AMENDED AND RESTATED
LOAN AND INVESTMENT AGREEMENT
dated as of October 3, 2000
between
HEALTHCOMP EVALUATION SERVICES CORPORATION,
the Company
and
DILIGENTI, INC.,
the Lender
TABLE OF CONTENTS Page
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE 1
1.1 Definitions 1
1.2 Rules of Construction 9
ARTICLE II AMOUNT AND TERMS OF SECURITIES 10
2.1 Commitment to Make Bridge Loan 10
2.2 Interest; Default Interest 10
2.3 Interest and Principal Payments 11
2.4 Conversion of Bridge Loan and Additional Investment 11
2.5 Optional Conversion and Notice of Offer 11
2.6 Taxes on Conversion 13
2.7 Company to Provide Stock 13
2.8 Acquisition of Revenue Right 13
ARTICLE III REPRESENTATIONS AND WARRANTIES 13
3.1 Representations and Warranties of the Company. 13
3.2 Representations and Warranties of the Lender 23
ARTICLE IV CONDITIONS OF OBLIGATIONS OF THE LENDER 24
4.1Conditions to Lender's Obligations on
the Closing Date 24
4.2 Conditions to Lender's Obligations to
Make the Additional Investment 27
ARTICLE V AFFIRMATIVE COVENANTS OF THE COMPANY 28
5.1 [Intentionally Omitted] 28
5.2 Reports 29
5.3 Information Regarding Collateral 29
5.4 Accounts and Records 30
5.5 Inspection 30
5.6 Use of Proceeds 30
5.7 Further Assurances 30
5.8 Termination 30
ARTICLE VI NEGATIVE COVENANTS 31
6.1 Borrowed Money Indebtedness 31
6.2 Liens 31
6.3 Contingent Liabilities 31
6.4 Mergers, Consolidations and
Dispositions and Acquisitions of Assets 32
6.5 Redemption, Dividends and Distributions 32
6.6 Nature of Business 32
6.7 Transactions with Related Parties 32
6.8 Loans and Investments 32
6.9 Organizational Documents 32
6.10 Sale/Leasebacks 33
6.11 Issuance of Stock 33
6.12 Subsidiaries 33
6.13 Termination 33
ARTICLE VII DEFAULTS AND REMEDIES 33
7.1 Events of Default 33
7.2 Acceleration 34
7.3 Other Remedies 35
7.4 Waiver of Past Defaults 35
ARTICLE VIII [Intentionally Omitted] 35
ARTICLE IX RESTRICTIONS ON TRANSFER 35
9.1 Securities Laws Restrictions on Transfer 35
9.2 Restrictive Legend 35
9.3 Transfer to Affiliates 36
ARTICLE X MISCELLANEOUS 37
10.1 Notices 37
10.2 Amendment, Supplement and Waiver 38
10.3 Survival 38
10.4 Duplicate Originals 38
10.5 Governing Law 38
10.6 Waiver of Jury Trial 39
10.7 No Adverse Interpretation of Other Agreements 39
10.8 Successors and Assigns 40
10.9 Separability 40
10.10 Headings, etc. 40
10.11 Confidentiality 40
AMENDED AND RESTATED LOAN AND INVESTMENT AGREEMENT (as amended,
restated, modified or supplemented from time to time the "Agreement")
dated as of October 3, 2000 between HEALTHCOMP EVALUATION SERVICES
CORPORATION, a Nevada corporation (the "Company"), and DILIGENTI, INC. a
Delaware corporation (the "Lender").
WHEREAS, the Lender and the Company entered into that certain Loan and
Investment Agreement (the "Loan and Investment Agreement") dated as of
September 15, 2000 whereby the Lender made a bridge loan to the Company
in an aggregate principal amount of $3,750,000 upon the terms and
conditions set forth therein;
WHEREAS, the Lender and the Company agreed that $2,500,000 of the
proceeds of the bridge loan shall be used by the Company in connection
with the PSD Acquisition (as defined herein);
WHEREAS, the Lender has agreed that, provided all of the conditions to
conversion of the bridge loan set forth herein shall have been completed
in accordance with Section 4.2, the bridge loan shall convert to shares
of common stock in the Company and the Lender shall invest an additional
$1,250,000 in common stock of the Company;
WHEREAS, the Lender and the Company have agreed for their mutual benefit
to amend and restate the Loan Investment Agreement in its entirety as
set forth herein;
NOW, THEREFORE, in consideration of the premises, it is agreed by and
among the parties hereto as follows:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
1.1 Definitions.
"Additional Investment" means the purchase by the Lender on the
Conversion Date of Common Stock with an aggregate issue price of
$1,250,000, pursuant to Section 2.4 of this Agreement.
"Automatic Conversion Date" has the meaning set forth in Section 2.4 of
this Agreement.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
State law for the relief of debtors. The term "Custodian" means any
receiver trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
"Board of Directors" means the Board of Directors of the Company or any
committee of the Board authorized to act for it hereunder.
"Borrowed Money Indebtedness" means, with respect to any Person as of
the date hereof, without duplication:
(a) all obligations of such Person for borrowed money;
(b) all obligations of such Person evidenced by bonds, debentures,
notes or similar instruments;
(c) all obligations of such Person under conditional sale or other
title retention agreements relating to Property purchased by such
Person;
(d) all obligations of such Person issued or assumed as the deferred
purchase price of Property or services (excluding obligations of such
Person to creditors for raw materials, inventory, services and supplies
and deferred payment for services to employees and former employees
incurred in the ordinary course of such Person's business);
(e) all capital lease obligations;
(f) all obligations of others secured by any Lien on Property or
assets owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed;
(g) all outstanding letters of credit, surety bonds and currency swap
or similar agreements issued for the account of such Person; and
(h) all guarantees of such Person for obligations of the type
described above.
"Bridge Loan" means the loan made by the Lender to the Company pursuant
to Section 2.1 of this Agreement.
"Bridge Loan Maturity Date" has the meaning set forth in Section 2.1 of
this Agreement.
"Bridge Note" means the promissory note of the Company, substantially in
the form attached as Exhibit A hereto, evidencing the Bridge Loan.
"Business Day" means any day which is neither a Saturday nor a Sunday
nor a legal holiday on which banks are authorized or required to be
closed in London, England or New York, New York.
"Capital Stock" means any and all shares, interests, participations or
other equivalents of or interests in (however designated) equity of the
Company, including any preferred stock, but excluding any debt
securities convertible into such equity prior to such conversion.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. Section 9601 et seq., as amended.
"Closing Date" means September 15, 2000 or such later date when all the
conditions set forth in Section 4.1 shall have been satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common shares of the company, par value $.001
per common share.
"Company" means the party named as such above until a successor replaces
it pursuant to the applicable provision hereof and thereafter means the
successor to such party.
"Company Intellectual Property" has the meaning set forth in Section
3.1(n) of this Agreement.
"Conversion Date" has the meaning set forth in Section 2.5 of this
Agreement.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default (as defined in Article VII of this
Agreement).
"Derivative Securities" has the meaning set forth in Section 3.1(b)(i)
of this Agreement.
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, written notices or
binding agreements issued, promulgated or entered into, by or with any
Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, the handling,
treatment, storage, management, disposal, Release or threatened Release
of any Hazardous Material or to the effect of the environment (including
workplaces) on health and safety.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, natural resource damage, costs of
environmental remediation, administrative oversight costs, fines,
penalties or indemnities), of the Company or any Subsidiary directly or
indirectly resulting from or based upon (a) an actual or alleged
violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous
Materials, (c) actual or alleged exposure to any Hazardous Materials,
(d) the actual or alleged presence, Release or threatened Release of any
Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed
or imposed with respect to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single
employer under Section 414(b) or (c) of the Code or, solely for purposes
of Section 302 of ERISA and Section 412 of the Code, is treated as a
single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section
4043 of ERISA or the regulations issued thereunder with respect to a
Plan (other than an event for which the 30-day notice period is waived);
(b) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (c) the filing pursuant to Section
412(d) of the Code or Section 303(d) of ERISA of an application for a
waiver of the minimum funding standard with respect to any Plan; (d)
the incurrence by the Company or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any
Plan; (e) the receipt by the Borrower or any ERISA Affiliate from the
PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any
Plan; (f) the incurrence by the Company or any of its ERISA Affiliates
of any liability with respect to the withdrawal or partial withdrawal
from any Plan or Multiemployer Plan; or (g) the receipt by the Company
or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Company or any ERISA Affiliate of any
notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be,
insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Event of Default" has the meaning set forth in Section 7.1 of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financial Statements" has the meaning set forth in Section 3.1(i)(i) of
this Agreement.
"GAAP" means U.S. generally accepted accounting principles as in effect
from time to time.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other
pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes, and all other substances or wastes of any
nature regulated pursuant to any Environmental Law, including any
material listed as hazardous substance under Section 101(14) of CERCLA.
"Historical Financial Statements" has the meaning set forth in Section
3.1(i)(i) of this Agreement.
"Indebtedness" means and includes:
(a) all items which in accordance with GAAP would be included on the
liability side of a balance sheet on the date as of which Indebtedness
is to be determined (excluding capital stock, surplus reserves and
deferred credits);
(b) all guaranties, letter of credit, contingent reimbursement
obligations and other contingent obligations in respect of, or any
obligations to purchase or otherwise acquire, indebtedness of others;
and
(c) all indebtedness secured by any Lien existing on any interest of
the Person with respect to which indebtedness is being determined in
Property owned subject to such Lien whether or not the indebtedness
secured thereby shall have been assumed.
"Intellectual Property" has the meaning set forth in Section 3.1(n) of
this Agreement.
"Investment" means the purchase or other acquisition of any Indebtedness
of, or the making of any loan, advance or capital contribution to, or
the incurring of any liability, contingent or otherwise, in respect of
the Indebtedness of, any Person.
"Lien" means any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any
kind, whether based on common law, constitutional provision, statute or
contract, and shall include reservations, exceptions, encroachments,
easements, rights of way, covenants, conditions, restrictions and other
title exceptions.
"Loan Documents" means this Agreement, the Bridge Note and the Security
Documents.
"Margin Stock" has the meaning assigned to such term in Regulation U.
"Material Adverse Effect" means, when used in connection with the
Company, any development, change or effect that is materially adverse to
the business, Properties (including, without limitation, Intellectual
Property), assets, net worth, financial condition, results of operations
or future prospects (including, without limitation, future equity value)
of the Company and its Subsidiaries taken as a whole.
"Mortgage" means a mortgage, deed of trust, assignment of leases and
rents, leasehold mortgage or other security document delivered pursuant
to Section 5.7.
"Mortgaged Property" means, initially, each parcel of real property and
the improvements thereto owned or leased by the Company or one of its
Subsidiaries and identified on Schedule 3.1(e), and includes each other
parcel of real property and improvements thereto with respect to which a
Mortgage is granted pursuant to Section 5.7.
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"New Bridge Note" has the meaning set forth in Section 2.5(c) of this
Agreement.
"Notice Date" means December 31, 2000.
"Officer" means the Chairman of the Board, the President, the Chief
Financial Officer, any Vice President, the Treasurer or the Secretary of
the Company.
"Optional Conversion Date" has the meaning set forth in Section 2.5 of
this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Liens" means each of the following:
(a) artisans' or mechanics' Liens arising in the ordinary course of
business, and Liens for taxes, but only to the extent that payment
thereof shall not at the time be due or if due, the payment thereof is
being diligently contested in good faith and adequate reserves computed
in accordance with GAAP have been set aside therefor;
(b) Liens in effect on the Closing Date and disclosed to the Lender in
the Financial Statements, provided that neither the Borrowed Money
Indebtedness secured thereby nor the Property covered thereby shall
increase after the Closing Date without the prior written consent of the
Lender, provided that, for purposes of this clause (b), the accrual of
interest on such Borrowed Money Indebtedness, so long as it is not
converted to principal, shall not be deemed to increase such Borrowed
Money Indebtedness;
(c) normal encumbrances and restrictions on title which do not secure
Borrowed Money Indebtedness and which do not have a material adverse
affect on the value or utility of the applicable Property;
(d) Liens incurred or deposits made in the ordinary course of business
(i) in connection with workmen's compensation, unemployment insurance,
social security and other like laws, or (ii) to secure insurance in the
ordinary course of business, the performance of bids, tenders,
contracts, leases, licenses, statutory obligations, surety, appeal and
performance bonds and other similar obligations incurred in the ordinary
course of business, but not, in any of the cases specified in this
clause (ii), incurred in connection with the borrowing of money, the
obtaining of advances or the payment of the deferred purchase price of
Property;
(e) attachments, judgments and other similar Liens arising in
connection with the court proceedings, provided that the execution and
enforcement of such Liens are effectively stayed and the claims secured
thereby are being actively contested in good faith with adequate reserve
made therefore in accordance with GAAP;
(f) Liens imposed by law, such as carriers', warehousemen's,
mechanics', materialmen's and vendors' liens incurred in good faith in
the ordinary course of business and securing obligations which are not
yet due or which are being contested in good faith by appropriate
proceedings if adequate reserves with respect thereto are maintained in
accordance with GAAP;
(g) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, and restrictions on the use
of Property, and which do not in any case singly or in the aggregate
materially impair the present use or value of Property subject to any
such restriction or materially interfere with the ordinary conduct of
the business of the Company and its Subsidiaries, if any;
(h) extensions, renewals and replacements of Liens referred to in
paragraphs (a) through (g) of this Section; provided that any such
extension, renewal or replacement Lien shall be limited to the Property
or assets covered by the Lien extended, renewed or replaced and that the
Borrowed Money Indebtedness secured by any such extension, renewal or
replacement Lien shall be in an amount not greater than the amount of
the Indebtedness secured by the Lien extended, renewed or replaced; and
(i) Liens set forth on Schedule 1.1.
"Person" means any individual, corporation, association, company,
business trust, partnership, joint venture, joint-stock company, limited
liability company, trust, unincorporated organization or association or
government or any agency or political subdivision thereof.
"Plan" means any employee pension benefit plan (other than Mulitemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of
the Code or Section 302 of ERISA, and in respect of which the Company or
any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement dated the date hereof
among the Company, Afton, Inc., Medical Drug Testing, Inc. and the
Lender.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Proxy Statement" has the meaning set forth in Section 5.1 of this
Agreement.
"PSD" means the Preventive Services Division of U.S. Healthworks, Inc.,
a Delaware corporation.
"PSD Acquisition" means the acquisition by the Company on the Closing
Date of all of the assets (other than the receivables of PSD, which
shall be retained by PSD) of PSD.
"PSD Seller Note" means the Company's promissory note in the principal
amount of $1,000,000 payable to PSD pursuant to the acquisition
agreement, to be dated the Closing Date, among PSD and the Company.
"Release" has the meaning set forth in Section 101(22) of CERCLA.
"Revenue Rights" has the meaning set forth in Section 2.8 of this
Agreement.
"SEC" means the United States Securities and Exchange Commission.
"Securities" means (i) the Bridge Note and (ii) the shares of Common
Stock issuable pursuant to Section 2.4 or 2.5 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement dated the date hereof
between the Company and the Lender.
"Security Documents" means, collectively, the Security Agreement, the
Pledge Agreement and each other security agreement or other instrument
or document executed and delivered pursuant to Section 4.1 to secure any
of the obligations.
"Shareholders" means, at any time, the holders of shares of Capital
Stock in the Company at such time.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than
fifty percent (50%) of the voting stock or other equity interests (in
the case of Persons other than corporations), is owned or controlled
directly or indirectly by the Person, or one or more of the Subsidiaries
of the Person, or a combination thereof.
"Transactions" means (i) the Bridge Loan and (ii) the PSD Acquisition.
The term "to the knowledge of" or derivatives thereof shall mean the
actual knowledge of any Officer after due investigation.
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"1934 Act Filings" means the Annual Report on Form 10-KSB of the Company
for the fiscal year ended December 31, 1999, the Quarterly Reports of
the Company on Form 10-QSB for each of the three months ended March 31,
2000 and June 30, 2000 and any other reports or other documents filed by
the Company with the SEC since December 31, 1999 pursuant to the
Exchange Act.
"2000 Financial Statements" has the meaning set forth in Section
3.1(i)(i) of this Agreement.
1.2 Rules of Construction.
Unless the context otherwise requires:
a. a term has the meaning assigned to it;
b. an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
c. "or" is not exclusive;
d. words in the singular include the plural and in the plural include
the singular;
e. provisions apply to successive events and transactions; and
f. "herein", "hereof" and other words of similar import refer to this
Agreement as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE II
AMOUNT AND TERMS OF SECURITIES
2.1 Commitment to Make Bridge Loan. In reliance upon the
representations and warranties of the Company as set forth herein and
subject to the terms and conditions contained in this Agreement, the
Lender agrees to make a bridge loan to the Company on the Closing Date
in an aggregate principal amount of $3,750,000 (the "Bridge Loan"). The
proceeds of the Bridge Loan shall be disbursed by wire transfer on the
Closing Date pursuant to wire instructions provided to the Lender by the
Company on the Business Day prior to the Closing Date. The Bridge Loan
will mature on the earlier of (x) 90 calendar days following the Notice
Date or (y) the Conversion Date (the "Bridge Loan Maturity Date").
2.2 Interest; Default Interest
(a) Interest Rate on Bridge Loan. Subject to Sections 2.2(c) and
2.2(d), interest on the unpaid principal balance of the Bridge Loan will
accrue from the Closing Date at a rate per annum equal to 20%.
(b) Basis of Computation of Interest; Payment of Interest. All
interest shall be calculated for actual days elapsed on the basis of a
360-day year and shall be payable not later than 12:00 noon (New York
time) on the Bridge Loan Maturity Date.
(c) Maximum Interest Rate. Notwithstanding anything contained in
Section 2.2(a), but subject to Section 2.2(d), in no event shall the
interest rate on the Bridge Loan exceed a rate per annum equal to the
lesser of (i) 20% and (ii) the maximum interest rate permitted by law.
(d) Default Interest. If the Company shall default in the payment of
the principal of or interest on the Bridge Loan, by acceleration or
otherwise, the Company shall on demand from time to time pay interest,
to the extent permitted by law, on such defaulted amount to but
excluding the date of actual payment (after as well as before judgment)
to the extent lawful, at a rate per annum equal to 200 basis points in
excess of the otherwise applicable interest rate on the Bridge Loan;
provided that, notwithstanding anything herein to the contrary, interest
payable under this Section 2.2(d) shall not be subject to the provisions
of Section 2.2(c). The Company shall pay such default interest in cash
on demand from time to time.
2.3 Interest and Principal Payments. All amounts paid with respect to
the Bridge Loan shall first be applied to any accrued but unpaid
interest. All payments required to be made by the Company under this
Agreement shall be paid to the Lender by wire transfer in immediately
available funds to an account of the Lender designated to the Company in
writing.
2.4 Conversion of Bridge Loan and Additional Investment. The Lender
and the Company agree that on the first Business Day when each of the
conditions set forth in Section 4.2 shall have occurred, provided that
such Business Day shall occur prior to the Notice Date (any such day,
the "Automatic Conversion Date"), then the following shall occur:
(a) subject to the proviso below, the Lender shall, upon receipt from
the Company of a number of newly issued shares of Common Stock, which,
together with any shares of Common Stock issued to the Company pursuant
to Section 2.5, equals 38% of the Company's outstanding Capital Stock on
a fully diluted basis as of such date, cancel all of the Company's
obligations with respect to the Bridge Loan;
(b) all interest on the Bridge Loan which shall have accrued and
remained unpaid as of the Automatic Conversion Date shall be canceled,
as if the Company had paid any such amount in full as of such date; and
(c) subject to the proviso below, the Lender shall pay an additional
$1,250,000 to acquire a number of newly issued shares of Common Stock
equal to 13% of the Company's Capital Stock on a fully diluted basis as
of such date;
provided that the Lender shall not be required to take any of the
actions set forth in this Section 2.4 unless all of such actions shall
occur simultaneously on the Automatic Conversion Date.
2.5 Optional Conversion and Notice of Offer.
(a) Notwithstanding the provisions of Section 2.4 and subject
to clause (c) below, the Lender may at any time, in its sole discretion,
elect to convert a portion of the outstanding principal amount of the
Bridge Loan into a number of shares of Common Stock equal to 38% of the
Company's issued and outstanding Common Stock following the issuance of
such shares of Common Stock. The portion of the principal amount of the
Bridge Loan to be converted shall be equal to the product of (x) the
number of shares equal to 38% of the Company's issued and outstanding
Common Stock following the issuance of such shares of Common Stock and
(y) $0.1777. Upon the conversion of the portion of the principal amount
of the Bridge Loan calculated in accordance with the preceding sentence,
all accrued and unpaid interest on such principal amount shall be
canceled as if paid in full as of the date of conversion of such
principal amount. If at any time after the Lender has exercised its
rights pursuant to this Section 2.5, the Company shall issue additional
shares of Common Stock, the Lender may, in its sole discretion, elect to
convert an additional portion of the principal of the Bridge Loan in
accordance with the first sentence of this clause (a) in order to
maintain its percentage ownership of the Company's issued and
outstanding Common Stock at 38%.
(b) The Company shall promptly (which, in any event, shall
mean not more than two Business Days) after receipt of any offer from a
third party to acquire at least 20% of the Company's issued and
outstanding Common Stock notify the Lender of the terms of such offer so
that the Lender may, following receipt of such notice from the Company,
elect to convert a proportion of the principal amount of the Bridge Loan
in accordance with the provisions of clause (a) above.
(c) The Lender shall notify the Company promptly (which, in
the case of clause (b) above, shall mean within five Business Days of
receipt of the relevant notice from the Company) of its election to
convert a portion of the principal amount of the Bridge Loan in
accordance with clause (a) above. The Company shall issue the shares of
Common Stock into which the relevant portion of the Bridge Loan shall be
converted no later than three Business Days after receipt of such notice
from the Lender. The date of issuance of such shares to the Lender
pursuant to this Section 2.5 shall be referred to herein as the
"Optional Conversion Date". Either of the Optional Conversion Date or
the Automatic Conversion Date shall be referred to herein as a
"Conversion Date". The Company agrees that in addition to the shares of
Common Stock to be issued on the Optional Conversion Date it shall,
following receipt of the Bridge Note from the Lender, cancel such Bridge
Note and execute and deliver a new bridge note (the "New Bridge Note")
in an aggregate principal amount equal to the original principal amount
of the Bridge Note less that portion of the principal converted into
Common Stock in accordance with the terms of clause (a) above. Any New
Bridge Note issued in accordance with this clause (c) shall be dated the
Closing Date and all interest which shall have accrued since the Closing
Date on the principal amount of such New Bridge Note and remain unpaid
as of the Optional Conversion Date shall remain payable in accordance
with the terms of this Agreement.
2.6 Taxes on Conversion. The Company agrees that it shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of
shares of Common Stock or on the issuance of a New Bridge Note on a
Conversion Date.
2.7 Company to Provide Stock.
(a) On or prior to any Conversion Date, the Company shall reserve out
of its authorized but unissued Common Stock or its Common Stock held in
treasury enough shares of Common Stock to permit the conversion of the
aggregate principal amount of the Bridge Loan.
(b) The Company will comply with all securities laws regulating the
offer and delivery of the Common Stock and any New Bridge Note on any
Conversion Date.
2.8 Acquisition of Revenue Right. If (i) the provisions of NRS
Section 78.378 to 78.3793 are applicable to the Lender's ability to
convert any portion of the Bridge Loan to Common Stock pursuant to
either Section 2.4 or 2.5 of this Agreement, or (ii) the provisions of
NRS Section 78.378 to 78.3793 are not applicable to the Lender and the
Lender shall have elected not to convert any portion of the Bridge Loan
to Common Stock pursuant to Section 2.5 of this Agreement, then in the
event of any of clause (i) or (ii) hereof, the Company agrees that, in
consideration for the Lender's having made the Bridge Loan to finance
the PSD Acquisition, the Company shall, in addition to repaying the
Bridge Loan in full together with all accrued and unpaid interest
thereon, in accordance with Sections 2.1, 2.2 and 2.3 of this Agreement,
pay to the Lender, from the date as of which all the principal of the
Bridge Loan and all interest accrued thereon shall have been repaid in
full to the date three years thereafter, 5% of the consolidated revenues
of the Company payable quarterly in arrears (the "Revenue Right");
provided that the Lender shall transfer the Revenue Right to any third
party designated by the Company upon receipt from such third party of an
amount equal to $5,000,000 less all amounts paid to the Lender by the
Company pursuant to this Section 2.8 as of the date any such payment is
made by the relevant third party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company The Company
represents and warrants to the Lender as follows:
(a) Organization and Existence, etc. The Company and each of its
Subsidiaries (i) is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation, or will be
in good standing within 30 days of the Closing Date, and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted, and (ii) is duly qualified to
do business as a foreign corporation and is in good standing or will be
in good standing within 30 days of the Closing Date, (or the equivalent
thereof under applicable law) in each jurisdiction in which the conduct
of its business requires such qualification by reason of the ownership
or leasing of property or otherwise (except for those jurisdictions in
which the failure so to qualify does not have a Material Adverse
Effect).
(b) Capitalization.
(i) As of the date hereof, (x) the Company's authorized capital stock
consists of: 50,000,000 shares of Common Stock, of which 14,804,891
shares are validly issued and outstanding, fully paid and non-
assessable; and (y) the Company has outstanding the securities set forth
on Schedule 3.1(b) which are convertible into or exercisable or
exchangeable for Common Stock (the "Derivative Securities").
(ii) All the issued and outstanding shares of Capital Stock are free
of preemptive and similar rights and have been offered, issued, sold and
delivered by the Company in transactions in compliance with the
applicable federal, state and foreign securities laws. Other than as
set forth in Schedule 3.1(b), there are no outstanding agreements or
commitments requiring the Company to issue Capital Stock or Derivative
Securities and no such agreements are currently contemplated.
(c) Authorization; Binding Obligations.
(i) The Company has full power and authority to execute, deliver and
perform this Agreement, the Bridge Note, the other Loan Documents and
such other documents furnished or to be furnished by the Company
hereunder. This Agreement, the Bridge Note and the other Loan Documents
have each been duly authorized, executed and delivered by the Company
and the transactions contemplated hereby, and each constitutes a legal,
valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general principles of equity. The
issuance of the Securities pursuant to this Agreement, the compliance by
the Company with the provisions of this Agreement, the other Loan
Documents and the Securities, and the consummation of the other
transactions contemplated hereby or thereby will not, except as
specifically contemplated by the Security Documents, result in the
creation or imposition of any Lien upon any of the assets of the Company
pursuant to the terms or provisions of, or result in a breach or
violation of or conflict with any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate
any of its obligations under, or result in the acceleration of any
obligation under, (A) the Articles of Incorporation and Bylaws of the
Company or of any of its Subsidiaries, (B) any contract or other
agreement to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries or any of their
respective properties is bound, or (C) any judgment, ruling, decree,
order, statute, rule or regulation of any court or other governmental
agency or body, domestic or foreign, applicable to the business or
properties of the Company or any of its Subsidiaries, except, with
respect to clauses (B) and (C), in circumstances that would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(ii) The Bridge Note has been duly authorized for issuance and, prior
to the Conversion Date, the Common Stock issuable upon conversion of the
Bridge Note will have been duly authorized and reserved for issuance to
the Lender. When the Bridge Note has been duly executed and delivered
by the Company in accordance with this Agreement, (A) the Bridge Note
will constitute the valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
principles of equity and (B) the Common Stock issuable upon the
Conversion Date, when issued and delivered in accordance with the
provisions of this Agreement and the Bridge Note, will be validly
issued, fully paid and non-assessable.
(d) Compliance with Instruments, etc. Neither the Company nor any of
its Subsidiaries is in breach or violation of, or in default under, any
term or provision of (i) its Articles of Incorporation and Bylaws, (ii)
other than as set forth in Schedule 3.1(d), any indenture, mortgage,
deed of trust, voting trust agreement, stockholders agreement, note
agreement, debt instrument or other agreement or instrument to which it
is a party or by which it is bound or to which any of its Property is
subject, the effect of which breach, violation or default, individually
or in the aggregate, would reasonably be expected to have a Material
Adverse Effect, or (iii) any applicable statute, judgment, decree,
order, rule or regulation of any arbitrator or any Governmental
Authority having jurisdiction over the Company or any of its
Subsidiaries or any of their respective activities or properties and the
effect of which breach, violation or default, individually or in the
aggregate, would reasonably be expected to have a Material Adverse
Effect.
(e) Properties.
(i) Each of the Company and its Subsidiaries has good title to, or
valid leasehold interests in, all its real and personal property
material to its business (including its Mortgaged Properties), except
for minor defects in title that do not interfere with its ability to
conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(ii) Schedule 3.1(e) sets forth the address of each real property that
is owned or leased by the Company or any of its Subsidiaries as of the
date hereof after giving effect to the Transactions.
(iii) Neither the Company nor any of its Subsidiaries has received
notice of, or has knowledge of, any pending or contemplated condemnation
proceeding affecting any Mortgaged Property or any sale or disposition
thereof in lieu of condemnation. Neither any Mortgaged Property nor any
interest therein is subject to any right of first refusal, option or
other contractual right to purchase such Mortgaged Property or interest
therein.
(f) Litigation and Environmental Matters.
(i) There are no actions, suits, proceedings or investigations
pending, or, to the knowledge of the Company, threatened, against the
Company or any of its Subsidiaries before or by any arbitrator or
Governmental Authority, which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, or any
actions, suits, proceedings or investigations pending, or, to the
knowledge of the Company, threatened, which challenges the validity of
any action taken or to be taken pursuant to or in connection with this
Agreement or the issuance of the Securities, which would, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(ii) Except with respect to any matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material
Adverse Effect, neither the Company nor any of its Subsidiaries (i) has
failed to comply with any Environmental Law or to obtain, maintain or
comply with any permit, license or other approval required under any
Environmental Law, (ii) has become subject to any Environmental
Liability, (iii) has received written notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any
Environmental Liability.
(g) Investment Company Act. Neither the Company nor any of its
Subsidiaries is (a) an "investment company" as defined in, or subject to
regulation under, the Investment Company Act of 1940, as amended. The
consummation of the Transactions does not and will not violate any
provision of such act or any rule, regulation or order issued by the
SEC thereunder.
(h) Federal Reserve Regulations. (a) Neither the Company nor any of
its Subsidiaries is engaged principally, or is as one of its important
activities, in the business of extending credit for the purpose of
buying or carrying Margin Stock. (b) No part of the proceeds of the
Bridge Loan will be used, whether directly or indirectly, and whether
immediately, incidentally or ultimately, for any purpose that entails a
violation of, or that is inconsistent with, the provisions of the
Regulations of the Board of Governors of the Federal Reserve, including
Regulation U or X.
(i) Financial Statements; Taxes.
(i) The Company has previously delivered to the Lender, true, correct
and complete copies of its financial statements for the years ended
December 31, 1997, 1998 and 1999 (the "Historical Financial Statements")
and for the six months ended June 30, 2000 (the "2000 Financial
Statements" and, together with the Historical Financial Statements the
"Financial Statements"). The Financial Statements have been prepared in
accordance with GAAP (except for the absence of the footnotes in any
Financial Statements which do not cover a full fiscal year) and fairly
present in all material respects, the financial position of the Company
as of the respective dates thereof and the results of operations and
cash flows of the Company for the periods then ended (subject to normal
year-end adjustments in the case of the 2000 Financial Statements and in
any other Financial Statements which do not cover a full fiscal year).
The 1997 and 1998 Historical Financial Statements have been audited by
Arthur Andersen LLP who are independent public accountants within the
meaning of the Securities Act and they have expressed an opinion
thereon, which is unqualified with respect to the Financial Statements
for the years ended December 31, 1997 and 1998. As of the respective
dates of the Financial Statements, the Company had no material
liabilities or obligations of any nature (absolute, accrued, contingent
or otherwise) whether or not required by GAAP to be reflected on a
balance sheet or disclosed in the notes thereto except as were reflected
on any balance sheet or disclosed in any notes contained in the
Financial Statements.
(ii) Except as set forth on Schedule 3.1(i), the Company has filed or
obtained extensions for all necessary income, franchise and other
material tax returns, domestic and foreign, all such returns are correct
in all respects, and the Company has paid all taxes shown as due
thereunder (except in the case where the Company is contesting such
matter in good faith and except in such circumstances where such failure
would not reasonably be expected to have a Material Adverse Effect), and
the Company has no knowledge of any tax deficiency which might be
assessed against the Company which would reasonably be expected to have
a Material Adverse Effect.
(iii) Except as set forth on Schedule 3.1(i), the Company has withheld
and paid all taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party. The Company is not
obligated to make any payments and is not a party to any agreement that
under certain circumstances (including the occurrence of the Conversion
Date) could obligate it to make any payments that will not be deductible
under section 280G of the Code. The Company has not been a member of an
affiliated group filing a consolidated federal income tax return and has
no liability for the taxes of any person under Treasury Regulation
1.1502.6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(j) ERISA. No ERISA Event has occurred or is reasonably expected to
occur that, when taken together with all other such ERISA Events for
which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect. The present value of
all accumulated benefit obligations under each Plan (based on the
assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000 the
fair market value of the assets of such Plan, and the present value of
all accumulated benefit obligations of all underfunded Plans (based on
the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $100,000 the
fair market value of the assets of all such underfunded Plans.
(k) Offering. Subject to the Lender's representations and warranties
in Section 3.2, the issuance of the Securities to the Lender as
contemplated by this Agreement is not subject to the registration
requirements of the Securities Act and neither the Company, nor anyone
acting on its behalf, has taken or will take any action that would cause
such registration requirements to be applicable.
(l) Permits; Governmental and Other Approvals. The Company has such
licenses, permits, consents, orders, approvals and other authorizations
necessary for the conduct of its business as now being conducted, except
where the absence of such authorizations would not have a Material
Adverse Effect and except with respect to the Company's products in
development for which marketing and other approval from the applicable
regulatory authorities have not been obtained. No approval, consent,
authorization or other order of, and no designation, filing,
registration, qualification or recording with, any governmental
authority, domestic or foreign, is required for the Company's
performance of this Agreement or the consummation of the transactions
contemplated hereby except for applicable filings with the SEC,
including, but not limited to, the filing of Form D under the Securities
Act and the filing of one or more Reports on Form 8-K and a Schedule 14A
under the Exchange Act.
(m) Sales Representatives, Customers and Key Employees. To the
knowledge of the Company, as of the date hereof, no independent sales
representative or key employee or group of employees of, or customer of,
or party or Person providing services to, the Company has any intention
to terminate his, her or its relationship with the Company or, in the
case of employees, to leave the employ of the Company, which
terminations or departures would in the aggregate have a Material
Adverse Effect and, to the knowledge of the Company, the entry of the
Company into this Agreement and the consummation of the transactions
contemplated hereby, will not cause any such termination or departures.
(n) Intellectual Property.
(i) To the Company's knowledge, the Company has full and exclusive
right, title and interest in and to, or, to the extent set forth in
Schedule 3.1(n), license rights to, all (A) patents, patent
applications, registered or unregistered trademarks, service marks,
tradenames, and applications therefor, registered or unregistered
copyrights and applications therefor, know-how, proprietary rights and
processes, trade secrets, customer lists, methodologies (to the extent
practicable), proprietary developments and marketing information,
(B) know-how, inventions, inventors' notes (to the extent such notes
exist), drawings and designs associated with the foregoing and (C) other
confidential information, (all of the foregoing collectively,
"Intellectual Property") used in or necessary for the ongoing conduct of
its business ("Company Intellectual Property"), free and clear of all
Liens of any nature, except where the failure to have full and exclusive
right, title and interest in and to, or license rights to, Intellectual
Property would not reasonably be expected to have a Material Adverse
Effect; and, except as set forth on Schedule 3.1(n), the Company has no
material obligation to any other Person or entity with respect to
Company Intellectual Property or any developed or under development
product or process of the Company utilizing or embodying any Company
Intellectual Property. Schedule 3.1(n) is a complete and accurate
schedule of all patents, patent applications, registered trademarks,
service marks, trade names and applications therefor, registered
copyrights and applications therefor, and licence agreements used in or
necessary for the ongoing conduct of the Company's business.
(ii) There is (A) to the Company's knowledge, no infringement, misuse
or misappropriation of any Intellectual Property owned, licensed or
controlled by any third party arising out of any product or process now
being used, manufactured, developed, under development, or distributed,
or ever having been used, manufactured, developed, under development, or
distributed at any time previously, by or on behalf of the Company,
except to the extent such infringement, misuse or misappropriation would
not reasonably be expected to have a Material Adverse Effect, (B) no
pending or, to the knowledge of the Company, threatened claim or
challenge of or proceeding for infringement, misuse or misappropriation
of or interference with any Intellectual Property owned, licensed or
controlled by any third party arising out of any product or process now
being used, manufactured, developed or distributed, or ever having been
used, manufactured, distributed or developed at any time previously, by
or on behalf of the Company, which would reasonably be expected to have
a Material Adverse Effect, (C) no pending or, to the knowledge of the
Company, threatened claim, challenge or proceeding by the Company
against any third party for infringement, misuse or misappropriation of
or interference with any Intellectual Property owned, licensed or
controlled by the Company or (D) no notice from any another party to the
Company to the effect that, or, to the knowledge of the Company, facts
or information which, in the reasonable opinion of the Company, would
render any Company Intellectual Property owned, invalid or
unenforceable, nor, to the knowledge of the Company, is there any
allegation that any such Company Intellectual Property is invalid or
unenforceable, except to the extent that the invalidity or
unenforceability of such Company Intellectual Property would not
reasonably be expected to have a Material Adverse Effect.
(iii) The Company has not disclosed any material confidential
information developed or utilized by the Company to any third party
except on a confidential basis and pursuant to a written confidentiality
agreement, nor, to the knowledge of the Company, has any third party
disclosed confidential information developed or utilized by the Company
to any Person in material breach of such confidentiality agreement.
(o) Form 10-QSB. The Quarterly Reports on Form 10-QSB for each of the
three months ended March 31, 2000 and June 30, 2000, and any reports
filed with the SEC pursuant to the Exchange Act from the date hereof to
the Bridge Loan Maturity Date when filed by the Company, complied or
will comply as to form in all material respects with the applicable
requirements of the Exchange Act (other than the requirement that the
Company have audited financial statements for fiscal year 1999 in
connection with its filings and the Company's failure to disclose the
maturity date of the Quest Loan and such Loan's impact on the Company's
financial condition) and did not or will not, as of the date of such
filing, contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not
misleading (other than the Company's failure to disclose the maturity
date of the Quest loan and the Company's failure to disclose the
maturity date of the Quest Loan and such Loan's impact on the Company's
financial condition).
(p) Ordinary Course. Since June 30, 2000, the Company, except as set
forth in the 1934 Act Filings or as explicitly contemplated by this
Agreement, has conducted its business in the ordinary course, has not
incurred any material obligation, absolute or contingent, or entered
into any material transactions not in the ordinary course of business
which, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect, and has not declared or paid any
dividends or distributions on its Capital Stock or reacquired any shares
of its Capital Stock.
(q) State Takeover Statutes. The Board of Directors of the Company
has approved, and will expressly maintain its approval for, the issuance
of the Common Stock to Lender on any Conversion Date for the purpose of
rendering inapplicable the provisions of NRS Section 78.411 to 78.444,
inclusive, such that the Lender is not subject to the restrictions on
combinations set forth therein.
(r) Disclosure. The Company has disclosed to the Lender all
agreements, instruments and corporate or other restrictions to which the
Company or any of the Subsidiaries is subject, and all other matters
known to the Company that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
(s) Subsidiaries. Schedule 3.1(s) sets forth the name of, and the
ownership interest of the Company in, each Subsidiary.
(t) Insurance. Schedule 3.1(t) sets forth a description of all
insurance maintained by or on behalf of the Company and its Subsidiaries
as of the date hereof. As of the date hereof, all required premiums in
respect of such insurance have been paid. The Company believes that the
insurance maintained by or on behalf of the Company and the Subsidiaries
is adequate.
(u) Labor Matters. There are no strikes, lockouts or slowdowns
against the Company or any of its Subsidiaries pending or, to the
knowledge of the Company, threatened. The hours worked by and payments
made to employees of the Company and its Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other applicable
Federal, state, local or foreign law dealing with such matters. All
payments due from the Company or any of its Subsidiaries, or for which
any claim may be made against the Company or any of its Subsidiaries, on
account of wages and employee health and welfare insurance and other
benefits, have been paid or accrued as a liability on the books of the
Company or such Subsidiary. The consummation of the Transactions will
not give rise to any right of termination or right of renegotiation on
the part of any union under any collective bargaining agreement to which
the Company or any Subsidiary is bound.
(v) Solvency. Immediately after the consummation of the Transactions
to occur on the Closing Date and after giving effect to the application
of the proceeds of the Bridge Loans, (a) the fair value of the assets of
the Company, at a fair valuation, will exceed its debts and liabilities,
subordinated, contingent or otherwise; (b) the present fair saleable
value of the property of the Company and each Subsidiary will be greater
than the amount that will be required to pay the probable liability of
its debts and other liabilities, subordinated, contingent or otherwise,
as such debts and other liabilities become absolute and matured; (c) the
Company and each Subsidiary will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (d) each Company and each
Subsidiary will not have unreasonably small capital with which to
conduct the business in which it is engaged as such business is now
conducted and is proposed to be conducted following the Closing Date.
(w) Security Documents.
(i) The Pledge Agreement is effective to create in favor of the Lender
a legal, valid and enforceable security interest in the Collateral (as
defined in the Pledge Agreement) and, when and for long as such
Collateral is delivered to and held by the Lender, the Pledge Agreement
shall constitute a fully perfected first-priority Lien on, and security
interest in, all right, title and interest of the pledgor thereunder in
such Collateral to the extent a security interest therein can be
perfected by possession pursuant to the Uniform Commercial Code, in each
case prior and superior in right to any other person.
(ii) The Security Agreement is effective to create in favor of the
Lender, a legal, valid and enforceable security interest in the
Collateral (as defined in the Security Agreement) and, when financing
statements (and continuation statements) in appropriate form are filed
in the offices specified on Schedule 6 to the Perfection Certificate,
the Security Agreement shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the grantors
thereunder in such Collateral (other than the Intellectual Property (as
defined in the Security Agreement)), in each case prior and superior in
the right to any other person, other than with respect to Permitted
Liens, to the extent a security interest can be perfected in such
Collateral by such filings.
(iii) When the Security Agreement is filed in the United States Patent
and Trademark Office and the United States Copyright Office, the
Security Agreement shall constitute a fully perfected Lien on, and
security interest in, all right, title and interest of the Company and
its Subsidiaries that are parties thereto in the Intellectual Property
(as defined in the Security Agreement) in which a security interest may
be perfected by filing, recording or registering a security agreement,
financing statement or analogous document in the United States Patent
and Trademark Office or the United States Copyright Office, as
applicable, in each case prior and superior in right to any other
person.
3.2 Representations and Warranties of the Lender. Lender represents
and warrants to the Company that:
(a) it is an "accredited investor" as that term is defined in Rule
501(a) promulgated under the Securities Act,
(b) it has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the Company,
(c) it has had an opportunity to discuss the Company's business,
management and financial affairs with the Company's management,
(d) it is acquiring the Securities for investment for its own account
and not with a view to, or for resale in connection with, any
distribution thereof, nor with any present intention of distributing or
selling the same; and Lender has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment
providing for the disposition thereof, and
(e) it understands that the Securities have not been registered under
the Securities Act and it will not offer, sell, transfer, pledge,
hypothecate or otherwise dispose of any Securities except pursuant to an
exemption from, or otherwise in a transaction not subject to, the
registration requirements of the Securities Act or pursuant to an
effective registration statement under the Securities Act, and, in each
case, in accordance with any applicable state securities or "blue sky"
laws.
ARTICLE IV
CONDITIONS OF OBLIGATIONS OF THE LENDER
4.1 Conditions to Lender's Obligations on the Closing Date. The
obligation of the Lender to make the Bridge Loan is subject to the
fulfillment to its reasonable satisfaction, or, except with respect to
Section 4.1(a) which may not be waived by the Lender, the waiver by the
Lender, on the Closing Date of each of the following conditions:
(a) Fairness Opinion. The Board of Directors of the Company shall
have received a Fairness Opinion in form and substance satisfactory to
the Board of Directors from an investment bank of national reputation as
to the fairness to the Shareholders of the Company of this Agreement and
the transactions contemplated hereby.
(b) PSD Acquisition.
(i) The Board of Directors of the Company shall have approved the PSD
Acquisition for an aggregate price (including all related transaction
costs) not to exceed $3,500,000; and
(ii) All agreements relating to the PSD Acquisition shall have been
duly authorized, validly executed by and shall constitute binding
obligations of each of the parties thereto.
(c) Board Appointments. The Company shall have nominated and approved
the appointment to its Board of Directors of two persons designated by
the Lender in its sole discretion, such appointments to be confirmed
subsequently by the Company's shareholders at the next regularly
scheduled shareholders' meeting.
(d) Representations and Warranties Correct. The representations and
warranties of the Company in Article III hereof shall be (x) true and
correct on and as of the date hereof and (y) true and correct in all
material respects on and as of the Closing Date with the same force and
effect as if they had been made on and as of the Closing Date, except in
the case of clause (y) for (i) those representations and warranties
which address matters only as of a particular date (which shall be true
and correct as of such date) and (ii) circumstances in which the failure
of such representations and warranties to be true and correct would not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(e) Compliance Certificate. The Company shall have delivered to the
Lender a certificate of the Company's President, dated the Closing Date,
certifying to the fulfillment of the conditions specified in subsections
(d) and (g) of this Section 4.1.
(f) No Impediments. No statute, judgment, order or decree of any
court, regulatory body, administrative agency or any other governmental
agency or body shall be in effect which would impose any material
limitation on the ability of the Lender to exercise full rights of
ownership of the Securities.
(g) No Defaults. Other than as set forth on Schedule 3.1(d), the
Company shall not be in default under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is
at the time outstanding any Indebtedness of the Company or any
Subsidiary, in excess of $50,000, or which results in such Indebtedness,
in an aggregate amount (with other defaulted Indebtedness) in excess of
$50,000 becoming due and payable prior to its due date.
(h) No Material Adverse Events. Except as disclosed in the 1934 Act
Filings filed with the SEC prior to the date hereof since June 30, 2000,
there shall have been no Material Adverse Effect with respect to the
Company (other than the continued incurrence of losses in the ordinary
course of business).
(i) Legal Investment. The purchase of the Bridge Note by the Lender
hereunder shall be legally permitted by all statutes, rules and
regulations to which the Lender and the Company are subject.
(j) Qualifications. All authorizations, approvals or permits, if any,
of any Governmental Authority or regulatory body that are now required
in connection with the lawful issuance and sale of the Bridge Note
pursuant to this Agreement shall have been duly obtained and shall be in
full force and effect.
(k) Issuance Taxes. All taxes imposed by law in connection with the
initial issuance, sale and delivery of the Bridge Note shall have been
fully paid by the Company, and all laws imposing such taxes shall have
been fully complied with at the time of such issuance.
(l) Proceedings and Other Documents. All corporate and other
proceedings in connection with the PSD Acquisition and the transactions
contemplated by this Agreement shall have been taken, and the Lender
shall have received such other documents and instruments in form and
substance reasonably satisfactory to it and its counsel, as to such
other matters incident to the PSD Acquisition and the transaction
contemplated hereby as it may reasonably request.
(m) Opinion of Counsel. The Lender shall have received an opinion (i)
of Chapman & Flanagan, Ltd., Nevada counsel to the Company, (ii) of
Jones, Day, Reavis & Pogue, special counsel for the Company and (iii) of
local counsel in Florida with respect to the Collateral (as defined in
the Security Documents) located there, each opinion to be dated the
Closing Date and in form and substance satisfactory to the Lender.
(n) Consents, Waivers, Etc. The Company shall have obtained all
consents or waivers necessary to execute and deliver this Agreement and
the other Loan Documents, issue the Securities and carry out the
transactions contemplated hereby and thereby, and all such consents and
waivers shall be in full force and effect.
(o) Corporate Documents. The Company shall have delivered to the
Lender (i) the Bridge Note and (ii) the following:
(A) A certified copy of the Company's Articles of Incorporation and
all amendments thereto, appropriately authenticated;
(B) A copy of the Company's Bylaws, as amended to date, certified as
being true by a principal Officer of the Company; and
(C) A certificate of good standing of the Company as a foreign
corporation certified as of a recent date by the Secretary of State of
Nevada, and from every jurisdiction in which the Company is qualified to
do business.
(p) Pledge Agreement. The Lender shall have received counterparts of
the Pledge Agreement signed on behalf of the Company and each of the
Subsidiaries party thereto, together with stock certificates
representing all the outstanding shares of capital stock of each
Subsidiary owned by or on behalf of the Company as of the Closing Date,
promissory notes evidencing all intercompany Indebtedness owed to the
Company by any Subsidiary as of the Closing Date and stock powers and
instruments of transfer, endorsed in blank, with respect to such stock
certificates and promissory notes.
(q) Security Agreement. The Lender shall have received counterparts
of the Security Agreement signed on behalf of the Company and each of
the Subsidiaries party thereto, together with the following:
(i) all documents and instruments, including Uniform Commercial Code
Financing Statements, required by law or reasonably requested by the
Lender to be filed, registered or recorded to create or perfect the
Liens intended to be created under the Security Agreement; and
(ii) a completed Perfection Certificate dated the Closing Date and
signed by an executive officer or Financial Officer of the Lender,
together with all attachments contemplated thereby, including the
results of a search of the Uniform Commercial Code (or equivalent)
filings made with respect to the Company and each of its Subsidiaries in
the jurisdictions contemplated by the Perfection Certificate and copies
of the financing statements (or similar documents) disclosed by such
search and evidence reasonably satisfactory to the Lender that the Liens
indicated by such financing statements (or similar documents) are
Permitted Liens or have been released.
(r) State Takeover Statutes. The Company shall have provided evidence
satisfactory to the Lender that the provisions of NRS Section 78.378 to
78.3793, inclusive, do not apply to the Lender or its successors or
assigns and will not apply to the Lender at any time prior to the
Automatic Conversion Date.
4.2 Conditions to Lender's Obligations to Make the Additional
Investment. The obligation of the Lender to undertake any of the
actions set forth in Section 2.4 shall be subject to the fulfillment to
its satisfaction, or the waiver by the Lender, prior to the Notice Date,
of each of the following conditions:
(a) Representations and Warranties Correct. The representations and
warranties of the Company in Article III hereof shall be (x) true and
correct on and as of the date hereof and (y) true and correct in all
material respects on and as of the Conversion Date with the same force
and effect as if they had been made on and as of the Conversion Date,
except in the case of clause (y) for (i) those representations and
warranties which address matters only as of a particular date (which
shall be true and correct as of such date) and (ii) circumstances in
which the failure of such representations and warranties to be true and
correct would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(b) Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with on or prior to the
Conversion Date by the Company shall have been performed or complied
with by the Company in all material respects on or prior to the
Conversion Date.
(c) Conditions in Section 4.1. The conditions set forth in Section 4.1
remain fulfilled or waived by the Lender on or prior to the Conversion
Date.
(d) No Defaults. No event shall have occurred and be continuing which
constitutes a Default or an Event of Default.
(e) [intentionally omitted].
(f) Compliance with Laws and Regulations. The Company shall have
completed all of the legal and regulatory requirements applicable to the
actions and transactions contemplated by this Agreement, including,
without limitation, compliance with applicable laws and regulations of
the NASD, the SEC and the State of Nevada;
(g) Proceedings and Other Documents. All corporate and other
proceedings in connection with the transactions contemplated by this
Agreement shall have been taken, including, authorization and approval
by the Company's Board of Directors of the transactions contemplated by
this Agreement. The Lender shall have received such other documents and
instruments in form and substance reasonably satisfactory to it and its
counsel, as to the matters incident to the transaction contemplated
hereby, as the Lender may reasonably request.
(h) Opinion of Counsel. The Lender shall have received an opinion of
Chapman & Flanagan, Ltd., Nevada counsel to the Company, regarding
certain of the actions taken pursuant to this Section 4.2, which opinion
shall be in form and substance satisfactory to the Lender.
(i) Use of Proceeds. The Lender shall be reasonably satisfied that the
proceeds of the Bridge Loan shall have been used as set forth in Section
5.6.
(j) Lender Directors. The Lender shall have received evidence
satisfactory to it that the two persons designated by the Lender to the
Company's Board of Directors pursuant to Section 4.1(c) shall remain
Directors of the Company on and after the Automatic Conversion Date.
ARTICLE V
AFFIRMATIVE COVENANTS OF THE COMPANY
Subject to Section 5.8 hereof, the Company hereby covenants and agrees:
5.1 [Intentionally Omitted
5.2 Reports.
The Company will deliver to the Lender the following:
(a) promptly after transmission thereof, copies of all financial
statements, proxy statements, reports and other communications which the
Company sends to its stockholders, copies of all registration statements
and all regular, special or periodic reports which it files with the SEC
or with any securities exchange on which any of the securities of the
Company are then listed or proposed to be listed, and copies of all
press releases made generally available by the Company to the public
concerning material developments in the business of the Company and its
Subsidiaries, if any;
(b) promptly after the occurrence thereof (but in any event within two
(2) days after such occurrence is known to the Company) notice of any
condition or event which constitutes (i) an event which would lead the
Company to believe that the Company is not in compliance in material
respects with the covenants in this Agreement, (ii) an Event of Default,
(iii) the institution or threatened institution of an action, suit or
proceeding against the Company or any of its Subsidiaries by or before
any court, regulatory authority, administrative agency or any other
governmental agency or body, domestic or foreign, which, if adversely
decided, could have a Material Adverse Effect or (iv) any other
development that results in, or could reasonably be expected to result
in, a Material Adverse Effect; and
(c) within 30 days of the Closing Date, evidence satisfactory to the
Lender that the Company and each of its Subsidiaries is in good standing
in each jurisdiction in which the conduct of its business requires such
qualification by reason of the ownership or leasing of property or
otherwise.
(d) within 60 days of the Closing Date, its audited financial
statements for the year ended December 31, 1999, such statements to
include an unqualified audit opinion from Arthur Andersen LLP.
5.3 Information Regarding Collateral. The Company will furnish to the
Lender prompt written notice of any change (i) in the Company's or any
of its Subsidiaries' corporate name or in any trade name used to
identify it in the conduct of its business or in the ownership of its
properties, (ii) in the location of the Company's or any of its
Subsidiaries' chief executive office, its principal place of business,
any office in which it maintains books or records relating to Collateral
owned by it or any office or facility at which Collateral owned by it is
located (including the establishment of any such new office or
facility), (iii) in any of the Company's or any of its Subsidiaries'
identity or corporate structure or (iv) in the Company's or any of its
Subsidiaries' Federal Taxpayer Identification Number. The Company
agrees not to effect or permit any change referred to in the preceding
sentence unless all filings have been made under the Uniform Commercial
Code or otherwise that are required in order for the Lender to continue
at all times following such change to have a valid, legal and perfected
security interest in all the Collateral. The Company also agrees
promptly to notify the Lender if any material portion of the Collateral
is damaged or destroyed.
5.4 Accounts and Records. The Company shall keep true records and
books of account in which entries will be made of all dealings or
transactions in relation to the business and affairs of the Company and
its Subsidiaries, if any, in accordance with GAAP, to the extent
applicable, applied on a consistent basis.
5.5 Inspection. The Company shall permit the Lender or any of its
officers, employees, representatives or such other Person as the Lender
may designate, during regular business hours of the Company, upon
reasonable prior notice, to visit and inspect the offices and properties
of the Company and to (i) review and make extracts or copies of the
books, accounts and records of the Company, and (ii) discuss the
affairs, finances and accounts of the Company, with the Company's
Officers, members of the Board of Directors, independent accountants,
consultants and attorneys.
5.6 Use of Proceeds. The Company shall use the proceeds received from
the Bridge Loan as follows: (a) $2,500,000 shall be used in connection
with the acquisition by the Company of PSD (including payment of all
transaction costs associated therewith), (b) $500,000 shall be used to
repay an advance of working capital from certain Persons and (c)
$750,000 shall be used for general corporate purposes, including capital
expenditures and working capital.
5.7 Further Assurances. From time to time the Company shall execute
and deliver to Lender such other instruments, certificates, agreements
and documents and take such other action and do all other things as may
be reasonably requested by Lender in order to implement or effectuate
the terms and provisions of this Agreement.
5.8 Termination. The covenants and agreements of the Company set
forth in this Article V (other than Section 5.6) shall terminate and be
of no further force or effect at such time as no principal or interest
on the Bridge Note is outstanding or payable (whether as a result of the
payment of all outstanding principal and accrued interest on the Bridge
Note or the conversion of the Bridge Note).
ARTICLE VI
NEGATIVE COVENANTS
Subject to Section 6.13 hereof, the Company hereby covenants and agrees
that it will not, will not agree to, and will not suffer or permit any
Subsidiary of the Company to, do any of the following without the
consent of the Lender:
6.1 Borrowed Money Indebtedness. Create, incur, suffer or permit to
exist, or assume or guarantee, or become or remain liable with respect
to any Borrowed Money Indebtedness, except the following:
(a) the Bridge Note;
(b) the Borrowed Money Indebtedness existing on the date of this
Agreement and disclosed in the Financial Statements, and all renewals,
extensions and replacements of any of the foregoing, provided that the
accrual of interest on such liabilities, so long as it is not converted
to principal, shall not be deemed to increase such liabilities;
(c) the PSD Seller Note; and
(d) the Borrowed Money Indebtedness listed in Schedule 6.1 hereto.
6.2 Liens. Create or suffer to exist any Lien upon any of its
Property now owned or hereafter acquired, or acquire any Property upon
any conditional sale or other title retention device or arrangement or
any purchase money security agreement; provided, however, that the
Company and Subsidiaries of the Company may create or suffer to exist
Permitted Liens.
6.3 Contingent Liabilities. Directly or indirectly guarantee the
performance or payment of, or purchase or agree to purchase, or assume
or contingently agree to become or be secondarily liable in respect of,
any obligation or liability of any other Person except for:
(a) the endorsement of checks or other negotiable instruments in the
ordinary course of business;
(b) obligations disclosed to Lender in the Financial Statements (but
not increases of such obligations after the date hereof, provided that
the accrual of interest on such obligations, so long as it is not
converted to principal, shall not be deemed to increase such
obligations);
(c) those liabilities permitted under Section 6.1 hereof.
6.4 Mergers, Consolidations and Dispositions and Acquisitions of
Assets. In any single transaction or series of related transactions,
directly or indirectly:
(a) liquidate or dissolve;
(b) be a party to any merger or consolidation;
(c) sell, convey or lease all or substantially all of its assets;
(d) except for the acquisition of PSD, acquire all or a substantial
portion of the assets or stock of any person whether by merger or
otherwise; or
(e) pledge, transfer or otherwise dispose of any equity interest in
any of its Subsidiaries or issue or permit any of its Subsidiaries to
issue any additional equity interests except to the Company or another
of its Subsidiaries.
Nothing in this Agreement shall prohibit the Company from selling
obsolete equipment or from replacing used equipment in the ordinary
course of business.
6.5 Redemption, Dividends and Distributions. At any time, (a) redeem,
retire or otherwise acquire, directly or indirectly, any equity interest
of the Company or any of its Subsidiaries or (b) make any distributions
of any property or cash in respect of any of its Capital Stock.
6.6 Nature of Business. Change the nature of its business or enter
into any business which is substantially different from the provision of
occupational health services to corporate and government clients.
6.7 Transactions with Related Parties. Enter into any transaction or
agreement with any Officer, director or beneficial owner of five percent
(5%) or more of the outstanding Capital Stock in the Company or any of
its Subsidiaries (or any Affiliate of any such Person) unless the
transaction is upon no less favorable terms than those that are
obtainable from wholly unrelated sources.
6.8 Loans and Investments. Make any loan, advance, extension of
credit or capital contribution to, or make or have any Investment in,
any Person, or make any commitment to make any such extension of credit
or investment, except normal and reasonable advances in the ordinary
course of business to Officers and employees.
6.9 Organizational Documents. Amend, modify, restate or supplement
its Articles of Incorporation or Bylaws if such action could reasonably
be expected to adversely affect the rights of the Lender under this
Agreement.
6.10 Sale/Leasebacks. Enter into any sale/leaseback transactions.
6.11 Issuance of Stock. Issue, or become obligated to issue shares of
Capital Stock or securities convertible into Capital Stock, except for
(i) shares of Common Stock the authorization and issuance of which is
contemplated by this Agreement or to any of the parties hereto and (ii)
rights, warrants, convertible notes or options to purchase shares of
Common Stock issued or granted prior to the date hereof.
6.12 Subsidiaries. Form, create or acquire any Subsidiary or permit
any Person other than the Company or a wholly owned Subsidiary to hold
an equity interest in any Subsidiary or dissolve, merge or otherwise
terminate the existence of any Subsidiary identified in Schedule 3.1(n)
hereto.
6.13 Termination. The covenants and agreements of the Company set
forth in this Article VI shall terminate and be of no further force or
effect at such time as no principal or interest on the Bridge Note is
outstanding or payable (whether a result of the payment of all
outstanding principal and accrued interest on the Bridge Note or the
conversion of the Bridge Note).
ARTICLE VII
DEFAULTS AND REMEDIES
7.1 Events of Default. An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on or the
principal of the Bridge Note when the same becomes due and payable at
maturity, upon acceleration or otherwise;
(b) the Company defaults in the performance of any covenants under
Article VI of this Agreement;
(c) the Company fails to comply with any of the provisions of this
Agreement (other than Article VI) and such failure continues for 5
Business Days after notice from the Lender;
(d) the Company defaults in payment on Borrowed Money Indebtedness
other than as set forth on Schedule 3.1(d) (giving effect to any
applicable grace periods and any extensions thereof) of at least $50,000
aggregate principal amount;
(e) there has been an acceleration of the final stated maturity of any
Borrowed Money Indebtedness of the Company (which acceleration shall not
have been cured, waived, rescinded or annulled for 5 Business Days) if
the aggregate principal amount of such Borrowed Money Indebtedness,
together with the principal amount of any other such Borrowed Money
Indebtedness in default for failure to pay principal at maturity or
which has been accelerated, aggregates $50,000 or more at any time;
(f) any representation or warranty of the Company under this Agreement
shall prove to have been incorrect in any material respect when made;
(g) there exists an outstanding unsatisfied final judgment which,
either alone or together with other outstanding unsatisfied final
judgments against the Company, exceeds an aggregate of $50,000 (to the
extent not covered by insurance) and such judgment shall have continued
undischarged or unstayed for 20 Business Days after entry thereof;
(h) the Company pursuant to or within the meaning of any Bankruptcy
Law:
(i) commenced a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a custodian of it or for all or
substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company in an involuntary case,
(ii) appoints a custodian of the Company for all or substantially all
of its property, or
(iii) orders the liquidation of the Company.
7.2 Acceleration. If an Event of Default occurs and is continuing,
the Lender by notice to the Company, may declare the principal of and
any accrued interest on the Bridge Note to be due and payable. Upon
such declaration such principal and interest shall be due and payable
immediately. If an Event of Default specified in Section 8.1(h) or (i)
occurs, all unpaid principal and accrued interest on the Bridge Note
then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Lender.
7.3 Other Remedies. Notwithstanding any other provision of this
Agreement, if an Event of Default occurs and is continuing, the Lender
may pursue any available remedy by proceeding at law or in equity to
collect the principal of or interest then due on the Bridge Note.
Without limiting the foregoing, the Company and the Lender acknowledge
and agree that the remedies of the Lender at law for a breach or
threatened breach of any of the provisions of this Agreement would be
inadequate and, in recognition of that fact, agree that, in the event of
a breach or threatened breach by the Company of any of the provisions of
this Agreement, in addition to any remedies specified herein, at law or
otherwise, the Lender, without posting any bond shall be entitled to
seek equitable relief in the form of specific performance, a temporary
restraining order, a temporary or permanent injunction or any other
equitable remedy which may then be available.
A delay or omission by the Lender in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative.
7.4 Waiver of Past Defaults. Any past Default or Event of Default and
its consequences may be waived in accordance with Section 10.2. When a
Default or an Event of Default is waived, it is cured and ceases.
ARTICLE VIII
INDEMNIFICATION
8.1 [Intentionally Omitted].
8.2 [Intentionally Omitted].
8.3 [Intentionally Omitted].
ARTICLE IX
RESTRICTIONS ON TRANSFER
9.1 Securities Laws Restrictions on Transfer. None of the Bridge
Note, or the shares of Common Stock issuable on any Conversion Date
shall be sold or transferred unless either (a) they first shall have
been registered under the Securities Act or (b) the Company shall have
been furnished with an opinion of legal counsel, reasonably satisfactory
to the Company, to the effect that such a transfer is exempt from the
registration requirements of the Securities Act.
9.2 Restrictive Legend. The Bridge Note, any New Bridge Note and any
shares of Common Stock issued on any Conversion Date shall be stamped or
otherwise imprinted with a legend in the following form (in addition to
any legend required under applicable state securities laws):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES
LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED."
The foregoing legend may be removed after the second anniversary of the
later of (a) the issue date of the Common Stock and (b) the last date
upon which the Company or any Affiliate of the Company was the owner of
such security (or such shorter period of time as permitted by Rule
144(k) under the Securities Act or any successor provision).
9.3 Transfer to Affiliates.
(a) Notwithstanding the foregoing, this Agreement, the Bridge Note and
the rights and obligations hereunder and thereunder may be transferred
or assigned by the Lender to any of its affiliates; provided, however,
that the transferee provides written notice of such assignment to the
Company stating its name and address; and provided further, that the
Company receives the written instrument provided in subparagraph (b)
below. Any transferee to whom a transfer is made in accordance with the
immediately preceding sentence shall be deemed the Lender for purposes
of this Agreement.
(b) Any transferee to whom rights hereunder are transferred shall,
as a condition to such transfer, deliver to the Company a written
instrument by which such transferee agrees to be bound by the
obligations imposed upon the Lender under this Agreement to the same
extent as if such transferee were a party hereto, including without
limitation the obligations imposed upon the Lender pursuant to Section
10.11.
(c) A transferee to whom such rights are transferred pursuant to
this Section 9.3 may not again transfer such rights to any other Person,
other than as provided in this Section 9.3.
ARTICLE X
MISCELLANEOUS
10.1 Notices. All notices, requests, demands, claims, and other
communications to any party hereunder or pursuant to the terms hereof
shall be in writing. Any such notice, request, demand, claim, or other
communication to any party hereunder shall be deemed duly delivered five
Business Days after it is sent by registered or certified mail, return
receipt requested, postage prepaid, or one Business Day after it is sent
via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
if to the Lender, to:
Diligenti, Inc.
c/o Diligenti Limited
Holden House
57 Rathbone Place
London W1P 1AW
England
Attention: Chris Spanoudakis
with a copy to:
Kirkland & Ellis
Tower 42
25 Old Broad Street
London EC2N 1HQ
England
Attention: Matthew H. Hurlock
If to the Company, to:
Healthcomp Evaluation Services Corporation
2001 Siesta Drive, Suite 302
Sarasota, FL 34239
Attention: Thomas Hartnett
with a copy to:
Jones, Day, Reavis & Pogue
303 Peachtree Street NE
Atlanta, GA 30308-3242
Attention: Barry Stein
Any party may give any such notice, request, demand, claim, or other
communication using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or
electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until
it actually is received by the party for whom it is intended. Any party
may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other
parties notice in the manner herein set forth.
10.2 Amendment, Supplement and Waiver. No provision of this Agreement
or the Bridge Note may be amended, supplemented or waived without the
written consent of the Lender and the Company, and no existing Default
or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Bridge
Note, other than a payment default resulting from an acceleration that
has been rescinded) and no compliance with any provision of this
Agreement or the Bridge Note may be waived without the written consent
of the Lender.
10.3 Survival. All covenants, agreements, representations and
warranties made by the Company in the Loan Documents and in the
certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be
considered to have been relied upon by the Lender and shall survive the
execution and delivery of the Loan Documents and the making of the
Bridge Loan, regardless of any investigation made by the Lender or on
its behalf and notwithstanding that the Lender may have had notice or
knowledge of any Default or incorrect representation or warranty at the
time the Bridge Loan was made, and shall continue in full force and
effect as long as the principal of or any accrued interest on the Bridge
Loan or any fee or any other amount payable under this Agreement is
outstanding and unpaid. The provisions of Article VIII shall survive
and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Bridge Loan
or the termination of this Agreement or any provision hereof.
10.4 Duplicate Originals. The parties may sign any number of copies
of this Agreement. Each signed copy shall be an original, but all of
them together represent the same agreement.
10.5 Governing Law.
(a) The laws of the State of New York, without regard to principles of
conflicts of law, shall govern this Agreement and the Securities.
(b) The Company hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the
United States District Court of the Southern District of New York, and
any appellate court from any thereof, in any action or proceeding
arising out of or relating to any Loan Document, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby
irrevocably unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court. Each
of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and my be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing
in this Agreement or any other Loan Document shall affect any right that
the Lender may otherwise have to bring any action or proceeding relating
to this Agreement or any other Loan Document against the Company, its
Subsidiaries or any of their respective properties in the courts of any
jurisdiction.
(c) The Company hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that
it may now or hereafter have to the extent it may legally and
effectively do so, any objection that it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any other Loan Document in any court
referred to in paragraph (b) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by
law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.1. Nothing in
this Agreement or any other Loan Document will affect the right of any
party to this Agreement to serve process in any other manner permitted
by law.
10.6 Waiver of Jury Trial Each party hereto hereby waives, to the
fullest extent permitted by applicable law, any right it may have to a
trial by jury in any legal proceeding directly or indirectly arising out
of or relating to this Agreement, any other Loan Document or the
transactions contemplated hereby (whether based on contract, tort or any
other theory). Each party hereto (a) certifies that no representative,
agent or attorney of any other party has represented, expressly or
otherwise, that such other party would not, in the event of litigation,
seek to enforce the foregoing waiver and (b) acknowledges that it and
the other parties hereto have been induced to enter into this Agreement
by, among other things, the mutual waivers and certifications in this
Section.
10.7 No Adverse Interpretation of Other Agreements. This Agreement
may not be used to interpret another indenture, loan or debt agreement
of the Company or a subsidiary. Any such indenture, loan or debt
agreement may not be used to interpret this Agreement.
10.8 Successors and Assigns. All agreements of the Company in this
Agreement and the Securities shall bind its successors and assigns. All
agreements of the Lender in this Agreement shall bind its successors and
assigns.
10.9 Separability. In case any provision in this Agreement or in the
Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any
way be affected or impaired thereby.
10.10 Headings, etc The Headings of the Articles and Sections of this
Agreement have been inserted for convenience of reference only, are not
to be considered a part hereof and shall in no way modify or restrict
any of the terms or provisions hereof.
10.11 Confidentiality. The Lender agrees that it will keep
confidential and will not disclose, divulge or use for any purpose other
than to monitor his, her or its investment in the Company any
confidential, proprietary or secret information which Lender may obtain
from the Company pursuant to financial statements, reports and other
materials submitted by the Company to the Lender pursuant to this
Agreement, or pursuant to visitation or inspection rights granted
hereunder, unless such information is known, or until such information
becomes known, to the public (other than as a result of a breach of this
Section 10.11 by the Lender); provided, however that the Lender may
disclose such information if required by law, provided that the Lender
provides prior written notice to the Company of such proposed disclosure
and takes reasonable steps to avoid and/or minimize the extent of any
such required disclosure. The Lender further acknowledges and agrees
that certain of the confidential, proprietary or secret information
which it may obtain hereunder may be material non-public information and
that neither it nor any of its Affiliates shall engage in any
acquisition, disposition or other similar transaction involving the
Company's securities on the basis of such material non-public
information.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above set forth.
HEALTHCOMP EVALUATION SERVICES CORPORATION
By:
Name:
Title:
DILIGENTI, INC.
By:
Name:
Title:
EXHIBIT A
FORM OF BRIDGE NOTE
THE SECURITY EVIDENCED OR CONSTITUTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED, SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
SECURITY UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
No. ______
$______________________________, 2000
FOR VALUE RECEIVED, the undersigned, HEALTHCOMP EVALUATION SERVICES
CORPORATION (the "Company"), promises to pay to the order of DILIGENTI,
INC. or its registered assigns (the "Lender"), the principal sum of
Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000), and to
pay interest from the date hereof on the unpaid principal amount hereof
from time to time outstanding, at the rate per annum and on the date
specified in that certain Loan and Investment Agreement, dated as of
September 15, 2000, between the Company and the Lender (as amended,
restated and/or otherwise modified from time to time, the "Bridge Loan
Agreement"). Terms used herein and not otherwise defined have the
meanings assigned to them in the Bridge Loan Agreement.
The unpaid principal balance of this Note, together with all accrued and
unpaid interest thereon, shall become due and payable on the Bridge Loan
Maturity Date; provided that, if a Conversion Date shall occur, the
unpaid principal balance hereof that the Lender has indicated is to be
converted to Common Stock, together with all accrued and unpaid interest
thereon, shall be cancelled upon receipt by the Lender of the Common
Stock issuable to the Lender pursuant to the applicable provisions of
Article 2, all as set forth in the Bridge Loan Agreement. In the event
the principal amount of this Note is decreased in accordance with
Section 2.5 of the Bridge Loan Agreement, the Lender may exchange this
Note for a Bridge Note definitively stating the aggregate principal
amount hereof pursuant to Section 2.5(c) of the Bridge Loan Agreement.
The Company promises to pay interest on demand, to the extent permitted
by law, on any overdue principal and interest from their due dates at
the rate per annum as specified in Section 2.2 of the Bridge Loan
Agreement.
All payments of the principal of and premium and interest on this Note
shall be made in the lawful currency of the United Sates, by transfer of
immediately available funds into a bank account designated by the Lender
in writing to the Company.
The Company agrees to pay, upon demand, all reasonable out-of-pocket
expenses (including, without limitation, the reasonable fees and
disbursements of legal counsel to the Lender) associated with the
waiver, enforcement or modification of the Bridge Loan Agreement or this
Note.
The Company hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The non-exercise by the Lender of any of
its rights hereunder in any particular instance shall not constitute a
waiver thereof in that or any subsequent instance.
This Note is the Bridge Note referred to in the Bridge Loan Agreement,
which Agreement, among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain
events, and for the amendment or waiver of certain provisions of the
Bridge Loan Agreement, all upon the terms and conditions therein
specified. In the event of any conflict between the provisions of this
Note and the Bridge Loan Agreement, the provisions of the Bridge Loan
Agreement shall govern.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
corporate name by its duly authorized officer and to be dated as of the
day and year first above written.
HEALTHCOMP EVALUATION SERVICES CORPORATION
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
SCHEDULE 1.1
Certain Permitted Liens -a)
Accounts Receivable
Bank of America (HESc) - amounts will fluctuate based on outstanding
receivable balance [current balance: $1.48 million - Base rate 16.5%]
Heller Financial (PSD) - amounts will fluctuate based on outstanding
receivable balance [initial balance $0 until receivables are generated
after acquisition by HESc - Prime + 2%]
Fixed Assets
First Security Bank (HESc)
Mammography equipment (2 loans) [current balances: $36,944 and $18,722
- - 9.75%]
Deutsche Financial (HESc)
Cisco Systems telephone system (capital lease) [current balance:
$72,000]
Chrysler Financial (HESc)
Plymouth Voyager and Chrysler Town & Country minivans based at Hartford
office (2 loans) [current balances: $11,856 and $10,380 - 11.25%]
American Technology Leasing (PSD)
Master lease for computer equipment at Greensboro office and medical
equipment at Kansas City office (capital lease) [current balance:
$113,600]
Bank of America (HESc)
Secondary lien on fixtures, equipment and inventories [included in
accounts receivable balance above]
Dollar Bank Leasing (HESc)
Computer equipment [current balance: $1,400]
Dominion Financial Group International, LDC (HESc)
Secondary lien on certain receivables of Afton, Inc. [current balance:
$288,600 - 13%]
(a - Excludes vehicles (trucks) and equipment (e.g., breathalyzers,
copiers, postage machines and film processing equipment) leased under
operating leases.
SCHEDULE 3.1(b)
August 31, 2000
Outstanding shares
14,804,891
Convertible securities
Stock options outstanding 726,000
Stock options to be issued following
completion of Transaction 3,500,000
Warrants 6,271,317
Convertible notes 1,730,715
27,032,923
SCHEDULE 3.1(b)
Percent to Warrants/ Percent
Shares Total Options-a) Total to Total
Clegg 968,000 6.5% 1,757,927 2,725,927 10.1%
Thomas 696,538 4.7% 433,725 1,130,263 4.2%
Lowrey (Director) 543,248 3.7% 200,000 743,248 2.7%
Nabors 300,000 2.0% - 300,000 1.1%
Thacker 502,806 3.4% 103,750 606,556 2.2%
Fred 278,000 1.9% - 278,000 1.0%
Hartnett 278,000 1.9% 85,411 363,411 1.3%
Friedman 130,000 0.9% - 130,000 0.5%
Will 34,000 0.2% 65,000 99,000 0.4%
Fowler, G. 20,000 0.1% 50,000 70,000 0.3%
Vetter - 0.0% 62,000 62,000 0.2%
O'Donnell 61,640 0.4% - 61,640 0.2%
Hogan - 0.0% 50,000 50,000 0.2%
Malter, M. 49,745 0.3% - 49,745 0.2%
Brosnan - 0.0% 30,000 30,000 0.1%
Hedgepeth 13,000 0.1% 17,000 30,000 0.1%
Pegors - 0.0% 30,000 30,000 0.1%
Culver - 0.0% 15,000 15,000 0.1%
Young - 0.0% 15,000 15,000 0.1%
Jesz - 0.0% 10,000 10,000 0.0%
Management
Total 3,874,977 26.2% 2,924,813 6,799,790 25.2%
Augsback
investors 1,329,999 9.0% 1,304,999 2,634,998 9.7%
Kaltenbacher 750,000 5.1% 1,472,388 2,222,388 8.2%
Bryan 400,000 2.7% 400,000 800,000 3.0%
Dominion Financial
Group Int. 558,792 3.8% 182,494 741,286 2.7%
Emmett 522,475 3.5% 200,000 722,475 2.7%
Elkin 294,971 2.0% 60,000 354,971 1.3%
Smith, H. 275,144 1.9% - 275,144 1.0%
Luscomb 253,409 1.7% 20,000 273,409 1.0%
Boyle 200,000 1.4% - 200,000 0.7%
Lewis Malter
Trust 137,527 0.9% - 137,527 0.5%
Upshaw 122,338 0.8% - 122,338 0.5%
Lafasciano 120,000 0.8% - 120,000 0.4%
Stanton 120,000 0.8% - 120,000 0.4%
Angelotti 100,000 0.7% 100,000 200,000 0.7%
Rosenberg, D. 100,000 0.7% 100,000 200,000 0.7%
Rosenberg, E. 100,000 0.7% 100,000 200,000 0.7%
Adkins 97,113 0.7% - 97,113 0.4%
Buchanan 90,000 0.6% - 90,000 0.3%
Brindley Trust 80,000 0.5% - 80,000 0.3%
Cobb 40,000 0.3% 40,000 80,000 0.3%
Lee 51,810 0.3% - 51,810 0.2%
Armbruster 50,000 0.3% - 50,000 0.2%
Federbush Family
Trust 50,000 0.3% - 50,000 0.2%
Gonzales 50,000 0.3% - 50,000 0.2%
Groom IRA 50,000 0.3% - 50,000 0.2%
Kelly 50,000 0.3% - 50,000 0.2%
Malter-Domutz 49,472 0.3% - 49,472 0.2%
Adams 41,710 0.3% - 41,710 0.2%
Malter, D. 41,710 0.3% - 41,710 0.2%
Smith, A 39,233 0.3% - 39,233 0.1%
6,165,703 41.6% 3,979,881 10,145,584 37.5%
Grand Total 10,040,680 67.8% 6,904,694 16,945,374 62.7%
Total
Outstanding 14,804,891 12,228,032 27,032,923
(a- Excludes options currently awaiting final Board action.
SCHEDULE 3.1.(d)
Compliance with Instruments
Lender Amount
Quest Diagnostics Incorporated -a) $ 500,000
Richard Weltman 145,758
Barbara Weltman 75,000
Rock Springs National Bank 50,851
$ 771,609
(a - Balloon payment due on September 11, 2000; the Company expects to
enter into negotiations with the Lender to establish repayment terms
subsequent to execution of this Agreement.
SCHEDULE 3.1.(e)
PROPERTIES
Company Name Address Owned/Leased
Healthcomp Evaluation Services 2001 Siesta Drive Leased
Corporation Suite 302
Sarasota, FL 34239
71-C Dudleytown Road Leased
Bloomfield, CT 06002
Afton, Inc. 2001 Siesta Drive Leased
Suite 302
Sarasota, FL 34239
Afton-North Dakota, Inc. 2301 University Drive Leased
Building 21
Bismarck, ND 58504-7595
AmeriTest, Inc. 2001 Siesta Drive Leased
Suite 302
Sarasota, FL 34239
2147 University Avenue West Leased
Suite 113
St. Paul, MN 55114
3509 Elizabeth Lake Road Leased
Suite 218
Waterford, MI 48328
1448 East Center Street Leased
Pocatello, ID 83201
Medical Drug Testing, Inc. 8001 Rowan Drive Leased
Suite 212
Cranberry Township, PA 16066
Health Evaluation Programs, Inc. 2420 East Oakton Street Leased
Unit D
Arlington Heights, IL 60005
2323 Main Street Leased
Pittsburgh, PA 15215-2812
SCHEDULE 3.1.(e)
Properties
Company Name Address Owned/Leased
Quality Health Services, Inc. 2001 Siesta Drive Leased
Suite 302
Sarasota, FL 34239
Preventive Services Division 1600 Genessee Leased
Suite 700
Kansas City, MO 64102
3127 Belmont Leased
Kansas City, MO
Suite A Leased
420 Gallimore Dairy Road
Greensboro, NC 27409
605 Eastowne Drive Leased
Chapel Hill, NC
6330 East 75th Street Leased
Indianapolis, IN 46250
8310 University Executive Leased
Park Drive
Suite 350
Charlotte, NC
SCHEDULE 3.1.(i)
OUTSTANDING TAX RETURNS
Annual Returns
Healthcomp Evaluation Services Corporation and subsidiaries (1999)
Stub Period Returns
Afton, Inc. and subsidiaries (1998)
Health Evaluation Programs, Inc. (1998)
Quality Health Services, Inc. (1998)
State Returns
Returns to be filed for stub period of 1998 and year 1999:
Connecticut Florida
Illinois Kansas
Minnesota Nevada
North Dakota Pennsylvania
Payroll Tax Returns
All returns filed. Taxes outstanding at August 31, 2000 total
$313,805.43.
The Company has contacted the Internal Revenue Service regarding
establishment of a payment schedule for amounts outstanding; however, a
response has not been received from the IRS.
SCHEDULE 3.1(n)
Company Intellectual Property
Registered Trademarks
Mark Registration No. (Serial No.) Registration Filing Date
HEP 1,297,158 (SN 443,260) 9-18-84
Enjoy Good Health! 1,784,600 (SN 77-310,826) 7-27-93
Trademarks Applied For
Mark Registration/Application No. Application Filing Date
HESC/To be filed by Afton N/A N/A
Material Unregistered Trademarks or Trade Names
[None]
Proprietary Software
ExamWriter v 1.0
ExamWriter v 2.0 - a)
Physical Exam processing system
Results processing software (drug testing & mobile screening)
Scheduling software
Licensed Software
WinnData MRO software
WinFrame processing software
Great Plains accounting software v 9.0
Microsoft Office
Microsoft Map
Radiographic software
Hear/Trak system software
Wellsource program
RW multiuser upgrade
Lipin Dietz software
UNIXWARE 7.1/SCO server
Vision 3.0/SCO/configuration
Novell Netware 4.2
Oracle Database
Create-A-Check Professional
(a - balance owed to MSYS, Inc. totals $100,000.
PSD Trademarks, Trade Names, Service Marks, Service Names, etc.
ELB & Associates
E.L.B. & Associates
Health & Hygiene/ELB, a U.S. HealthWorks Company
U.S. HealthWorks Preventive Services
USH Preventive Services
Health & Hygiene
Health & Hygiene Midwest
Health & Hygiene Clinical Evaluation Center
"How American Business Stays Healthy"
H&H
Preventative Services
U.S. HealthWorks Preventative Services Division
ELB
Ennis, Lumsden, Boylston and Associates, Inc.
MSDSPRINT
INTOXISPRINT
SPRINTTRACK
SPRINTWARE
AudioSPRINT
SpiroSPRINT
SPRINTLOG
MONIFAX
PSD SOFTWARE
1. Sprintware - Several application modules developed and maintained
internally.
- -VanSprint
- -AudioDP
- -AudioReview
- -SpiroReview
- -AudioSprint
- -SpiroSprint
- -SprintLog
- -SprintTrack
- -LapSprint
- -SprintTime
- -IntoxiSprint
2. Client Information Database (CID)
3. Time Billing - Computer based timesheets for Consulting Division
4. Client Support Desk - Support Desk tracking software used by
products department
5. MAX/90 - billing and accounting software licensed from a third-
party vendor
6. Microsoft Office Professional (M/S Word, Excel, Powerpoint, Access,
Outlook)
7. Visual Studio - software development suite
8. FoxPro - software development software
9. Microsoft Back Office
10. Cotton Dust Reporting Application
11. Norton Antivirus
12. WinportSCHEDULE 3.1(s)
Subsidiaries
Parent
Healthcomp Evaluation Services Corporation
(formerly Handell-Graff, Inc.)
First Tier Subsidiaries
(100% owned by Healthcomp Evaluation Services Corporation)
Afton, Inc.
Medical Drug Testing, Inc.
Second Tier Subsidiaries
(100% owned by Afton, Inc.)
Health Evaluation Programs, Inc.
Quality Health Services, Inc.
Afton-North Dakota, Inc.
AmeriTest, Inc.
SCHEDULE 3.1(t)
Insurance
Type Carrier/Policy No. Coverage Amount
Directors & Officers National Union (5870345) $ 3,000,000
General & Professional
Liability Lexington (7157435) 1,000,000/3,000,000
Property Lexington (7157435) Specific limits
Automobile American Home (CA7058883) 1,000,000
Worker's Compensation Fremont (WC04224801) 500,000
Umbrella Lexington (7157436) 5,000,000