with this Agreement or any other Loan Document, irrespective of
whether or not Lender shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
8.3 Notices. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
telegraphic, telex, tele-copier or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered, if to Borrower to: MEHL/Biophile
International Corp., 4127 NW 27th Lane, Suite A, Gainesville, FL 32606,
Attention: Thomas L. Mehl, Sr. with a copy to: Bingham Dana LLP, 399 Park
Avenue, New York, NY 10022, Attention: Alan Bernstein; if to Lender, at
Clearwater Fund IV, LLC, 611 Druid Road East #200, Clearwater, Florida 33756,
with a copy to: Rosenman & Colin LLP, 575 Madison Avenue, New York, New York
10022, Attention: Todd J. Emmerman; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall, when mailed, be effective upon receipt,
or when telegraphed, telexed, telecopied, or cabled or sent by overnight
courier, be effective when delivered to the telegraph company, cable company or
overnight courier, as the case may be, or when sent by telex or telecopier.
8.4 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto, all future
holders of each Note, and their respective successors and assigns. Borrower may
not assign or delegate any of its rights and obligations hereunder without the
prior written consent of Lender.
(b) Lender shall have the right to transfer or assign all or any part
of each Note. Lender may furnish any information concerning Borrower in the
possession of Lender from time to time to assignees (including prospective
assignees).
8.5 No Waiver; Remedies Cumulative. No failure or delay on the part of
Lender in exercising any right, power or privilege under this Agreement or under
any other Loan Document and no course of dealing between Borrower and Lender
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power, or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which Lender would otherwise have. No notice to or demand on Borrower
in any case shall entitle Borrower
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<PAGE> 28
to any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of Lender to any other or further action in
any circumstances without notice or demand.
8.6 Corporate Governance; Options. (a) Upon or in connection with the
appointment or election of two individuals acceptable to the Executive Committee
as directors of Borrower (i) Lender agrees to cause one Lender Designee
determined by it to resign as a director of Borrower and (ii) Borrower agrees to
cause one Mehl Director determined by Mr. Mehl to resign as a director of
Borrower.
(b) Lender agrees to cause the resignation of one additional Lender
Designee from the Board of Directors of Borrower upon repayment in full of
all of the Obligations under this Agreement.
(c) Notwithstanding anything to the contrary set forth in this
Agreement, Lender hereby consents to the granting of the options
contemplated by the Capital Contribution Agreement attached as Exhibit G
hereto.
8.7 Governing Law; Submission to Jurisdiction; Venue.
(A) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAWS. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, BORROWER AND LENDER HEREBY IRREVOCABLY ACCEPT FOR
THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.
(B) BORROWER AND LENDER HEREBY IRREVOCABLY WAIVE ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS
OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (A) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
8.8 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with Borrower and Lender.
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<PAGE> 29
8.9 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
8.10 Amendment or Waiver. Neither this Agreement nor any other Loan
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the parties hereto.
8.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
8.12 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitation of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
8.13 Entire Agreement. This Agreement together with the other Loan
Documents embodies the entire agreement and understanding among the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof.
8.14 Execution by Facsimile Transmission. This Agreement may be validly
executed and delivered by exchange of executed signature pages by facsimile
transmission, provided that original executed signature pages are promptly
delivered to each party thereafter by overnight courier.
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<PAGE> 30
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
CLEARWATER FUND IV, LLC
By: /s/ Hans F. Heye
Name: Hans F. Heye
Title: Managing Member
MEHL/BIOPHILE INTERNATIONAL CORPORATION
By: /s/ David Fowler
Name: David Fowler
Title: President
26
<PAGE> 1
EXHIBIT 10.2
EXCHANGE AGREEMENT
Exchange Agreement dated as of January 30, 1998 by and among
Clearwater Fund IV Ltd., ("Clearwater Ltd."), Clearwater Fund IV LLC
("Clearwater IV"), Clearwater Offshore Fund Ltd. ("Clearwater Offshore"),
(Clearwater Ltd., Clearwater IV and Clearwater Offshore being, collectively, the
"Preferred Shareholders") and MEHL/Biophile International Corporation (the
"Company").
WHEREAS, Clearwater Ltd., Clearwater IV and Clearwater Offshore own,
respectively, 2,231 shares, 8000 shares and 2,000 shares of 5% Cumulative
Convertible Preferred Stock, Series E, of the Company ("Series E Preferred
Stock");
WHEREAS, the parties hereto desire that the Preferred Shareholders
exchange all outstanding shares of Series E for an equal number of shares of
newly issued 5% Cumulative Convertible Preferred Stock, Series G of the
Corporation having the rights, preferences and designations as set forth on
Exhibit A hereto ("Series G Preferred Stock");
NOW THEREFORE, the parties agree as follows:
1. Exchange of Shares. Each Preferred Shareholder and the Company
hereby agree to exchange each share of Series E Preferred Stock held
respectively by each Preferred Shareholder for one share of Series G Preferred
Stock to be issued at the Closing by the Company (the "Exchange").
<PAGE> 2
2. Closing. The Closing ("Closing") of the Exchange shall take place
at the offices of Rosenman & Colin LLP, 575 Madison Avenue, New York, New York
10022 on such date as shall mutually be agreed to by the parties. At the
Closing, (i) each Preferred Shareholder shall deliver to the Company the stock
certificate representing the Series E Preferred Stock held by such Preferred
Stockholder, duly endorsed for transfer and (ii) the Company will deliver to
each Preferred Shareholder a stock certificate for shares of Series G Preferred
Stock representing the same number of shares of Series E Preferred Stock held
respectively by such Preferred Shareholder.
3. Registration Rights. The Company agrees to use its best efforts
to amend its Registration Statement on Form S-3 filed with the Securities and
Exchange Commission on March 31, 1997 and amended on September 26, 1997 so as to
cause as quickly as practicable the registration of the resale by the Preferred
Shareholders of all shares of Common Stock of the Company receivable upon
conversion of Series G Preferred Stock.
4. Dividends. All accrued and unpaid dividends with respect to the
Series E Preferred Stock outstanding as of the Closing shall be paid by the
Company on the first date upon which dividends shall be payable on the Series G
Preferred Stock.
5. Lock-up. The Preferred Shareholders agree not to effect any sale
or transfer of (i) any shares of Series G Preferred Stock, (ii) any shares of
Common
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<PAGE> 3
Stock received upon conversion of Series G Preferred Stock, or (iii) any shares
of Common Stock of the Corporation received by Clearwater Ltd. upon conversion
of the Series C Preferred and owned by Clearwater Ltd. as of the date hereof, on
or before June 30, 1998, other than sales or transfers to "affiliates" as that
term is defined under the Securities Act of 1933 who agree in writing to be
bound by the foregoing.
6. Investment Representation. Each Preferred Stockholder represents
and warrants it is acquiring the Series G Preferred Stock for investment
purposes and not with a view to the distribution thereof.
7. Miscellaneous.
a. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
b. This Agreement and the other agreements specifically
referenced herein, embody the entire agreement and understanding between the
parties relating to the subject matter hereof and supersedes all existing and
prior agreements between the parties.
c. This Agreement cannot be amended, waived, discharged,
or terminated except by an instrument in writing duly executed by all of the
parties.
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<PAGE> 4
d. This Agreement may be executed in multiple
counterparts each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
CLEARWATER FUND IV LTD.
By: /s/ HANS F. HEYE
------------------
Name: Hans F. Heye
Title: Director
CLEARWATER FUND IV LLC
By: /s/ HANS F. HEYE
-------------------
Name: Hans F. Heye
Title: Director
CLEARWATER OFFSHORE FUND LTD.
By: /s/ HANS F. HEYE
--------------------
Name: Hans F. Heye
Title: Director
MEHL/BIOPHILE INTERNATIONAL
CORPORATION
By: /s/ DAVID FOWLER
----------------------
Name: David Fowler
Title: President
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