UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Mehl/Biophile International Corporation
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $.01 Par Value
- --------------------------------------------------------------------------------
(Title of Class of Securities)
81661300
--------------------------------------------------
(CUSIP Number)
Todd J. Emmerman, Esq., c/o Rosenman & Colin LLP, 575 Madison Avenue,
New York, NY 10022 (212) 940-8873
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
July 30, 1997
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1 (b)(3) or (4), check the following box |_|.
Note: Six copies of this statement, including all exhibits, should be
filed with the Commission. See Rule 13d-1(a) for other parties to whom copies
are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 (the "Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 1 of 76
<PAGE>
SCHEDULE 13D
CUSIP No. 81661300
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Clearwater Fund IV Ltd. Employer I.D.# [ ]
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
British Virgin Islands
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
3,032,870 Shares
SHARES -------------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
0
OWNED BY -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
3,032,870 Shares
REPORTING -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON
0
WITH
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,032,870 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.7%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 76
<PAGE>
SCHEDULE 13D
CUSIP No. 81661300
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Clearwater Fund IV, LLC
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X|
(b) |_|
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) |_|
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF
7,600,174 Shares(1)
SHARES -------------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
0
OWNED BY -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
EACH
7,600,174 Shares(1)
REPORTING -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
PERSON
0
WITH
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,600,174 Shares(1)
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* |_|
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.36%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 3 of 76
- ----------
(1) Includes 3,032,870 Shares of Common Stock beneficially owned by Clearwater
Fund IV Ltd.
Page 3 of 76
<PAGE>
This Amendment No. 1 is filed pursuant to Rule 13d-2(a) promulgated under the
Securities Exchange Act of 1934 (the "Act") and amends the Schedule 13D
previously filed by Clearwater Fund IV Ltd. ("Clearwater Ltd.") and Clearwater
Fund IV, LLC ("Clearwater LLC") on or about June 13, 1997. This Amendment No. 1
is being filed to reflect a change in the beneficial ownership of Clearwater LLC
and Clearwater Ltd. (collectively, the "Reporting Persons") resulting from the
exchange of all of the shares of 5% Cumulative Preferred Stock, Series C (the
"Series C Preferred Stock") and 5% Cumulative Preferred Stock, Series D (the
"Series D Preferred Stock") of Mehl/Biophile International Corporation (the
"Company") owned by the Reporting Persons for an equal number of shares of newly
issued 5% Cumulative Preferred Stock, Series E of the Company (the "Series E
Preferred Stock") and the issuance to Clearwater LLC of a warrant for the
purchase of Common Stock in connection with that certain Loan Agreement, dated
August 5, 1997 (the "Loan Agreement"), between the Company and Clearwater LLC.
Terms not otherwise defined herein shall have the meaning ascribed to them in
the Schedule 13D.
Item 3. Source and Amount of Funds or Other Consideration.
Item 3 is hereby amended as follows:
Clearwater LLC was issued a warrant for the purchase of 750,000
shares of common stock (the "Warrant") pursuant to the Loan
Agreement in exchange for $10.00.
Pursuant to that certain Exchange Agreement (the "Exchange
Agreement") dated as of July 30, 1997, Clearwater Ltd. and
Clearwater LLC were issued 2,231 and 8,000 shares of Series E
Preferred Stock, respectively, in exchange for all the shares of
Series C Preferred Stock and Series D Preferred Stock owned by each,
respectively.
Clearwater LLC acquired 113,600 shares of Common Stock in the open
market for an aggregate purchase price of $447,862.48.
Item 4. Purpose of Transaction.
Item 4 is hereby amended as follows:
The Reporting Persons acquired the securities reported herein as
being beneficially owned by each such Reporting Person for
investment purposes. Depending upon market conditions and other
factors that each of the Reporting Persons may deem material to
their respective investment decisions, the Reporting Persons may
purchase additional shares of securities of the Company in the open
market or in private transactions, or may dispose of all or a
portion of the securities of the Company that each now owns or
hereafter may
Page 4 of 76
<PAGE>
acquire. In addition, both Clearwater Ltd. and Clearwater LLC have
agreed not to sell or transfer (i) any shares of Series E Preferred
Stock, or (ii) any shares of Common Stock received by Clearwater
Ltd. upon conversion of the Series C Preferred Stock and owned by
Clearwater Ltd. as of July 30, 1997, on or before February 28, 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. Except as otherwise set forth herein, the
Reporting Persons have no plans or proposals which relate to, or
could result in any of the matters referred to in Paragraphs (a)
through (j) of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
Item 5 is hereby amended as follows:
According to information received from the Company there were, as of
August 19, 1997, 43,993,301 shares of Common Stock of the Company
issued and outstanding.
CLEARWATER LTD.
For purposes of this Schedule 13D, Clearwater Ltd. beneficially owns
3,032,870 shares of the Company's Common Stock (comprising
approximately 6.7% of the issued and outstanding Common Stock as of
August 19, 1997) by virtue of its ownership of 2,000,000 shares of
Common Stock and 2,231 shares of Series E Preferred Stock, which, if
converted as of August 23, 1997, would be convertible into 1,032,870
shares of Common Stock.
Clearwater Ltd. has the sole power to vote and dispose
of all such shares.
CLEARWATER LLC
For purposes of this Schedule 13D, Clearwater Ltd. may be deemed to
beneficially own a total of 7,600,174 shares of the Company's Common
Stock (comprising approximately 15.36% of the issued and outstanding
Common Stock as of August 19, 1997) in the following manner:
(i) By virtue of the fact that Clearwater Ltd. is wholly owned
by Clearwater LLC, Clearwater LLC may be deemed to be the
beneficial owner of the 3,032,870 shares of Common Stock which
are owned by Clearwater Ltd;
(ii) Clearwater LLC owns 8,000 shares of Series E Preferred
Stock, which, if converted as of August
Page 5 of 76
<PAGE>
19, 1997 would be convertible into 3,703,704 shares of Common
Stock;
(iii) Clearwater LLC owns a warrant for the purchase of
750,000 shares of Common Stock at a price of $2.50 per share;
and
(iv) Clearwater LLC owns 113,600 shares of Common Stock which
it purchased in open market sales.
Clearwater LLC has the sole power to vote and dispose of all such
shares.
(c) Pursuant to the Exchange Agreement Clearwater LLC and Clearwater
Ltd. exchanged all outstanding shares of Series C Preferred Stock
and Series D Preferred Stock owned by each respectively for an equal
number of shares of newly issued Series E Preferred Stock.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with respect to
the Securities of the issuer.
Item 6 is hereby amended and supplemented as follows:
See Item 5(c) of this Amendment No. 1 for a description of the
Exchange Agreement.
Pursuant to the Loan Agreement, Clearwater LLC agreed to loan up to
$7,000,000 to the Company plus interest which will accrue at a rate
of 15% per annum. The outstanding principal amount borrowed by the
Company pursuant to the Loan Agreement and all accrued and unpaid
interest thereon will be due and payable on January 15, 1998.
Repayment of the obligations payable by the Company under the Loan
Agreement are guaranteed by Thomas Mehl, Sr. and Martin Kass,
individual shareholders of the Company who, as collateral for such
guarantees have pledged to Clearwater IV 8,000,000 shares of Common
Stock owned by said guarantors. Until an event of default under the
Loan Agreement, the guarantors retain voting rights and investment
power with respect to the pledged shares. The Loan Agreement also
provides for the issuance of the Warrant entitling Clearwater LLC to
purchase 750,000 shares of the Company's Common Stock, and for the
potential issuance, under certain circumstances, of up to three
additional stock purchase warrants collectively entitling Clearwater
LLC to purchase 2,250,000 shares of Common Stock, as is more fully
described in Section 2.6 of the
Page 6 of 76
<PAGE>
Loan Agreement.
Pursuant to the Warrant, Clearwater LLC is entitled to purchase from
the Company at any time before 5:00 P.M. on August 5, 2002, New York
City time, 750,000 shares of Common Stock.
Item 7. Material to be Filed as Exhibits
Item 7 is hereby amended and supplemented as follows:
10. Exchange Agreement, dated as of July 30, 1997 by and among
Clearwater Ltd., Clearwater LLC and Clearwater Offshore Fund Ltd.
and the Company.
11. Loan Agreement, dated August 5, 1997, between the Company and
Clearwater LLC.
12. Form of warrant for the purchase of shares of Common Stock,
dated August 5, 1997.
13. Form of Pledge Agreement, dated August 5, 1997, entered into
between each of Thomas Mehl, Sr. and Martin Kass in favor of
Clearwater LLC.
14. Form of Guaranty, dated August 5, 1997, from each of Thomas
Mehl, Sr. and Martin Kass to Clearwater LLC.
Page 7 of 76
<PAGE>
SIGNATURE
After reasonable inquiry, and to the best of our knowledge and belief, the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Dated: January 9, 1998
CLEARWATER FUND IV LTD.
/s/ A. P. de Groot
-----------------------------------------
By: A. P. de Groot
Title: President
CLEARWATER FUND IV, LLC
/s/ Hans Frederic Heye
-----------------------------------------
By: Hans Frederic Heye
Title: Managing Member
Page 8 of 76
<PAGE>
Exhibit Index
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
10. Exchange Agreement, dated July 30, 1997 among
Clearwater Ltd., Clearwater LLC, Clearwater
Offshore Fund Ltd. and the Company.
11. Loan Agreement, dated August 5, 1997, between
the Company and Clearwater LLC.
12. Form of warrant for the purchase of shares of
Common Stock, dated August 5, 1997.
13. Form of Pledge Agreement, dated August 5, 1997,
entered into between each of Thomas Mehl, Sr. and
Martin Kass in favor of Clearwater LLC.
14. Form of Guaranty, dated August 5, 1997, from
each of Thomas Mehl, Sr. and Martin Kass to
Clearwater LLC.
Page 9 of 76
EXHIBIT 10
Exchange Agreement
Exchange Agreement dated as of July 30, 1997 by and among Clearwater
Fund IV Ltd., formerly GFL Performance Fund 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. owns 2,231 shares of 5% Cumulative
Convertible Preferred Stock, Series C, of the Company ("Series C Preferred
Stock");
WHEREAS, Clearwater IV and Clearwater Offshore own, respectively,
8000 shares and 2,000 shares of 5% Cumulative Convertible Preferred Stock,
Series D, of the Company ("Series D Preferred Stock");
WHEREAS, the parties hereto desire that the Preferred Shareholders
exchange all outstanding shares of Series C Preferred Stock and Series D
Preferred Stock for an equal number of shares of newly issued 5% Cumulative
Convertible Preferred Stock, Series E of the Corporation having the rights,
preferences and designations as set forth on Exhibit A hereto ("Series E
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 C Preferred Stock and Series D
Preferred Stock held respectively by each Preferred Shareholder for one share of
Series E Preferred Stock to be issued at the Closing by the Company (the
"Exchange").
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 C Preferred Stock and Series D 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 E Preferred Stock representing the same number of shares of
Series C Preferred Stock and Series D 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
Page 10 of 76
<PAGE>
with the Securities and Exchange Commission on March 31, 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 E Preferred Stock.
4. Dividends. All accrued and unpaid dividends with respect to the
Series C Preferred Stock and Series D 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 E Preferred Stock.
5. Lock-up. The Preferred Shareholders agree not to effect any sale
or transfer of (i) any shares of Series E Preferred Stock, (ii) any shares of
Common Stock received upon conversion of Series E Preferred Stock, or (iii) any
shares of Common Stock of the Corporation received by GFL upon conversion of the
Series C Preferred and owned by GFL as of the date hereof, on or before February
28, 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 E 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.
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.
Page 11 of 76
<PAGE>
CLEARWATER FUND IV LTD.
By: /s/
-------------------------------------
Name:
Title:
CLEARWATER FUND IV LLC
By: /s/
-------------------------------------
Name:
Title:
CLEARWATER OFFSHORE FUND LTD.
By: /s/
-------------------------------------
Name:
Title:
MEHL/BIOPHILE INTERNATIONAL
CORPORATION
By: /s/
-------------------------------------
Name:
Title:
Page 12 of 76
EXHIBIT 11
LOAN AGREEMENT, dated as of August 5, 1997, 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 desires to borrow up to $7,000,000 from Lender to
be used by Borrower in connection with the manufacture and delivery of laser
hair removal systems and for general working capital purposes;
WHEREAS, Borrower has previously borrowed from Lender the principal
amount of One Million Four Hundred Thirty-One Thousand Nine Hundred Thirty-One
and 51/100 Dollars ($1,431,931.51), pursuant to that certain 10% Demand
Promissory Note and Security Agreement, dated July 7, 1997, by and between
Borrower and Lender (the "Demand Note"), a copy of which is attached hereto as
Exhibit A, and the parties now desire to cancel the Demand Note and have the
principal amount thereof as of the date of cancellation together with all
accrued and unpaid interest thereon (the "Demand Note Obligations") be governed
by the terms of this Agreement; and
WHEREAS, Lender is prepared to loan up to $7,000,000 (including an
amount equal to the Demand Note Obligations) to Borrower upon the terms and
subject to the conditions set forth in this Agreement.
NOW, THEREFORE, the parties hereto agree 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 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.
Page 13 of 76
<PAGE>
"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 funds available
under each Loan.
"Borrowing Rate" has the meaning provided in Section 2.4.
"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 B, 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
Page 14 of 76
<PAGE>
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 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
Page 15 of 76
<PAGE>
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.
"Demand Note" has the meaning ascribed to such term in the recitals
hereof.
"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.
"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 Martin Kass in favor of Lender, in the form of Exhibit
C, 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
Page 16 of 76
<PAGE>
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.
"Laser Devices" shall mean the CHROMOS 694 lasers currently marketed
by the Company or its Affiliates.
"Lender" has the meaning ascribed to such term in the preamble.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, claim, hypothecation, assignment for security or charge of any kind
(including any agreement to give 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 Note.
"Loan" and "Loans" has the meaning ascribed to such term in Section
2.1.
"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).
Page 17 of 76
<PAGE>
"Material Agreement" has the meaning ascribed to such term in
Section 4.18 hereof.
"Maturity Date" has the meaning ascribed to such term in Section 2.5
hereof.
"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.
"Note" has the meaning ascribed to such term in Section 2.1.
"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.
"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.
"Permanent Financing" means debt financing obtained by the Company
in an amount sufficient to enable Borrower to repay the Obligations in full.
"Permitted Liens" has the meaning provided in Section 6.2.
"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.
"Placed in Service" means Laser Devices which, since July 15, 1997,
have been delivered to, are operational at, and are the subject of an effective
license agreement with, a third party physician, clinic or hospital.
"Pledge Agreements" means the Pledge Agreements to be executed
Thomas Mehl, Sr. and Martin Kass in favor of Lender in the form of Exhibit D, as
the same may be amended from time to time.
"Public Filings" has the meaning ascribe to such term in Section
4.8.
"Required Documentation" means copies, certified as true and
complete by an executive officer of Borrower, of the license agreement and
delivery receipt relating to each Laser Device Placed
Page 18 of 76
<PAGE>
in Service, in each case signed by the recipient of such Laser Devise.
"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 2.11.
"Tranche 1 Loan" shall have the meaning ascribed to such term in
Section 2.1(a).
"Tranche 2 Loan" shall have the meaning ascribed to such term in
Section 2.1(b).
"UCC" means the Uniform Commercial Code as in effect in any
applicable jurisdiction.
SECTION 2. Amount and Terms.
2.1 Tranches. Subject to and upon the terms and conditions set forth
herein, Lender agrees to lend to Borrower the following amounts at the following
times:
(a) an amount equal to the sum of (x) four million Dollars
($4,000,000) minus (y) the amount of the Demand Note Obligations,
immediately upon execution of the Loan Documents (the "Tranche 1 Loan");
and
(b) three million ($3,000,000) Dollars, upon request of Borrower
made in accordance with Section 2.3, at any time before the Maturity Date
after fifty (50) Laser Devices have been Placed in Service (the "Tranche 2
Loan").
Page 19 of 76
<PAGE>
The Tranche 1 Loan and Tranche 2 Loan are each referred to herein
individually as a "Loan" and collectively as the "Loans." Borrower shall use the
proceeds of the Loans to pay for expenses incurred in connection with Placing in
Service Laser Devices and such other expenses of Borrower and its Affiliates as
shall have been approved in advance by Lender. The aggregate principal balance
of the Loans shall be evidenced by a single promissory note (the "Note") made by
Borrower and payable to Lender in the form of Exhibit F hereto. Lender shall
endorse on the schedule attached to the Note (or any continuation thereof) the
date and amount of each Loan and the date and amount of all payments on account
of each 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 hereunder or
thereunder.
2.2 Cancellation of Demand Note. Concurrently with execution and
delivery of the Note and other Loan Documents, Lender shall cancel the Demand
Note and return same to Borrower and the Demand Note shall thereupon be of no
further force and effect. An amount equal to the Demand Note Obligations shall,
upon cancellation of the Demand Note, continue to be outstanding under the
Tranche 1 Loan and be deemed to constitute part thereof, subject to all of the
terms and conditions of this Agreement.
2.3 Borrowing Notice; Borrowings. (a) To request the Tranche 2 Loan,
Borrower shall deliver to Lender written notice of such request, which notice
shall be irrevocable and shall be effective only if received by Lender not later
than 1:00 P.M. Eastern Standard time one Business Day prior to the requested
Borrowing Date. Such notice of borrowing shall state the principal amount to be
borrowed and the date Borrower requests that such Loan be made, and shall be
accompanied by Required Documentation evidencing that the requisite number of
Laser Devices have been Placed in Service.
(b) Lender shall, on the date hereof, deposit the amount of the
Tranche 1 Loan, and following receipt of an acceptable notice of borrowing, on
the applicable Borrowing Date, deposit the amount of the Tranche 2 Loan, by wire
transfer of immediately available funds, to Borrower's account with [Cash
Collateral Account to be identified] 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 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
commencing with September 1, 1997. 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
Page 20 of 76
<PAGE>
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.
2.5 Repayment and Prepayment of Loans. (a) Subject to mandatory
prepayment of the Loans as provided herein, the outstanding principal amount of
each Loan shall be repaid in full, together with all accrued and unpaid interest
thereon, on January 15, 1998 (the "Maturity Date"). 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.
(b) Borrower shall prepay (without premium or penalty), and there
shall immediately become due and payable, the outstanding principal amount of
each Loan and all accrued and unpaid interest thereon (and any fees, costs and
expenses payable pursuant to any of the Loan Documents) concurrently with the
receipt of the proceeds of a Permanent Financing. Borrower shall deliver written
notice of any Permanent Financing to Lender at least one Business Day prior to
the closing thereof.
(c) 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 Loans.
Page 21 of 76
<PAGE>
(d) 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 2.5(d) 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.
(e) Without prejudice to the provisions of paragraph (d) of this
Section 2.5, 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 2.5(e), computed in a manner consistent
with paragraph (d) of this Section 2.5. 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.
2.6 Warrants. As additional consideration hereunder, Borrower shall
issue each of the following common stock purchase warrants to Lender at the
following times:
(a) concurrently with execution hereof, a common stock purchase
warrant in the form attached hereto as Exhibit G;
(b) on the Borrowing Date of the Tranche 2 Loan, a common stock
purchase warrant in the form attached hereto as Exhibit H;
(c) on October 2, 1997, a common stock purchase warrant in the form
attached hereto as Exhibit I, unless the Obligations shall have been paid
in full on or prior to the close of business on October 1, 1997; and
Page 22 of 76
<PAGE>
(d) on December 2, 1997, a common stock purchase warrant in the form
attached hereto as Exhibit J, unless the Obligations shall have been paid
in full on or prior to the close of business on December 1, 1997.
SECTION 3. Conditions Precedent. The obligation of Lender to make
each Loan (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 Loan (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 Officer's Certificate. Lender shall have received certificates
executed by the Chief Executive Officer of Borrower stating that the conditions
set forth in Sections 3.1 and 3.2 have been satisfied.
3.4 Borrowing Notice. Lender shall have received a notice of
borrowing relating to such Loan in accordance with Section 2.3(a).
3.5 Note. As of the Borrowing Date of the Tranche 2 Loan, the Note
shall be in full force and effect and no challenge to the validity or
enforceability thereof shall have been threatened or initiated.
3.6 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.
3.7 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 have expired without any action
being taken by any competent authority, and evidence thereof shall be delivered
to Lender.
Page 23 of 76
<PAGE>
There shall not exist any judgment, order, injunction or other restraint issued
or filed with respect to the making of each Loan.
3.8 Legal Matters. All legal matters incident to the making of each
Loan shall be satisfactory to counsel to Lender.
3.9 Corporate Proceedings and Documents. With respect to the Tranche
1 Loan, 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.
3.10 Opinion of Counsel. 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.
3.11 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 Loan provided for herein, 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
Loan.
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.
Page 24 of 76
<PAGE>
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 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 Annual
Report on Form 10-KSB for the fiscal year ended May 31, 1996 and Borrower's
Quarterly Report on Form 10- QSB for the nine months ended February 28, 1997
(the "Public Filings") have been prepared in accordance with GAAP, applied on a
Page 25 of 76
<PAGE>
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 February 28, 1997, 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
Page 26 of 76
<PAGE>
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.
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").
Page 27 of 76
<PAGE>
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:
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) As soon as available, 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;
Page 28 of 76
<PAGE>
(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.
(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
Page 29 of 76
<PAGE>
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 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
Page 30 of 76
<PAGE>
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.
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
Page 31 of 76
<PAGE>
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, 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. Borrower shall not cause any funds in any Bank
Account to be disbursed 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,
Page 32 of 76
<PAGE>
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 Multi- employer 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.
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.
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
Page 33 of 76
<PAGE>
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.
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.
Page 34 of 76
<PAGE>
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.
Page 35 of 76
<PAGE>
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, telecopier 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: Marks & Murase 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 34616,
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
Page 36 of 76
<PAGE>
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 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 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.
8.7 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.
8.8 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.
8.9 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.
Page 37 of 76
<PAGE>
8.10 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.
8.11 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.
8.12 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.
8.13 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.
Page 38 of 76
<PAGE>
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 Frederic Heye
-------------------------------------
Name: Hans Frederic Heye
Title: President
MEHL/BIOPHILE INTERNATIONAL CORPORATION
By: /s/ Thomas L. Mehl, Sr.
-------------------------------------
Name: Thomas L. Mehl, Sr.
Title: Chairman & CEO
Page 39 of 76
EXHIBIT 12
FORM OF WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS THE REGISTRATION PROVISIONS OF SAID ACT OR
APPLICABLE STATE LAW HAVE BEEN COMPLIED WITH OR UNLESS THE COMPANY
HAS RECEIVED AN OPINION OF ITS COUNSEL OR AN OPINION OF OTHER
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
MEHL/BIOPHILE INTERNATIONAL CORPORATION
Warrant for the Purchase of Shares of Common Stock,
par value $.01 per Share
No. 1 750,000 Shares
THIS CERTIFIES that, for receipt in hand of $10.00 and other value
received, Clearwater Fund IV, LLC, 611 Druid Road East, Suite 200, Clearwater,
Florida 34616 (the "Holder"), is entitled to subscribe for and purchase from
MEHL/Biophile International Corporation, a Delaware corporation (the "Company"),
upon the terms and conditions set forth herein, at any time or from time to time
on or after the date hereof and before 5:00 P.M. on August 5, 2002, New York
City time (the "Exercise Period"), 750,000 shares of the Company's Common Stock,
par value $.01 per share (the "Common Stock"), at a price of $2.50 per share
(the "Exercise Price"). This Warrant (together with any warrants issued upon the
exercise or transfer of this Warrant in whole or in part, the "Warrants") is
being issued pursuant to the Loan Agreement, dated August 5, 1997 (the "Loan
Agreement"), between the Company and the Holder. The Company may also issue
additional warrants to the Holder from time to time pursuant to the terms of the
Loan Agreement (the "Other Warrants").
Page 40 of 76
<PAGE>
The number of shares of Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time
to time as hereinafter set forth.
1. This Warrant may be exercised during the Exercise Period, as to
the whole or any lesser number of whole Warrant Shares, by the surrender of this
Warrant (with the form of election attached hereto duly executed) to the Company
at its office at 4127 NW 27th Lane, Suite A, Gainesville, Florida 32606, or at
such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Warrant Shares
for which this Warrant is being exercised (the "Aggregate Exercise Price").
2. Upon each exercise of the Holder's rights to purchase Warrant
Shares, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the transfer books of
the Company shall then be closed or certificates representing such Warrant
Shares shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the right of the Holder to purchase the balance of the
Warrant Shares (or portions thereof) subject to purchase hereunder.
3. Any Warrants issued upon the transfer or exercise in part of this
Warrant shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as they are issued. The Company shall be entitled to treat
the registered holder of any Warrant on the Warrant Register as the owner in
fact thereof for all purposes and shall not be bound to recognize any equitable
or other claim to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of Warrants which are
registered or to be registered in the name of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge that a fiduciary or nominee is
committing a breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein amounts to bad
faith. This Warrant shall be transferable only on the books of the Company upon
delivery thereof duly endorsed by the Holder or by his or its duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment, or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative, duly
Page 41 of 76
<PAGE>
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto. This Warrant may be exchanged, at the option of the
Holder thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate the right to
purchase a like number of Warrant Shares (or portions thereof), upon surrender
to the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Warrants to be transferred on its
books to any person if, in the opinion of counsel to the Company, such transfer
does not comply with the provisions of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations thereunder.
4. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for the purpose of providing
for the exercise of the rights to purchase all Warrant Shares granted pursuant
to the Warrants, such number of shares of Common Stock as shall, from time to
time, be sufficient therefor. The Company covenants that all shares of Common
Stock issuable upon exercise of this Warrant, upon receipt by the Company of the
full Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date the
Warrants were first issued (i) declare a dividend on the outstanding Common
Stock payable in shares of its capital stock, (ii) subdivide the outstanding
Common Stock, (iii) combine the outstanding Common Stock into a smaller number
of shares, or (iv) issue any shares of its capital stock by reclassification of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price, and the number of Warrant Shares
issuable upon exercise of this Warrant, in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination, or
reclassification, shall be proportionately adjusted so that the Holder after
such time shall be entitled to receive the aggregate number and kind of shares
which, if such Warrant had been exercised immediately prior to such time, he
would have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination, or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) In case the Company shall issue or fix a record date for
the issuance to all holders of Common Stock of rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into or
exchangeable for Common Stock) at a price per share (or having a conversion or
exchange
Page 42 of 76
<PAGE>
price per share, if a security convertible into or exchangeable for Common
Stock) less than the Current Market Price per share of Common Stock (as defined
in Section 5(e) hereof) on such record date, then, in each case, the Exercise
Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so to be offered (or the aggregate initial conversion
or exchange price of the convertible or exchangeable securities so to be
offered) would purchase at such Current Market Price and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible or exchangeable
securities so to be offered are initially convertible or exchangeable). Such
adjustment shall become effective at the close of business on such record date;
provided, however, that, to the extent the shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock) are not delivered,
the Exercise Price shall be readjusted after the expiration of such rights,
options, or warrants (but only with respect to Warrants exercised after such
expiration), to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights, options, or warrants been
made upon the basis of delivery of only the number of shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) actually
issued. In case any subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of such consideration
shall be as determined in good faith by the board of directors of the Company,
whose determination shall be conclusive absent manifest error. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
(c) In case the Company shall distribute to all holders of
Common Stock (including any such distribution made to the stockholders of the
Company in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other than cash
dividends or distributions and dividends payable in shares of Common Stock), or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for shares of Common Stock
(excluding those with respect to the issuance of which an adjustment of the
Exercise Price is provided pursuant to Section 5(b) hereof), then, in each case,
the Exercise Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such
Page 43 of 76
<PAGE>
distribution by a fraction, the numerator of which shall be the Current Market
Price per share of Common Stock on such record date, less the fair market value
(as determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error) of the portion of the
evidences of indebtedness or assets so to be distributed, or of such rights,
options, or warrants or convertible or exchangeable securities, applicable to
one share, and the denominator of which shall be such Current Market Price per
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective on the record date for the
determination of shareholders entitled to receive such distribution.
(d) In case the Company shall issue shares of Common Stock or
rights, options, or warrants to subscribe for or purchase Common Stock, or
securities convertible into or exchangeable for Common Stock (excluding shares,
rights, options, warrants, or convertible or exchangeable securities issued or
issuable (i) in any of the transactions with respect to which an adjustment of
the Exercise Price is provided pursuant to Sections 5(a), 5(b), or 5(c) above or
(ii) upon exercise of the Warrants), at a price per share (determined, in the
case of such rights, options, warrants, or convertible or exchangeable
securities, by dividing (x) the total amount received or receivable by the
Company in consideration of the sale and issuance of such rights, options,
warrants, or convertible or exchangeable securities, plus the minimum aggregate
consideration payable to the Company upon exercise, conversion, or exchange
thereof, by (y) the maximum number of shares covered by such rights, options,
warrants, or convertible or exchangeable securities) lower than the Current
Market Price per share of Common Stock in effect immediately prior to such
issuance, then the Exercise Price shall be reduced on the date of such issuance
to a price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior to such issuance by a fraction, the
numerator of which shall be an amount equal to the sum of (A) the number of
shares of Common Stock outstanding immediately prior to such issuance plus (B)
the quotient obtained by dividing the consideration received by the Company upon
such issuance by such Current Market Price, and (iv) the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
after such issuance. For the purposes of such adjustments, the maximum number of
shares which the holders of any such rights, options, warrants, or convertible
or exchangeable securities shall be entitled to initially subscribe for or
purchase or convert or exchange such securities into shall be deemed to be
issued and outstanding as of the date of such issuance, and the consideration
received by the Company therefor shall be deemed to be the consideration
received by the Company for such rights, options, warrants, or convertible or
exchangeable securities, plus the minimum
Page 44 of 76
<PAGE>
aggregate consideration or premiums stated in such rights, options, warrants, or
convertible or exchangeable securities to be paid for the shares covered
thereby. No further adjustment of the Exercise Price shall be made as a result
of the actual issuance of shares of Common Stock on exercise of such rights,
options, or warrants or on conversion or exchange of such convertible or
exchangeable securities. On the expiration or the termination of such rights,
options, or warrants, or the termination of such right to convert or exchange,
the Exercise Price shall be readjusted (but only with respect to Warrants
exercised after such expiration or termination) to such Exercise Price as would
have obtained had the adjustments made upon the issuance of such rights,
options, warrants, 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, options, or warrants or upon the
conversion or exchange of any such securities; and on any change of the number
of shares of Common Stock deliverable upon the exercise of any such rights,
options, or warrants or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to be received by the
Company upon such exercise, conversion, or exchange, including, but not limited
to, a change resulting from the antidilution provisions thereof, the Exercise
Price, as then in effect, shall forthwith be readjusted (but only with respect
to Warrants exercised after such change) to such Exercise Price as would have
been obtained had an adjustment been made upon the issuance of such rights,
options, or warrants not exercised prior to such change, or securities not
converted or exchanged prior to such change, on the basis of such change. In
case the Company shall issue shares of Common Stock or any such rights, options,
warrants, or convertible or exchangeable securities for a consideration
consisting, in whole or in part, of property other than cash or its equivalent,
then the "price per share" and the "consideration received by the Company" for
purposes of the first sentence of this Section 5(d) shall be as determined in
good faith by the board of directors of the Company, whose determination shall
be conclusive absent manifest error. Shares of Common Stock owned by or held for
the account of the Company or any majority-owned subsidiary shall not be deemed
outstanding for the purpose of any such computation.
(e) For the purpose of any computation under this Section 5,
the Current Market Price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for the thirty consecutive trading
days immediately preceding the date in question. The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange (including, for purposes hereof,
the Nasdaq National Market) on which the Common Stock is listed or admitted to
Page 45 of 76
<PAGE>
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price for the Common
Stock as furnished by the National Association of Securities Dealers, Inc.
through Nasdaq or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by Nasdaq or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
(f) No adjustment in the Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest one-thousandth of
a share, as the case may be.
(g) In any case in which this Section 5 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the Holder, if the Holder exercised this Warrant after such
record date, the shares of Common Stock, if any, issuable upon such exercise
over and above the shares of Common Stock, if any, issuable upon such exercise
on the basis of the Exercise Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(h) Upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 5(b), 5(c), or 5(d) hereof, this Warrant shall
thereafter evidence the right to purchase, at the adjusted Exercise Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of this Warrant prior to adjustment of the number of shares by the
Exercise Price in effect prior to adjustment of the Exercise Price by (B) the
Exercise Price in effect after such adjustment of the Exercise Price.
(i) Whenever there shall be an adjustment as provided in this
Section 5, the Company shall promptly cause written notice thereof to be sent by
registered mail, postage prepaid, to the Holder, at its address as it shall
appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Warrant Shares
Page 46 of 76
<PAGE>
purchasable upon the exercise of this Warrant and the Exercise Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and the computation thereof, which officer's certificate shall be
conclusive evidence of the correctness of any such adjustment absent manifest
error.
(j) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of this Warrant. If any fraction of a share would be issuable on the exercise of
this Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price of such share of Common Stock on the date of exercise of this Warrant.
6. (a) In case of any consolidation with or merger of the Company
with or into another corporation (other than a merger or consolidation in which
the Company is the surviving or continuing corporation), or in case of any sale,
lease, or conveyance to another corporation of the property and assets of any
nature of the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may be, shall (i)
execute with the Holder an agreement providing that the Holder shall have the
right thereafter to receive upon exercise of this Warrant solely the kind and
amount of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such consolidation, merger, sale, lease, or
conveyance by a holder of the number of shares of Common Stock for which this
Warrant might have been exercised immediately prior to such consolidation,
merger, sale, lease, or conveyance and (ii) make effective provision in its
certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as nearly
equivalent as practicable to the adjustments in Section 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from no par value to a specified par value, or as a result of a
subdivision or combination, but including any change in the shares into two or
more classes or series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but including any change
in the shares into two or more classes or series of shares), the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities,
Page 47 of 76
<PAGE>
property, cash, or any combination thereof receivable upon such
reclassification, change, consolidation, or merger by a holder of the number of
shares of Common Stock for which this Warrant might have been exercised
immediately prior to such reclassification, change, consolidation, or merger.
Thereafter, appropriate provision shall be made for adjustments which shall be
as nearly equivalent as practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of Common Stock and
to successive consolidations, mergers, sales, leases, or conveyances.
7. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater
amount per share than such most recent cash dividend) to all holders of
Common Stock; or
(b) to issue any rights, warrants, or other securities to all
holders of Common Stock entitling them to purchase any additional shares
of Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 6; or
(d) to effect any liquidation, dissolution, or winding-up of
the Company; or
(e) to take any other action which would cause an adjustment
to the Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least
fifteen days prior to (i) the date as of which the holders of record of shares
of Common Stock to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii) the date on
which any such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such
Page 48 of 76
<PAGE>
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding up, or (iii)
the date of such action which would require an adjustment to the Exercise Price.
8. The issuance of any shares of Common Stock or other securities
upon the exercise of this Warrant, and the delivery of certificates or other
instruments representing such shares or other securities, shall be made without
charge to the Holder for any tax or other charge in respect of such issuance.
The Company shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of any certificate
in a name other than that of the Holder and the Company shall not be required to
issue or deliver any such certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company that such tax
has been paid.
9. (a) If, at any time during the Exercise Period, the Company shall
receive a written request from the Holder to register the sale of all or part of
the Warrant Shares, the Company shall, as promptly as practicable, at the
Company's sole cost and expense (other than the fees and disbursements of
counsel for the Holder and underwriting discounts, if any, payable in respect of
the Warrant Shares sold by the Holder), prepare and file with the Securities and
Exchange Commission (the "Commission") a registration statement sufficient to
permit the public offering and sale of the Warrant Shares through the facilities
of all appropriate securities exchanges on which the Common Stock is listed for
trading or the over-the-counter market, and will use its best efforts through
its officers, directors, auditors, and counsel to cause such registration
statement to become effective as promptly as practicable; provided, however,
that the Company shall only be obligated to file two registration statements
pursuant to requests from the Holder under this Warrant or the Other Warrants
(provided that each such registration statement is declared effective by the
Commission); and provided, further, that such registration statements shall
cover all shares of Common Stock underlying this Warrant and the Other Warrants
as shall be requested in each such request. The Company shall have the right to
register and sell shares of Common Stock (at its sole cost and expense) in any
such registrations statements.
(b) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall use its best efforts to cause the Warrant
Shares so registered to be registered or qualified for sale under the securities
or blue sky laws of such jurisdictions as the Holder may reasonably request;
provided, however, that the Company shall not be required to qualify to do
business in any state by reason of this Section
Page 49 of 76
<PAGE>
9(b) in which it is not otherwise required to qualify to do business.
(c) The Company shall keep effective any registration or
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document, and communication for such period of
time as shall be required to permit the Holder to complete the offer and sale of
the Warrant Shares covered thereby. The Company shall in no event be required to
keep any such registration or qualification in effect for a period in excess of
twenty-four months from the date on which the Holder is first free to sell such
Warrant Shares; provided, however, that, if the Company is required to keep any
such registration or qualification in effect with respect to securities other
than the Warrant Shares beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Warrant Shares for
so long as such registration or qualification remains or is required to remain
in effect in respect of such other securities.
(d) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish to the Holder such number of copies
of the registration statement and of each amendment and supplement thereto (in
each case, including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement or
amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as the Holder may reasonably request to facilitate the
disposition of the Warrant Shares included in such registration.
(e) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall furnish the Holder of any Warrant Shares so
registered with an opinion of its counsel (reasonably acceptable to the Holder)
to the effect that (i) the registration statement has become effective under the
Act and no order suspending the effectiveness of the registration statement,
preventing or suspending the use of the registration statement, any preliminary
prospectus, any final prospectus, or any amendment or supplement thereto has
been issued, nor has the Commission or any securities or blue sky authority of
any jurisdiction instituted or threatened to institute any proceedings with
respect to such an order and (ii) the registration statement and each prospectus
forming a part thereof (including each preliminary prospectus), and any
amendment or supplement thereto, complies as to form with the Act and the rules
and regulations thereunder. Such opinion shall also state the jurisdictions in
which the Warrant Shares have been registered or qualified for sale pursuant to
the provisions of Section 9(b).
Page 50 of 76
<PAGE>
(f) In the event of a registration pursuant to the provisions
of this Section 9, the Company shall enter into a cross-indemnity agreement and
a contribution agreement, each in customary form, with each underwriter, if any,
and, if requested, enter into an underwriting agreement containing customary
representations, warranties, allocation of expenses, and closing conditions,
including, but not limited to, opinions of counsel and accountants' cold comfort
letters, with any underwriter who acquires any Warrant Shares.
(g) In the event of a registration pursuant to the provisions
of this Section 9:
(i) The Holder shall furnish to the Company in writing
such appropriate information (relating to the Holder and the intention of the
Holder as to proposed methods of sale or other disposition of their shares of
Common Stock) and the identity of and compensation to be paid to any proposed
underwriters to be employed in connection therewith as the Company, any
underwriter, or the Commission or any other regulatory authority may request;
(ii) the Holder shall enter into the usual and customary
form of underwriting agreement agreed to by the Company and any underwriter with
respect to any such offering, if required, and such underwriting agreement shall
contain the customary rights of indemnity between the Company, the underwriters,
and the Holder;
(iii) the Holder shall execute, deliver and/or file with
or supply the Company, any underwriters, the Commission and/or any state or
other regulatory authority such information, documentation, representations,
undertakings and/or agreements necessary to carry out the provisions of the
registration covenants contained in this Section 9 and/or to effect the
registration or qualification of its Warrant Shares under the Act and/or any of
the laws and regulations of any state of governmental instrumentality;
(iv) the Company's obligation to include any Warrant
Shares in a registration statement shall be subject to the written agreement of
the Holder to offer such securities in the same manner and on the same terms and
conditions as the other securities of the same class are being offered pursuant
to the registration statement, if such shares are being underwritten;
(v) in the event that all the Warrant Shares have not
been sold on or prior to the expiration of the period specified in Section 9(c)
above, the Company may deregister by post-effective amendment any Warrant Shares
covered by the registration statement, but not sold on or prior to such date.
The Company agrees that it will notify the Holder of Warrant
Page 51 of 76
<PAGE>
Shares of the filing and effective date of such post-effective amendment; and
(vi) the Holder agrees that upon notification by the
Company that the prospectus in respect to any public offering covered by the
provisions hereof is in need of revision, the Holder shall immediately upon
receipt of such notification (x) cease to offer or sell any securities of the
Company which must be accompanied by such prospectus, (y) return all such
prospectuses in the Holder's hands to the Company, and (z) not offer or sell any
securities of the Company until the Holder has been provided with a current
prospectus and the Company has given the Holder notification permitting the
Holder to resume offers and sales.
(h) The Company agrees that until all the Warrant Shares have
been sold under a registration statement or pursuant to Rule 144 under the Act,
it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit the Holder of the Warrant
Shares to sell such securities under Rule 144.
10. (a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Holder, its officers, directors,
partners, employees, agents, and counsel, and each person, if any, who controls
any such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all loss, liability, charge, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 10, but not be
limited to, attorneys' fees and any and all reasonable expenses whatsoever
incurred in investigating, preparing, or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), as and when incurred, arising out of,
based upon, or in connection with (i) any untrue statement or alleged untrue
statement of a material fact contained (A) in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, relating to the sale of
any of the Warrant Shares or (B) in any application or other document or
communication (in this Section 10 collectively called an "application") executed
by or on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to register or
qualify any of the Warrant Shares under the securities or blue sky laws thereof
or filed with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written information
furnished to the Company with
Page 52 of 76
<PAGE>
respect to the Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be, or
(ii) any breach of any representation, warranty, covenant, or agreement of the
Company contained in this Warrant. The foregoing agreement to indemnify shall be
in addition to any liability the Company may otherwise have, including
liabilities arising under this Warrant.
If any action is brought against the Holder or any of its officers,
directors, partners, employees, agents, or counsel, or any controlling persons
of such person (an "indemnified party") in respect of which indemnity may be
sought against the Company pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the Company in writing of the institution
of such action (but the failure so to notify shall not relieve the Company from
any liability other than pursuant to this Section 10(a)) and the Company shall
promptly assume the defense of such action, including the employment of counsel
(reasonably satisfactory to such indemnified party or parties) and payment of
expenses. Such indemnified party or parties shall have the right to employ its
or their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the Company
in connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified party or
parties to have charge of the defense of such action or such indemnified party
or parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of which
events such fees and expenses shall be borne by the Company and the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties. Anything in this Section 10 to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent, which shall not be
unreasonably withheld. The Company shall not, without the prior written consent
of each indemnified party that is not released as described in this sentence,
settle or compromise any action, or permit a default or consent to the entry of
judgment in or otherwise seek to terminate any pending or threatened action, in
respect of which indemnity may be sought hereunder (whether or not any
indemnified party is a party thereto), unless such settlement, compromise,
consent, or termination includes an unconditional release of each indemnified
party from all liability in respect of such action. The Company agrees promptly
to notify the Holder of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection with the
sale
Page 53 of 76
<PAGE>
of any Warrant Shares or any preliminary prospectus, prospectus, registration
statement, or amendment or supplement thereto, or any application relating to
any sale of any Warrant Shares.
(b) The Holder agrees to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall have signed
any registration statement covering Warrant Shares held by the Holder, each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, and its or their respective
counsel, to the same extent as the foregoing indemnity from the Company to the
Holder in Section 10(a), but only with respect to statements or omissions, if
any, made in any registration statement, preliminary prospectus, or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with written information furnished to the Company with respect to the Holder by
or on behalf of the Holder expressly for inclusion in any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be. If any action
shall be brought against the Company or any other person so indemnified based on
any such registration statement, preliminary prospectus, or final prospectus, or
any amendment or supplement thereto, or in any application, and in respect of
which indemnity may be sought against the Holder pursuant to this Section 10(b),
the Holder shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of Section 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10(a) or
10(b) (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement, any controlling person of the Company, and its or their
respective counsel), as one entity, and the Holder of the Warrant Shares
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages, and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and the Holder in
connection with the facts which resulted in such losses,
Page 54 of 76
<PAGE>
liabilities, claims, damages, and expenses. The relative fault, in the case of
an untrue statement, alleged untrue statement, omission, or alleged omission,
shall be determined by, among other things, whether such statement, alleged
statement, omission, or alleged omission relates to information supplied by the
Company or by the Holder, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and the Holder agree that
it would be unjust and inequitable if the respective obligations of the Company
and the Holder were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages, and expenses (even if the Holder
and the other indemnified parties were treated as one entity for such purpose)
or by any other method of allocation that does not reflect the equitable
considerations referred to in this Section 10(c). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 10(c), each person,
if any, who controls the Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, partner, employee,
agent, and counsel of the Holder or control person shall have the same rights to
contribution as the Holder or control person and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who shall have signed any
such registration statement, each director of the Company, and its or their
respective counsel shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 10(c). Anything in this
Section 10(c) to the contrary notwithstanding, no party shall be liable for
contribution with respect to the settlement of any claim or action effected
without its written consent. This Section 10(c) is intended to supersede any
right to contribution under the Act, the Exchange Act or otherwise.
11. Unless registered pursuant to the provisions of Section 9
hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject
to a stop transfer order and the certificate or certificates evidencing such
Warrant Shares shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS THE REGISTRATION
PROVISIONS OF SAID ACT OR APPLICABLE STATE LAW HAVE
BEEN COMPLIED WITH OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF ITS COUNSEL OR AN OPINION OF OTHER
COUNSEL
Page 55 of 76
<PAGE>
REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED."
12. Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction, or mutilation of any Warrant (and upon surrender of
any Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor, and denomination.
13. The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Warrant.
14. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested or sent by Federal Express, Express Mail, or similar
overnight delivery or courier service or delivered (in person or by telecopy,
telex, or similar telecommunications equipment) against receipt to the party to
whom it is to be given, if sent to the Company, at: MEHL/Biophile International
Corporation, 4127 NW 27th Lane, Suite A, Gainesville, Florida 32606, Attention:
Thomas L. Mehl; or if sent to the Holder, at the Holder's address as it shall
appear on the Warrant Register; or to such other address as the parties shall
have furnished in writing in accordance with the provisions of this Section 14.
Any notice or other communication given by certified mail shall be deemed given
at the time of certification thereof, except for a notice changing a party's
address which will be deemed given at the time of receipt thereof. Any notice
given by other means permitted by this Section 14 shall be deemed given at the
time of receipt thereof.
15. This Warrant shall be binding upon the Company and its
successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns.
16. This Warrant shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
17. The Company irrevocably consents to the jurisdiction of the
courts of the State of New York and of any federal court located in such State
in connection with any action or proceeding arising out of or relating to this
Warrant, any document or instrument delivered pursuant to, in connection with or
simultaneously with this Warrant, or a breach of this Warrant or any such
document or instrument. In any such action or
Page 56 of 76
<PAGE>
proceeding, the Company waives personal service of any summons, complaint or
other process and agrees that service thereof may be made in accordance with
Section 14 hereof. Within thirty days after such service, or such other time as
may be mutually agreed upon in writing by the attorneys for the parties to such
action or proceeding, the Company shall appear to answer such summons, complaint
or other process. Should the Company so served fail to appear or answer within
such thirty-day period or such extended period, as the case may be, the Company
shall be deemed in default and judgment may be entered against the Company for
the amount as demanded in any summons, complaint or other process so served.
Page 57 of 76
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its President under its corporate seal and attested by its Secretary
on the day and year first written below.
Dated: August 5, 1997
MEHL/BIOPHILE INTERNATIONAL CORPORATION
By: /s/ Thomas L. Mehl, Sr.
-------------------------------------
Name: Thomas L. Mehl, Sr.
Title: Chairman & CEO
[Seal]
ATTEST:
/s/
- ---------------------------
Secretary
Page 58 of 76
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR VALUE RECEIVED, _____________________________ hereby sells,
assigns, and transfers unto _______________________________ a Warrant to
purchase __________ shares of Common Stock, par value $.01 per share, of
MEHL/Biophile International Corporation (the "Company"), together with all
right, title, and interest therein, and does hereby irrevocably constitute and
appoint ____________________________ attorney to transfer such Warrant on the
books of the Company, with full power of substitution.
Dated: ______________
Signature_____________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
Page 59 of 76
<PAGE>
To: MEHL/Biophile International Corporation
4127 NW 27th Lane, Suite A
Gainesville, Florida 32606
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
_____________ Warrant Shares covered by the within Warrant and tenders payment
herewith in the amount of $______________ in accordance with the terms thereof,
and requests that certificates for such securities be issued in the name of, and
delivered to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the Warrant Shares
covered by the within Warrant, that a new Warrant for the balance of the Warrant
Shares covered by the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated: _______________
Name___________________________________________
(Print)
Address:________________________________________________________________________
________________________________________________________________________
__________________________________
(Signature)
Page 60 of 76
EXHIBIT 13
FORM OF PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") dated August 5, 1997, by and between
___________________ ("Pledgor"), in favor of Clearwater Fund IV, LLC, a Delaware
limited liability company ("Clearwater"). Capitalized terms used but not defined
herein shall have the meanings ascribed to such terms in the Loan Agreement (as
defined below).
W I T N E S S E T H:
WHEREAS, Pledgor is the owner of certain outstanding shares of stock (the
"Pledged Shares") of MEHL/Biophile International Corporation (the "Company") as
set forth on Schedule I hereto;
WHEREAS, The Company and Clearwater have entered into that certain Loan
Agreement, dated as of August 5, 1997 (the "Loan Agreement"), whereby Clearwater
has agreed to make Loans to the Company in the amounts and pursuant to the terms
and conditions set forth therein;
WHEREAS, Pledgor has guaranteed the obligations of the Company under the
Loan Documents pursuant to a Guaranty, dated as of the date hereof, by Pledgor
in favor of Clearwater (the "Guaranty").
WHEREAS, Clearwater has required, as a condition to entering into the Loan
Documents, that Pledgor execute and deliver this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the premises and to induce Clearwater
to make Loans to the Company, Pledgor agrees with Clearwater, as follows:
SECTION 1. PLEDGE. Pledgor hereby pledges and grants to Clearwater a
continuing first priority and perfected security interest in the Pledged Shares
and the certificates representing the Pledged Shares, and all products and
proceeds of any of the Pledged Shares, including, without limitation, all
dividends, cash, instruments, subscriptions, warrants and any other rights and
options and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged Shares,
and all additional shares of stock of, or equity interest in, the Company from
time to time acquired by Pledgor in any manner, and the certificates
representing such additional shares (any such additional shares shall constitute
part of the Pledged Shares under and as defined in this Agreement), and all
products and proceeds of any of such additional Pledged Shares, including,
without limitation, all
Page 61 of 76
<PAGE>
dividends, cash, instruments, subscriptions, warrants and any other rights and
options and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such additional
Pledged Shares (all of the foregoing collectively, the "Pledged Collateral").
SECTION 2. SECURITY FOR GUARANTY OBLIGATIONS. This Agreement secures the
obligations of Pledgor under the Guaranty (the "Obligations").
SECTION 3. DELIVERY OF PLEDGED SECURITIES. All certificates or instruments
representing or evidencing the Pledged Collateral shall be delivered to and held
by Clearwater pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to Clearwater.
SECTION 4. REPRESENTATIONS AND WARRANTIES.
Pledgor represents and warrants as follows:
(a) The Pledged Shares have been duly authorized and validly issued
and are fully paid and non-assessable.
(b) Pledgor is the legal and beneficial owner of the Pledged
Collateral, free and clear of any Encumbrance on the Pledged Collateral.
(c) Upon the delivery to Clearwater of the Pledged Collateral, the
pledge of the Pledged Collateral pursuant to this Agreement creates a
valid and perfected first priority interest in the Pledged Collateral
securing the Obligations provided the Pledged Collateral is held in the
possession of Clearwater.
(d) No consent or authorization of, permit from, filing with or
other act by or in respect of, any governmental authority or any other
Person is required either (i) for the pledge by Pledgor of the Pledged
Collateral pursuant to this Agreement or (ii) for the exercise by
Clearwater of the voting or other rights provided for in this Agreement or
the remedies in respect of the Pledged Collateral pursuant to this
Agreement (except as may be required in connection with the disposition
thereof by laws affecting the offering and sale of securities).
(e) Pledgor has the right to vote, pledge and grant a security
interest in the Pledged Shares as provided by this Agreement.
(f) The Pledged Shares constitute all of the issued and outstanding
capital stock of the Company beneficially owned by Pledgor.
Page 62 of 76
<PAGE>
SECTION 5. FURTHER ASSISTANCE. Pledgor agrees that at any time and from
time to time, at his expense, he will promptly execute and deliver, or cause to
be executed and delivered, all stock powers, proxies, assignments, instruments
and documents and take all further action, that is reasonably necessary, at
Clearwater's request, in order to perfect any security interest granted or
purported to be granted hereby or to enable Clearwater to exercise and enforce
its rights and remedies hereunder with respect to any Pledged Collateral and to
carry out the provisions and purposes hereof.
SECTION 6. VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be
continuing and no notice has been delivered pursuant to Section 6(f)(2),
Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Pledged Shares or any part thereof for
any purpose not inconsistent with the terms of this Agreement or the other
Loan Documents; provided, however, that Pledgor shall not exercise or
shall refrain from exercising any such right if such action would have a
material adverse effect on the value of the Pledged Collateral or any part
thereof or be inconsistent with or violate any provisions of this
Agreement or any of the other Loan Documents.
(b) So long as no Event of Default shall have occurred and be
continuing, Pledgor shall be entitled to receive all cash dividends paid
from time to time in respect of the Pledged Shares.
(c) Any and all (i) dividends and other distributions paid or
payable in the form of instruments and other property (other than cash
dividends permitted under Section 6(b) hereof) received, receivable or
otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, (ii) dividends and other distributions paid or payable in cash
received, receivable or otherwise distributed in respect of any Pledged
Shares in connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or
paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Shares, shall in each case
be delivered forthwith to Clearwater to hold as Pledged Collateral and
shall, if received by Pledgor, be received in trust for the benefit of
Clearwater, be segregated from the other property or funds of Pledgor, and
be forthwith delivered to Clearwater as Pledged Collateral in the same
form as so received (with any necessary endorsement).
(d) Clearwater shall execute and deliver (or cause to be executed
and delivered) to Pledgor all such proxies and other instruments as
Pledgor may reasonably request for the purpose of enabling Pledgor to
exercise the voting and other
Page 63 of 76
<PAGE>
rights which he is entitled to exercise pursuant to Section 6(a) above.
(e) All dividends and other distributions which are received by
Pledgor contrary to the provisions of this Section 6 shall be received in
trust for the benefit of Clearwater, shall be segregated from other funds
of Pledgor and shall be forthwith paid over to Clearwater as Pledged
Collateral in the same form as so received (with any necessary
endorsement).
(f) All rights of Pledgor to exercise the voting and other
consensual rights which he would otherwise be entitled to exercise
pursuant to Section 6(a) shall cease, and all such rights shall become
vested in Clearwater which shall have the sole right to exercise such
voting and other consensual rights, from and after (1) the occurrence and
during the continuance of an Event of Default and (2) Clearwater's
delivery of written notice to Pledgor of Clearwater's intention to
exercise such rights.
(g) Upon the occurrence and during the continuance of an Event of
Default, all cash dividends or other distributions payable in respect of
the Pledged Shares which are received by Pledgor shall be paid directly to
Clearwater and, if received by Pledgor, shall be received in trust for the
benefit of Clearwater, shall be segregated from other funds of Pledgor and
shall be forthwith paid over to Clearwater as Pledged Collateral in the
same form as so received (with any necessary endorsement) and Pledgor's
right to receive such distributions pursuant to Section 6(b) hereof shall
immediately cease.
SECTION 7. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES.
(a) Pledgor agrees that he will not (i) sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral without
the prior written consent of Clearwater, (ii) create or permit to exist any Lien
upon or with respect to any of the Pledged Collateral, except for the security
interest granted under this Agreement or (iii) enter into any agreement or
understanding that purports to or may restrict or inhibit Clearwater's rights or
remedies hereunder, including, without limitation, Clearwater's right to sell or
otherwise dispose of the Pledged Collateral.
(b) Pledgor agrees that he will pledge and deliver to Clearwater
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all additional shares of stock, notes or other securities of the Company
of which Pledgor may become the beneficial owner after the date hereof.
SECTION 8. CLEARWATER APPOINTED ATTORNEY-IN-FACT. Pledgor hereby appoints
Clearwater its attorney-in-fact, with full authority in the place and stead of
Pledgor and in the name of
Page 64 of 76
<PAGE>
Pledgor or otherwise, to take any action and to execute any instrument which
Clearwater may deem necessary or advisable to further perfect and protect the
security interest granted hereby, including, without limitation, to receive,
endorse and collect all instruments made payable to Pledgor representing any
dividend or other distribution in respect of the Pledged Collateral or any part
thereof and to give full discharge for the same.
SECTION 9. CLEARWATER MAY PERFORM. If Pledgor fails to perform any
agreement contained herein, Clearwater may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Clearwater incurred in
connection therewith shall be payable by Pledgor under Section 13 hereof.
SECTION 10. NO ASSUMPTION OF DUTIES; REASONABLE CARE. The rights and
powers granted to Clearwater hereunder are being granted in order to preserve
and protect Clearwater's security interest in and to the Pledged Collateral
granted hereby and shall not be interpreted to, and shall not, impose any duties
on Clearwater in connection therewith. Clearwater shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which Clearwater accords its own property, it being
understood that Clearwater shall not have any responsibility for (i)
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Pledged Collateral, whether
or not Clearwater has or is deemed to have knowledge of such matters, or (ii)
taking any necessary steps to preserve rights against any parties with respect
to any Pledged Collateral.
SECTION 11. SUBSEQUENT CHANGES AFFECTING COLLATERAL. Pledgor represents to
Clearwater that he has made his own arrangements for keeping informed of changes
or potential changes affecting the Pledged Collateral (including, but not
limited to, rights to convert, rights to subscribe, payment of dividends,
reorganization or other exchanges, tender offers and voting rights), and Pledgor
agrees that Clearwater shall have no responsibility or liability for informing
Pledgor of any such changes or potential changes or for taking any action or
omitting to take any action with respect thereto. Pledgor covenants that he will
not, without the prior written consent of Clearwater, sell or otherwise dispose
of, or grant any option with respect to, any of the Pledged Collateral or create
or permit to exist any Lien upon or with respect to any of the Pledged
Collateral.
SECTION 12. REMEDIES UPON DEFAULT. If any Event of Default shall have
occurred and be continuing, Clearwater shall, in addition to all other rights
given by law or by this Agreement, the Loan Documents, or otherwise, have all of
the rights and remedies with respect to the Pledged Collateral of a secured
party under the UCC and Clearwater may, without notice and at its option,
transfer or register, and Pledgor shall register or cause to be registered upon
request therefor by Clearwater, the Pledged
Page 65 of 76
<PAGE>
Collateral or any part thereof on the books of the Company into the name of
Clearwater or Clearwater's nominee(s), indicating that such Pledged Collateral
is subject to the security interest hereunder. In addition, with respect to any
Pledged Collateral which shall then be in or shall thereafter come into the
possession or custody of Clearwater, Clearwater may sell or cause the same to be
sold at any broker's board or at any public or private sale, in one or more
sales or lots, at such price or prices as Clearwater may deem best, for cash or
on credit or for future delivery, without assumption of any credit risk, all in
accordance with the terms and provisions of this Agreement and the other Loan
Documents. The purchaser of any or all Pledged Collateral so sold shall
thereafter hold the same absolutely, free from any Liens. Any sale of the
Pledged Collateral conducted in conformity with reasonable commercial practices
of banks, insurance companies, commercial finance companies, or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable notice
shall be met if such notice is mailed to Pledgor as provided in Section 16.1
below, at least ten days before the time of the sale or disposition. Any other
requirement of notice, demand or advertisement for sale is, to the extent
permitted by law, waived. Clearwater may, in its own name or in the name of a
designee or nominee, buy any of the Pledged Collateral at any public sale and,
if permitted by applicable law, at any private sale. All expenses (including
court costs and reasonable attorneys' fees, expenses and disbursements) of, or
incident to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the Pledged
Collateral. In view of the fact that federal and state securities laws may
impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after an Event of Default, Pledgor agrees that upon
the occurrence and during the continuance of an Event of Default, Clearwater
may, from time to time, attempt to sell all or any part of the Pledged
Collateral by means of a private placement, restricting the prospective
purchasers to those who will represent and agree that they are purchasing for
investment only and not for distribution. In so doing, Clearwater may solicit
offers to buy the Pledged Collateral, or any part of it, for cash, from a
limited number of investors who might be interested in purchasing the Pledged
Collateral, and if Clearwater solicits such offers from not less than four such
investors that are not affiliated with Clearwater, then the acceptance by
Clearwater of the highest offer obtained therefrom shall be deemed to be a
commercially reasonable method of disposition of the Pledged Collateral.
In addition, upon the occurrence and during the continuance of an Event of
Default, all rights of Pledgor to exercise the voting and other rights which
they would otherwise be entitled to exercise shall cease, and all such rights
shall thereupon become vested in Clearwater as provided in and subject to the
terms of Section 6(f) hereof.
Page 66 of 76
<PAGE>
SECTION 13. EXPENSES. Pledgor will upon demand pay to Clearwater the
amount of any and all reasonable expenses, including, without limitation, the
reasonable fees, expenses and disbursements of its counsel (including allocated
costs of inside counsel), of any investment banking firm, business broker or
other selling agent and of any other experts and agents retained by Clearwater,
which Clearwater may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Pledged Collateral, (iii) the exercise or
enforcement of any of the rights of Clearwater hereunder or (iv) the failure by
Pledgor to perform or observe any of the provisions hereof.
SECTION 14. SECURITY INTEREST ABSOLUTE. All rights of Clearwater and
security interests hereunder, and all obligations of Pledgor hereunder, shall be
absolute and unconditional irrespective of, and unaffected by:
(a) any lack of validity or enforceability of any Loan Document;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from any Loan Document;
(c) any exchange, surrender, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent to
departure from any Guaranty, for all or any of the Obligations; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor in respect of the
Obligations or of this Agreement.
SECTION 15. SUBROGATION. Pledgor hereby waives, and agrees that he shall
not exercise, any claims, rights or remedies which Pledgor may now have or
hereafter acquire against the Company that arise hereunder and/or from the
performance by Pledgor hereunder, including, without limitation, any claim,
remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of Clearwater
against the Company or any security which Pledgor now has or hereafter acquires,
whether or not such claim arises in equity, under contract, by statute, under
common law or otherwise; and if any payment shall be made to Pledgor on account
of such rights, each and every amount so paid shall forthwith be paid to the
Company, to be credited and applied against the Obligations owed Clearwater by
the Company, whether matured or unmatured.
Page 67 of 76
<PAGE>
SECTION 16. MISCELLANEOUS PROVISIONS.
SECTION 16.1 Notices. All notices and communications to any party
hereunder shall be in writing and delivered in accordance with the Guaranty.
SECTION 16.2 Headings. The headings of the several sections and
subsections of this Agreement are intended for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
SECTION 16.3 Amendments, Waivers and Consents. Any amendment or waiver of
any provision of this Agreement, and any consent to any departure by Pledgor
from any provision of this Agreement, shall be effective only if made or given
in writing signed by Clearwater and Pledgor.
SECTION 16.4 Interpretation of Agreement. Time is of the essence in each
provision of this Agreement of which time is an element. To the extent a term or
provision of this Agreement conflicts with the Loan Agreement and is not dealt
with herein with more specificity, the Loan Agreement shall control with respect
to the subject matter of such term or provision. Acceptance of or acquiescence
in a course of performance rendered under this Agreement shall not be relevant
to determine the meaning of this Agreement even though the accepting or
acquiescing party had knowledge of the nature of the performance and opportunity
for objection.
SECTION 16.5 Continuing Security Interest; Transfer of Notes. This
Agreement shall create a continuing security interest in the Pledged Collateral
and shall (i) remain in full force and effect until payment in full of the
Obligations and the termination of the Loan Agreement, (ii) be binding upon
Pledgor and his successors and permitted assigns, and (iii) inure, together with
the rights and remedies of Clearwater hereunder, to the benefit of Clearwater
and its respective successors, transferees and assigns. Without limiting the
generality of clause (iii) above, Clearwater may, except as limited by the
express terms of the Loan Agreement, assign or otherwise transfer any Obligation
held by it to any other Person, and such other Person shall thereupon become
vested with all the benefits in respect thereof granted to Clearwater herein or
otherwise.
SECTION 16.6 Reinstatement. To the extent permitted by law, this Agreement
shall continue to be effective or be reinstated, as the case may be, if at any
time any amount received by Clearwater in respect of the Obligations is
rescinded or must otherwise be restored or returned by Clearwater upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of Pledgor or
upon the appointment of any receiver, intervenor, conservator, trustee or
similar official for Pledgor or any substantial part of its assets, or
otherwise, all as though such payments had not been made.
Page 68 of 76
<PAGE>
SECTION 16.7 Survival of Provisions. All representations, warranties and
covenants of Pledgor contained herein shall survive the execution and delivery
of this Agreement, and shall terminate only upon the full and final payment and
performance of the Obligations secured hereby and termination of the Loan
Agreement.
SECTION 16.9 Waivers. Pledgor waives all other notices to which Pledgor
might otherwise be entitled, except as otherwise expressly provided herein or in
the Loan Agreement.
SECTION 16.10 Authority of Clearwater. Clearwater shall have and be
entitled to exercise all powers hereunder which are specifically granted to
Clearwater by the terms hereof, together with such powers as are reasonably
incident thereto. Clearwater may perform any of its duties hereunder or in
connection with the Pledged Collateral by or through agents or employees and
shall be entitled to retain counsel and to act in reliance upon the advice of
counsel concerning all such matters. Neither Clearwater nor any director,
officer, employee, attorney or agent of Clearwater shall be liable to Pledgor
for any action taken or omitted to be taken by him hereunder, except for its or
their own gross negligence or willful misconduct, nor shall Clearwater be
responsible for the validity, effectiveness or sufficiency hereof or of any
document or security furnished pursuant hereto. Clearwater and its directors,
officers, employees, attorneys and agents shall be entitled to rely on any
communication, instrument or document reasonably believed by it or them to be
genuine and correct and to have been signed or sent by the proper Person or
Persons. Pledgor agrees to indemnify and hold harmless Clearwater and any other
Person from and against any and all costs, expenses (including reasonable fees,
expenses and disbursements of attorneys and paralegals (including, without
duplication, reasonable charges of inside counsel)), claims and liabilities
incurred by Clearwater or such Person hereunder, unless such claim or liability
shall be due to willful misconduct or gross negligence on the part of Clearwater
or such Person.
SECTION 16.11 Release; Termination of Agreement. Subject to the provisions
of Section 16.6 hereof, this Agreement shall terminate upon the payment in full
of the Obligations and the termination of the Loan Agreement, or the release of
Pledgor by Clearwater, whichever shall occur first. At such time, Clearwater
shall reassign and redeliver all of the Pledged Collateral hereunder and any
money, instruments or property received in respect thereof, which has not been
sold, disposed of, retained or applied by Clearwater in accordance with the
terms hereof. Such reassignment and redelivery shall be without warranty by or
recourse to Clearwater, except as to the absence of any prior assignments by
Clearwater of its interest in the Pledged Collateral, and shall be at the
expense of Pledgor.
Page 69 of 76
<PAGE>
SECTION 16.12 Choice of Law and Venue; Waiver of Jury Trial.
(a) THIS PLEDGE SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK
AND THE VALIDITY OF THIS PLEDGE, ITS CONSTRUCTION, INTERPRETATION AND
ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HEREUNDER AND CONCERNING THE
COLLATERAL, SHALL BE DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS PLEDGE SHALL BE TRIED AND LITIGATED
ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF
NEW YORK. PLEDGOR WAIVES ANY RIGHT HE MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO SUCH VENUE AND HEREBY CONSENTS TO ANY COURT
ORDERED RELIEF.
(b) PLEDGOR AND CLEARWATER ACKNOWLEDGE THAT THE RIGHT TO A TRIAL BY JURY
IS A CONSTITUTIONAL RIGHT, BUT THAT THE RIGHT MAY BE WAIVED. PLEDGOR AND
CLEARWATER EACH KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND WITHOUT COERCION, WAIVE
ALL RIGHTS TO TRIAL BY JURY OF ALL DISPUTES BETWEEN THEM. NEITHER CLEARWATER NOR
PLEDGOR SHALL BE DEEMED TO HAVE GIVEN UP THIS WAIVER OR JURY TRIAL UNLESS THE
PARTY CLAIMING THAT THIS WAIVER HAS BEEN RELINQUISHED HAS A WRITTEN INSTRUMENT
SIGNED BY THE OTHER PARTY STATING THAT THIS WAIVER HAS BEEN GIVEN UP.
SECTION 15.13 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 deemed an original, but
all of which shall together constitute one and the same agreement.
Page 70 of 76
<PAGE>
IN WITNESS WHEREOF, Pledgor and Clearwater have each caused this Agreement
to be duly executed and delivered as of the date first above written.
----------------------------------
Pledgor
CLEARWATER FUNDS IV, LLC
By:
--------------------------------------
Name:
Title:
Page 71 of 76
<PAGE>
Schedule I
PLEDGED SHARES
CUSIP
Pledgor Company Stock Number of
Numbers Pledged Pledged Shares
- ------- ------- --------------
MEHL/Biophile International
Corporation
Page 72 of 76
EXHIBIT 14
GUARANTY
GUARANTY, dated August 5, 1997, from Marty Kass (the "Guarantor") to
Clearwater Fund IV, LLC ("Clearwater").
Reference is made to the Loan Agreement, dated August 5, 1997, between
MEHL/Biophile International Corporation ("MEHL") and Clearwater (the "Loan
Agreement"). Capitalized terms used herein and not otherwise defined shall have
the meaning ascribed to such terms in the Loan Agreement.
(i) Guaranty. In order to induce Clearwater to enter into the Loan
Documents and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Guarantor hereby irrevocably and
unconditionally guarantees to Clearwater the prompt payment of all Obligations
of MEHL when due strictly in accordance with the terms of the Loan Documents as
the same may at any time be amended, modified, renewed or extended. In addition,
the Guarantor hereby agrees to pay any and all costs and expenses incurred by
Clearwater in enforcing this Guaranty, including reasonable attorneys' fees and
expenses incurred in connection therewith. It is understood and agreed by the
Guarantor that Clearwater may proceed against the Guarantor under this Guaranty,
in one or more actions, suits or proceedings, without pursuing or exhausting any
right or remedy Clearwater may have against MEHL, any other guarantor or any
other person obligated with respect to the Loan Documents or any part thereof.
(ii) Obligations Absolute; Revival. The liability of the Guarantor under
this Guaranty shall be irrevocable, absolute and unconditional irrespective of
the validity, legality or enforceability of the Loan Documents or any other
circumstance or circumstances which might otherwise constitute a legal or
equitable discharge of, or a defense available to, a surety or guarantor and
regardless of any law, rule, regulation, order, writ, judgment, decree, award or
other administrative or judicial pronouncement now or hereafter in effect in any
jurisdiction purporting to affect in any manner any of the terms of the Loan
Documents. Clearwater may at any time or times, in its absolute discretion (a)
extend or change the time, manner, place or other term of payment of the
Obligations or any part thereof, (b) waive compliance by MEHL or any other
guarantor with any term, covenant, agreement or condition on its part to be
complied with under the Loan Documents, (c) obtain or release any guarantor
(including the Guarantor) obligated with respect to the Obligations or any part
thereof, (d) settle or compromise with MEHL, or any other person or entity
obligated with respect to the Obligations or any part thereof, and subordinate
upon any terms Clearwater's right or rights to receive payment of the
Obligations or any part thereof and (e) amend or otherwise modify the Loan
Documents or any part thereof, or the liability of MEHL
Page 73 of 76
<PAGE>
or any other person or entity obligated with respect thereto, in any manner, all
without notice to or the assent of the Guarantor and without affecting this
Guaranty or the liability of the Guarantor and without affecting this Guaranty
or the liability of the Guarantor hereunder, which shall continue until fully
paid in cash or payment is otherwise duly provided for in a manner satisfactory
to Clearwater. This Guaranty, and the liability of the Guarantor hereunder,
shall be reinstated and revived, and Clearwater's rights under this Guaranty
shall continue, with respect to any amount (or portion thereof) at any time paid
to or received by Clearwater on account of the Loan Document or that shall, at
any time after Clearwater's receipt of such payment, be required to be restored
or returned by Clearwater upon the bankruptcy, insolvency or reorganization of
MEHL or any other person or entity obligated with respect to the Loan Documents
or for any other reason, all as though such amount (or portion thereof) had not
been so paid or received by Clearwater.
(iii) Subordination of Subrogation Claims. The Guarantor hereby agrees not
to enforce or seek to satisfy, either against MEHL or any other guarantor or out
of any of its or their respective assets, any claim that Guarantor may have
against MEHL, or any such other guarantor by reason of any payment made to
Clearwater hereunder on account of the Loan Documents, and not to ask for,
demand, take or receive any payment from MEHL, or any such other guarantor or
account thereof, until the Obligations have been paid in full in cash or payment
of such obligations has otherwise been duly provided for in a manner
satisfactory to Clearwater. The Guarantor hereby agrees that should any payment
or payments be received by the Guarantor contrary to the terms of the preceding
sentence, the Guarantor will promptly pay over the same to Clearwater for credit
or application to the payment or prepayment of all or any part of the
Obligations, in any order selected by Clearwater, and to hold such payment or
payments in trust for Clearwater until so paid over to Clearwater.
(iv) Waiver. The Guarantor hereby waives (a) acceptance of this Guaranty
by Clearwater and notice thereof, (b) presentment for payment, demand, notice of
non-payment, protest and notice of protest with respect to the Obligations or
any part thereof and all other notices and (c) promptness by Clearwater in
giving any notice to or making any claim or demand upon the Guarantor hereunder,
but no act or omission of any kind in the premises shall in any way affect this
Guaranty or impair Clearwater's rights hereunder.
(v) Notices, Etc. All notices, demands and other communications required
or permitted to be given to or made upon the Guarantor or Clearwater with
respect to this Guaranty shall be in writing and delivered or sent, by the means
authorized under the Loan Agreement, if to the Guarantor, to him at: c/o
MEHL/Biophile International Corporation, 4127 NW 27th Lane, Suite A,
Gainesville, Florida 34616; and if to Clearwater to it at: the then current
address designated by Clearwater pursuant to the Loan Agreement for the receipt
of notices and other communications to it under the Loan Agreement. Any such
demand,
Page 74 of 76
<PAGE>
notice or communication shall be deemed received by the intended recipient at
the time provided for under the terms of the Loan Agreement, according to the
means by which sent.
Page 75 of 76
<PAGE>
(vi) Continuing Guaranty. This Guaranty shall remain in full force and
effect until the Obligations have been paid in full in cash or payment of the
Obligations has been duly provided for in a satisfactory manner to Clearwater,
and all expenses (which the Guarantor hereby agrees to pay) incurred by
Clearwater in enforcing this Guaranty have been paid. This Guaranty may not be
released, altered, modified or amended except in a writing signed by Clearwater.
(vii) Governing Law; Binding Character. This Guaranty shall be deemed to
have been made under, and for all purposes shall be governed by and construed
and enforced in accordance with, the laws of the State of New York, without
regard to its principles of conflict of laws. This Guaranty shall be binding
upon the Guarantor and its successors and assigns and shall inure to the benefit
of Clearwater and its successors and assigns. The Guarantor shall not be
permitted to assign any of its obligations hereunder (voluntarily, by operation
of the law or otherwise) without the prior written consent of Clearwater.
-----------------------------------------
Marty Kass
Page 76 of 76
