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EXHIBIT A
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
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TABLE OF CONTENTS
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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
4.1 Conditions 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 Corporate Actions and Shareholders Meeting.....................................................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
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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 INDEMNIFICATION................................................................................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
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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.
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"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.
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"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.ss. 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,
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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,
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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.
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"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
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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
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(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.
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"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;
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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
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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
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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.
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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
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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
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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.
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(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.
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(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.
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(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.
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(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
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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.
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(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
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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
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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
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(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
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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
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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:
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(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.
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(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].
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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
29
<PAGE> 33
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).
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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.
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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.
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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
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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.
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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
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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.
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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
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<PAGE> 41
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
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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.
39
<PAGE> 43
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.
40
<PAGE> 44
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: /s/ Thomas M. Hartnett
-----------------------------------
Name: Thomas M. Hartnett
Title: Senior Vice President
DILIGENTI, INC.
By: /s/ C. Spanoudakis
------------------------------------
Name: C. Spanoudakis
Title: Group Commercial Director
<PAGE> 45
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
<PAGE> 46
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.
<PAGE> 47
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:
<PAGE> 48
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.
<PAGE> 49
SCHEDULE 3.1(b)
AUGUST 31, 2000
<TABLE>
<S> <C>
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
====================
</TABLE>
<PAGE> 50
SCHEDULE 3.1(b)
<TABLE>
<CAPTION>
Percent to Warrants/ Percent
Shares Total Options-a) Total to Total
------ ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
Percent to Warrants/ Percent
Shares Total Options-a) Total to Total
------ ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C>
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
========== ========== ==========
</TABLE>
(a- Excludes options currently awaiting final Board action.
<PAGE> 52
SCHEDULE 3.1.(d)
COMPLIANCE WITH INSTRUMENTS
<TABLE>
<CAPTION>
Lender Amount
------ ------
<S> <C>
Quest Diagnostics Incorporated -a) $ 500,000
Richard Weltman 145,758
Barbara Weltman 75,000
Rock Springs National Bank 50,851
----------
$ 771,609
==========
</TABLE>
(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.
<PAGE> 53
SCHEDULE 3.1.(e)
PROPERTIES
<TABLE>
<CAPTION>
COMPANY NAME ADDRESS OWNED/LEASED
------------ ------- ------------
<S> <C> <C>
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
</TABLE>
<PAGE> 54
SCHEDULE 3.1.(e)
PROPERTIES
<TABLE>
<CAPTION>
COMPANY NAME ADDRESS OWNED/LEASED
------------ ------- ------------
<S> <C> <C>
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
</TABLE>
<PAGE> 55
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.
<PAGE> 56
SCHEDULE 3.1(n)
COMPANY INTELLECTUAL PROPERTY
Registered Trademarks
<TABLE>
<CAPTION>
Mark Registration No. (Serial No.) Registration Filing Date
<S> <C> <C>
HEP 1,297,158 (SN 443,260) 9-18-84
Enjoy Good Health! 1,784,600 (SN 77-310,826) 7-27-93
</TABLE>
Trademarks Applied For
<TABLE>
<CAPTION>
Mark Registration/Application No. Application Filing Date
<S> <C> <C>
HESC/To be filed by Afton N/A N/A
</TABLE>
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
<PAGE> 57
(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
<PAGE> 58
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. Winport
<PAGE> 59
SCHEDULE 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.
<PAGE> 60
SCHEDULE 3.1(t)
INSURANCE
<TABLE>
<CAPTION>
TYPE CARRIER/POLICY NO. COVERAGE AMOUNT
---- ------------------ ---------------
<S> <C> <C>
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
</TABLE>
