EXHIBIT 10.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED. ANY
UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS
UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN
SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.
No. 1 $1,580,000
6% CONVERTIBLE DEBENTURE
of
Metropolitan Health Networks, Inc., a Florida corporation (together
with its successors, the "Company"), for value received hereby promises to pay
to:
GCA STRATEGIC INVESTMENT FUND LIMITED
(the "Holder") and registered assigns, the principal sum of One Million Five
Hundred Eighty Thousand ($1,580,000) or, if less, the principal amount of this
Debenture then outstanding, on the Maturity Date by wire transfer of immediately
available funds to the Holder in such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest, which shall begin to accrue on
the date of this Debenture, quarterly in arrears, on (i) the last day of March,
June, September and December of each year until the Maturity Date, commencing
June 30, 2002 (unless such day is not a Business Day, in which event on the next
succeeding Business Day) (each an "Interest Payment Date"), (ii) the Maturity
Date, (iii) each Conversion Date, as hereafter defined, and (iv) the date the
principal amount of the Convertible Debentures shall be declared to be or shall
automatically become due and payable, on the principal sum hereof outstanding in
like coin or currency, at the rates per annum set forth below, from the most
recent Interest Payment Date to which interest has been paid on this
Convertible Debenture, or if no interest has been paid on this Convertible
Debenture, from the date of this Convertible Debenture until payment in full of
the principal sum hereof has been made. The Maturity Date is May 24, 2004.
The interest rate shall be six percent (6%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 7% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Debenture will be calculated on the basis of a
360-day year of twelve 30 day months. All payments of principal and interest
hereunder shall be made for the benefit of the Holder pursuant to the terms of
the Agreement (hereafter defined). At the option of the Company, interest may be
paid in cash or in shares of Common Stock. If the Company determines to pay
interest in shares of Common Stock, it shall be required to notify the Holder of
such election on the Closing Date. On each Conversion Date, interest shall be
paid in shares of Common Stock on the portion of the principal balance of the
Convertible Debenture then being converted. The number of shares of Common Stock
issued as interest shall be determined by dividing the dollar amount of interest
due on the applicable Interest Payment Date by the Conversion Price then in
effect.
This Convertible Debenture (this "Convertible Debenture") is one of a
duly authorized issuance of $1,580,000 aggregate principal amount of Convertible
Debentures of the Company referred to in that certain Securities Purchase
Agreement dated as of the date hereof between the Company and the Purchaser
named therein (the "Agreement"). The Agreement contains certain additional
agreements among the parties with respect to the terms of this Convertible
Debenture, including, without limitation, provisions which (A) limit the
conversion rights of the Holder, (B) specify voluntary and mandatory repayment,
prepayment and redemption rights and obligations and (C) specify Events of
Default following which the remaining balance due and owing hereunder may be
accelerated. All such provisions are an integral part of this Convertible
Debenture and are incorporated herein by reference. This Convertible Debenture
is transferable and assignable to one or more Persons, in accordance with the
limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Debenture and particulars of this Convertible Debenture held by such holder and
of all transfers of this Convertible Debenture. References to the "Holder" or
"Holders" shall mean the Person listed in the Register as registered holder of
such Convertible Debentures. The ownership of this Convertible Debenture shall
be proven by the Register.
1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for in the Agreement.
2. COVENANTS. The Company covenants and agrees to observe and perform each
of its covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
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3. RESERVED.
4. CONVERSION.
4.1 CONVERSION OF CONVERTIBLE DEBENTURE. Subject to Section 5
hereof, the Holder shall have the right, at its option, at any time
from and after the date of issuance of this Convertible Debenture,
convert the principal amount of this Convertible Debenture, or any
portion of such principal amount, into that number of fully paid and
nonassessable shares of Common Stock (as such shares shall then be
constituted) determined pursuant to this Section 4.1. The number of
shares of Common Stock to be issued upon each conversion of this
Convertible Debenture shall be determined by dividing the Conversion
Amount (as defined below) by the Conversion Price in effect on the date
(the "Conversion Date") a Notice of Conversion is delivered to the
Company, as applicable, by the Holder by facsimile or other reasonable
means of communication dispatched prior to 4:00 p.m., E.S.T. The term
"Conversion Amount" means, with respect to any conversion of this
Convertible Debenture, the sum of (1) the principal amount of this
Convertible Debenture to be converted in such conversion plus (2)
accrued and unpaid interest, if any, on such principal amount at the
interest rates provided in this Convertible Debenture to the Conversion
Date plus (3) Default Interest, if any, on the interest referred to in
the immediately preceding clause (2) plus (4) at the Holder's option,
any amounts owed to the Holder pursuant to Section 4.3 hereof, Section
10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 CONVERSION PRICE AND LIMITATION. At the option of the Holder,
any portion or all of the outstanding principal amount of this
Convertible Debenture shall be converted into a number of shares of
Common Stock at the conversion price (the "Conversion Price") equal to
the lesser of (i)75% of the average of the volume weighted average
sales price of the Common Stock as reported by Bloomberg L.P. for the
five Trading Days immediately preceding, but not including, May 3,
2002, or $0.46, (the "Fixed Conversion Price") and (ii) 75% of the
volume weighted average sales prices as reported by Bloomberg L.P. on
the Trading Day immediately preceding the Closing Date or $0.43 (the
"Formula Conversion Price").
4.2A EVENT OF DEFAULT CONVERSION PRICE. Notwithstanding the
foregoing in Section 4.2, upon the occurrence of an Event of Default
(as defined in the Agreement) and for so long as any Convertible
Debenture remains outstanding the Conversion Price shall be equal to
the lesser of (i) the Fixed Conversion Price and (ii) 75% of the
average of the volume weighted average sales prices of the Common
Stock, as reported on Bloomberg, L.P., for the five Trading Days
immediately preceding the date of the any Notice of Conversion
submitted by Holder following an Event of Default.
4.3 AUTHORIZED SHARES.
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(a) Consistent with Section 7.11 of the Agreement, the Company (i)
shall promptly irrevocably instruct the Company's transfer agent to
issue certificates for the Common Stock issuable upon conversion of
this Convertible Debenture and (ii) agrees that its issuance of this
Convertible Debenture shall constitute full authority to its officers
and agents who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares
of Common Stock in accordance with the terms and conditions of this
Convertible Debenture.
(b) If at any time a Holder of this Convertible Debenture submits
a Notice of Conversion (x) the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in full in accordance with the provisions of this Article 4
or (y) the Company is prohibited by the applicable rules of the OTC
Bulletin Board or the National Market on which the Common Shares are
listed and traded at that time to effect such conversion in full as
provided in subsection (d) below, without stockholder approval (each, a
"Conversion Default"), the Company shall issue to the Holder all of the
shares of Common Stock which are then available to effect such
conversion. The portion of this Convertible Debenture which the Holder
included in its Conversion Notice and which exceeds the amount which is
then convertible into available shares of Common Stock (the "Excess
Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the Company,
or its stockholders, as applicable, at which time the Conversion Price
in respect thereof shall be the lower of (i) the Conversion Price on
the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in
respect thereof. The Company shall pay to the Holder payments pursuant
to Section 10.1(b) of the Agreement ("Conversion Default Payments")
until the Conversion Default is cured. The Company shall use its best
efforts to authorize, or cause its stockholders to authorize within 90
days of the occurrence of a Conversion Default, as applicable, a
sufficient number of shares of Common Stock as soon as practicable
following the earlier of (i) such time that the Holder notifies the
Company or that the Company otherwise becomes aware that there are or
likely will be insufficient shares to allow full conversion thereof and
(ii) a Conversion Default. The Company shall send notice to the Holder
of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder's accrued Conversion
Default Payments. The accrued Conversion Default Payments for each
calendar month shall be paid in cash or shall be convertible into
Common Stock (at such time as there are sufficient authorized shares of
Common Stock) at the Market Price, at the Holder's option, as follows:
(1) In the event the Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth Business Day of the month following
the month in which it has accrued; and
(2) In the event the Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the
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Conversion Price (as in effect at the time of conversion) at any time after the
fifth Business Day of the month following the month in which it has accrued (at
such time as there are sufficient authorized shares of Common Stock) in
accordance with the terms of this Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall be
made in writing to the Company at any time prior to 4:00 p.m., E.S.T.,
on the third Business Day of the month following the month in which
Conversion Default payments have accrued. If no election is made, the
Holder shall be deemed to have elected to receive cash. Nothing herein
shall limit the Holders right to pursue actual damages (to the extent
in excess of the Conversion Default Payments) due to the Company's
failure to maintain a sufficient number of authorized shares of Common
Stock.
4.4 METHOD OF CONVERSION.
(a) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Convertible Debenture in accordance with the
terms hereof, the Holder shall not be required to physically surrender
this Convertible Debenture to the Company unless the entire unpaid
principal amount of this Convertible Debenture is so converted. Rather,
records showing the principal amount converted (or otherwise repaid)
and the date of such conversion or repayment shall be maintained on a
ledger substantially in the form of Annex A attached hereto (a copy of
which shall be delivered to the Company or transfer agent with each
Notice of Conversion). It is specifically contemplated that the Holder
hereof shall act as the calculation agent for conversions and
repayments. In the event of any dispute or discrepancies, such records
maintained by the Holder shall be controlling and determinative in the
absence of manifest error or failure of Holder to record the principal
amount converted (or otherwise repaid) from time to time, in which
events the record of the Company shall be controlling and
determinative. The Holder and any assignee, by acceptance of this
Convertible Debenture, acknowledge and agree that, by reason of the
provisions of this paragraph, following a conversion of a portion of
this Convertible Debenture, the principal amount represented by this
Convertible Debenture will be the amount indicated on Annex A attached
hereto (which may be less than the amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock or other securities or property on
conversion of this Convertible Debenture in a name other than that of
the Holder (or in street name), and the Company shall not be required
to issue or deliver any such shares or other securities or property
unless and until the person or persons (other than the Holder or the
custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to
the Company the amount of any such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
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(c) Subject to Section 5 hereof, upon receipt by the Company of a
Notice of Conversion, the Holder shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid
interest on this Convertible Debenture shall be deemed reduced to
reflect such conversion, and, unless the Company defaults on its
obligations under this Article 4, all rights with respect to the
portion of this Convertible Debenture being so converted shall
forthwith terminate except the right to receive the Common Stock or
other securities, cash or other assets, as herein provided, on such
conversion. Subject to Section 5 hereof, if the Holder shall have given
a Notice of Conversion as provided herein, the Company's obligation to
issue and deliver the certificates for shares of Common Stock shall be
absolute and unconditional, irrespective of the absence of any action
by the Holder to enforce the same, any waiver or consent with respect
to any provisions thereof, the recovery of any judgment against any
person or any action by the Holder to enforce the same, any failure or
delay in the enforcement of any other obligation of the Company to the
Holder of record, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder of any
obligation to the Company, and subject to Section 4.4(a) irrespective
of any other circumstance which might otherwise limit such obligation
of the Company to the Holder in connection with such conversion. The
date of receipt (including receipt via telecopy) of such Notice of
Conversion shall be the Conversion Date so long as it is received
before 4:00 p.m., E.S.T., on such date.
(d) Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the expiration of
the Deadline with respect to a conversion of any portion of this
Convertible Debenture for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying
the Company), the Holder shall regain the rights of a Holder of this
Convertible Debenture with respect to such unconverted portions of this
Convertible Debenture and the Company shall, as soon as practicable,
return such unconverted Convertible Debenture to the holder or, if the
Convertible Debenture has not been surrendered, adjust its records to
reflect that such portion of this Convertible Debenture not been
converted. In all cases, the Holder shall retain all of its rights and
remedies (including, without limitation, (i) the right to receive
Conversion Default Payments to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the
right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 4.3 for the Company's
failure to convert this Convertible Debenture.
(e) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer program, upon request of the Holder and
its compliance with the provisions contained in Section 4.1 and in this
Section 4.4, the Company shall use its best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable
upon conversion to the Holder by crediting the account of Holder's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission
System.
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4.5 MANDATORY CONVERSION. In the event the volume weighted average
sales price for the Common Stock, as reported by Bloomberg L.P., is
equal to or greater than $1.50 for 60 consecutive Trading Days at any
time following the Closing Date, Holder shall be required to convert
this Convertible Debenture at the then applicable Conversion Price;
provided, however, this provision shall be void if at the time Holder
is required to convert this Convertible Debenture, the Registration
Statement is not effective with the Commission.
5. REDEMPTION.
5.1 REQUIRED REDEMPTION. In accordance with the provisions of the
Purchase Agreement and this Convertible Debenture, the Company may
elect or be required under certain circumstances, to redeem in whole or
in part, the remaining unpaid principal amount of this Convertible
Debenture, for cash at a redemption price (the "Redemption Price")
equal to (x) the number of shares of Common Stock into which this
Convertible Debenture is then convertible, times (y) the average
Closing Bid Price of Common Stock for the five (5) Trading Days as
reported by Bloomberg L.P. immediately preceding the date that this
Convertible Debenture is called for redemption, plus accrued and unpaid
interest.
5.2 MECHANICS OF REDEMPTION. The Company shall effect each such
redemption within 10 business days of giving notice of its election to
redeem by facsimile with a copy by either overnight or 2-day courier to
the Holder of this Convertible Debenture to be redeemed at the address
and facsimile number of such Holder appearing in the Company's register
for the Convertible Debentures. Such redemption notice shall indicate
whether the Company will redeem all or part of such portion of the
Convertible Debenture to be redeemed and the applicable Redemption
Price. The Company shall not be entitled to send any notice of
redemption and begin the redemption procedure unless it has (i) the
full amount of the Redemption Price, in cash, available in a demand or
other immediately available account in a bank or similar financial
institution or (ii) immediately available credit facilities, in the
full amount of the Redemption Price, with a bank or similar financial
institution on the date the redemption notice is sent to the Holders of
this Convertible Debenture. Provided, however, the Company will process
any Notice of Conversion received prior to the issuance of a notice of
redemption; and further provided that, after a notice of redemption has
been issued, the Holder may issue a Notice of Conversion which will not
be honored unless the Company fails to make the redemption payment when
due. In the event of such failure, the Notice of Conversion will be
honored as of the date of the Notice of Conversion. Additionally, if
the Company fails to make full payments of the Redemption Price of this
Convertible Debenture being redeemed by the tenth day following the
notice or redemption, then the Company waives its right to redeem any
of the remaining then outstanding Debentures, unless approved by the
Holder.
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5.3 PAYMENT OF REDEMPTION PRICE. The Redemption Price shall be
paid to the Holder of this Convertible Debenture within 10 business
days of the delivery of the notice of such redemption to such Holder.
6. HOLDER'S RIGHT TO ADVANCE NOTICE OF ELECTION REDEEM.
6.1 HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION
BY COMPANY. The Holder of this Convertible Debenture shall have the
right to require Company to provide advance notice stating whether the
Company will elect to redeem all or part of the Convertible Debenture
in cash, pursuant to the Company's redemption rights discussed in
Section 5.1 above.
6.2 MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall give
notice to the Company by facsimile (the "Election Notice"), requiring
that the Company disclose whether the Company would elect to redeem the
redeemable portion of this Convertible Debenture (in whole or in part)
if the Holder were to provide a Notice of Conversion and sought to
convert the Convertible Debenture in such principal amount as is
specified in the Notice of Election.
6.3 COMPANY'S RESPONSE. Company must respond, disclosing its
election, within two (2) business days of receipt of Holder's Election
Notice via facsimile. If Company does not respond to Holder within two
(2) business days (by 12:00 noon, if required above) via facsimile,
Company shall be deemed to have forfeited its right to exercise
redemption pursuant to Section 5(a) upon its receipt of (but only with
respect to) that Notice of Conversion.
7. MISCELLANEOUS. This Convertible Debenture shall be deemed to be a
contract made under the laws of the State of Florida, and for all purposes shall
be governed by and construed in accordance with the laws of said State. The
parties hereto, including all guarantors or endorsers, hereby waive presentment,
demand, notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Debenture,
except as specifically provided herein, and asset to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the exclusive jurisdiction of the United States District Court for
Florida and of any state court sitting in Palm Beach County, Florida for
purposes of all legal proceedings arising out of or relating to this Convertible
Debenture. The Company irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
The Company hereby irrevocably waives any and all right to trial by jury in any
legal proceeding arising out of or relating to this Convertible Debenture.
The Holder of this Convertible Debenture by acceptance of this
Convertible Debenture agrees to be bound by the provisions of this Convertible
Debenture which are expressly binding on such Holder.
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SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: May ___, 2002
METROPOLITAN HEALTH NETWORKS, INC.
By:
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Name:
-------------------------------------
Title:
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ANNEX A
CONVERSION AND REPAYMENT LEDGER
INTEREST CONVERTED PRINCIPAL CONVERTED
DATE PRINCIPAL BALANCE OR PAID OR PAID NEW PRINCIPAL BALANCE ISSUER INITIALS HOLDER INITIALS
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS:
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Debenture)
The undersigned hereby irrevocably elects to convert $________ of the
principal balance of the Convertible Debenture into shares of Common Stock, ____
par value per share (the "Common Stock"), of Metropolitan Health Networks, Inc.
(the "Company") according to the conditions hereof, as of the date written
below. No fee will be charged to the Holder for any conversion, except for
transfer taxes, if any. The undersigned, as contemplated by Section 5.1 of the
Securities Purchase Agreement pursuant to which the Convertible Debenture was
issued, hereby states that the representations and warranties of the undersigned
set forth therein are true and correct in all material respects as of the date
hereof (provided, the undersigned makes no representations concerning its
investment intent with respect to the Common Stock received upon this
conversion).
Conversion calculations:
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Date of Conversion
------------------------------------
Applicable Conversion Price
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Number of Shares
------------------------------------
Name/Signature
Address:
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