Losing Gateway Fight, Vitech Files Ch. 11

Vitech America Inc., a Miami company that is one of Brazil’s leading PC manufacturers, has filed for Chapter 11 bankruptcy protection as it tries to avoid a court order that it repay $41 million in loans to Gateway .

Vitech said the reorganization filing in U.S. Bankruptcy Court in Florida is an attempt to remain operational while at the same time avoiding an Aug. 4 order of a New York court to repay the Gateway loan that has led to dueling lawsuits. Vitech’s Brazilian operating subsidiary, Microtec, was not part of the Chapter 11 filing.

A statement released by Vitech said it seeks “adequate relief from Gateway and other creditors to regain the financial strength it requires to continue to compete effectively.” Vitech added that it is looking at strategic alternatives, including the sale of the company.

Nasdaq suspended trading in Vitech shares Friday after the bankruptcy filing, saying it was seeking more information from the company. VTCH shares were trading at .10 after plummeting this year from a 52-week high of 5.375.

Vitech’s relationship with Gateway goes back to September 1999. At the time, Gateway enjoying the global boom in PC sales to consumers and businesseswas looking to expand into Brazil and sought help from Vitech, a big maker of PCs, laptops, servers and networking equiopment. Vitech was named Gateway’s manufacturing and distribution partner in Brazil, making and selling Gateway-branded hardware.

At the heart of the deal, according to a Securities and Exchange Commission filing by Vitech, was $41 million in convertible loan agreements from Gateway. According to Vitech, Gateway had promised to convert the debt into equity in Vitech or extend additional financing in March 2001, when the loan matured.

But, according to Vitech, in the first quarter of 2001 Gateway blocked Vitech from gaining additional outside loans, denied additional funding and sought to take control of the company. “We believe that all of this was part of Gateway’s scheme to engineer technical defaults by us so that Gateway could take over our Brazilian computer manufacturing operation,” Vitech said in a recent 8-K filing.

Vitech’s sales and earnings have dropped in the past year. Vitech’s most recent earnings statement filed with the SEC, for the first three months of 2001, show the company lost $2.7 million versus a $1.3 million profit in the same period last year. Net sales were sliced in half, to $11.4 million from $22.5 million.

The lawsuits started flying in March when Vitech sued Gateway in Florida charging breach of contract related to the loan agreements. Gateway counter sued in New York, seeking its $41 million. Vitech had argued that its Florida case must be dealt with first, but the court refused, and on Aug. 7 it ruled that Vitech must repay loan plus interest.

Vitech said it wants permission from the court to continue to pay its employees and it said it intends to continue paying its vendors for good and services delivered after the filing date.

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