As filed with the Securities and Exchange Commission on September 13, 1999
File No.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
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CLIXHEALTH.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 23-2679963
(State or other jurisdiction (I.R.S. Employer Identification No.)
of organization)
999 Old Eagle School Road
Suite 108
Wayne, Pennsylvania 19087
(Address of principal executive offices and zip code)
(610) 293-7650
(Issuer's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001 OTC Electronic Bulletin Board
(Title of each Class (name of each Exchange onto
be so registered) which each class is to be
registered)
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PART I
Item 1. Description of Business.
General
CLIXhealth.com, Inc., a Nevada corporation, ("CLIX" or the "Company") is a
holding Company with two wholly owned subsidiaries, Cardiovascular Laboratories,
Inc. of PA, a Pennsylvania corporation ("CLI"), and CLIX Information Systems,
Inc., a Pennsylvania corporation, doing business under the name VitalBody
("VitalBody"). In April 1999, the Company changed its name from Cardiovascular
Laboratories, Inc. to CLIXhealth.com, Inc. in order to reflect the new focus of
the Company in the e-commerce marketplace for preventive health care products.
All of the Company's 1997 and 1998 revenues were provided by CLI.
CLI specializes in the provision of non-invasive cardiovascular imaging and
the turnkey management of fixed site vascular and echocardiographic ultrasound
laboratories. CLI provides services with the highest clinical quality possible,
and strives to maintain those clinical standards. CLI has historically focused
on fixed- site imaging within community hospitals, although it currently
operates in, and intends to expand into additional independent fixed-site
imaging locations as well as into new community hospitals. CLI does not
presently perform mobile imaging services. It presently operates eleven
diagnostic imaging sites in ten fixed-site locations in Pennsylvania, New Jersey
and New York. At its locations, CLI performs a scope of services that can
include one or more of the following: hiring, training and clinical management
of ultrasound technologists; management and administration of laboratory
operations; and selection, leasing and deployment of ultrasound equipment.
VitalBody was incorporated in May 1998, and is a development stage
enterprise engaged in Internet-based sales of preventive health care products.
VitalBody has yet to generate more than nominal revenues from its activities. It
was formed to diversify the Company's source of revenue and profits. VitalBody's
principal objective is to create branded lines of "wellness" products sold
through interactive e-commerce and direct marketing. Brand awareness is to be
created through sponsorship provided by association with authoritative experts
who have an existing media presence, by aligning with existing and prospective
Internet retailers and by creating joint ventures and other programs to support
the overall marketing and sales effort.
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Historical Background
The Company was originally incorporated in Utah on August 8, 1983 as
Interstate Gold and Gas, Inc. The Company was in a development stage from
inception until 1992, engaged in the business of developing mining properties.
During 1992, the Company lost its remaining mining claims, and became inactive.
The Company remained inactive until March 31, 1998, when it acquired CLI. CLI
was incorporated in August 1991, and has been engaged in the provision of
non-invasive ultrasound diagnostic services since inception. Following the
acquisition of CLI, the name of the Company was changed to Cardiovascular
Laboratories, Inc., and the former management and Board of CLI assumed effective
control of the Company. In April 1999, the Company changed its name from
Cardiovascular Laboratories, Inc. to CLIXhealth.com, Inc.
Cardiovascular Laboratories, Inc. of PA
Market
Cardiovascular disease is responsible for nearly half of all deaths in the
United States. The aging process itself predisposes human beings to
cardiovascular disease. Approximately 65% of CLI's patients are covered by
Medicare, with the balance having commercial insurance or being included in a
managed care contract. According to the National Center for Health Statistics,
there are over 67 million people with some form of cardiac or vascular disease
in the United States. Cardiovascular disease can often be effectively treated if
detected early. Diagnostic ultrasound is the most cost effective, least painful
and least invasive method available for diagnosing vascular disease. It produces
no side effects. CLI believes its imaging revenues are not subject to the ebb
and flow of the economic cycle. CLI estimates that its core ultrasound imaging
marketplace generated approximately $2.5 billion in 1997 revenues, and expects
demand to increase at 8% per year as the population ages.
Diagnostic Ultrasound Imaging
Diagnostic ultrasound imaging helps doctors see inside the human body by
bouncing sound waves off of anatomy and blood flow. It works without the use of
dyes, injections, or catheters. These sound waves are received by the ultrasound
machine, interpreted by sophisticated imaging software and displayed on a video
monitor. The test results are captured on a videotape machine built into the
unit. After the technical component of the
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diagnostic test has been performed by a technologist, an interpreting physician
views the videotape and establishes test findings. Although most competing
diagnostic imaging techniques provide the physician a frozen-in-time snapshot
image, ultrasound imaging enables the diagnostician to study real-time blood
flow non-invasively. A dynamic tool, it allows the physician to make more
accurate diagnoses at earlier stages of the disease. This increases the
possibility of successful treatment.
Diagnostic ultrasound testing is broken into two components: technical and
professional. The technical component is the technologist's use of the
ultrasound equipment within strict clinical protocols, recording the visual and
auditory information onto videotape. The professional component consists of an
experienced physician reading the videotape, making a diagnosis of the patient's
condition, and dictating the diagnosis into a formal interpretation. The
critical difference in the two components is that the technologist does not
practice medicine, but performs a service for the physician who does practice
medicine.
Low Exposure to Malpractice
Because CLI does not practice medicine, or perform any invasive procedures,
CLI believes it carries a relatively low exposure to malpractice liability. Even
so, CLI insures its and its employee's exposure by coverage from the nation's
leading medical malpractice insurer. Since inception, neither CLI nor any of its
employees have been sued for professional negligence.
Testing Process
The testing process begins when a patient's physician orders a test and
refers the patient to one of CLI's labs. A specially trained and registered
technologist performs the test according to rigorously disciplined protocols
using sophisticated equipment, costing approximately $150,000 to $200,000 per
unit. Tests are then interpreted by an interpreting physician and a course of
treatment can be prescribed.
Ultrasound is a Well Established Diagnostic Imaging Technology
Ultrasound is a well accepted diagnostic tool for assessing the progression
of cardiovascular disease. As a dynamic medium using simple sound waves,
ultrasound technology is uniquely suited for the diagnoses of cardiovascular
disease. It offers important advantages in cost effectiveness over other
diagnostic methods.
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Despite advances in other imaging areas, ultrasound is likely to continue to be
an important diagnostic modality due to advances in hardware, software, and the
prospective use of ultrasound in conjunction with non-toxic contrast agents. The
Company believes that these advances, plus the inherent non-invasive nature of
ultrasound make its obsolescence as a diagnostic modality unlikely in the near
future.
Studies Performed
An example of a study performed by CLI is a cerebrovascular test. This
procedure examines blood flow to the brain to detect conditions which could lead
to stroke. The diagnosing physician uses the data produced by the technologist
to find plaque or stenosis in the carotid artery. This is a powerful and cost
effective first step to preventing stroke. As the United States population ages
(and age predisposes people to vascular disease) cerebrovascular tests will be
performed more frequently.
The most common cardiovascular imaging studies performed by CLI
include:
o Cerebrovascular evaluation
o Transcranial doppler procedures
o Lower arterial studies
o Lower venous studies
o Echocardiography
o Abdominal aorta studies
o Dialysis access site assessment
o Visceral vascular studies
o Graft surveillance
o Venous mapping
Emphasis On Clinical Quality
CLI is dedicated to the delivery of a superior level of quality in all of
its diagnostic testing. CLI concentrates on high-end ultrasound diagnostics,
providing tests that are usually available only through university hospitals in
major metropolitan centers. CLI insists on employing strict protocols and
self-policing auditing methods, which require technologists to spend more time
evaluating patients than current industry standards dictate. When the
comprehensive nature of these testing protocols are coupled with highly trained
technologists, diagnostic accuracy is measurably improved. And, when
sophisticated tests are executed with painstaking care, they become more cost
effective in
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diagnosing disease at an early stage, thereby reducing the cost of treatment.
Clinical Training Program
Cardiovascular ultrasound is a diagnostic imaging modality that is highly
dependent on the training and experience of the technologist performing the
procedure. Unlike many other types of diagnostic imaging, the technologist must
act as a clinician, and not merely the operator of a machine. This places a
premium on the technologist's skills. Historically, CLI has recruited its
technologists through contacts it has in the technologist community as well as
through the use of professional medical recruiting services. However, CLI is
embarking on a program to align itself with a world-class cardiovascular
ultrasound educational institution to create a more assured source for training
technologists, and remove one constraint to growing the business.
Additionally, as CLI expands its operations into new areas, with new
interpreting physicians, it will become more difficult to maintain
interpretations at the consistently high level of clinical quality it has come
to expect in the past. Accordingly, discussions have begun with prominent
educational institutions in diagnostic ultrasound to form an alliance to help
train new interpreting physicians and provide an ongoing program of clinical
quality assurance.
Business Strategy
Historically, CLI has concentrated on operation of imaging labs within
community hospitals. The Company currently has six such hospital contracts to
operate imaging facilities on-site. These contracts range from a full turn-key
management of an entire lab to the provision of specialized personnel to perform
diagnostic imaging within the hospital's own lab. These services benefit a
hospital by expanding the scope of services, increasing outpatient referrals,
creating positive cash flow and increasing surgery and ancillary procedures. CLI
gives the hospital access to a higher quality pool of technologists than might
otherwise be possible because it can hire, train and compensate its employees
without the institutional personnel constraints present in many hospitals.
Hospitals have a built-in source of referrals and thus a predictably high level
of volume. CLI invoices hospitals directly for imaging services. Hospital
receivables are generally easier to manage than receivables owed directly to CLI
from Medicare carriers and other insurers.
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In addition to hospital-based locations, CLI operates several
independently-owned site labs. Independently sited locations perform services
independently from a hospital, and invoice insurance carriers for studies
through an entity known as an Independent Diagnostic Testing Facility ("IDTF").
The Company is responsible for establishing clinical protocols and maintaining
quality control, leasing and maintaining equipment, hiring, training and
employing technologists, scheduling patients and general lab administration, and
billing and collection activity.
CLI believes that there will be opportunities to expand the hospital-based
business during the next few years. The Health care Financing and Health
Administration (HCFA), the financing arm of the federal Medicare program, has
announced that it intends to establish a new prospective payment system for
hospital outpatient services. This new payment system is similar to the
Diagnosis Related Group payment methodology introduced in 1984 for hospital
inpatient services. The new outpatient payment system will classify payments
into fixed Ambulatory Patient Groups (APG's). This development represents a
significant change in the way outpatient health care services are delivered, and
it is currently unclear whether CLI will be able to profit from such changes. It
is possible that existing hospital contracts will require re-structure and
modification in such a way that the profitability of the business is adversely
impacted.
Changing Regulations in Ultrasound Imaging
Beginning in 1999, Medicare carriers and intermediaries in many states,
(including Pennsylvania and New Jersey) are scheduled to stop reimbursing
vascular ultrasound imaging service providers who either provide services in a
lab that has not met the stringent accreditation standards set forth by the
Intersocietal Commission for the Accreditation of Vascular Laboratories
("ICAVL"), or provide services that are not performed or directly supervised by
a Registered Vascular Technologist ("RVT").
CLI estimates that fewer than 40% of vascular laboratories currently comply
with ICAVL accreditation standards. The reason for this non-compliance centers
on the level of training of the average technologist and the level of diligence
and sophistication of the average laboratory. CLI has always operated as if
ICAVL standards were in effect. All of CLI's technologists are Registered
Vascular Technologist (or registry eligible). All of its facilities currently
meet, or in the case of new labs, are on track to meet the new ICAVL standards.
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There may be additional changes in regulations that have a material
negative impact on the imaging business as currently performed by CLI. These
changes may have to do with the acceptable means of structuring relationships
with hospitals and physicians, or there may be adverse changes in the
reimbursement regulations that govern CLI's operations.
Technology
CLI uses laboratory imaging and other equipment supplied by a number of
different equipment manufacturers. The equipment is typically acquired on an
operating lease basis, and CLI believes it will be able to upgrade its fleet of
diagnostic machines on an as-needed basis to accommodate new technology as it
becomes available.
Notwithstanding the belief that the Company will be able to upgrade its
equipment on an as-needed basis, CLI does enter into multi-year lease agreements
that may not be able to be modified should new technology emerge.
Competition
CLI faces substantial competition in its imaging business from numerous
competitors. The most significant competitor is usually the community hospital
within CLI's immediate market areas. The facilities operated by these hospitals
vary widely in terms of the quality and training of their personnel, equipment
and clinical protocols. Notwithstanding these potential negative attributes,
however, it is often difficult to compete with established patterns of medicine
evident between a hospital's lab and the physicians who practice in that
hospital and refer patients into the lab.
Other competition comes from physicians and group practices of physicians
who have set up ultrasound diagnostic imaging capabilities within their own
practices. While these imaging locations may have some of the same drawbacks
presented by the hospital labs, the physicians who operate their own labs will
not refer any of their patients to a CLI lab.
CLI competes with hospital-based and physician practice-based labs by
offering a superior clinical service, and by being a non-aligned third party
provider of services that is not necessarily affiliated with either a hospital
or a specific physician.
Additionally, CLI faced significant competition during 1998 from a company
formed by its former Chief Executive Officer who
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resigned in November 1997. This competition was successful in causing the loss
of four contracts maintained by the Company. Together, these contracts accounted
for annualized revenue of approximately $2,000,000. While the Company was able
to expand existing operations to mitigate the overall impact of the loss of
these hospital contracts, it lost a significant number of trained employees to
this competitor.
Seasonality
CLI's results of operations may vary significantly from quarter to quarter,
for reasons particular to each quarter. For instance, hospital admissions and
doctor visits (and, therefore, CLI's imaging revenues) are typically lower
during holiday periods, and at other times when physicians traditionally take
their own vacations.
Suppliers
Although CLI has historically acquired most of its imaging and related
equipment from a small number of suppliers, CLI does not believe it is dependent
upon any one supplier or group of suppliers. While CLI has a preference for the
equipment manufactured by certain manufacturers, there are a number of
manufacturers of imaging equipment adequate for CLI's purposes, and an even
greater number of companies from whom such equipment can be leased. CLI believes
that alternate sources for its equipment and supply needs are readily available
at comparable costs, and that its relationships with its equipment suppliers are
satisfactory.
Patents Or Trademarks
Although CLI relies upon sophisticated equipment, instrumentation and
technology, CLI does not own, license or otherwise rely upon any patents or
trademarks for the operation of its business. Other than corporate names, CLI
does not own or utilize any trade names in its business.
Governmental Regulation
Many aspects of the health care industry in the United States are presently
subject to extensive federal and state governmental regulation. Certain of these
laws and regulations are applicable to CLI's business. CLI believes that its
operations are in material compliance with all applicable laws.
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Federal Kickback Law
Federal law prohibits the offer, solicitation, payment or receipt of any
remuneration (direct or indirect, overt or covert, in cash or in kind) which is
intended to induce, or is in return for, the referral of patients for, or the
ordering of, items or services reimbursable by Medicare or Medicaid. The law
also prohibits remuneration intended to induce the purchasing of, or arranging
for, or recommending the purchase or order of any item, good, facility or
service for which payment may be in whole or in part under those programs. Under
this statute, known as the "kickback law," an offense may be punished by
criminal prosecution or by excluding any of the parties to the transaction or
arrangement from participation in Medicare and Medicaid. The law is very broad
and has been interpreted to apply to otherwise legitimate investment interests
if one purpose of the offer of an opportunity to invest is to induce referrals
from the investors. Regulations implemented under the kickback law provide
certain "safe harbors" giving protection for certain categories of
relationships. The breadth of the kickback law is such that virtually any
financial relationship between a practitioner and a health care provider, such
as an independent physiological laboratory (IPL) or an independent diagnostic
testing facility (IDTF), involving the offering of Medicare and Medicaid
services may trigger the application of the law. A portion of CLI's business
arrangements involves the management and staffing of in-house diagnostic
laboratories at hospitals. CLI does not bill Medicare or Medicaid for the
technical services provided at the hospitals' laboratories and is in compliance
with the Federal kickback law.
Federal Stark Laws
Federal law also prohibits physicians from ordering or prescribing certain
designated health care services or items if the service or item is reimbursable
by Medicare or Medicaid and is provided by an entity with which the physician
has a financial relationship (including investment interests and compensation
arrangements). Payment for a service provided in violation of these laws, known
as the "Stark Laws," may be denied, or money paid may be recouped. The services
specified by the Stark Laws include ultrasound procedures and other designated
services, which are provided by CLI as the result of referrals from physicians
who purchase the tests from CLI. CLI believes that its relationships with
referring physicians are in compliance with the Stark Laws. A number of states,
including states in which CLI does business, have laws and regulations similar
to the federal kickback laws and
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Stark Laws. CLI believes that it is in compliance with all of such laws,
although, as is the case with federal law, there can be no assurance that
changes in such laws or the interpretation or enforcement of such laws will not
have a material effect on CLI.
IDTFs
CLI must satisfy certain rules set forth by the Health Care Financing
Administration ("HCFA") relating to the payment of services to Medicare or
Medicaid beneficiaries. These rules state that the carriers will pay for
services under the Medicare fee schedule only when performed by a physician, a
group practice of physicians, an approved supplier of portable x-ray services,
or an IDTF. The current effective date for IDTF status is March 15, 1999. CLI
believes that its services provided outside of the hospital environment are
provided according to the rules and specifications of an IDTF.
Potential National Health Care Reform
Both the Clinton Administration and the Congress have periodically asserted
a need to overhaul or reform the nation's health care system. Such legislative
initiatives, if enacted, could impose pressures on the pricing structures
applicable to CLI's services. In particular, there is a possibility that an even
greater portion of health care services will be rendered and administered
through "managed care" systems, which could have the effect of forcing pricing
concessions and reductions on the part of service providers such as CLI.
Moreover, health care reform could also entail a greater analysis of each
patient's need for diagnostic testing, with the aim of reducing the total volume
of testing and the overall cost of medical care. CLI is unable to predict
whether, when or to what extent any new laws or regulations may be enacted, or
existing laws or regulations may be modified, any of which could have a material
adverse effect on CLI's revenues, operating margins and profitability.
Environmental Matters
CLI's existing operations do not entail the handling, storage, use,
transport or disposal of any hazardous substances or hazardous materials within
the meaning of any environmental laws. Should CLI enter into nuclear cardiology
imaging services, it will be required to implement a radioactive waste disposal
program consistent with state and federal regulations. In this event, CLI
intends to contract with a nuclear medicine physicist to develop a full
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compliance program for the proper handling and disposal of any waste generated
in the performance of nuclear cardiology studies.
Year 2000 Compliance
CLI recognizes the need to ensure that its operations will not be adversely
impacted by Year 2000 computer and systems failures. Year 2000 failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk. CLI is addressing this risk to the availability and integrity
of financial systems and the reliability of operational systems. During the
first quarter of 1999, CLI upgraded its internal accounting and administrative
computer hardware and software. CLI believes that its administrative computer
systems are now sufficiently compliant with year 2000 compatibility issues, and
that any incompatibility will be able to be managed at a nominal cost and have
minimal potential to adversely impact the business. To date, the year 2000
compliance issues have generated little or no cost to CLI.
It is possible that third party vendor software may pose unanticipated
incompatibilities that are not presently under consideration, and there may be
unanticipated negative consequences to the operations and administration of
CLI's business. It is not possible to quantify these uncertainties, nor the
potential for disruption of CLI's business. CLI has consulted with its
diagnostic equipment vendors and has been advised that certain items will be
supported at no cost, and that older items will be supported on a fee basis. CLI
believes that all of the equipment it uses in a clinical setting will be able to
be upgraded at nominal cost and without a material impact to the operations of
the business.
Certain of the CLI's customers and vendors may be dependent on year 2000
non-compliant computer or other embedded information systems to conduct business
transactions. Although CLI has undertaken certain steps to determine the nature
or extent of any Year 2000 issues that may be posed by customer or vendor
unpreparedness, CLI cannot be sure that its customers or vendors will not cause
interruptions in CLI's business. In particular, the systems of the hospitals and
physicians with whom CLI does business may not be fully compliant with year 2000
compatibility. Moreover, there can be no assurance that such systems will not
interfere with the ability of the hospitals to pay CLI for its services, either
through direct or indirect problems caused by year 2000 incompatibility.
CLI cannot be certain that the operations of private insurance
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companies, health maintenance organizations, Medicare, and other third party
payers will not adversely effect CLI's business because of year 2000
incompatibilities. It is possible that one or more third-party payer will face
serious disruption to its business as a consequence of unanticipated year 2000
compliance problems. If this happens, CLI may be deprived of cash flows due for
its services, and may not have the financial resources or have access to the
financial resources to support its operations, with potentially serious
ramifications for the survival of the business, depending on how long it took
for the incompatibility problems to be resolved.
VitalBody
The Market
VitalBody is a development stage business formed in May 1998 to sell
products and services using the Internet and by other, more traditional channels
to customers in the health care market. This market is both large and diverse
and includes numerous subsets including, but not limited to, nutritional
supplements, exercise equipment and videos, books, magazines, health clubs and
resort spas. VitalBody has selected nutritional supplements as its initial
target market.
Nutritional supplements consist of vitamins, minerals, herbs and sports
supplements. According to the Nutrition Business Journal, vitamins are the
largest category of nutritional supplements, with 43% of 1997 sales, while herbs
held 33% of 1997 sales. Herbs are the fastest growing segment of the market, and
the industry has been adept at finding and promoting new herbal products
aggressively. According to the Nutrition Business Journal, in 1997, there were
four main distribution channels: retail; mail order; multi-level marketing
(sometimes referred to as direct sales or network sales); and health
practitioners.
During 1998, the Internet emerged as a distribution channel. Although
figures are not available for on-line sales of supplements, a few relatively
well established firms have staked out territory including Vitamin Shoppe,
Mother's Nature, GreenTree and VitaSave. These companies have augmented their
existing mail order and retail store business by going on-line. The largest
domestic retail supplement chain, General Nutrition Centers, has not yet
established a significant presence on-line, perhaps over a potential concern for
cannibalizing their existing retail storefronts.
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According to the Nutrition Business Journal, national surveys estimate that
54% of Americans take some sort of nutritional supplements. An estimated 25
million Americans consume supplements regularly, with approximately 2.5 million
people spending over $50 per month, with the remaining 22.5 million spending
approximately $20-$25 per month. Increasing awareness of the health benefits of
nutritional supplements caused both the number of regular consumers to increase.
Information concerning herbal-based supplements has also pushed up the average
purchase per month, as these herbal preparations are often more expensive than
more conventional vitamins and minerals.
Business Strategy
In 1998, the Company made a strategic decision to enter into the
Internet-based wellness and preventive health care market, initially by means of
selling nutritional supplements and other products and services through its
VitalBody subsidiary in conjunction with joint venture partners. The intention
is to diversify the Company's business and to provide a new source of revenue
and profitability. It is currently in a development stage, and there can be no
assurance that it will develop significant revenues or profits in the future.
In February 1999, VitalBody entered into a sales and marketing agreement
with Global Connections, Inc., an e-commerce sales and technology firm. Pursuant
thereto, Global Connections has agreed to design and maintain a number of
e-commerce web sites with VitalBody joint venture partners; establish and
maintain secure e-commerce capabilities, including the facility for processing
credit cards; manage shipping and warehousing; and provide sales support
services including the maintenance of direct marketing databases and staffing an
800 number for customer service. The agreement provides that Global Connections
will receive a fixed percentage of the gross margins earned from products sold.
The agreement has a five year term.
The initial product line introduced by VitalBody is in the area of
nutritional supplements. In March 1999, VitalBody entered into an agreement with
The National Anti-Aging Institute ("NAAI") located in Los Angeles, California.
NAAI is headed by its Medical Director, Arnold Fox, MD, a cardiologist who, for
the past 20 years, has had an alternative medicine practice. Dr. Fox has
published nine books on alternative medicine, several of them best-sellers. He
also has a weekly radio show broadcast on a FM station in Los Angeles. The
agreement provides that VitalBody and the NAAI
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shall work together to establish a line of nutritional supplements. Among
other provisions, the agreement calls for the use of the radio show to promote
an e-commerce site established for the purpose of selling nutritional supplement
products. VitalBody intends to attempt to expand Dr. Fox's radio presence into
other markets to further promote the e-commerce site. The agreement provides
that NAAI shall receive a fixed percentage of any net revenues generated from
products sold. The agreement provides that the Company is responsible for
marketing, manufacture, and development of all products, including operating and
maintaining an e-commerce site. The agreement has a five year term.
VitalBody intends to add value to its products through innovative
marketing, and custom formulations. The NAAI is the initial partner for the
intended commercialization of a line of 40 to 50 nutritional supplements and 5
to 10 custom formulations. In this fashion, products quickly obtain a level of
credibility that would otherwise be difficult to achieve. VitalBody launched its
first e-commerce site May 1999. The web address for the primary e-commerce site
that VitalBody manages for the NAAI is: http://www.theanti-aginginstitute.com.
Subsequent contracts with joint venture partners other than the NAAI are
anticipated. None of these additional prospective agreements have been
finalized, and it is possible that none of the agreements will ultimately be
consummated.
Few Internet-based businesses are profitable, and there is no assurance
that VitalBody will be able to grow either its revenues or derive profitability
from what revenues are generated. The Company is in the process of testing its
marketing strategies, and has not generated significant sales revenues to date.
It is possible that the development stage business undertaken by VitalBody will
change its focus several times in the future in the search for a successful
sales and marketing approach. There is no assurance that any of these approaches
will actually produce revenues and profits.
Governmental Regulation and Legal Uncertainties
The Federal Trade Commission (FTC) and the Food and Drug Administration
(FDA) have complementary jurisdiction to address the marketing of dietary
supplements broadly governed by the framework of the Dietary Supplement Health
and Education Act of 1994 (DSHEA). Under the terms of a liaison agreement
governing the division of responsibilities between the two agencies, the FTC has
primary
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responsibility for advertising and the FDA has primary responsibility for
labeling. Under a liaison agreement between the two agencies, they work closely
in regulating the industry.
The market for nutritional supplements has grown rapidly since the passage
of the Dietary Supplements and Health Education Act of 1994 (known as DSHEA)
that largely deregulated sale of these products. While nutritional supplements
are still subject to labeling requirements, and may make certain benefit claims
only when there is research to support the claim, the FDA does not require
formal approval prior to sale of these products.
The DSHEA legislation established a new regulatory framework for
supplements, ensuring continued access to safe products that are made to quality
standards. DSHEA essentially deregulated the nutritional supplement business.
This stands in sharp contrast to the regulatory environment that exists in
CLIX's imaging division. DSHEA also allowed for the dissemination of information
about the health benefits of these products. The legislation defined dietary
supplements; established a framework for ensuring safety; provided for use of
claims and nutritional support statements; required ingredient and labeling
requirements; provided for good manufacturing processes; and established new
governmental entities for review and research.
One of the critical distinctions made by DSHEA has to do with product
claims. No claim can be made about the use of supplements to diagnose, prevent,
mitigate or cure specific diseases except under very specific circumstances.
However, the legislation does permit so-called structure-function claims. For
example, one may not claim the calcium prevents osteoporosis. However, one may
claim that calcium builds strong bones.
In the past, the FDA attempted to define supplements as drugs or as food
additives and as a result often removed them from the market. The DSHEA
legislation makes it clear that supplement products may not be regulated as
drugs or food additives in most cases. While the FDA still maintains the
authority to remove products they deem dangerous, they are required to do so
only after careful evaluation and consideration.
Claims made in supplement advertising are addressed primarily under the
Federal Trade Commission Act (FTC Act). Section 5 of the FTC Act broadly
prohibits deceptive and unfair acts or practices in or affecting commerce,
including deceptive advertising. In addition, supplement advertising falls under
Sections 12 and 15 of
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the FTC Act. These two sections prohibit false advertisements of foods, drugs,
devices, services and cosmetics, which are defined as advertisements that are
misleading in a material respect The FTC has developed a legal framework for
assessing advertising claims pursuant to these provisions. This framework, set
out in the FTC's Deception Policy Statement and its Substantiation Policy
Statement, can be distilled into two principles: advertising must be truthful
and not misleading; and advertisers must have substantiation for all objective
claims before the claims are disseminated.
Competition
The markets for VitalBody's nutritional products are intensely competitive.
Many of VitalBody's competitors have much greater name recognition and financial
resources than the Company, which may give them a competitive advantage. There
can be no assurance that the Company's business and results of operations will
not be affected materially by market conditions and competition in the future.
Although the Company intends to distribute certain products it considers
proprietary, neither it nor NAAI have patent protection for any current or
planned products. Because of restrictions under regulatory requirements
concerning claims that can be made with respect to dietary supplements, the
Company may have a difficult time differentiating its products from those of
competitors.
There is no assurance that the joint venture marketing strategy in
conjunction with existing media figures will prove successful. Neither can there
be any assurance that VitalBody will be able to successfully establish other
joint venture arrangements with new joint venture partners. Moreover, the
Internet is an unknown distribution channel, and its future is inherently
unpredictable. Currently there are numerous e-commerce sites selling nutritional
supplements over the Internet. Many of these sites are believed to have limited
traffic. However, a number of these sites have well-developed customer bases,
and offer substantially larger product lines than VitalBody.
Suppliers
VitalBody has identified several manufacturers who will serve as the
initial suppliers for the product to be sold in its joint venture with the NAAI.
These suppliers have been selected for the price, quality and range of their
product offerings. Should any one of these suppliers not be able to satisfy
VitalBody's requirements,
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it is not anticipated to be difficult to find alternate manufacturers to supply
products at competitive prices. However, there can be no assurance that
VitalBody will be able to find alternate suppliers in the event its currently
selected suppliers are unable to provide product at attractive prices, high
quality and favorable delivery terms.
Employees
As of July 31, 1999, CLIX had an aggregate of 22 full-time employees. Of
such employees, one is an employee of CLIX and the remainder are employees of
CLI.
Item 2. Management's Discussion and Analysis Or Plan Of Operation.
Forward Looking Statements
Certain Statements contained in this Form 10-SB, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the regions
in which the Company operates; industry capacity; demographic changes; existing
governmental regulations; legislative proposals for health care reform; changes
in Medicare and Medicaid payment levels; liability and other claims asserted
against the Company; competition; the loss of any significant ability to attract
and retain qualified personnel; the availability and terms of capital to fund
acquisitions or the development of new business. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the results of any revision to any of the
forward-looking statements contained herein to reflect future events or
developments.
Overview
CLIXhealth.com, Inc. (formerly Cardiovascular Laboratories,
18
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Inc.) has two subsidiaries, Cardiovascular Laboratories, Inc. of PA("CLI"),
and CLIX Information Services, Inc. (doing business under the name of
VitalBody). All of the revenue generated by CLIX during fiscal years 1997 and
1998 came from CLI. VitalBody did not commence operations until May 1999 and has
not generated any meaningful revenues as of July 31, 1999. CLIX is not an
operating entity, and does not generate operating revenues.
Results Of Operations
Years ended December 31, 1997 and December 31, 1998
Revenues. Revenues were $3,404,460 for the year ended December 31, 1997 and
$3,327,216 million for the year ended December 31, 1998. The slight decrease in
revenues resulted from the loss of revenue from certain hospital contracts. In
this regard, during 1998 and 1999, CLI lost four such contracts to a competitive
organization formed by CLI's former Chief Executive Officer. The lost revenues
amounted to approximately $2,000,000 on an annualized basis. However, the
Company was able to open new locations and recoup approximately one-half of the
lost revenue. Despite an increase in the number of studies performed in
accordance with hospital contracts, fees received from certain hospitals were
lower in 1998 than in 1997.
Salaries, Payroll Taxes and Employee Benefits. Salaries, payroll taxes and
employee benefits were $1,651,326 for the year ended December 31, 1997 and
$1,587,527 for the year ended December 31, 1998. The reduction was due to a
smaller workforce, primarily in administrative personnel.
Equipment Leasing and Laboratory Costs. Equipment leasing and laboratory
costs were $716,260 for the year ended December 31, 1997 and $902,030 for the
year ended December 31, 1998. The increase in machine lease and laboratory costs
was due to an expansion of the CLI hospital-based laboratory business during the
last two months of 1997, which resulted in additional laboratory costs for
ultrasound supplies, parts and service for the ultrasound equipment, and
additional ultrasound machines.
Consulting and Professional Fees. Consulting and professional fees costs
were $534,620 for the year ended December 31, 1997 and $500,876 for the year
ended December 31, 1998. The reduction in fees was due to the elimination of
certain consulting arrangements during 1998.
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Administrative and Other Expenses. Administrative and other expenses were
$354,637 for the year ended December 31, 1997 and $323,337 for the year ended
December 31, 1998. The decrease was due to various measures taken by management
during 1998 to manage the administration of the business more effectively than
during 1997.
Rent and Occupancy Costs. Rent and occupancy costs were $106,138 for the
year ended December 31, 1997 and $135,980 for the year ended December 31, 1998.
The increase was due to moving the corporate headquarters during 1998 while
sub-letting the previous corporate headquarters space at a price that was less
than the entire amount of the lease payment due.
Depreciation. Depreciation expenses were $32,935 for the year ended
December 31, 1997 and $23,028 for the year ended December 31, 1998. The decrease
was due to the sale of depreciable assets.
Interest. Interest expenses were $23,248 for the year ended December 31,
1997 and $35,379 for the year ended December 31, 1998. The increase was due to
an increase in the amount of borrowing undertaken by CLI during 1998.
Non Recurring Expenses. The $240,360 in nonrecurring expenses incurred
during 1998 were due to the former Chief Executive Officer of CLI organizing a
company to compete with CLI after he resigned from the Company in November 1997.
This former executive induced the resignation of multiple technical and
administrative personnel of CLI. In order to perform its obligations under the
terms of certain of CLI's hospital contracts, CLI was required to pay remaining
employees overtime and bonuses plus travel expenses to service the contracts,
hire technical personnel on a temporary basis to service the contracts, recruit
additional technical staff to service the contracts and pay the attendant legal
and personnel-related expenses incurred during this process.
Net Gain (Loss). During 1997, the Company lost $3,700 and during 1998 the
Company lost $312,027. During 1997, the Company lost $14,704 from operations and
during 1998 lost $180,941 from operations.
Three Months Ended March 31, 1998 and March 31, 1999
Revenues. Revenues decreased by $253,282 in the first quarter of 1999
compared to the first quarter of 1998 due to the loss of hospital contracts.
This decrease in revenues also resulted in a decrease in operating expenses in
the effort to restore the Company
20
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to profitability.
Salaries, Payroll Taxes and Benefits. Salaries and payroll decreased by
$188,464 as a result of fewer personnel being employed at the Company by the end
of the first quarter of 1999 compared to 1998. The reduction in personnel was a
consequence of the loss of certain hospital contracts.
Equipment Leasing and Laboratory Costs. Equipment leasing and laboratory
costs decreased by $199,875 in the first quarter of 1999 compared to the first
quarter of 1998 due to the loss of certain hospital contracts.
Other Administrative Expenses. Other administrative expenses increased by
$149,464 in the first quarter of 1999 compared to the first quarter of 1998 due
to the extraordinary expenses related to the loss of certain hospital contracts.
Rent and Occupancy Costs. Rent and occupancy costs increased by $6,153 in
the first quarter of 1999 compared to the first quarter of 1998 due to moving
the corporate headquarters while subletting the previous corporate headquarters
space at a price that was less than the entire amount of the lease payment due.
Interest. Interest expenses increased by $2,278 in the first quarter of
1999 compared to the first quarter of 1998 due to an increase in the amount of
borrowing undertaken by CLI during the first quarter of 1999.
Net Gain (Loss). The Company lost $6,359 during the first quarter of 1999
compared to a gain of $16,481 during the first quarter of 1998. This loss was
due to the winding down of certain operations due to the loss of certain
hospital contracts.
Three Months Ended June 30, 1998 and June 30, 1999
Revenues. Revenues decreased by $218,288 in the second quarter of 1999 as
compared to the second quarter of 1998 due to the loss of hospital contracts.
Salaries, Payroll Taxes and Benefits. Salaries and payroll decreased by
$75,872 as a result of fewer personnel being employed at the in the second
quarter of 1999 as compared to the second quarter of 1998. The reduction in
personnel was a continued consequence of the loss of certain hospital contracts.
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Equipment Leasing and Laboratory Costs. Equipment leasing and laboratory
costs decreased by $36,304 in the second quarter of 1999 as compared to the
second quarter of 1998 due to the loss of certain hospital contracts.
Other Administrative Expenses. Other administrative expenses decreased by
$70,394, in the second quarter of 1999 as compared to the second quarter of 1998
due to the decrease in expenses associated with the loss of certain hospital
contracts.
Interest. Interest expenses increased by $13,964 in the second quarter of
1999 as compared to the second quarter of 1998 due to an increase in the amount
of borrowing undertaken by CLI during the second quarter of 1999.
Net Gain (Loss). The Company earned $11,385 in the second quarter of 1999
as compared to $57 during the second quarter of 1998.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." Statement of Position 98-5, which is effective for fiscal years
beginning after December 15, 1998, provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start up
activities and organization costs to be expensed as incurred. As the Company has
expensed these costs historically, the adoption of this standard is not expected
to have a significant impact on the results of operations, financial position or
cash flows.
Liquidity and Capital Resources.
During the 1998 calendar year, net cash of $274,410 was used by operating
activities, primarily due to the net loss of $312,027. The net cash provided by
financing activities of $244,182 was principally due to the proceeds from
promissory notes and issuance of long term debt. As of December 31, 1998, the
Company had negative working capital of $47,928.
For the six month period ended June 30, 1999, cash of $78,631 was generated
by operating activities, primarily due to the decrease in accounts receivable.
On June 30, 1999, the Company had working capital of $218,074. The increase in
working capital is attributable in part to the extension of the maturity date of
outstanding short-term debt.
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On May 21, 1999, the Company received a Notice of Default from ATL
Financial Services, Inc., one of its equipment leasing companies. This default
was related to the loss of several hospital contracts to a competitive company
formed by the former Chief Executive Officer of CLI. Prior to the default being
declared, CLI claimed that the leasing company had interfered with certain of
the lost hospital contracts and actively assisted CLI's competitor to cause
these contracts to be breached. CLI further claimed that the leasing company had
extended the equipment leases in question based, in part, on the very hospital
contracts that had been interfered with. On July 29, 1999, the matter was
settled by the return of certain leased equipment to the leasing company and the
purchase of certain leased equipment by CLI from the leasing company.
Concurrent with the settlement and release with the equipment leasing
company, CLI entered into a 38 month term loan agreement with DVI Financial
Services ("DVI") in the amount of $440,000 for the purchase of three ultrasound
systems and related peripheral equipment from ATL Financial Services pursuant to
the settlement agreement.
On June 30, 1999, CLI entered into a Loan and Security Agreement with DVI
for a revolving line of credit up to a maximum of $1,000,000 collateralized by
the accounts receivable and related assets of CLI. Under the terms of the
agreement, 80% of the calculated collectable receivables under 120 days old are
eligible to be borrowed. The term of the agreement is two years, with annual
renewal thereafter. The interest rate is the prime rate plus 2.25% per annum,
plus additional expenses related to maintaining the line of credit. Initial
proceeds from this line of credit were used to pay off the outstanding
obligation under the terms of CLI's commercial line of credit with Prime Bank.
As of June 30, 1999, the total amount outstanding under the DVI line of credit
was $254,000. The line of credit is guaranteed by CLIX.
In June 1999, the holders of $125,000 of promissory notes originally due in
March 1999, agreed to extend the maturity date thereof until July 1, 2002. As
part of the extension, the interest rate was increased from 7% to 11% per annum.
The holders of the notes have also subordinated the notes to the debt financing
provided by DVI.
Management believes that the Company's cash and capital resources, together
with cash flow from operations, will be sufficient to finance current and
forecasted operations including
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its capital spending and expansion plans. The Company is, however, actively
seeking additional equity financing. No assurance can be given that such
financing efforts will be successful.
Item 3. Description of Property.
The Company's Wayne executive offices consist of approximately 1,900 square
feet. The lease agreement expires in April 2000. The lease provides for a base
rental of approximately $2,400 per month. During April 1998, the Company moved
from its prior executive offices located in Doylestown, Pennsylvania to its
current Wayne office. The prior location is currently subleased by the Company
for $2,200 per month which is less than the base monthly rental due of $2,500.
The Doylestown lease expires in April 2000.
Item 4. Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth information concerning the beneficial
ownership of CLIX's Common Stock as of July 31, 1999, by each person known to
CLIX to be the beneficial owner of five percent or more of its outstanding
Common Stock, by each Director and executive officer of CLIX, and all Directors
and executive officers as a group.
Amount
Name and Address of Beneficially Beneficially
Beneficial Owner Owned Owned Percentage(1)
- ---------------- ------------ -------------------
Timothy W. Cunningham
999 Old Eagle School Rd.
Wayne, PA 19087 2,546,837(2) 28.1%
Nathan Drage, Trustee
4505 South Union Park Center
Suite 600
Salt Lake City, UT 84047 1,500,000 16.5%
John R. Drexel, IV
300 Park Avenue
Suite 1700
NY, NY 10022 700,000(3) 7.7%
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Francis X. Dillon
54 Canal Run West
Washington Crossing, PA 18977 540,238 6.0%
Paul A. Toomey
999 Old Eagle School Rd.
Wayne, PA 19087 428,760 4.7%
James Wiley
999 Old Eagle School Rd.
Wayne, PA 19087 100,000(4) 1.1%
All Directors and Officers
As a Group (4 persons) 3,775,597 41.6%
- ----------------
(1) Based upon the 7,799,793 shares of Common Stock issued and outstanding as
of July 31, 1999, as well as the following shares, all as required by Rule
13d-3 promulgated under the Securities Exchange Act of 1934: (i) shares
owned by a spouse, minor child or by relatives sharing the same home; (ii)
shares owned by entities owned or controlled by the named person; and (iii)
shares the named person has the right to acquire within 60 days by the
exercise of any right or option. Unless otherwise noted, shares are owned
of record and beneficially by the same person. In accordance with the
foregoing, for purposes of this table, CLIX had 9,069,793 shares issued and
outstanding as of July 31, 1999, consisting of the shares of Common Stock
actually issued and outstanding as well as the 1,270,000 shares of Common
Stock issuable upon exercise of vested options (or options which become
vested within 60-days of July 31, 1999).
(2) Includes 2,546,837 shares owned by Mr. Cunningham's wife, Ann B.
Cunningham.
(3) Includes 700,000 shares issuable upon exercise of stock options.
(4) Includes 100,000 shares issuable upon exercise of stock options.
ITEM 5. Directors, Executive Officers, Promoters and Control Persons.
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The executive officers and Directors of the Company are as follows:
Name Age Position
---- --- --------
Timothy W. Cunningham 46 Chairman of the Board of
(1)(2) Directors
Paul A. Toomey 43 Director, President and Chief
Executive Officer
John R. Drexel, IV 54 Director
(1)(2)
James A. Wiley 50 Vice President and Chief
Financial Officer
- -------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Each Director holds office until the next annual meeting of shareholders
and until his successor has been elected and qualified. The following is a
summary of the business experience of each executive officer and Director.
Timothy W. Cunningham has been Chairman of CLIX since the acquisition of
CLI in April 1998. Prior to the acquisition event, he was Chairman of CLI. Mr.
Cunningham has served as President of Springhouse Associates, Inc., a consulting
firm, from 1989 to the present, and as President of Benson White & Company, an
asset management firm, from 1984 through April 1998. From 1984 through 1988, Mr.
Cunningham was Vice President of Keystone Venture Capital, a venture capital
organization headquartered in Philadelphia. From 1976 through 1983 he worked in
various management capacities with Bucyrus-Erie Co., a manufacturer of mining
machinery. Mr. Cunningham is the co-author of two books on investing. He earned
a Master of International Management from the American Graduate School of
International Management (with honors), and a B.A. from Williams College (magna
cum laude, with highest honors).
Paul A Toomey has served as a Director since the acquisition of CLI in
April 1998. Prior to the acquisition, he was President of CLI commencing in
November 1997. From 1993 to November 1997, he was employed in a variety of
managerial capacities at CLI, including Vice President of Sales and Marketing.
He was Director of
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Physician Services at the Valley Medical Center in San Diego from 1991 to 1993.
He served as the Director of Marketing for Diagnostic Imaging Services and
American Medical Imaging Corp from 1987 to 1991. Mr. Toomey earned a Master of
Health Science; Finance & Management from Johns Hopkins University and a BA from
the University of Pennsylvania. He is a member of the American College of Health
Care Executives and the Society of Vascular Technology.
John R. Drexel, IV, became a member of the Board of Directors in November
1998. Mr. Drexel is President of Drexel Associates, Inc., a diversified
financial services firm. From 1995 to 1999, he was Managing Director of Trainer
Wortham & Company, Inc., a registered investment advisor. From 1988 to 1995 he
was President of Concord International Investments. From 1975 to 1988, he was
employed by Kidder, Peabody & Company in various management capacities,
including Managing Director of Kidder Peabody & Company and President and Chief
Executive of Kidder Peabody International Investments. He is on the Advisory
Board of The Venture Capital Fund of America, Inc. He serves as a Director of
the Woods Hole Oceanographic Institute and is a Trustee of Drexel University.
James A. Wiley began working for CLI in 1992 in the capacity of Chief
Financial Officer. He left CLI in 1995 and worked for J.M. Patton Associates, an
insurance brokerage. In 1998, he rejoined CLI and CLIX as its Chief Financial
Officer. From 1987 to 1992, he was the Manager of Sales for American Medical
Imaging Corporation. Previously, from 1985 to 1987 he was employed by Council
for Labor and Industry, a Philadelphia-based government sponsored economic
development Company. From 1972 to 1985 he was employed as an auditor for the
U.S. General Accounting Office. He is a Certified Public Accountant and received
his BS in accounting from LaSalle University and his MBA from Temple University.
Directors' Fees
CLIX does not pay directors' fees. Rather, the Compensation Committee of
the Board of Directors is authorized to grant, and has granted non-qualified
stock options to certain members of the Board of Directors.
Item 6. Executive Compensation.
The following table sets forth the amount of all compensation paid or
accrued by the Company during the calendar year ended December 31, 1998, to the
individual acting in the capacity of
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Chief Executive Officer. No other individual who was serving as an executive
officer at the end of the 1998 calendar year received salary and bonus in excess
of $100,000 in such year.
Name and Position Year Salary Other Total Compensation
- ----------------- ---- ------ ----- ------------------
Paul A. Toomey
Chief Executive Officer
and President 1998 $120,00 $0 $120,000
Employment Agreements
The Company does not have employment agreements with any of its executive
officers.
Item 7. Certain Relationships And Related Transactions.
In January 1998, the Company and Springhouse Associates, Inc.
("Springhouse") entered into a Consulting Services Agreement pursuant to which
Springhouse is to provide corporate advisory services to the Company. The
Agreement has a term of five years and is non-cancelable. Under the agreement,
Springhouse receives the amount of $54,500 per year. The agreement does not
obligate Springhouse to spend any specific amount of time providing services to
CLIX. Springhouse is wholly-owned by Timothy W. Cunningham, Chairman of the
Board of CLIX.
Item 8. Description Of Securities.
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
par value $.001 ("Common Stock"). As of July 31, 1999, there were 7,799,793
shares of Common Stock issued and outstanding. As of such date, there were also
issued and outstanding options to acquire 1,660,000 shares of Common Stock at
exercise prices ranging from $.01 to $2.00 per share.
Common Stock
The holder of each share of Common Stock is entitled to one vote on all
matters submitted to a vote of the shareholders of the Company, including the
election of directors. There is no cumulative voting for directors. The holders
of Common Stock are entitled to receive such dividends as the Board of Directors
may from time to time declare out of funds legally available for payment of
dividends. Upon any liquidation, dissolution or winding up of the Company,
holders of shares of Common Stock are entitled
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to receive pro rata all of the assets of the Company available for distribution.
The holders of the Common Stock do not have any preemptive rights to subscribe
for or purchase shares, obligations, or other securities of the Company.
PART II
Item 1. Market for Common Equity and Other Stockholder Matters.
The Common Stock of the Company is quoted on the OTC Electronic Bulletin
Board under the symbol "CLIX." Prior to the acquisition of CLI, trading in the
Company's stock was nominal, as the Company had been inactive since 1992.
Commencing June 1, 1998, the Common Stock began trading more actively. As of the
date hereof, however, there is no established trading market for the Common
Stock.
The following table sets forth, for the periods indicated, the range of
high and low bid prices of the Common Stock as reported on the OTC Electronic
Bulletin Board for each calendar quarter commencing June 1, 1998:
Quarter
Ended 9-30-98 12-31-98 3-31-99 6-30-99
- ----- ------- -------- ------- -------
High $0.94 $0.63 $1.19 $0.44
Low $0.18 $0.12 $0.22 $0.19
Such quotations reflect inter-dealer prices, without mark-up, mark down or
commissions and may not represent actual transactions.
On September 2, 1999, the closing bid price of the Common Stock as reported
on the OTC Electronic Bulletin Board was $.16 per share.
The Company's transfer agent is Standard Registrar And Transfer, 12528
South 1840 East, Draper, Utah 84020.
As of July 31, 1999, CLIX had 429 holders of record of its Common Stock.
CLIX has never paid any dividends on its Common Stock and does not
anticipate paying any cash dividends for the foreseeable future. The current
loan agreement with the Company's secured lender prohibits the payment of
dividends on the Common Stock without the prior written consent of such lender.
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1998 Stock Option Plan
CLIX has established a stock option plan entitled the 1998 CLI Stock Option
Plan (the "Plan"). Under the terms of the Plan, the Company's Board of
Directors, at its sole discretion, may grant either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code or non-qualified
stock options. All persons employed by the Company or retained as independent
contractors are eligible for the award of stock options. The aggregate maximum
number of shares available under the Plan is 1,750,000. As of July 31, 1999,
there were a total of 260,000 options outstanding under the Plan at an exercise
price of $0.10 per share, with 170,000 of such options being fully vested as of
July 31, 1999. All of such options are non-qualified stock options and expire on
December 31, 2009.
The Company has also issued to certain Directors, employees, and
consultants, options to purchase an aggregate of 1,400,000 shares of Common
Stock. Of such options, 725,000 expire in May 2002, 50,000 expire in June 2002,
500,000 expire in July 2002, and 125,000 expire in April 2003. Of such options,
700,000 are exercisable at $.01 per share, and 700,000 are exercisable at $2.00
per share. As of July 31, 1999, an aggregate of 1,100,000 of such options are
vested. All of the foregoing options are non-qualified stock options and not
part of a qualified stock option plan and do not constitute incentive stock
options as such term is defined under Section 422 of the Internal Revenue Code,
as amended, and are not part of an employee stock purchase plan as described in
Section 423 thereunder.
As part of the issuance of 50,000 shares of Common Stock to a financial
advisor in December 1998, the Company granted to such financial advisor certain
registration rights under the Act in connection with such shares.
Item 2. Legal Proceedings.
In May 1998, the Company commenced an action entitled Cardiovascular
Laboratories, Inc. of New Jersey and Cardiovascular Laboratories, Inc. of
Pennsylvania vs. Robert T. Kane, Phoenix Cardiovascular, Inc., Warren Hospital,
and Albert Estrada, M.D.; Superior Court of New Jersey, Warren County (Docket
No. WRN-L-428-98).
This litigation arises out of Warren Hospital's breach of the agreement
between CLI and Warren Hospital pursuant to which CLI
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<PAGE>
would provide vascular diagnostic services at Warren Hospital. The Complaint
also alleges that Phoenix Cardiovascular, Inc. ("Phoenix") and it founder and
principal, Robert T. Kane ("Kane"), tortiously interfered with and civilly
conspired to induce Warren Hospital to breach the agreement. Kane is the former
Chief Executive Officer and President of CLI. Between the filing of this action
and December 1998, Warren Hospital continued to honor the terms of the
agreement. In December 1998, Warren Hospital notified the Company that it would
no longer use the services of CLI and commenced using the services of Phoenix.
CLI initially filed a request for a preliminary injunction seeking to enjoin any
further interference with the Company's contract. The request was denied. CLI
seeks judgement against the defendants, jointly and severally, for compensatory
damages in excess of $500,000 as well as punitive damages, interest, attorneys'
fees and costs.
The Company is a defendant in an action entitled Devendra K. Amin, M.D. vs.
Warren Hospital, Cardiovascular Laboratories, Inc. of Pennsylvania, and Robert
T. Kane; Superior Court of New Jersey, Warren County (Docket No. WRN-L-172-95).
This litigation was filed in late May 1995 by a cardiologist at Warren
Hospital who sought but was not granted the privilege of interpreting vascular
studies at Warren Hospital's vascular laboratory, which was then managed by the
Company. Plaintiff brought claims against Warren Hospital, CLI, and its then
President, Robert T. Kane, and other persons. Plaintiff's claims against Warren
Hospital are for breach of contract, breach of implied duty of good faith and
fair dealing, and specific performance. Plaintiff's claims against the other
defendants, including CLI, are for intentional interference with prospective
economic advantage, conspiracy, and violation of state and federal antitrust
laws. Plaintiff seeks compensatory and punitive damages, attorney's fee, and
costs, as well as treble damages in the antitrust counts. Each of the defendants
has filed cross claims for contribution and indemnification against the other
unrelated defendants. From the outset of the litigation, CLI provided counsel to
Kane, its former Chief Executive Officer, but in 1998, CLI advised him that it
would no longer do so and would not indemnify him in connection with plaintiff's
claims in this action. Kane has asserted cross claims for contribution and
indemnification against CLI. The case is presently in discovery and it is
anticipated that trial will be scheduled during the Fall of 1999.
Item 3. Changes In And Disagreements With Accountants.
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None.
Item 4. Recent Sale of Unregistered Securities.
In February 1998, the Company issued 30,000 shares of Common Stock in
exchange for the conversion of an existing $30,000 promissory note into equity
and the payment of $5,000 cash. All of such shares of Common Stock constituted
restricted securities as defined in Rule 144 under the Act and were issued
pursuant to the exemption from registration set forth in Section 4(2) of the
Act.
In March 1998, CLIX issued an aggregate of 3,515,835 shares of Common Stock
in exchange for all of the securities of CLI. Such shares were issued as
follows: 2,546,837 to Timothy Cunningham; 540,238 to Francis X. Dillon; and
428,760 to Paul A. Toomey. All of such shares of Common Stock constituted
restricted securities as defined in Rule 144 under the Act and were issued
pursuant to the exemption from registration set forth in Section 4(2) of the
Act.
In March 1998, the Company issued 1,500,000 shares of Common Stock
for $.001 per share into an escrow trust controlled by Timothy Cunningham which
shares were subsequently transferred to a special purpose trust, Nathan Drage,
Trustee. All of such shares of Common Stock constituted restricted securities as
defined in Rule 144 under the Act and were issued pursuant to the exemption from
registration set forth in Section 4(2) of the Act.
In April 1998, the Company sold an aggregate of 2,250,000 shares of Common
Stock to three individuals for an aggregate of $22,500. The shares were sold
pursuant to the exemption from registration set forth in Rule 504 promulgated
under the Act.
During April 1998, the Company issued to certain employees and consultants
options to acquire up to 160,000 of Common Stock. The options are exercisable at
any time through December 2009 at $.10 per share. The options and the Common
Stock issuable thereunder constitute restricted securities as such term is
defined under Rule 144 promulgated under the Act and were issued pursuant to the
exemption from registration provided in Rule 701 promulgated under the Act.
In April 1998, the Company issued to a consultant fully vested options to
acquire up to 125,000 shares of Common Stock. The options are exercisable at
$.10 per share and expire in April 2003. The options and the Common Stock
issuable thereunder constitute restricted securities as such term is defined
under Rule 144 promulgated the Act and were issued pursuant to the exemption
from registration provided in Rule 701 promulgated under the Act.
32
<PAGE>
In May 1998, the Company issued to a consultant options to acquire up to
500,000 share of Common Stock. As of the date hereof, 200,000 options are vested
and 100,000 options become vested in May 2000, and 200,000 options become vested
in May 2001. The options are exercisable at $2.00 per share and expire in May
2002. The options and the Common Stock issuable thereunder constitute restricted
securities as such term is defined under Rule 144 promulgated under the Act and
were issued pursuant to the exemption from registration provided in Rule 701
promulgated under the Act.
In June 1998, the Company issued to certain consultants fully vested
options to purchase an aggregate of up to 75,000 shares of Common Stock. The
options are exercisable at $.01 per share and expire in June 2002. The options
and the Common Stock issuable thereunder constitute restricted securities as
such term is defined under Rule 144 promulgated under the Act and were issued
pursuant to the exemption from registration provided in Rule 701 promulgated
under the Act.
In August 1998, the Company issued to John R. Drexel, IV, a Director, fully
vested options to purchase up to 500,000 shares of Common Stock at $.01 per
share. The options expire in July 2002. In June 1998, the Company granted to Mr.
Drexel options to purchase up to 200,000 shares of Common Stock at $2.00 per
share. The options expire in May 2002. The options and the Common Stock issuable
thereunder constitute restricted securities as such term is defined under Rule
144 promulgated under the Act and were issued pursuant to the exemption from
registration provided in Rule 701 promulgated under the Act.
In May 1998, the holder of options to purchase 250,000 shares exercised
such options at the option price of $.01 per share for an aggregate purchase
price of $2,500. All of such shares of Common Stock constituted restricted
securities as defined in Rule 144 under the Act and were issued pursuant to the
exemption from registration set forth in Section 4(2) of the Act.
In May 1998, the Company issued an aggregate of 134,000 shares of
Common Stock at $.01 per share, or an aggregate of $1,340, to certain management
consultants in exchange for services rendered. The options and the Common Stock
issuable thereunder constitute restricted securities as such term is defined
under Rule 144 promulgated under the Act and were issued pursuant to the
exemption from registration provided in Rule 701 promulgated under the Act.
33
<PAGE>
In August 1998, the Company granted to James J. Wiley, Vice President and
Chief Financial Officer of the Company, options to acquire up to 100,000 shares
of Common Stock. As of the date hereof, 75,000 options are vested and 25,000
options become vested in August 2000. The options are exercisable at $.10 per
share and expire in December 2009. The options and the Common Stock issuable
thereunder constitute restricted securities as such term is defined under Rule
144 promulgated under the Act and were issued pursuant to the exemption from
registration provided in Rule 701 promulgated under the Act.
In December 1998, the Company issued an aggregate of 50,000 shares of
Common Stock to a financial advisor for services to be rendered to the Company.
All of such shares of Common Stock constituted restricted securities as defined
in Rule 144 under the Act and were issued pursuant to the exemption from
registration set forth in Section 4(2) of the Act.
Item 5. Indemnification of Directors and Officers.
The Company's Articles of Incorporation provide that the Board of Directors
may from time to time provide in the By-laws or by resolution such
indemnification of officers and directors as the Board deems appropriate to the
fullest extent permitted by the laws of the State of Nevada. Nevada law, under
which CLIX is incorporated, allows a corporation to indemnify its directors and
officers if such director or officer acted in good faith and in a manner such
director or officer reasonably believed to be in, or not opposed to, the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
Pursuant to authorization of the Board of Directors in 1998, the Company
entered into separate indemnification agreements with each of Timothy W.
Cunningham, John R. Drexel, IV, and Paul A. Toomey. The agreements provide that
CLIX shall indemnify such persons and hold them harmless from and against, and
shall reimburse him for, any and all demands, claims, losses, damages, costs and
expenses whatsoever, including without limitation, reasonable attorney's fees,
which may be incurred by such person by reason of his faithful discharge of his
fiduciary obligations as an officer of or director of CLIX. The agreement also
provides that such person shall not be personally liable for monetary damages
for any action taken or any failure to act unless the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness and such
person had breached or failed to perform the
34
<PAGE>
duties of his or her office. The agreement provides that the foregoing shall not
apply to the responsibility or liability of such person pursuant to any criminal
statute, or the liability of such person for the payment of taxes pursuant to
local, state or federal law.
PART F/S FINANCIAL STATEMENTS
Index to Financial Statements
Audited:
Independent Auditors' Report F - 1
Consolidated Balance Sheets as of
December 31, 1997 and December 31, 1998 F - 2
Consolidated Statement of Operations for
the years ended December 31, 1997 and
December 31, 1998 F - 3
Consolidated Statement of Stockholders'
Equity for the years ended December 31,
1997 and December 31, 1998 F - 4
Consolidated Statement of Cash Flows for
the years ended December 31, 1997 and
December 31, 1998 F - 5
Notes to the Consolidated Financial
Statements F - 6
Unaudited:
Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1999 F - 16
Consolidated Income Statements for
the three months ended March 31, 1998
and March 31, 1999 and three months ended
June 30, 1998 and June 30, 1999 F - 17
Consolidated Statement of Cash Flows for
the six months ended June 30, 1999 F - 18
35
<PAGE>
PART III
Index to Exhibits.
Exhibit
Number Description
- -------------------------------------------------------------------------------
3.1 Articles of Incorporation of Interstate Gold and Gas, Inc.,
filed in the State of Nevada on March 31, 1998.
3.1.1 First Amendment to Articles of Incorporation of Interstate
Gold and Gas, Inc., filed on May 29, 1998.
3.1.2 Second Amendment to Articles of Incorporation of CLI dated
April 15, 1999.
3.2 Bylaws of CLI.
4.1 Promissory Note between CLI and Anchor Investment Partnership
Ltd. dated March 30, 1998.
4.1.1 Amendment #1 dated June 28, 1999, to Promissory Note between
CLI and Anchor Investment Partnership Ltd.
4.2 Promissory Note between CLI and James W. Porter, Jr.,
dated March 30, 1998.
4.2.1 Amendment #1 dated June 28, 1999, to Promissory Note
between CLI and James W. Porter, Jr.
4.3 Promissory Note between CLI and F. Stanton Moyer dated
March 30, 1998.
4.3.1 Amendment #1 dated June 10, 1999, to Promissory Note
between CLI and F. Stanton Moyer.
4.4 Loan and Security Agreement between CLI and DVI Business
Credit Corporation dated June 30, 1999.
4.5 Loan and Security Agreement between CLI and DVI Financial
Services Inc. dated July 14, 1999.
10.1 Corporate Indemnification Agreement between CLI and
36
<PAGE>
Timothy W. Cunningham dated May 15, 1998.
10.1.1 Corporate Indemnification Agreement between CLI and Paul A.
Toomey dated May 15, 1998.
10.1.2 Corporate Indemnification Agreement between CLI and John R.
Drexel, IV, dated November 2, 1998.
10.2 John R. Drexel, IV, Common Stock Options dated as of June
1, 1998.
10.2.1 John R. Drexel, IV, Common Stock Options dated as of August 1,
1998.
10.3 James J. Wiley Common Stock Options dated August 5, 1998.
10.4 CLI Stock Option Plan dated April 17, 1998.
10.5 Agreement between CLI and Brennan Dyer & Company, LLC,
dated May 6, 1998.
10.5.1 Amendment dated December 15, 1998, to Agreement between CLI
and Brennan Dyer & Company, LLC.
10.6 Consulting Services Agreement between CLI and Springhouse
Associates, Inc. dated January 4, 1998.
10.7 Settlement and Release Agreement between CLI and ATL
Financial Services, Inc. dated July 29, 1999.
21 The Company is a holding company with two wholly-owned
subsidiaries, Cardiovascular Laboratories, Inc. of PA, a
Pennsylvania corporation, and CLIX Information Systems, Inc.,
a Pennsylvania corporation.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CLIXHEALTH.COM, INC.
Date: September 13, 1999 By: /s/ Timothy W. Cuningham
--------------------------
Timothy W. Cunningham,
Chairman
37
<PAGE>
[Parente, Randolf, Orlando, Carey & Associates LOGO]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Cardiovascular Laboratories, Inc. and Subsidiaries
Wayne, Pennsylvania:
We have audited the accompanying consolidated balance sheet of
Cardiovascular Laboratories, Inc. and subsidiaries (collectively, the "Company")
as of December 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of Cardiovascular Laboratories,
Inc. and subsidiaries as of December 31, 1997, were audited by other auditors
whose report dated May 13, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Cardiovascular Laboratories, Inc. and subsidiaries as of December 31, 1998, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Parente, Randolf, Orlando, Carey & Associates, LLC
--------------------------------------------------
Parente, Randolf, Orlando, Carey & Associates, LLC
Philadelphia, Pennsylvania
March 2, 1999
- F-1 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 17,642 $ 48,433
Accounts receivable, net of allowance for doubtful
accounts of $32,390 in 1998 653,542 738,056
Prepaid expenses 7,982 4,401
--------- ---------
Total current assets 679,166 790,890
FURNITURE, EQUIPMENT AND VEHICLES, Net 51,781 71,931
DEFERRED INCOME TAXES 126,562 36,884
OTHER ASSETS 2,560 34,725
--------- ---------
TOTAL $ 860,069 $ 934,430
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, demand $ 244,724 $ 251,523
Promissory notes payable 125,000 --
Current portion of long-term debt 53,948 23,598
Accounts payable and accrued expenses 175,973 165,251
Deferred income taxes 127,449 144,687
--------- ---------
Total current liabilities 727,094 585,059
LONG-TERM DEBT 100,527 38,705
--------- ---------
Total liabilities 827,621 623,764
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $0.001; 50,000,000 shares
authorized; 7,499,781 and 34,972,899 shares issued
and outstanding in 1998 and 1997 7,500 34,973
Additional paid-in capital 91,282 --
Less promissory note receivable (30,000) --
Deficit (36,334) 275,693
--------- ---------
Total stockholders' equity 32,448 310,666
--------- ---------
TOTAL $ 860,069 $ 934,430
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- F-2 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES,
Net patient service revenues $ 3,327,216 $ 3,404,460
----------- -----------
OPERATING EXPENSES:
Salaries, payroll taxes and employee benefits 1,587,527 1,651,326
Equipment leasing and laboratory costs 902,030 716,260
Consulting and professional fees 500,876 534,620
Administrative and other 323,337 354,637
Rent and occupancy costs 135,980 106,138
Depreciation 23,028 32,935
Interest 35,379 23,248
----------- -----------
Total operating expenses 3,508,157 3,419,164
----------- -----------
LOSS FROM OPERATIONS (180,941) (14,704)
----------- -----------
OTHER (EXPENSE) INCOME:
Non-recurring expenses related to multiple employee
resignations caused by a former executive (240,360) --
Gain on sale of vehicles 2,315 7,580
Interest income 43 737
----------- -----------
Other (expense) income, net (238,002) 8,317
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT (418,943) (6,387)
INCOME TAX BENEFIT 106,916 2,687
----------- -----------
NET LOSS $ (312,027) $ (3,700)
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- F-3 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL PROMISSORY RETAINED
----------------------- PAID-IN NOTE EARNINGS
SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) TOTAL
----------- -------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1997 34,972,899 $ 34,973 $ -- $ -- $ 279,393 $ 314,366
Net loss for 1997 -- -- -- -- (3,700) (3,700)
---------- -------- -------- -------- --------- ---------
BALANCES, DECEMBER 31, 1997 34,972,899 34,973 -- -- 275,693 310,666
Common stock issued for cash and
promissory note receivable 15,000,000 15,000 20,000 (30,000) -- 5,000
Reverse stock split, 1 share for every
500 shares held (49,872,953) (49,873) 49,873 -- -- --
----------- -------- -------- -------- --------- ---------
BALANCES BEFORE REVERSE
MERGER ACQUISITION AND
REORGANIZATION 99,946 100 69,873 (30,000) 275,693 315,666
Common stock issued to CLI-PA
stockholders to effect the reverse
merger acquisition and reorganization 2,546,837 2,547 (47) -- -- 2,500
Common stock issued against options 968,998 969 -- -- -- 969
Common stock issued into escrow
trust 1,500,000 1,500 -- -- -- 1,500
Common stock issued in Rule 504
public offering 2,250,000 2,250 20,250 -- -- 22,500
Common stock issued for services
rendered 134,000 134 1,206 -- -- 1,340
Net loss for 1998 -- -- -- -- (312,027) (312,027)
----------- -------- -------- -------- --------- ---------
BALANCES, DECEMBER 31, 1998 7,499,781 $ 7,500 $ 91,282 $(30,000) $ (36,334) $ 32,448
=========== ======== ======== ======== ========= =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- F-4 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(312,027) $ (3,700)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation 23,028 32,935
Deferred income taxes (106,916) (2,687)
Gain on sale of vehicles (2,315) (7,580)
Changes in assets and liabilities:
Accounts receivable 84,514 (68,426)
Prepaid expenses (3,581) (4,401)
Other assets 32,165 (27,500)
Accounts payable and accrued expenses 10,722 59,774
--------- ---------
Net cash used in operating activities (274,410) (21,585)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES,
Purchases of furniture, equipment and vehicles (17,943) (43,076)
Proceeds from sale of vehicles 17,380 17,500
--------- ---------
Net cash used in investing activities (563) (25,576)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in note payable, demand (6,799) 94,140
Proceeds from promissory notes payable 125,000 --
Proceeds from issuance of long-term debt 147,121 24,760
Repayment of long-term debt (54,949) (47,894)
Issuance of common stock 33,809 --
--------- ---------
Net cash provided by financing activities 244,182 71,006
--------- ---------
(DECREASE) INCREASE IN CASH (30,791) 23,845
CASH, BEGINNING 48,433 24,588
--------- ---------
CASH, ENDING $ 17,642 $ 48,433
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION,
Cash paid during the year for interest $ 28,816 $ 21,797
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITY,
Issuance of promissory note receivable $ 30,000 $ --
========= =========
</TABLE>
- --------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- F-5 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF OPERATIONS
Cardiovascular Laboratories, Inc. is a for-profit, Nevada holding company
located in Wayne, Pennsylvania.
The subsidiaries of Cardiovascular Laboratories, Inc. and their primary
activities are as follows:
Cardiovascular Laboratories, Inc. of Pennsylvania: Cardiovascular
Laboratories, Inc. of Pennsylvania ("CLI-PA") is a wholly-owned,
for-profit business corporation and subsidiary of Cardiovascular
Laboratories, Inc. CLI-PA owns and operates independent vascular
laboratories in hospitals and private clinics.
CLIX: CLIX is a wholly-owned, for-profit business corporation and
subsidiary of Cardiovascular Laboratories, Inc. CLIX was established
to provide billing services; however, there was no substantial
activity through December 31, 1998.
Cardiovascular Laboratories, Inc. (formerly, Interstate Gold and Gas, Inc.)
("IG&G") was incorporated in the state of Utah on August 8, 1983. IG&G has
been in the development stage since inception and has been engaged in the
business of developing mining properties. During 1992, IG&G lost its
remaining mining claims and since that date has been inactive.
On March 9, 1998, a special shareholders meeting was held at which a
resolution was approved to effectuate a reverse split of IG&G's common
stock whereby all shareholders of record as of February 27, 1998 would
receive one share of IG&G's common stock for each 500 shares owed. Also on
this date, IG&G reincorporated as a Nevada corporation and changed its name
to Cardiovascular Laboratories, Inc. ("CLI").
Pursuant to an Acquisition Agreement dated March 26, 1998, CLI acquired all
of the outstanding stock of CLI-PA by exchanging 2,546,837 unregistered
shares of CLI for 1,000,000 shares of CLI-PA, exchanging 968,998
unregistered shares of CLI for two option agreements to purchase
substantially similar option agreements of CLI-PA, and issuing 1,500,000
unregistered shares of CLI into an escrow trust. Additionally, CLI
completed a public offering on April 30, 1998 under Regulation D of Rule
504 of the Securities and Exchange Commission for a total of 2,250,000
registered shares of CLI's common stock for total consideration of $22,500.
- F-6 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Cardiovascular Laboratories, Inc. and its subsidiaries, CLI-PA and
CLIX (collectively, the "Company"). All material intercompany
transactions and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NET PATIENT SERVICE REVENUES AND RECEIVABLES
Net patient service revenues and receivables are derived from
hospitals and patients who reside primarily in the Company's regional
geographical region (i.e., states of Pennsylvania, New Jersey and New
York) and are reported at the estimated net realizable amounts from
hospitals, patients, third party payors, and others for services
rendered.
Significant concentrations of revenues and accounts receivable, net
include various hospitals and Medicare.
FURNITURE, EQUIPMENT, AND VEHICLES
Furniture, equipment and vehicles are recorded at cost. Depreciation,
including amortization of capital lease obligations, is computed using
the straight-line method based on the estimated useful life of each
classification of depreciable asset.
INCOME TAXES
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled. As
changes to the tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
- F-7 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 financial
statements to conform with the 1998 reporting format.
3. BASIS OF PRESENTATION AND CERTAIN
SIGNIFICANT RISKS AND UNCERTAINTIES
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company had a loss from operations of $180,941 in 1998 and $14,704 in
1997 and a working capital deficiency of $47,928 at December 31, 1998.
Additionally, the Company's operations were financed from proceeds of
short-term promissory notes payable and long-term debt.
These factors, among others, indicate that the Company's ability to
continue in existence is dependent upon its ability to achieve profitable
operations. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets and
amounts that might be necessary should the Company be unable to continue in
existence.
Management's plans in connection with these matters are to continue to
refine its operations, eliminate unprofitable contracts, expand sources of
revenues, control operating expenses, refinance the note payable, demand
and long-term lease agreements.
4. NET PATIENT SERVICE REVENUES AND RECEIVABLES
The Company has agreements with hospitals and third party payors that
provide for payments to the Company at amounts different from its
established rates. A summary of major payment arrangements with hospitals
and third party payors is as follows:
HOSPITALS
Patient services rendered to various hospitals are paid on a
fee-for-service basis. These rates vary based on negotiated fee
schedules.
- F-8 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MEDICARE, BLUE SHIELD, AND MEDICAID
Patient services rendered to Medicare, Blue Shield, and Medicaid
program beneficiaries are paid based on various fee schedules. These
rates vary according to patient classification systems that are based
on clinical, diagnostic and other factors.
OXFORD
Patient services rendered to Oxford program beneficiaries are paid on
a fee-for-service basis. These rates vary according to a patient
classification system that is based on clinical, diagnostic, and other
factors.
5. FURNITURE, EQUIPMENT AND VEHICLES
Furniture, equipment and vehicles and accumulated depreciation at December
31, 1998 and 1997 are as follows:
1998 1997
---- ----
Vehicles $ 63,542 $ 88,604
Computer equipment 28,561 28,561
Office furniture 13,169 13,169
Office equipment 703 703
-------- --------
Total 105,975 131,037
Less accumulated depreciation 54,194 59,106
-------- --------
Furniture, equipment and vehicles, net $ 51,781 $ 71,931
======== ========
6. NOTE PAYABLE, DEMAND
Note payable, demand represents borrowings under the terms of a line of
credit agreement. The Company can borrow up to $250,000. Borrowings bear
interest at the bank's prime rate plus 1.5% (9.25% at December 31, 1998).
The note is secured by substantially all assets of the Company. The
outstanding balance under this agreement was $244,724 at December 31, 1998.
At December 31, 1997, the Company had various line of credit agreements
with an aggregate limit of $310,000 and a total outstanding balance of
$251,523.
- F-9 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The loan agreement requires, among other things, that the Company maintain
tangible net worth of $400,000, a net worth ratio of 1.5 and a current
ratio of 2.0. The Company was in violation of these debt covenants during
1998. However, the Company has a commitment from another lender and plans
to refinance this loan agreement in May 1999.
7. PROMISSORY NOTES PAYABLE
The Company has promissory notes payable dated March 30, 1998 and maturing
on March 30, 1999. The promissory notes bear interest at 7.0%. The notes
are secured by accounts receivable of the Company. Promissory notes payable
were $125,000 at December 31, 1998.
8. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
1998 1997
---- ----
Term loan payable in monthly installments of
$2,075, including interest at
13.7% through October 16, 2001 $ 58,217 $ --
Term loan payable in monthly installments of
$1,908, including interest at
9.0% through June 1, 2001 51,123 --
Equipment loan payable in monthly installments
of $557, including interest
at 10.0% through May 27, 2003 23,822 --
Equipment loan payable in monthly installments
of $598, including interest
at 7.5% through January 15, 2001 13,809 20,570
Equipment loan payable in monthly installments
of $529, including interest
at 8.5% through March 28, 2000 7,504 12,931
- F-10 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1998 1997
---- ----
Other -- 28,802
-------- -------
Total 154,475 62,303
Less current portion 53,948 23,598
-------- -------
Long-term debt $100,527 $38,705
======== =======
The aggregate amount of future principal repayments at December 31, 1998 is
as follows:
YEARS ENDING DECEMBER 31
------------------------
1999 $ 53,948
2000 54,950
2001 36,773
2002 6,085
2003 2,719
--------
Total $154,475
========
The loans are secured by liens on equipment and accounts receivable.
9. RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan. The Company did not make any
contributions in 1998 and 1997.
10. INCOME TAXES
The income tax benefit is comprised of the following:
1998 1997
---- ----
Deferred:
Federal $ 63,736 $ 1,959
State 43,180 728
-------- -------
Total $106,916 $ 2,687
======== =======
- F-11 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax benefit in 1998 and 1997 results primarily from
temporary differences in the recognition of accounts receivable, accounts
payable and accrued expenses.
The following represents the tax effects of temporary differences that
result in the net deferred income tax liability at December 31, 1998 and
1997:
1998 1997
---- ----
Deferred income tax assets:
Furniture, equipment and vehicles $ 1,973 $ 1,970
Accounts payable 23,116 21,175
Accrued expenses 4,837 8,552
Net operating loss carryforwards 124,589 34,914
-------- --------
Total deferred income tax assets 154,515 66,611
-------- --------
Deferred income tax liabilities:
Accounts receivable 153,527 173,380
Prepaid expense 1,875 1,034
-------- --------
Total deferred income tax liabilities 155,402 174,414
-------- --------
Net deferred income tax liability $ 887 $107,803
======== ========
Net deferred income taxes are classified in the accompanying consolidated
financial statements at December 31, 1998 and 1997 as follows:
1998 1997
---- ----
Noncurrent assets $126,562 $ 36,884
Current liabilities 127,449 144,687
-------- --------
Net deferred income tax liability $ 887 $107,803
======== ========
At December 31, 1998 and 1997, the Company has approximately $500,000 of
net operating losses available to carry forward for federal and state
income tax purposes. The federal net operating loss carryforwards will
expire between 2004 and 2010 and the state net operating loss carryforwards
will expire between 2000 and 2002.
The expected income tax benefit using the statutory federal income tax rate
differs from the actual income tax benefit primarily because of
contributions and meals and entertainment.
- F-12 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company files separate federal and state income tax returns for each
entity.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases equipment and offices, under long-term lease
agreements expiring through 2002, which are classified as operating
leases.
The future minimum lease payments as of December 31, 1998 are as
follows:
Equipment Offices Total
--------- ------- ----------
YEARS ENDING DECEMBER 31
------------------------
1999 $578,053 $59,136 $ 637,189
2000 237,988 19,712 257,700
2001 96,354 -- 96,354
2002 25,884 -- 25,884
-------- ------- ----------
Total $938,279 $78,848 $1,017,127
======== ======= ==========
Lease expense for equipment and offices was $744,944 in 1998 and $666 in
1997.
CONTINGENCIES
The health care industry is subject to numerous laws and regulations
of federal, state and local governments. Compliance with these laws
and regulations can be subject to future government review and
interpretation as well as regulatory actions unknown or unasserted at
the time. Recently, government activity has increased with respect to
investigations and allegations concerning possible violations by
health care providers of fraud and abuse statutes and regulations,
which could result in the imposition of significant fines and
penalties as well as significant repayments for net patient service
revenues previously billed. Compliance with such laws and regulations
are subject to future government review and interpretations as well as
regulatory actions unknown or unasserted at this time.
12. COMMON STOCK TRANSACTIONS
On May 8, 1998, the Company issued 134,000 shares of unregistered common
stock to management consultants engaged by the Company and recognized
$1,340 in consulting fees (based on the fair value of services performed).
- F-13 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. STOCK OPTIONS AND AWARDS
The Company has stock awards outstanding at December 31, 1998 granted under
a stock option plan. The 1998 Stock Plan provides for the granting of stock
awards to employees and qualified independent contractors in the form of
options to purchase shares of common stock at a price equal to fair market
value on the date of the grant. Options generally become exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Company at or after the grant.
The total number of stock options granted to employees were for 260,000
shares at an exercise price of $0.01 per share. The total number of stock
options granted to independent contractors were for 1,075,000 shares at
exercise prices ranging from $0.01 per share to $2.00 per share. No option
or restricted stock award may be granted under the plan after December 31,
2008.
No compensation cost has been recognized for these stock options.
14. YEAR 2000 RISKS (UNAUDITED)
Like virtually every organization, the Company is subject to risks
associated with the Year 2000 Issue (the "Issue"). The Issue is the result
of shortcomings in electronic data processing systems which affect computer
software and hardware, transactions with customers, vendors and other
organizations; and equipment dependent on microchips. The Company is in the
process of assessing and implementing necessary changes related to the
Issue but has not completed the process of identifying and remediating
potential year 2000 problems. It is not possible for any organization to
guarantee the results of its own remediation efforts or to accurately
predict the impact of the Issue on third parties with which the Company
does business.
Because of the unprecedented nature of the Issue, its effects and the
success of related remediation efforts will not be fully determinable until
the year 2000 and thereafter. Management cannot assure that the Company is
or will be year 2000 ready, that the Company's remediation efforts will be
successful in whole or in part, or that entities with whom the Company does
business will be year 2000 ready. If the Company's efforts or those of
third parties with which it does business are not successful, the Issue
could adversely affect the Company's operations and financial condition.
- F-14 -
<PAGE>
CARDIOVASCULAR LABORATORIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
In January 1999, the Company was approached by a prospective acquirer with
an unsolicited offer to acquire all its outstanding stock. The Company
presented a Letter of Intent to the prospective acquirer that valued the
transaction on the basis of approximately $1.25 per share of the Company's
common stock. The Letter of Intent has a number of restrictions, the most
important of which is the Company's ability to raise additional equity
capital.
The Company has hired an investment banker to represent it in the search
for equity capital. The Company has also been in ongoing discussions with
other groups concerning potential equity investment. None of these
discussions has resulted in a firm commitment.
In February 1999, the Company entered into a marketing services agreement
with this same prospective acquirer. This agreement would provide the
Company with access to proprietary interactive e-commerce software,
databases and tools along with technical and marketing assistance. In
return, the Company would pay a fee to this company based on its gross
margin derived from such e-commerce business.
In March 1999, the Company entered into a marketing agreement with another
company. The Company would develop an e-commerce business with this company
to sell preventative healthcare products, starting with nutritional
supplements. In return, the Company would pay a royalty based on a
percentage of revenues.
- --------------------------------------------------------------------------------
- F-15 -
<PAGE>
CLIXhealth.com, Inc.
Unaudited Balance Sheet
12-31-98 and 6-30-99
As at 12/31/98 6/30/99
ASSETS
CURRENT ASSETS
Cash 17,642 61,463
Accounts Receivable 653,542 526,363
Prepaid Expense 7,982 9,722
Receivable from Shareholders 0 9,690
Total Current Assets 679,166 607,238
Furniture, Equipment And Vehicles 51,781 51,781
Deferred Income Taxes 126,562 126,562
Other Assets 2,560
TOTAL ASSETS 860,069 785,581
LIABILITIES & STOCKHOLDERS EQUITY
Notes Payable 244,724 254,069
Promissory Notes Payable 125,000
Accounts Payable And Accrued Expenses 175,973 81,147
Current Maturities Of Long Term Debt 53,948 53,948
Total Current Liabilities 599,645 389,164
LONG TERM DEBT 100,527 96,804
Promissory Notes payable 125,000
Deferred Income Taxes 127,449 127,449
Total Liabilities 827,621 738,417
STOCKHOLDERS EQUITY
Common Stock 7,500 7,500
Additional Paid-In Capital 91,282 91,282
Less promissory note receivable (30,000) (30,000)
Notes Receivable from Shareholders 0 9,690
Retained Earnings (36,334) (31,308)
Total Equity 32,448 47,164
TOTAL EQUITY & LIABILITIES 860,069 785,581
- F-16 -
<PAGE>
CLIXhealth.com, Inc.
Unaudited Income Statements
3-31-98 and 6-30-99
<TABLE>
<CAPTION>
3 mos 3 mos 3 mos 3 mos
3/31/98 3/31/99 6/30/98 6/30/99
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES $939,364 $686,082 $769,385 $551,097
EXPENSES
Salaries, Payroll taxes and Benefits 492,833 304,369 364,053 288,181
Equipment leasing and Laboratory costs 333,962 134,087 128,968 92,664
Other Administrative expenses 83,117 232,581 212,702 142,308
Rent and occupancy costs 2,326 8,479 65,255 10,606
Interest expense 10,647 12,925 -1,652 12,312
Total Expense $922,884 $692,441 $769,327 $546,071
Net Gain (Loss) $ 16,481 $ (6,359) $ 57 $ 11,385
</TABLE>
- F-17 -
<PAGE>
CLIXhealth.com, Inc.
Unaudited Statement of Cash Flows
Six Months Ended 6-30-99
Net Income $ 5,026
Accounts Receivable 152,758
Expense Advances (11,249)
Prepaid Expenses (1,740)
Accounts Payable (59,501)
Prime Credit Line (244,724)
Working Capital Line 254,069
Accrued Wages & Taxes (18,716)
Total Adjustments $ 69,603
Net Cash Provided By Operations $ 78,631
Cash Flows From Financing Activities
Notes Payable (18,441)
Company Vehicles (6,895)
Net Cash Used In Financing (25,336)
Cash Balance At End Of Period 32,481
Cash Balance At Beginning Of Period (12,644)
Net Increase In Cash $ 19,837
- F-18 -
ARTICLES OF INCORPORATION
OF
Interstate Gold & Gas, Inc.
The undersigned, a natural person being more than eighteen years of age,
acting as incorporator of a corporation pursuant to the provisions of the
General Corporation Laws of the State of Nevada, does hereby adopt the following
Articles of Incorporation for such corporation:
Article I
Name
The name of the corporation is Interstate Gold & Gas, Inc.
Article II
Duration
The duration of the corporation is perpetual.
Article III
Purposes
The purposes for which this corporation is organized are:
Section 1. To engage in any lawful business or activity which may be conducted
under the laws of the State of Nevada or any other state or nation wherein this
corporation shall be authorized to transact business.
Section 2. To purchase or otherwise acquire, own, mortgage, sell, manufacture,
assign and transfer or otherwise dispose of, invest, trade, deal in and with
real and personal property of every kind, class and description.
Section 3. To issue promissory notes, bonds, debentures, and other evidences of
indebtedness in the furtherance of any of the stated purposes of the
corporation.
Section 4. To enter into or execute contracts of any kind and character, sealed
or unsealed, with individuals, firms, associations, corporations (private,
public or municipal), political subdivisions of the United States or with the
Government of the United States.
Section 5. To acquire and develop any interest in patents, trademarks and
copyrights connected with the business of the corporation.
Section 6. To borrow money without limitation, and give a lien on any of its
property as security for any borrowing.
Section 7. To acquire by purchase, exchange, or otherwise, all, or any part of,
or any interest in, the properties, assets, business, and goodwill of any one or
more persons, firms, associations, or corporations either within or out of the
State of Nevada heretofore, or hereafter engaged in any
<PAGE>
business for which a corporation may now or hereafter organized under the laws
of the State of Nevada; pay for the same in cash, property or the corporation's
own or other securities; hold, operate, reorganize, liquidate, sell or in any
manner dispose of the whole or any part thereof; and in connection therewith,
assume or guaranty performance of any liabilities, obligations or contracts of
such persons, firms, associations or corporations, and to conduct the whole or
any part of any business thus acquired.
Section 8. To purchase, receive, take, acquire, or otherwise acquire, own, and
hold, sell, lend, exchange, reissue, transfer, or otherwise dispose of, pledge,
use, cancel, and otherwise deal in and with the corporation's shares and its
other securities from time to time to the extent, in the manner and upon terms
determined by the Board of Directors; provided that the corporation shall not
use its funds or property for the purchase of its own shares of capital stock
when its capital is impaired or when the purchase would cause any impairment of
the corporation's capital, except to the extent permitted by law.
Section 9. To reorganize, as an incorporator, or cause to be organized under the
laws of any state of the united States of America, or any commonwealth,
territory, agency, or instrumentality of the United States of America, or of any
foreign country , a corporation, or corporations, for the purpose of conducting
and promoting any business or purpose for which corporations may be organized,
and to dissolve, wind up, liquidate, merge or consolidate any such corporation
or corporations or to cause the same to be dissolved, wound up, liquidated,
merged, or consolidated.
Section 10. To do each and every thing necessary, suitable, or proper for the
accomplishment of any of the purposes or the attainment of any of the objects
herein enumerated, or which shall at any time appear conducive to or expedient
for the protection or benefit of the corporation.
Article IV
Capitalization
Section 1. The authorized capital of the corporation shall consist of the
following stock:
Fifty million common shares, par value $.001 per share. Each common share
shall have equal rights as to voting and in the event of dissolution
and liquidation. There shall be no cumulative voting by shareholders.
Section 2. The shareholders shall have no preemptive rights to acquire any
shares of this corporation.
Section 3. The common and preferred stock of the corporation, after the amount
of the subscription price has been paid in, shall not be subject to assessment
to pay the debts of the corporation.
Article V
Principal Office
The address of the registered office of the corporation is 7101 Smoke Ranch
#1054, Las Vegas, Nevada, 89128 and the registered agent at that address is
Sherry A. McEvoy. The corporation may maintain such other offices, either within
or out of the State of Nevada, as the Board of
<PAGE>
Directors may from time to time determine or the business of the corporation may
require.
Article VI
Directors
The corporation shall be governed by a Board of Directors. There shall be one
(1) or more Directors as to serve from time to time as elected by the
shareholders, or by the Board of Directors in the case of a vacancy. The
original Board of Directors shall be comprised of one (1) person and the name
and address of the person who is to serve as director until the first annual
meeting of the shareholders and until successors are elected is:
Nathan W. Drage
3340 Topaz St, Suite 210
Las Vegas, NV 89121
Article VII
Indemnification
As the Board of Directors may from time to time provide in the By-laws or by
resolution, the corporation may indemnify its officers, directors, agents, and
other persons to the full extent provided by the laws of the State of Nevada.
Article VIII
Incorporator
The name and address of the incorporator is:
Nathan W. Drage
3340 Topaz St, Suite 210
Las Vegas, NV 89121
Dated this _________________ day of March, 1998
/s/ Nathan W. Drage
-------------------
Nathan W. Drage
Filed on March 31, 1998, in the Office of the Secretary of State of the State of
Nevada.
<PAGE>
NOTARY CERTIFICATE
State of Nevada )
)ss.
County of Clark )
On the 30th day of March, 1998, personally appeared before me, a Notary
Public, who acknowledged that Nathan W. Drage executed the foregoing Articles of
Incorporation of Intrastate Gold & Gas, Inc.
/s/ Sherry A. McEvoy
--------------------
Notary Public
Sherry A. McEvoy
My Commission Expires: Nov. 1, 2001
Residing in: Clark County, Nevada
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
INTERSTATE GOLD AND GAS, INC.
Pursuant to the provisions of the Nevada Business Corporation Act, the
Undersigned corporation adopts the following amendment to the Articles of
Incorporation.
1. The following amendment of the Articles of Incorporation was adopted by
the shareholders of the corporation on March 9, 1998, said articles are hereby
amended and shall read as follows:
- --------------------------------------------------------------------------------
Article 1
Name
The name of the corporation is Cardiovascular Laboratories, Inc.
- --------------------------------------------------------------------------------
2. The number of shares of the corporation outstanding at the time of
adoption was 49,972,899; and the number of shares entitled to vote thereon were
the same.
3. The number of shares represented at the meeting was 25,762,433. All
shares voted in favor of the amendment. The shares represented a majority of the
issued and outstanding shares. There were no shares voting against the
amendment.
Effective the 13th day of April, 1998.
/s/ Robert Kropf
---------------------------
Robert Kropf, President
/s/ Robert Kropf
---------------------------
Robert Kropf, Secretary
Filed on May 29, 1998, in the Office of the Secretary of State of the State of
Nevada.
<PAGE>
State of Utah )
)ss
County of Salt Lake )
On this 20th day of May, Robert Kropf personally appeared before me, a
Notary Public, and executed the foregoing instrument for the purposes therein
contained, by signing on behalf of the above named corporations as a duly
authorized President and Secretary.
In Witness Hereof, I have hereunto set my hand and official seal.
/s/ Mona M. Carlson
-------------------
Mona M. Carlson
Notary Public
Residing at: Salt Lake City, UT
My Commission Expires:
May 1, 2000
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
CARDIOVASCULAR LABORATORIES, INC.
Pursuant to the provisions of the Nevada Business Corporations Act, the
Undersigned corporation adopts the following amendment to the Articles of
Incorporation by way of shareholder consent.
1. The following amendment of the Articles of Incorporation was adopted by
a majority of the shareholders of the Company effective March 26, 1999. Said
articles are hereby amended and shall read as follows:
Article 1
Name
The name of the corporation is CLIXhealth.com, Inc.
- --------------------------------------------------------------------------------
2. The number of shares of the corporation outstanding at the time of
adoption was 7,799,793, and the number of shares entitled to vote thereon were
the same
3. The number of shares voting in favor of the action was 4,046,837,
representing a majority of the outstanding shares.
Dated this 15th day of April, 1999.
/s/ Timothy W. Cunningham
---------------------------------------------------
Timothy W. Cunningham - Chief Executive Officer
/s/ Timothy W. Cunningham
- -----------------------------------
Timothy W. Cunningham Secretary
1
<PAGE>
State of Pennsylvania )
)ss
County of Montgomery )
On this 15th day of April, 1999, Timothy W. Cunningham personally appeared
before me, a Notary Public, and executed the foregoing instrument for the
purposes contained therein, swearing individually that the foregoing was true in
its entirety, and is known to me as the same person who executed said
instrument.
In Witness Hereof, I have hereunto set my hand and official seal.
/s/ Kimberley A. Stingle
- ------------------------
Notary Public
My Commission Expires 4/6/2002
2
BYLAWS
For
CARDIOVASCULAR LABORATORIES, INC.
ARTICLE I
OFFICES - BOOKS AND RECORDS
Section 1. 1 Offices. The registered office of the Corporation is 7101
Smoke Ranch #1054, Las Vegas, NV 89128. The Corporation may establish one or
more offices from which to carry out its activities. The Corporation's principal
office is 999 Old Eagle School Road, Suite 108, Wayne, PA 19087, which is
subject to change at the direction of the Corporation's Board of Directors.
Section 1.2 Registered Agent. The registered agent of the Corporation is
Sherry A. McEvoy.
Section 1.3 Books and Records. The Corporation shall keep at its principal
office the following books and records and any shareholder of record, upon
written demand stating the purpose thereof, shall have the right to examine, in
person, or by agent or attorney, at any reasonable time or times, for any proper
purpose, the same and make extracts therefrom:
a) Its books and records of account.
b) Its minutes of meeting of the Board of Directors and any committees
thereof
c) Its minutes of meetings of the shareholders.
d) Its record of Shareholders which shall give their names and addresses
and the number and class of the shares held by each.
e) Copies of its Articles of Incorporation and Bylaws as originally
executed and adopted together with all subsequent amendments thereto.
Section 1.4 Financial Statements. Upon the written request of any
shareholder of the Corporation, the Corporation shall mail to such shareholder
its most recent annual or quarterly financial statement showing in reasonable
detail its assets and liabilities and the results of its operation unless the
shareholder has already received the same. Neither the Corporation nor any
director, officer, employee or agent of the Corporation shall be liable to the
shareholder or anyone to whom the shareholder discloses the financial statement
or any information contained therein for any error or omission therein whether
caused without fault,
<PAGE>
by negligence or by gross negligence, unless (1) the error or omission is
material, (2) the director, officer, employee or agent in question knew of the
error or omission and intended for the shareholder or other person to rely
thereon to his detriment, (3 ) the shareholder or other persons did reasonably
rely thereon, and, in addition, (4) he is otherwise liable under applicable law.
ARTICLE II
BYLAWS
Section 2.1 Amendments. These Bylaws may be altered, amended or repealed
and new Bylaws adopted by the Board of Directors. Any such action shall be
subject to repeal or change by action of the shareholders, but the alteration,
amendment, repeal, change or new Bylaw (and the repeal of the old Bylaw) shall
be valid and effective and no director, officer, shareholder, employee or agent
of the Corporation shall incur any liability by reason of any action taken or
omitted in reliance of the same. The power of the shareholders to repeal or
change any alteration, amendment, repeal or new Bylaw shall not extend to any
original Bylaw of the Corporation so long as it is not altered, amended or
repealed, but only to action by the Board thereafter. There shall be no time
limit on its exercise.
Section 2.2 Bylaw Provisions Additional and Supplemental to Provisions of
Law. All restrictions, limitations, requirements and other provisions of these
Bylaws shall be construed, insofar as possible, as supplemental and additional
to all provisions of law applicable to the subject matter thereof and shall be
full complied with in addition to the said provisions of law unless such
compliance shall be illegal.
Section 2.3 Bylaw Provisions Contrary to or Inconsistent with Provisions of
Law. Any article, section, subsection, subdivision, sentence, clause or phrase
of these Bylaws which, upon being construed in the manner provided in Section
2.2 hereof, shall be contrary to or inconsistent with any applicable provision
of law, shall not apply so long as said provisions of law shall remain in
effect, but such result shall not affect the validity or applicability of any
other portions of these Bylaws, it being hereby declared that these Bylaws would
have been adopted and each article, section, subsection, subdivision, sentence,
clause or phrase thereof, irrespective of the fact that any or more articles,
sections, subsections, subdivisions, sentences, clauses or phrases is or are
illegal.
<PAGE>
ARTICLE III
MEETING OF SHAREHOLDERS
Section 3.1 Place of Meeting. All meetings of the shareholders, annual or
special, however called, shall be held at the registered office of the
Corporation unless the Board of Directors designates another place. The Board of
Directors may designate any place for any meeting, either within the State of
Nevada or without the State of Nevada.
Section 3.2 Annual Meeting. An annual meeting of the shareholders shall be
held once during each fiscal year of the Corporation. The time and date of the
annual meeting shall be established by the Board of Directors of the
Corporation.
Section 3.3 Special Meetings and Written Consents. Special Meetings of the
shareholders may be called by the Chairman of the Board, the Board of Directors
or the holders of not less than one-fourth of all the shares entitled to vote at
the meeting. Any shareholder or group of shareholders holding a majority of the
shares eligible to vote on a matter may do so by means of a written consent in
lieu of a special meeting. Such a written consent in lieu of a meeting will be
considered the act of the shareholders as if a special meeting of the
shareholders had been called and held in accordance with these Bylaws.
Section 3.4 Notice of Shareholders' Meeting. Written or printed notice
stating the place, day, time and hour of the meeting and, in the case of a
special meeting, the purpose for which the meeting is called, shall be delivered
not less than ten (10) nor more than fifty (50) days before the date of the
meeting, either personally or by mail, by or at the direction of the Board of
Directors, the Chairman of the Board, or the officer or persons calling such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States Mail addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation with postage thereupon
prepaid.
Section 3.5 Waiver of Notice. Any shareholder may waive notice of any
meeting of shareholders (however called or noticed) by signing a written waiver
of notice or a consent to the holding of such meeting, or in approval of the
minutes thereof Attendance at a meeting, in person or by proxy, shall constitute
waiver of all defects of call or notice regardless if such waiver, consent or
approval is signed or any objections are made. All such waivers, consents or
approvals shall be made a part of the minutes of the meeting.
Section 3.6 Fixing Record Date for Meeting. The stock transfer books of the
Corporation shall not be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders but, in lieu
thereof, the date on which notice is given in accordance with Section 3.4 hereof
shall be the record date for those purposes. Such date shall not be more than
fifty (50) nor less than ten (10) days before the date of the meeting. When a
<PAGE>
determination of shareholders entitled to vote at any meeting of shareholders
has been made under this section; such determination shall apply in any
adjournment thereof.
Section 3.7 Voting List. The officer or agent having charge of the stock
transfer books for shares of the Corporation shall make, at least ten (10) days
before each meeting of shareholders a complete list of the shareholders entitled
to vote at such meeting or any adjournment thereof, arranged in alphabetical
order with the address of and the number of shares held by each, which list, for
a period of ten (10) days prior to the meeting shall be kept on file at the
registered office of the Corporation, or at the principal office of the
Corporation and shall be subject to inspection by any shareholder at any time
during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during the
meeting. The original stock transfer books of the Corporation shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders. Failure to comply with
the requirements of this section shall not affect the validity of any action
taken at such meeting.
Section 3.8 Quorum of Shareholders Vote. A majority of the shares
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders.
If a quorum is present, the affirmative vote of a majority of the shares
represented at the meeting and entitled to vote on the subject shall be the act
of the shareholders, unless the vote of a greater number or voting by classes is
required by the general Corporation Laws of the State of Nevada or the Articles
of Incorporation. Shares shall not be counted to make up a quorum for a meeting
if for any reason those shares may not be lawfully voted at the meeting.
The shareholders present at a duly called meeting at which a quorum is
present may continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum..
Section 3.9 Voting of Shares. Each outstanding share regardless of class
shall be entitled to one vote on each matter submitted to vote at a meeting of
shareholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Articles of Incorporation.
Neither treasury shares nor shares held by another corporation if a
majority of the shares entitled to vote for the election of such other
corporation is held by the Corporation, shall be voted at any meeting or counted
in determining the total number of shares outstanding at any given time.
Section 3.10 Proxies. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or by his duly
<PAGE>
authorized attorney-in-fact. No proxy shall be valid after eleven (11) months
from the date of its execution, unless other-wise provided in the proxy,
specifically providing a longer length of time for which the proxy is to
continue in force, which in no case shall exceed seven (7) years form the date
of execution. Any shareholder giving a written consent, or his proxy, or his
transferee or personal representative, or their respective proxies, may revoke
the same prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the Corporation, but may not do so thereafter.
Section 3.11 Elections of Directors. At each election for directors every
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for an many persons as
there are directors to be elected and for whose election he has a right to vote.
The candidates receiving the highest number of votes up to the number of
directors to be elected shall be declared elected. Elections for directors need
not be by ballot except upon demand made by a shareholder at the election and
before the voting begins.
Section 3.12 Adjournments. Any shareholders' meeting, whether or not a
quorum is present, may be adjourned from time to time by the vote of a majority
of the shares, the holders of which are either present in person or represented
by proxy thereat, but, except as provided in Section 3.8 hereof, in the absence
of a quorum no other business may be transacted at such meeting. When a meeting
is adjourned for thirty (30) days or more, notice of the adjourned meeting shall
be given as in the case of an original special meeting. Shall be given as in the
case of an original special meeting. Save as aforesaid, it shall not be
necessary to gibe any notice of the time and place of the adjourned meeting or
of the business to be transacted thereat other than by announcement at the
meeting at which such adjournment is taken.
<PAGE>
ARTICLE IV
DIRECTORS
Section 4.1 Exercise of Corporate Power. The business and affairs of the
Corporation shall be managed by the Board of Directors.
Section 4.2 Qualifications. Directors need not be residents of Nevada or
shareholders of the Corporation. They need have no other qualifications.
Section 4.3 Compensation. The Board of Directors shall have authority to
fix the compensation of Directors. Such compensation so fixed shall be reported
to shareholders. Any compensation so fixed shall be for services as a Director
only, and a Director who serves the Corporation in any other capacity may
receive a separate compensation therefore.
Section 4.4 Number. The number of Directors of the Corporation shall not be
fewer than one (1) nor more than five (5). Following the resignation or
withdrawal of a Director, the remaining Director(s) may nominate replacement
Directors to serve until their successors be elected and duly qualified.
Section 4.5 Term. The term of each Director shall begin immediately on his
election and shall continue until the date set under these Bylaws for the next
annual meeting of the shareholders. Each Director shall hold office for the term
for which he is elected and until his successor shall have been elected and
qualified.
Section 4.6 Elections. At each annual meeting the shareholders shall elect
Directors, provided that if for any reason said annual meeting or an adjournment
thereof is not held or the Directors are not elected thereat, then the Directors
may be elected at any special meeting of the shareholders called and held for
that purpose.
Section 4.7 Vacancies. A vacancy or vacancies in the Board of Directors may
exist in case of the death, resignation or removal of any Directors, or if the
authorized number of Directors is increased, or if the shareholders fail, at any
annual or special meeting at which any Director is elected, to elect the full
number of authorized Directors to be voted for at that meeting. Also the Board
of Directors may declare vacant the office of a Director if he is found of
unsound mind by an order of a court of competent jurisdiction or if, within
sixty (60) days after notice of his election, he does not accept the office
either in writing or by attending a meeting of the Board of Directors.
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Any vacancy occurring may be filled by the affirmative vote of a majority of the
remaining Directors (or a sole remaining Director) although less than a quorum.
A Director elected to fill a vacancy shall be elected to for the unexpired term
of his predecessor in office, or, if there was no predecessor, until the date is
set under these Bylaws for the next annual meeting of the shareholders and his
successor is elected. Any vacancy created by removal of one or more of the
Directors by the shareholders may be filled by election of the shareholders at
the meeting to which the Director of Directors are removed.
Section 4.8 Removal. At a meeting expressly called for that purpose, one or
more Directors maybe removed by a vote of the majority of the shares entitled to
vote at an election of Directors.
Section 4.9 Regular Meetings. A regular meting of the Board of Directors
shall be held without further notice than this Bylaw immediately after, and at
the same place as, the annual meeting of the shareholders. The Board of
Directors may provide by resolution either within or without the State of
Nevada, for the holding of additional meetings of the Board of Directors without
other notice than such resolution.
Section 4.10 Special Meetings. Special meetings of the Board of Directors
may be called by or at the request of the President, the Chairman or a majority
of the Directors. The person or persons so authorized may fix any place within
or without the State of Nevada as the place for holding any special meeting of
the Board of Directors called by them.
Section 4.11 Notice of Special Meeting. Notice of any special meeting of
the Board of Directors shall be given at least three (3) days previously thereto
by written notice delivered personally or mailed to each Director at his
business address or at such other address specified by such Director. Such
notice may also be delivered by electronic facsimile. If mailed, such notice
shall be deemed to be delivered to the Post Office. Any Director may waive
notice of any meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
Section 4.12 Quorum. A majority of the number of Directors fixed by these
Bylaws shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, but if less than a majority is present at such a
meeting, a majority of Directors present may adjourn the meeting from time to
time without further notice. Directors may participate in meetings of the Board
of Directors by telephone or in person. Telephonic participation shall be
allowed in the determination of whether or not there is a quorum to transact
business.
Section 4.13 Manner of Acting. The act of a majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
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Section 4.14 Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered into the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
certified or registered mail to the secretary of the Corporation immediately
after the adjournment of the meting. Such right of dissent shall not apply to a
Director who voted in favor of such action.
Section 4.15 Committees. The Board of Directors by resolution adopted by a
majority of the number of Directors fixed by the Bylaws may designate a
committee or committees consisting of not less than two (2) Directors which
committee or committees, to the extent provided in such resolution, shall have
and may exercise all the authority therein provided; but the designation of such
committee or committees and the delegation thereto of authority shall not
operate to relieve the Board of Directors or any member thereof, of any
responsibility imposed upon it or him by law.
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ARTICLE V
OFFICERS
Section 5.1 Election and Qualifications. The officers of this Corporation
shall consist of a president, a secretary and a treasurer as well as any number
of vice presidents. All officers of the Corporation shall be elected by the
Board of Directors at the meeting of the Board of Directors next following the
annual meeting of the shareholders (or at any meeting if an office is vacant)
and such other officers, such as a Chairman of the Board, assistant officers and
agents as the Board of Directors deems necessary, who shall be elected and shall
hold office for such terms as the Board of Directors may prescribe. Any two or
more offices may be held by the same person. Any officer may exercise any of the
powers of any other officer if so directed by the Board of Directors, and shall
perform such duties as are imposed upon him by the Board of Directors.
Section 5.2 Term of Office and Compensation. The term of office and salary
of each said officer and the manner and time of the payment of such salaries
shall be fixed and determined from time to time by the Board of Directors, and
may be altered by the Board from time to time at its pleasure.
Section 5.3 Removal and vacancies. Any officer of the Corporation may be
removed by the Board of Directors at any meeting whenever in its best judgement
the best interests of the Corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights. If any vacancy occurs in any office of the Corporation,
the Board of Directors may elect a successor to fill such vacancy for the
remainder of the unexpired term and until his successor is fully chosen and
qualified.
<PAGE>
ARTICLE VI
CHAIRMAN OF THE BOARD
Section 6.1 Powers and Duties. The Chairman of the Board of Directors if
there be one, shall have the power to preside at all meetings of the Board of
Directors and shall have such other powers and shall be subjected to such other
duties as the Board of Directors may from time to time prescribe.
ARTICLE VII
PRESIDENT
Section 7.1 Powers and Duties The powers and duties of the president are:
(a) To act as the chief executive officer of the corporation and,
subject to the control of the Board of Directors, to have general
supervision, direction and control of the business and affairs of
the Corporation.
(b) To preside at all meetings of the shareholders and, in absence of
the Chairman of the Board, of if there be none, at all meetings
of the Board of Directors.
(c) To call meetings of the shareholders and also of the Board of
Directors to be held at such times and, subject to the
limitations prescribed by law or by these Bylaws, at such places
as he shall deem proper.
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, leases, obligations, bonds, certificates
and other papers and instruments in writing which have been
authorized by the Board of Directors or which, in the judgement
of the president, should be executed on behalf of the Corporation
and do not require such authorization, to sign certificates for
shares of stock of the Corporation and, subject to the direction
of the Board of Directors, to have general charge of the property
of the Corporation and to supervise and control all officers,
agents and employees of the Corporation.
Section 7.2 President pro tem. If neither the Chairman of the Board, the
president, nor the vice president is present at any meeting of the Board of
Directors, a president at any meeting of the Board of Directors, a president pro
tem may be chosen to preside and act at such a meeting. If neither the president
<PAGE>
nor the vice president is present at any meeting of the shareholders, a
president pro tem may be chosen to preside at such meeting.
ARTICLE VIII
VICE PRESIDENT
Section 8.1 Powers and Duties. In case of the absence, disability or death
of the president, the vice president, or one of the vice presidents, shall
exercise all his powers and perform all his duties. If there is more than one
vice president, the order in which the vice presidents shall succeed to the
powers and duties of the president shall be fixed by the Board of Directors. The
vice president or vice presidents shall have such other powers and perform such
other duties as may be granted or prescribed by the Board of Directors.
ARTICLE IX
SECRETARY
Section 9.1 Powers and Duties. The powers and duties of the secretary are:
(a) To keep a book of minutes at the principal office of the
corporation or such other place as the Board of Directors may
order, or all meetings of its Directors and shareholders with the
time and place of holding, whether regular or special, and, if
special, how authorized, the notice thereof given, the names of
those present at Directors' meetings, the number of shares
present or represented at shareholders' meetings and the
proceedings thereof.
(b) To keep the seal of the Corporation and to affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
Corporation, or at the office of the transfer agent or agents, a
share register, or duplicate share registers, showing the names
of the shareholders and their addresses, the number and classes
of shares held by each, the number and date of certificates
issued for shares, and the number and date of cancellation of
every certificate surrendered for cancellation.
(d) To keep or cause to be kept at the registered office of the
Corporation the books and records required by Section 1.3 (b),
(d) and (e) above.
<PAGE>
(e) To keep a supply of certificates for shares of the Corporation,
to fill in all certificates issued, and to make a proper record
of each such issuance; provided, that so Iona as the corporation
shall have one or more duly appointed and acting transfer agents
of the shares, or any class or series of shares of the
Corporation, such duties with respect to such shares shall be
performed by such transfer agent or transfer agents.
(f) To transfer upon the share books of the corporation any and all
shares of the Corporation; provided, that so Iona as the
Corporation shall have one or more duly appointed and acting
transfer agents of the shares, or any class or series of shares,
of the Corporation, such duties with respect to such shares shall
be performed by such transfer agent or transfer agents, and the
method of transfer of each certificate shall be subject to the
reasonable regulations for the transfer agent to which the
certificate is presented for transfer, and also if the
Corporation then has one or more duly appointed and acting
registrars, to the reasonable regulations of the registrar to
which the new certificate is presented for registration; and
provided, further, that no certificate for shares of stock shall
be issued or delivered or, if issued or delivered, shall have any
validity whatsoever until and unless it has been signed or
authenticated in the manner provided in Section 11.4 hereof.
(g) To make service and publication of all notices that may be
necessary or proper, and without command or direction from
anyone. In case of the absence, disability, refusal or neglect of
the secretary to make service or publication of any notices, then
such notices may be served and/or published by the president or a
vice president, or by any person thereunto authorized by either
of them or by the Board of Directors or by the holders of a
majority of the outstanding shares of the Corporation.
(h) To prepare the voting lists required by Section 3.7 above.
(i) Generally to do and perform all such duties as pertain to his
office and as may be required by the Board of Directors.
<PAGE>
ARTICLE X
TREASURER
Section 10.1 Powers and Duties. The powers and duties of the treasurer are:
(a) To supervise and control the keeping and maintaining of adequate
and correct accounts of the Corporation's properties and business
transactions, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus
and surplus arising from a reduction of stated capital, shall be
classified according to source and shown in a separate account.
The books of account shall at all reasonable times be open to
inspection by any Director and by any shareholder as provided in
Section 1.3 above.
(b) To keep or cause to be kept at a registered office of the
Corporation the books and records required by Section 1.3(a)
above.
(c) To have the custody of all funds, securities, evidences of
indebtedness and other valuable documents of the Corporation and,
at his discretion, to cause any or all thereof to be deposited
for the account of the Corporation with such depository as may be
designated from time to time by the Board of Directors.
(d) To receive or cause to be received, and to give or cause to be
given, receipts and acquittances for monies paid in for the
account of the Corporation.
(e) To disburse, or cause to be disbursed, all funds of the
Corporation as may be directed by the Board of Directors, taking
proper vouchers for such disbursements.
(f) To render to the president and to the Board of Directors,
whenever they may require, accounts of all transactions as
treasurer and of the financial condition of the Corporation.
(g) Generally to do and perform all such duties as pertain to his
office and as may be required by the Board of Directors.
<PAGE>
ARTICLE XI
SUNDRY PROVISIONS
Section 11.1 Instruments in Writing. All checks, drafts, demands for money
and notes of the Corporation, and all written contracts of the Corporation,
shall be signed by such officer or officers, agent or agents, as the Board of
Directors may from time to time by resolution designate. No officer, agent or
employee of the Corporation shall have power to bind the Corporation by contract
or otherwise unless authorized to do so by these Bylaws or by the Board of
Directors.
Section 11.2 Fiscal Year. The fiscal year of this Corporation shall be
January 1 to December 31.
Section 11.3 Shares Held by the Corporation. Shares in other corporations
standing in the name of this Corporation may be voted or represented and all
rights incident thereto may be exercised on behalf of this Corporation by any
officer of this Corporation authorized so to do by resolution of the Board of
Directors.
Section 11.4 Certificates of Stock. There shall be issued to each holder of
fully paid shares of the capital stock of the Corporation a certificate for such
shares. Every such certificate shall be either (a) signed by the president or a
vice president and the secretary or an assistant secretary of the Corporation
and countersigned by a transfer agent of the Corporation (if the Corporation
shall then have a transfer agent) and registered by the registrar of the shares
of capital stock of the Corporation (if the Corporation shall then have a
registrar); or (b) authenticated by facsimiles of the signature of the president
and secretary of the Corporation or by facsimile of there signature of the
president and the written signature of the secretary or an assistant secretary
and countersigned by a transfer agent of the Corporation and registered by a
registrar of the shares of the capital stock of the Corporation.
Section 11.5 Lost Certificates. Where the owner of any certificate for
shares of the capital stock of the Corporation claims that the certificate has
been lost, destroyed or wrongfully taken, a new certificate shall be issued in
place of the original certificate if the owner (a) so requests, before the
Corporation, has notice that the original certificate has been acquired by a
bona fide purchaser, and (b) files with the Corporation an indemnity bond in
such form and in such amount as shall be approved by the president or a vice
president of the Corporation, and (c) satisfies any other reasonable
requirements imposed by the Corporation. The Board of Directors may adopt such
other provisions and restrictions with reference to lost certificates, not
inconsistent with applicable law, as it shall in its discretion deem
appropriate.
<PAGE>
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby certify
that the undersigned is Secretary of Cardiovascular laboratories, Inc. (formerly
Interstate Gold & Gas) a corporation duly organized and existing under and by
virtues of the laws of the State of Nevada (the "Corporation"); that the above
and foregoing Bylaws of said Corporation were duty and regularly adopted by the
Board of Directors of said Corporation.
Dated April 10, 1998.
/s/ Timothy W. Cunningham
---------------------------------
SECRETARY
PROMISSORY NOTE
$50,000.00 Wayne, PA
March 30, 1998
FOR VALUE RECEIVED, Cardiovascular Laboratories, Inc., a Pennsylvania
Corporation, having an address at 100 S. Main St., Doylestown PA 18901
("Maker"), promises to pay to the order of Anchor Investment Partnership Ltd.
("Payee"), at 983 Old Eagle School Rd. Ste. 615 Wayne, PA, or at such other
address as may hereafter be specified by Payee, in lawful money of the United
States of America, the principal sum of fifty-thousand and 00/100 Dollars
($50,000), together with interest thereon at the rate or rates and in the
installments and at the times hereinafter provided (the "Loan").
1. DEFINITIONS. Whenever used in this Note, the following words and phrases
shall have the respective meanings ascribed to them in the Sections of this Note
referred to below:
(a) "Base Rate" - as defined in Section 7 hereof.
(b) "Default Rate" - as defined in Section 7 hereof.
(c) "Event of Default" - as defined in Section 6 hereof.
(d) "Maturity Date" - as defined in Section 3 hereof.
(e) "Loan" - as defined in the caption on hereof.
(f) "Loan Documents" - as defined in Section 5 hereof.
(g) "Maker" - as defined in the caption hereof.
(h) "Payee" - as defined in the caption hereof.
(i) "Security Agreement" - as defined in Section 5 hereof.
2. INTEREST RATE. Interest shall accrue on the outstanding principal amount
hereunder at the rate of seven percent (7%) per annum.
3. PRINCIPAL AND INTEREST PAYMENTS; MATURITY DATE.
(A) Interest shall be payable quarterly on the following dates in the
appropriate years: March 31, June 30, September 30, and December 31.
(B) Fifty thousand Dollars ($50,000) of the principal balance of the Loan,
together with all accrued and unpaid interest thereon shall become due and
payable on that date which is one (1) year after the date hereof (the "Maturity
Date"). Such payment may, at the option of the Maker, be in cash or in the
common stock of Maker. If the payment is in common stock, such stock must be
non-restricted and freely-tradable; otherwise, the payment must be in cash.
(C) Both before and after any default, interest shall be calculated on the
basis of a 360-day year but charged on the basis of the actual number of days
elapsed in any calendar year or part thereof.
(D) To the extent that any payment date hereunder occurs on a Saturday,
Sunday, or recognized bank holiday in the Commonwealth of Pennsylvania, such
payment date shall occur on the first business day thereafter.
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<PAGE>
(E) This Note may be prepaid, in whole or in part, at any time by Maker
without Premium or penalty upon ten (10) days prior written notice in Payee.
4. LATE CHARGES. If any installment of principal or interest or both
hereunder or any other payment required to be made under the other Loan
Documents is not paid when due, Maker shall pay to Payee on demand a late charge
of five percent (5%) of such overdue amount to reimburse Payee for the
additional expenses to be incurred as a result of such delinquency, but such
late payment fee shall not obligate Payee to accept any overdue payment
hereunder nor limit the rights and remedies available to Payee as a result of
Maker's default, as hereinafter provided. The amount of any such late charge not
paid promptly following demand shall be deemed outstanding and payable pursuant
to this Note and shall be secured by the Loan Documents.
5. SECURITY INTEREST. The payment of this Note is secured by: a present and
continuing second security interest in all the accounts receivable (the
"Collateral") of Maker to be evidenced by filings under the Uniform Commercial
Code. The second security interest granted hereunder in the Collateral shall
secure the payment of any and all present and future amounts due to the Payee
under this Loan. Maker represents and covenants and the Payee expressly agrees
that that the Collateral is subject to a first security interest in favor of
Core States Bank, under the terms of a line of credit extended to the Maker.
Except for the first security interest granted to Core States Bank under the
terms of this line of credit, Maker shall keep all Collateral free and clear of
any security interests, liens, or encumbrances of any kind. Without the Payee's
consent, the Maker Shall not sell, assign or otherwise dispose of any of the
Collateral. Upon reasonable written request of the Payee, and at the sole
expense of the Maker, the Maker will promptly deliver and duly execute and
deliver such further assignments financing statements, instruments and other
documents and take such further action as the Payee may reasonably request for
the purposes of obtaining or preserving the full benefits of, and the
attachment, perfection and priority of the second security interest granted
hereunder and of the rights and powers granted herein. A photocopy or other
reproduction of this Note or any financing statement shall be sufficient as a
financing statement for filing in any jurisdiction where so permitted. The Note,
and all other documents evidencing or securing the Loan executed by Maker in
favor of Payee are hereinafter referred to collectively as the "Loan Documents".
6. EVENTS OF DEFAULT. Each of the following shall constitute an event of
default (each, an "Event of Default" hereunder:
(a) If Maker fails to make any payment of any installment of interest,
principal and/or principal and interest hereunder or any other sum due
hereunder when such payment is due and such failure continues for ten (10)
business days after written notice to Maker:
(b) If there occurs any default under or specified in any other Loan
Document and such default continues after the expiration of the applicable
notice and grace periods, if any, provided therein;
(c) If any proceeding under the Bankruptcy Code or any law of the
United States or of any state relating to insolvency or receivership is
instituted by Maker or if any such proceeding is instituted against Maker
and is consented to by the respondent or an order for relief shall be
entered in such proceeding or such proceeding shall remain undismissed for
sixty (60) days, or if Maker makes an assignment for the benefit of
creditors, admits in writing its inability to pay debts generally as they
become due or becomes insolvent:
(d) If any representation, warranty, certificate, financial statement
or other information made or given by Maker to Payee is materially
incorrect or misleading:
(e) If Maker sells or transfers any of the stock (issued or unissued)
or assets of Maker, in individual transactions or in the aggregate (other
than in the ordinary course of business, as to assets) and including if by
merger, consolidation, reorganization gift, or bequest;
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(f) Upon the filing of dissolution proceedings or election to
liquidate by or on behalf of Maker:
(g) The entry of any final, unappealable judgment against Maker in
excess of Ten Thousand Dollars ($10,000) which remains unsatisfied for
fifteen (15) days or the issuance of any attachment, tax lien, levy or
garnishment in excess of Ten Thousand Dollars ($10,000)) (except for
carriers) against any property of material value in which Maker has an
interest.
7. DEFAULT RATE. Upon the occurrence of an Event of Default hereunder, the
interest rate otherwise payable under Section 2 hereof (the "Base Rate") shall
increase immediately and without notice and thereafter shall be payable at a
rate of four percent (4%) per annum in excess of the Base Rate (said higher rate
is hereinafter called the "Default Rate"), until the Event of Default has been
accelerated or is cured, until this Note is paid in full, including the period
following entry of any judgment on or relating to this Note or the other Loan
Documents. Interest on any such judgment shall accrue and be payable at the
Default Rate, and not at the statutory rate of interest, after judgment, any
execution thereon, and until actual receipt by the holder of payment in full of
this Note and said judgment. Interest at the Default Rate shall be collective as
part of any judgment hereunder and shall be secured by the Loan Documents.
8. REMEDIES. Upon the occurrence of any Event of Default hereunder, the
entire unpaid principal balance of the Loan, together with all accrued and
unpaid interest thereon and all other sums owing hereunder or under the Loan
Documents, shall, at the option of the holder hereof, become immediately due
and payable, without presentation, demand or further action of any kind and
Payee may forthwith exercise, singly, concurrently, successively or otherwise,
any and all rights and remedies available to Payee hereunder, or under any other
document executed in connection with the Loan or with respect to any collateral
pledged, mortgaged, or assigned a security therefor or otherwise available to
Payee at law or in equity. Maker agrees that any real estate that may be levied
upon pursuant to a judgment obtained by virtue hereof, on any writ of execution
issued thereon, may be sold upon any such writ in whole or in part in any order
described by Payee. The failure of the holder hereof to accelerate the
outstanding principal balance of the Loan upon the occurrence of an Event of
Default hereunder shall not constitute a waiver of such default or of the right
to accelerate the Loan at any time thereafter so long as the Event of Default
remains uncured.
9. CONFESSION OF JUDGMENT. THE FOLLOWING PARAGRAPHS SET FORTH A WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST MAKER. IN GRANTING THIS WARRANT OF
ATTORNEY, MAKER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND ON THE
ADVICE OF ITS SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS WITH
RESPECT TO SUCH WARRANT THAT MAKER MAY HAVE PRIOR NOTICE TO PAYEE AND AN
OPPORTUNITY FOR HEARING UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND
THE COMMONWEALTH OF PENNSYLVANIA.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT PURSUANT TO SECTION 6(a)) OR (c)
HEREUNDER, MAKE HEREBY IRREVOCABLY AUTHORIZED AND EMPOWERS ANY ATTORNEY OF
RECORD, OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR FOR MAKER AT ANY TIME OR TIMES, IN ANY
SUCH COURT IN ANY ACTION BROUGHT AGAINST MAKER BY PAYEE WITH RESPECT TO THE
AGGREGATE AMOUNT PAYABLE HEREUNDER WITH OR WITHOUT DECLARATION FILED, AS OF ANY
TERM, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST MAKER FOR ALL SUMS
PAYABLE BY MAKER TO PAYEE HEREUNDER AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A
DULY AUTHORIZED DESIGNEE OF PAYEE SETTING FORTH SUCH AMOUNT THEN DUE FROM MAKER
TO PAYEE, PLUS ATTORNEY'S FEES OF TEN PERCENT (10%) OF THE SUM OF THE FOREGOING,
BUT IN NO EVENT LESS THAN FIVE THOUSAND DOLLARS ($5,000.00), WITH COSTS OF
SUIT, RELEASE OF PROCEDURAL ERRORS AND WITHOUT RIGHT OF APPEAL. IF A COPY OF
THIS NOTE, VERIFIED BY AFFIDAVIT, SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL
NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, MAKER WAIVES THE
RIGHT TO ANY STAY OR EXECUTION AND THE BENEFIT OF ALL EXEMPTION LAWS NOW
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OR HEREAFTER IN EFFECT. NO SINGLE EXERCISE OF THE FOREGOING WARRANT AND POWER TO
BRING ANY ACTION OR CONFESS JUDGMENT THEREIN SHALL BE DEEMED TO EXHAUST THE
POWER, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS PAYEE SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO PAYEE
HEREUNDER SHALL HAVE BEEN PAID IN FULL.
10. WAIVERS BY MAKER, CUMULATIVE REMEDIES, ETC.
(a) Maker hereby waives the benefit of any laws which now or hereafter
might otherwise authorize the stay of any execution to be issued on any
judgment recovered on this Note, or the exemption of any, property from
levy, attachment and sale thereunder. Maker waives and releases unto the
holder hereof and said attorney all errors, defects and imperfections
whatsoever of a procedural nature in the entering of the said judgment or
any process or proceedings relating hereto. Maker waives the right of
inquisition on all real estate, voluntarily condemns it, and agrees that
the real estate may be sold on writ of execution. MAKER HEREBY WAIVES ITS
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH THE ENFORCEMENT OF THIS NOTE OR
ANY OTHER LOAN DOCUMENT IN ANY LEGAL PROCEEDINGS ARISING HEREUNDER OR
THEREUNDER.
(b) Maker and all endorsers of this obligation severally waive
presentment, demand, protest and notice of nonpayment. Maker and the
endorsers hereof and sureties therefor, if any, and all others who may be
liable for all or any part of the indebtedness evidenced by this Note,
consent to any number of renewals or extensions of the time of payment
hereof without notice to any of those parties. The granting, without
notice, of any extension of time for the payment of any sum due under this
Note or for the performance of any covenant, condition or agreement hereof
of thereof or the taking or release of other or additional security shall
in no way release or discharge the liability of Maker or of any such
endorsers or sureties.
(c) No right or remedy conferred upon or serve to Payee hereunder or
under any other document evidencing or securing the Loan, or with respect
to any guaranty or any collateral securing the Loan, or now or hereafter
existing at law or in equity or by statute or other legislative enactment,
is intended to be exclusive of any other right or remedy, and each and
every such right and remedy shall be cumulative and concurrent, and shall
be in addition to every other such right and remedy, and may be pursued
singly, concurrently, successively or otherwise, at the sole discretion of
Payee, and shall not be exhausted by any one exercise thereof but may be
exercised as often as occasion therefor shall occur. No act of Payee shall
be deemed or construed as an election to proceed under any one such right
or remedy the exclusion of any other such right or remedy; furthermore,
each such right and remedy of Payee shall be separate, distinct and
cumulative, and none shall be given effect to the exclusion of any other to
exercise or delay in exercising any such right or remedy, or the failure to
insist upon strict performance of any term of any of such documents, shall
not be construed as a waiver or release of the same, or of any Event of
Default, or any obligation or liability of Maker thereunder, nor shall
Payee be deemed, by any act of omission or commission, to have waived any
of its rights or remedies hereunder unless such waiver is in writing and
signed by Payee and when only to the extent specifically set forth in the
writing. A waiver as to one event shall not be construed as continuing or a
bar to or waiver of any right or remedy as to a subsequent event.
(d) The recovery of any judgment by Payee and/or the levy of execution
under any judgment upon any collateral for the Loan shall not effect in any
manner or to any extent the lien of any security interest in any such
collateral, or any rights, remedies or powers of Payee under any documents
evidencing or securing the Loan or with respect to any guaranty or any
such collateral, but such lien and security interests and rights, remedies
and powers of Payee shall continue unimpaired as before. The exercise by
Payee of its rights and remedies and the entry of any judgment by payee
shall not affect in any way the interest rate payable hereunder or any
amounts due to Payee but interest shall continue to accrue on such amounts
at the rate specified herein.
(e) Maker agrees that any action or proceeding against it to enforce
this Note may be commenced in the appropriate Court and Maker waives
personal service process and agrees that a
4
<PAGE>
summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served
by registered or certified mail in accordance with the notice provisions
set forth herein.
(f) The delivery of notice under this Note or under any other loan
document shall constitute sufficient notice under all the Loan Documents,
and the notice and cure periods provided in this Note and the other Loan
Documents, if any be so provided, shall run concurrently and not
consecutively. Time is of the essence of this Note.
11. COSTS AND EXPENSES. If Payee retains the services of counsel in order
to enforce any remedy available to Payee under any document or instrument
evidencing or securing the Loan, attorney's fees as hereinbefore provided shall
be payable on demand by Maker to Payee, and Maker shall also pay on demand the
cost of any title search and all other costs incurred by Payee in connection
with proceedings to recover any sums due hereunder. Any such amounts not paid
promptly on demand shall be added to the outstanding principal balance of this
Note, shall bear interest at the Default Rate from the date of such demand until
paid in full and shall be secured by the Loan Documents. Maker shall also pay on
demand any reasonable recording and similar costs of Payee in connection with
the cancellation of this Note. Nothing contained in this Section ll shall
limit or impair the obligation of Maker to pay any and all costs and expenses
provided by law.
12. NOTE TAXES, ETC. Maker shall pay the cost of any revenue and personal
property tax, tax, or other stamps now or hereafter required by the laws of the
Commonwealth of Pennsylvania, or the United States to be affixed to this Note.
If Maker does not or may not do so, Payee may at its option accelerate the
indebtedness evidenced by this Note to maturity as in the case of default by
Maker.
13. INTEREST LIMITATIONS; SEVERABILITY.
(a) Nothing herein contained nor any transaction related hereto shall
be construed or shall operate either presently or prospectively to require
Maker to pay interest at the rate greater than is now lawful in such case
to contract for, but shall require payment of interest only to the extent
of such lawful rate. Any interest paid in excess of the lawful rate shall
be refunded to Maker. Such refund shall be made by application of the
excessive amount of interest paid against any sums outstanding hereunder,
and shall be applied in such order as Payee may determine. If the excessive
amount of interest paid exceeds the sums outstanding hereunder, the portion
exceeding the said sums outstanding hereunder shall be refunded in cash by
Payee. Any such crediting or refund shall not cure or waive any default by
Maker hereunder or under the other Loan Documents. Maker agrees, however,
that in determining whether or not any interest payable hereunder exceeds
the highest rate permitted by law, any non-principal payment (except
payments specifically stated herein to be "interest"), shall be deemed, to
the extent permitted by law, to be an expense, fee, premium, or penalty
rather than interest.
(b) In the event that for any reason one more of the provisions of
this Note or their application to any person or circumstances shall be held
to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall, to such extent, be held for naught as though not
herein contained but shall nevertheless remain valid, legal and enforceable
in all such other respects and to such extent as may be permissible. In
addition, any such invalidity, illegality or unenforceability shall not
affect any other provisions of this Note, but this Note shall be construed
as if such invalid, illegal or unenforceable provisions had never been
contained herein.
14. NO JOINT VENTURE. Payee shall in no event be construed for any purpose
to be a partner, joint venture or associate of Maker or of any lessee, operator,
concessionaire, or licensee of Maker in the conduct of their respective
businesses.
15. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of Payee, his
heirs, personal representatives and assigns, and its binding upon Maker, its
successors, and assigns and the words "Payee" and "Maker" whenever used herein
shall be deemed and construed to include such respective personal
representatives successors, and assigns.
5
<PAGE>
16. NOTICES. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, or by courier service
with guaranteed overnight delivery, addressed to such party at its address as
set forth in the beginning of this Note. Such notice shall be deemed to be given
when received if delivered personally, or two (2) days after the date deposited
with the United States Postal Service if sent by certified or registered mail,
return receipt requested, or one (1) day after the same is delivered to a
courier service with guaranteed overnight delivery. Any notice of any change in
such address shall also be given in the manner set forth above. Whenever the
giving of notice is required, the giving of such notice may be waived in writing
by the party entitled to receive such notice.
17. DEFINITIONS; NUMBER AND GENDER. In the event Maker consists of more
than one person or entity, the obligations and liabilities hereunder of each of
such persons and entities shall be joint and several and the word "Maker" shall
mean all or some of any of them. For purposes of this Note, the singular shall
be deemed to include the plural and the neuter shall be deemed to include the
masculine and feminine, as the context may require.
18. CAPTIONS. The captions or headings of the sections of this Note are for
convenience only and shall not control or affect the meaning or construction of
any of the terms or provisions of this Note.
19. GOVERNING LAW; AMENDMENT. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania. This Note may
only be amended by an instrument in writing signed by both Maker and Payee.
20. ADDITIONAL CONSIDERATION; ISSUANCE OF SHARES OF MAKER. In addition to
the payment of all sums due under this Note to Payee, as additional
consideration to Payee for making the Loan to Maker, Maker agrees to issue to
Payee at the closing of this Loan that number of non-restricted and
freely-traded shares of common stock of Maker equal in value to the amount of
the principal due hereunder.
21. SERIES OF NOTES. This Note is one of series of substantially identical
Notes issued by the Maker on even date herewith. Each individual Note entitles
the Note's Payee to all rights of payment of interest, principal and late
charges in accordance with the amounts set forth in each individual Note. Each
Note shall rank on a pari pasu and pro-rata basis with all other Notes with
respect to the Security Agreement set forth in Section 5. The declaration of an
Event of Default in any single Note shall be considered as an Event of Default
in all other Notes and the rights and remedies set forth in each Note shall be
applied on a pro-rata basis with respect to the relation between the principal
amount of each Note and the amount represented by the total of all of the
principal amounts of all Notes.
22. USE OF PROCEEDS. The use of the proceeds from the issuance of all Notes
shall first be to repay Maker's revolving credit line outstanding with First
Service Bank of Doylestown, Pennsylvania account number 02-50060 in the
approximate amount of $122,603. Any proceeds in excess of this amount not
applied to fully repay the First Service Bank line shall be used for working
capital purposes by Maker. After the First Service Bank has been fully repaid,
Maker shall close the revolving credit line account.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused
this Note to be duly executed, under seal, the date and year first above
written.
CARDIOVASCULAR LABORATORIES, INC.
BY: /s/ Timothy W. Cunningham
---------------------------
ATTEST: /s/ Paul A. Toomey (CORP SEAL)
------------------------------
6
Amendment #1
to the
Promissory Note Dated 3-30-98
made by
Cardiovascular Laboratories, Inc. of PA
to
Anchor Investment Partnership Ltd.
This Amendment #1 (hereinafter referred to as the "Amendment") to the
Promissory Note dated March 30, 1998 (hereinafter the "Note") between
Cardiovascular Laboratories, Inc. (hereinafter referred to as the "Maker") and
Anchor Investment Partnership Ltd. (hereinafter referred to as, the "Payee") is
dated June 28, 1999.
WHEREAS Maker is unable, as of the date of this Amendment, to make payment
on the interest and principal as set forth in the Note; and Maker is thereby in
default of the terms and conditions set forth in the Note; and
WHEREAS Maker is entering into this Amendment to offer Payee incentive to
refrain from enforcing such remedies as the Payee is lawfully entitled to under
the terms of the Note; and
WHEREAS Payee wishes to retain its rights and remedies under the Note; and
WHEREAS Payee wishes to restructure Note to enhance the chance of obtaining
repayment of interest and principal of Note and to obtain such additional
payment as may be available under the terms of this Amendment.
NOW, THEREFORE, in consideration of their mutual covenants, and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Parties hereto, intending to be legally bound, hereby agree to amend the Note as
follows:
1. Interest rate. In accordance with the terms of the Note, the interest rate on
the outstanding unpaid principal amount shall be increased to the Default Rate
(as defined in the original Note) of 11% per annum, which interest shall accrue
from April 1, 1999 until the Maker has paid the outstanding principal in its
entirety.
2. Principal and Interest Payment. Obligations under the Note shall remain
outstanding until repaid in their entirety. The final maturity of the Note shall
be extended to July 1, 2002, with twenty equal principal and interest payments
due on a monthly basis as set forth in Exhibit B. Additionally, any or all
outstanding principal and accrued but unpaid interest shall be eligible for
payment from the Payee's participation in the compensation plan of a proposed
network marketing organization organized to sell nutritional supplements
(hereinafter referred to as the ("NMO") as further described in this Amendment.
3. Current Interest Payments. Notwithstanding the provisions contained above in
Section 2 of this Amendment, Maker shall, in accordance with the provisions in
this Section 3, pay current interest at an 11% annualized rate on all
outstanding unpaid principal obligations
<PAGE>
under the Note and this Amendment. Such current interest payments shall begin
prior to the payment schedule set forth in Exhibit B to this Amendment under the
following conditions:
A. Net Free Cash Flow Statements. Maker shall prepare a statement of net
free cash flow on a quarterly basis showing the net free cash flows of
Maker for each month in the preceding quarter and present such statements
of net free cash flow to Payee no later than 30 days following the close of
each calendar quarter. For the purposes of this Amendment, net free cash
flow ("Net Free Cash Flow") shall mean the gross cash revenues received by
the Maker during each month minus the gross cash payments made for expenses
during each month.
B. Current Interest Payments. Once Maker's Net Free Cash Flow reaches
$2,500 or more for any calendar quarter, Maker shall become obligated to
make interest payments to Payee on all outstanding principal amounts of the
Note as follows: First; all accrued interest payments up to the amount of
the Net Free Cash Flow. Second, all current interest payments to the end of
the last quarter.
4. Network Marketing Organization. Maker and its affiliates intend to
launch a NMO that will consist of the creation of a multi-level marketing
distributor sales force to sell nutritional supplements. Maker represents and
Payee expressly acknowledges that the NMO is not yet established, and may never
become successful enough to repay the principal, and interest on the Note.
Notwithstanding this fact, however, in an effort to induce the Payee not to
exercise all of its rights and remedies under the terms of the Note, Maker
offers the following additional incentive to Payee:
A. Establishment of NMO. The establishment of NMO shall take place as soon
as Maker is able to do so following the execution of this Amendment. Maker
represents and Payee expressly acknowledges that the establishment and
successful operation of the NMO is subject to inherent uncertainties,
including, but not limited to, the inexperience of Maker in the
establishment and operation of NMO's such as that contemplated by Maker.
B. Establishment of the Compensation Plan. Maker represents and warrants to
Payee that Maker shall ensure that NMO shall have a compensation plan (the
"Compensation Plan") established to compensate distributors on retail sales
of products made by distributors in the NMO. Such Compensation Plan shall
form a means by which Payee may have all obligations of Maker fulfilled as
well as affording Payee the opportunity to earn additional payments above
the full amount of interest and principal due under the Notes as amended
under terms set forth in this Amendment to compensate Payee for their
forbearance in accepting the terms of this Amendment.
C. NMO Compensation Plan With Respect to Payee. The Compensation Plan is
intended to motivate and incentivize independent distributors to build
their business through revenues generated within their downline multi-level
organization of distributors. The Compensation Plan shall be structured to
permit the Payee to be compensated at 25% of the Presidential Level of the
Compensation Plan. The Presidential Level of the Compensation Plan shall
consist of a 10% override on all net sales made by all distributors in the
NMO. For the Purposes of this Amendment, net sales ("Net Sales")
Page 2 of 4
<PAGE>
shall refer to all revenues generated by the NMO for the sale of retail
products within the NMO minus any credits for returned merchandise, credit
card processing fees, distributor commissions, distributor rebates and
royalties. It is expressly represented by Maker and acknowledged by Payee
that this Compensation Plan may require the recruitment of experienced NMO
management and/or capital to launch and grow the NMO, and that such
management or investors may insist on being considered as distributors for
the purposes of calculating Net Sales under this agreement. It is expressly
represented by Maker and acknowledged by Payee that the formation,
operation and success of the NMO is highly dependent on Timothy W.
Cunningham ("Cunningham") and that therefore the Compensation Plan shall
consider Cunningham as a distributor for the purposes of calculating Net
Sales, provided, however, that any compensation received by Cunningham from
NMO retail sales shall not exceed 5% of the Net Sales unless the Payee has
received in excess of $500,000 in cumulative payment from the Compensation
Plan, at which time Cunningham's compensation from the NMO shall be subject
to adjustment by the Board of Directors of Maker at whatever level such
Board believes appropriate given the contribution of Cunningham to the
success of the NMO enterprise.
5. Payee Agrees to Subordiante Notes to DVIBC, No Action. Payee agrees to
subordinate the Note to DVIBC in accordance with Exhibit A, and to execute
Exhibit A as evidence of such subordination. Additionally, the Payee agrees to
take no further action evidencing a default under the original terms of the Note
provided Maker complies with the terms of this Amendment in its entirety.
6. Descriptive Headings, Arbitration/Jurisdiction of the Court. The headings of
the several paragraphs of this Amendment are inserted for convenience only
and do not constitute a part of this Amendment. Any controversy or claim arising
out of or relating to this Amendment, or the breach thereof, shall be
settled by arbitration in the County of Montgomery, Pennsylvania, USA,
in accordance with the rules of the American Arbitration Association there in
effect, except that the Parties thereto shall have any rights to discovery as
would be permitted by the Federal Rules of Civil procedure and the prevailing
Party shall be entitled to reasonable costs and reasonable attorney's fees from
arbitration or any other civil action. Judgement upon the award rendered therein
may be entered in any Court having jurisdiction thereof. Jurisdiction for any
legal action is stipulated between the Parties to lie in the County of
Montgomery, Pennsylvania, USA.
7. Partial Invalidity. In the event that one or more of the provisions contained
in this Amendment shall be held to be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
8. Assignability. Except as otherwise provided herein, neither Party may assign
this Amendment or any right or obligation under this Amendment without the prior
written consent of the other Party, and any purported assignment without such
prior written consent shall be void and ineffective.
9. Notice. Any notice required or permitted herein shall be in writing and shall
be deemed to have been properly given if delivered personally, or if sent by
facsimile (with a copy mailed by international air mail or U.S. mail), or if
sent by international registered air mail, return
Page 3 of 4
<PAGE>
receipt requested, or if sent by U.S. mail, postage prepaid, return receipt
requested, or if sent by overnight courier in either case properly addressed to
the Party notified at the address set forth below or to the last known address
given by such Party to the other Party:
If to Payee:
If to Maker:
Cardiovascular Laboratories, Inc. of PA
999 Old Eagle School Road - Suite 108
Wayne, PA 19087
10. Entire Amendment/Counterparts. This Amendment constitutes the entire
amendment to the Note as agreed upon between the Parties and cancels and
supersedes any and all existing agreements or arrangements to amend the note by
and between Payee and Maker relating to the subject matter hereof, whether
written or oral, and all such prior agreements or arrangements are hereby deemed
terminated by mutual consent of the Parties. No amendment or modification of
this Amendment shall be deemed effective unless and until executed in writing by
Payee and Maker. This Amendment may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
Cardiovascular Laboratories, Inc. of PA
/s/ Timothy W. Cunningham 06/22/99
- ---------------------------------- -------------------------------------
Date signed
Anchor Investment Partnership Ltd.
/s/ James W. Porter Jr. 06/28/99
- ---------------------------------- -------------------------------------
Date signed
Page 4 of 4
<PAGE>
SUBORDINATION AGREEMENT
This Subordination Agreement ("Agreement") is made and entered into June 28,
1999 between James W. Porter, Jr. (hereinafter collectively and individually
referred to as the "Subordinated Creditor"), Cardiovascular Laboratories. Inc.
of PA ("Debtor"), and DVI Business Credit Corporation ("DVIBC").
RECITALS
WHEREAS, Debtor is indebted to Subordinated Creditor; and
WHEREAS, Debtor desires to obtain leases, loans, extensions of credit, and other
financial services from DVIBC; and
WHEREAS, DVIBC is unwilling to extend credit or provide financial services to
Debtor unless Debtor and Subordinated Creditor enters into this Agreement with
DVIBC.
NOW, THEREFORE, for value received and in consideration of the mutual covenants
herein, and to induce DVIBC to extend credit and provide financial services to
Debtor, the parties hereto intend to be legally bound, hereby, do agree as
follows:
AGREEMENT
1. For the purposes of this Agreement the following definitions shall
apply:
1.1 "Junior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to Subordinated Creditor,
whether direct or indirect, absolute or contingent, secured or unsecured, due or
to become due, now existing or hereafter arising, and whether created directly
or acquired indirectly by assignment, pledge, purchase or otherwise and whether
arising in connection with creditors, shareholders, directors or officers'
rights or other rights to distributions, dividends, salaries, bonuses, loan
payments, note payments, professional fees, management fees, or compensation of
any nature whether matured or not, together with all interest, fees, charges,
expenses and attorneys' fees for which Debtor is now or hereafter becomes liable
to pay to Subordinated Creditor under any agreement or by law.
1.2 "Senior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to DVIBC, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
now existing or hereafter arising, including without limitation any debt,
liability or obligation owing from Debtor to others which DVIBC may have
obtained by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorneys' fees for which Debtor is now or
hereafter becomes liable to pay to DVIBC under any agreement or by law, and
including all deferrals, renewals, extensions, refundings and refinancings, in
whole or in part of any of the foregoing.
2. Subordinated Creditor hereby postpones and subordinates, to the extent
and in the manner provided in this Agreement, all of the Junior Debt, to the
payment of all of the Senior Debt. If Debtor issues or has issued any instrument
or document evidencing the Junior Debt, each such instrument and document
shall bear a conspicuous legend that it is subordinated to the Senior Debt. All
instruments and documents evidencing the Junior Debt shall upon request be
delivered DVIBC properly assigned or endorsed to DVIBC.
3. Subordinated Creditor agrees not to sue upon, or to collect, or to
receive payment upon, by setoff in any other manner, the Junior Debt, now or
hereafter existing, nor to sell, assign, transfer, pledge, or give a security
interest in the Junior Debt (except subject expressly to this Agreement), nor to
enforce or apply any security now or hereinafter existing, nor to join in any
petition to bankruptcy or any assignment for the benefit of creditors, or any
creditors agreement, not to take any lien or security on Debtor's property real
or personal, nor to incur any obligations nor to receive distributions except as
provided in Section 4 below, any lows, advances or gifts from Debtor, so long as
any Senior Debt shall exist or so long as DVIBC is committed or otherwise
obligated to make any loan to or grant any credit to Debtor.
4. All Senior Debt now or hereafter existing shall be first paid by Debtor
before any payment shall be made by Debtor to Subordinated Creditor on the
Junior Debt; provided, however that so long as (a) no Event of Default, or any
event which with the giving of notice or lapse of time (or both) would
constitute an Event of Default (as defined in any agreement evidencing any
Senior Debt) exists with respect to any Senior Debt; or (b) such payment will
not cause such an Event of Default, or otherwise render Debtor unable to pay the
Senior Debt, Debtor may pay valid claims owing to Subordinated Creditor incurred
in the ordinary course of business in accordance with the terms of that certain
Promissory Note of Debtor payable to Subordinated Creditor in the original
principal amount of $50,000, dated as of March 30, 1998 (which shall not be
modified without DVIBC's written consent thereto), but not by prepayment,
acceleration or otherwise.
5. The priority of payment set forth in Section 4 above shall apply during
the ordinary course of Debtor's business and in case of any assignment by Debtor
for the benefit of Debtor's creditors, and in case of any bankruptcy proceedings
instituted by or against Debtor's assets, and in case of any dissolution or
other winding up of the affairs of Debtor, or of Debtor's business, and in all
such cases respectively, the officers of Debtor and any assignee, trustee in
bankruptcy, receiver, and other person or persons in charge are hereby
1
<PAGE>
directed to pay DVIBC the full amount of any Senior Debt before making any
payments to Subordinated Creditor, and so far as may be necessary for that
purpose, Subordinated Creditor hereby transfers, assigns and grants to DVIBC a
security interest in all of its interests and rights in and to the Junior Debt.
6. DVIBC is hereby irrevocably constituted and appointed the
attorney-in-fact of Subordinated Creditor with full power to act in the place
and stead of Subordinated Creditor, to make, present, file and vote any and all
proofs of claim and any other documents and to take all other action, either in
DVIBC's name or in the name of the Subordinated Creditor, which in DVIBC's
opinion is necessary or desirable to enable DVIBC to effectuate the provisions
of this Agreement.
7. No subordination of any Junior Debt has previously been executed by
Subordinated Creditor for the benefit of anyone else and any such subordinations
hereafter executed will be and shall be expressed to be subject and subordinate
to the effect hereof. This Agreement shall be continuing in effect, it shall not
be cancelled or otherwise rendered ineffective by the payment or discharge at
any time of the Senior Debt, and it shall apply to any and all Senior Debt
subsequently granted, renewed or extended by DVIBC for Debtor, unless
Subordinated Creditor shall deliver to DVIBC a written notice of revocation as
to future transactions at a time when Debtor is no longer obligated to DVIBC in
any way and while DVIBC is not committed to or otherwise obligated to make any
leases, loans or other financial accommodations to Debtor.
8. Subordinated Creditor hereby further agrees that Subordinated Creditor
shall not permit Debtor to: (i) make payment to any of the other parties
constituting a relative, affiliate or related in any way to Subordinated
Creditor contrary to the terms of this Agreement, including, without limitation,
payment of any distribution, professional fees, salary, bonus or other form of
compensation to Subordinated Creditor; and (ii) make payment to any other party
other than DVIBC in satisfaction of any Senior Debt and any other obligations as
may be owing to DVIBC from time to time except as may otherwise be consented to
by DVIBC in writing.
9. THE CONSTRUCTION, INTERPRETATION, VALIDITY AND ENFORCEABILITY OF THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA. SUBORDINATED CREDITOR AGREE TO SUBMIT TO THE JURISDICTION AND VENUE
OF THE STATE AND THE FEDERAL COURTS IN CALIFORNIA. In any action, suit,
arbitration, or mediation relating to the enforcement of this Agreement the
prevailing party shall be entitled to recover its costs and expenses including
reasonable attorneys' fees.
10. This Agreement may be signed in any number of counterparts, each of
which will constitute an original, and all of which, taken together, shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written.
DEBTOR:
CARDIOVASCULAR LABORATORIES, INC. OF PA DVI BUSINESS CREDIT CORPORATION
By: /s/ Timothy W. Cunningham By:
--------------------------------- ------------------------------
Name: Timothy W. Cunningham Name:
--------------------------------- ----------------------------
Title: Chairman Title:
--------------------------------- ---------------------------
SUBORDINATED CREDITOR:
/s/ James W. Porter Jr.
- -----------------------
James W. Porter Jr.
2
PROMISSORY NOTE
$50,000.00 Wayne, PA
March 30, 1998
FOR VALUE RECEIVED, Cardiovascular Laboratories, Inc., a Pennsylvania
Corporation, having an address at 100 S. Main St., Doylestown PA 18901
("Maker"), promises to pay to the order of James W. Porter, Jr. ("Payee"), at
983 Old Eagle School Rd. Ste. 615 Wayne, PA, or at such other address as may
hereafter be specified by Payee, in lawful money of the United States of
America, the principal sum of fifty-thousand and 00/100 Dollars ($50,000),
together with interest thereon at the rate or rates and in the installments and
at the times hereinafter provided (the "Loan").
1. DEFINITIONS. Whenever used in this Note, the following words and phrases
shall have the respective meanings ascribed to them in the Sections of this Note
referred to below:
(a) "Base Rate" - as defined in Section 7 hereof.
(b) "Default Rate" - as defined in Section 7 hereof.
(c) "Event of Default" - as defined in Section 6 hereof.
(d) "Maturity Date" - as defined in Section 3 hereof.
(e) "Loan" - as defined in the caption on hereof.
(f) "Loan Documents" - as defined in Section 5 hereof.
(g) "Maker" - as defined in the caption hereof.
(h) "Payee" - as defined in the caption hereof.
(i) "Security Agreement" - as defined in Section 5 hereof.
2. INTEREST RATE. Interest shall accrue on the outstanding principal amount
hereunder at the rate of seven percent (7%) per annum.
3. PRINCIPAL AND INTEREST PAYMENTS; MATURITY DATE.
(A) Interest shall be payable quarterly on the following dates in the
appropriate years: March 31, June 30, September 30, and December 31.
(B) Fifty thousand Dollars ($50,000) of the principal balance of the Loan,
together with all accrued and unpaid interest thereon shall become due and
payable on that date which is one (1) year after the date hereof (the "Maturity
Date"). Such payment may, at the option of the Maker, be in cash or in the
common stock of Maker. If the payment is in common stock, such stock must be
non-restricted and freely-tradable; otherwise, the payment must be in cash.
(C) Both before and after any default, interest shall be calculated on the
basis of a 360-day year but charged on the basis of the actual number of days
elapsed in any calendar year or part thereof.
(D) To the extent that any payment date hereunder occurs on a Saturday,
Sunday, or recognized bank holiday in the Commonwealth of Pennsylvania, such
payment date shall occur on the first business day thereafter.
1
<PAGE>
(E) This Note may be prepaid, in whole or in part, at any time by Maker
without Premium or penalty upon ten (10) days prior written notice in Payee.
4. LATE CHARGES. If any installment of principal or interest or both
hereunder or any other payment required to be made under the other Loan
Documents is not paid when due, Maker shall pay to Payee on demand a late charge
of five percent (5%) of such overdue amount to reimburse Payee for the
additional expenses to be incurred as a result of such delinquency, but such
late payment fee shall not obligate Payee to accept any overdue payment
hereunder nor limit the rights and remedies available to Payee as a result of
Maker's default, as hereinafter provided. The amount of any such late charge not
paid promptly following demand shall be deemed outstanding and payable pursuant
to this Note and shall be secured by the Loan Documents.
5. SECURITY INTEREST. The payment of this Note is secured by: a present and
continuing second security interest in all the accounts receivable (the
"Collateral") of Maker to be evidenced by filings under the Uniform Commercial
Code. The second security interest granted hereunder in the Collateral shall
secure the payment of any and all present and future amounts due to the Payee
under this Loan. Maker represents and covenants and the Payee expressly agrees
that that the Collateral is subject to a first security interest in favor of
Core States Bank, under the terms of a line of credit extended to the Maker.
Except for the first security interest granted to Core States Bank under the
terms of this line of credit, Maker shall keep all Collateral free and clear of
any security interests, liens, or encumbrances of any kind. Without the Payee's
consent, the Maker Shall not sell, assign or otherwise dispose of any of the
Collateral. Upon reasonable written request of the Payee, and at the sole
expense of the Maker, the Maker will promptly deliver and duly execute and
deliver such further assignments financing statements, instruments and other
documents and take such further action as the Payee may reasonably request for
the purposes of obtaining or preserving the full benefits of, and the
attachment, perfection and priority of the second security interest granted
hereunder and of the rights and powers granted herein. A photocopy or other
reproduction of this Note or any financing statement shall be sufficient as a
financing statement for filing in any jurisdiction where so permitted. The Note,
and all other documents evidencing or securing the Loan executed by Maker in
favor of Payee are hereinafter referred to collectively as the "Loan Documents".
6. EVENTS OF DEFAULT. Each of the following shall constitute an event of
default (each, an "Event of Default" hereunder:
(a) If Maker fails to make any payment of any installment of interest,
principal and/or principal and interest hereunder or any other sum due
hereunder when such payment is due and such failure continues for ten (10)
business days after written notice to Maker:
(b) If there occurs any default under or specified in any other Loan
Document and such default continues after the expiration of the applicable
notice and grace periods, if any, provided therein;
(c) If any proceeding under the Bankruptcy Code or any law of the
United States or of any state relating to insolvency or receivership is
instituted by Maker or if any such proceeding is instituted against Maker
and is consented to by the respondent or an order for relief shall be
entered in such proceeding or such proceeding shall remain undismissed for
sixty (60) days, or if Maker makes an assignment for the benefit of
creditors, admits in writing its inability to pay debts generally as they
become due or becomes insolvent:
(d) If any representation, warranty, certificate, financial statement
or other information made or given by Maker to Payee is materially
incorrect or misleading:
(e) If Maker sells or transfers any of the stock (issued or unissued)
or assets of Maker, in individual transactions or in the aggregate (other
than in the ordinary course of business, as to assets) and including if by
merger, consolidation, reorganization gift, or bequest;
2
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(f) Upon the filing of dissolution proceedings or election to
liquidate by or on behalf of Maker:
(g) The entry of any final, unappealable judgment against Maker in
excess of Ten Thousand Dollars ($10,000) which remains unsatisfied for
fifteen (15) days or the issuance of any attachment, tax lien, levy or
garnishment in excess of Ten Thousand Dollars ($10,000)) (except for
carriers) against any property of material value in which Maker has an
interest.
7. DEFAULT RATE. Upon the occurrence of an Event of Default hereunder, the
interest rate otherwise payable under Section 2 hereof (the "Base Rate") shall
increase immediately and without notice and thereafter shall be payable at a
rate of four percent (4%) per annum in excess of the Base Rate (said higher rate
is hereinafter called the "Default Rate"), until the Event of Default has been
accelerated or is cured, until this Note is paid in full, including the period
following entry of any judgment on or relating to this Note or the other Loan
Documents. Interest on any such judgment shall accrue and be payable at the
Default Rate, and not at the statutory rate of interest, after judgment, any
execution thereon, and until actual receipt by the holder of payment in full of
this Note and said judgment. Interest at the Default Rate shall be collective as
part of any judgment hereunder and shall be secured by the Loan Documents.
8. REMEDIES. Upon the occurrence of any Event of Default hereunder, the
entire unpaid principal balance of the Loan, together with all accrued and
unpaid interest thereon and all other sums owing hereunder or under the Loan
Documents, shall, at the option of the holder hereof, become immediately due
and payable, without presentation, demand or further action of any kind and
Payee may forthwith exercise, singly, concurrently, successively or otherwise,
any and all rights and remedies available to Payee hereunder, or under any other
document executed in connection with the Loan or with respect to any collateral
pledged, mortgaged, or assigned a security therefor or otherwise available to
Payee at law or in equity. Maker agrees that any real estate that may be levied
upon pursuant to a judgment obtained by virtue hereof, on any writ of execution
issued thereon, may be sold upon any such writ in whole or in part in any order
described by Payee. The failure of the holder hereof to accelerate the
outstanding principal balance of the Loan upon the occurrence of an Event of
Default hereunder shall not constitute a waiver of such default or of the right
to accelerate the Loan at any time thereafter so long as the Event of Default
remains uncured.
9. CONFESSION OF JUDGMENT. THE FOLLOWING PARAGRAPHS SET FORTH A WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST MAKER. IN GRANTING THIS WARRANT OF
ATTORNEY, MAKER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND ON THE
ADVICE OF ITS SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS WITH
RESPECT TO SUCH WARRANT THAT MAKER MAY HAVE PRIOR NOTICE TO PAYEE AND AN
OPPORTUNITY FOR HEARING UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND
THE COMMONWEALTH OF PENNSYLVANIA.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT PURSUANT TO SECTION 6(a)) OR (c)
HEREUNDER, MAKE HEREBY IRREVOCABLY AUTHORIZED AND EMPOWERS ANY ATTORNEY OF
RECORD, OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR FOR MAKER AT ANY TIME OR TIMES, IN ANY
SUCH COURT IN ANY ACTION BROUGHT AGAINST MAKER BY PAYEE WITH RESPECT TO THE
AGGREGATE AMOUNT PAYABLE HEREUNDER WITH OR WITHOUT DECLARATION FILED, AS OF ANY
TERM, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST MAKER FOR ALL SUMS
PAYABLE BY MAKER TO PAYEE HEREUNDER AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A
DULY AUTHORIZED DESIGNEE OF PAYEE SETTING FORTH SUCH AMOUNT THEN DUE FROM MAKER
TO PAYEE, PLUS ATTORNEY'S FEES OF TEN PERCENT (10%) OF THE SUM OF THE FOREGOING,
BUT IN NO EVENT LESS THAN FIVE THOUSAND DOLLARS ($5,000.00), WITH COSTS OF
SUIT, RELEASE OF PROCEDURAL ERRORS AND WITHOUT RIGHT OF APPEAL. IF A COPY OF
THIS NOTE, VERIFIED BY AFFIDAVIT, SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL
NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, MAKER WAIVES THE
RIGHT TO ANY STAY OR EXECUTION AND THE BENEFIT OF ALL EXEMPTION LAWS NOW
3
<PAGE>
OR HEREAFTER IN EFFECT. NO SINGLE EXERCISE OF THE FOREGOING WARRANT AND POWER TO
BRING ANY ACTION OR CONFESS JUDGMENT THEREIN SHALL BE DEEMED TO EXHAUST THE
POWER, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS PAYEE SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO PAYEE
HEREUNDER SHALL HAVE BEEN PAID IN FULL.
10. WAIVERS BY MAKER, CUMULATIVE REMEDIES, ETC.
(a) Maker hereby waives the benefit of any laws which now or hereafter
might otherwise authorize the stay of any execution to be issued on any
judgment recovered on this Note, or the exemption of any, property from
levy, attachment and sale thereunder. Maker waives and releases unto the
holder hereof and said attorney all errors, defects and imperfections
whatsoever of a procedural nature in the entering of the said judgment or
any process or proceedings relating hereto. Maker waives the right of
inquisition on all real estate, voluntarily condemns it, and agrees that
the real estate may be sold on writ of execution. MAKER HEREBY WAIVES ITS
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH THE ENFORCEMENT OF THIS NOTE OR
ANY OTHER LOAN DOCUMENT IN ANY LEGAL PROCEEDINGS ARISING HEREUNDER OR
THEREUNDER.
(b) Maker and all endorsers of this obligation severally waive
presentment, demand, protest and notice of nonpayment. Maker and the
endorsers hereof and sureties therefor, if any, and all others who may be
liable for all or any part of the indebtedness evidenced by this Note,
consent to any number of renewals or extensions of the time of payment
hereof without notice to any of those parties. The granting, without
notice, of any extension of time for the payment of any sum due under this
Note or for the performance of any covenant, condition or agreement hereof
of thereof or the taking or release of other or additional security shall
in no way release or discharge the liability of Maker or of any such
endorsers or sureties.
(c) No right or remedy conferred upon or serve to Payee hereunder or
under any other document evidencing or securing the Loan, or with respect
to any guaranty or any collateral securing the Loan, or now or hereafter
existing at law or in equity or by statute or other legislative enactment,
is intended to be exclusive of any other right or remedy, and each and
every such right and remedy shall be cumulative and concurrent, and shall
be in addition to every other such right and remedy, and may be pursued
singly, concurrently, successively or otherwise, at the sole discretion of
Payee, and shall not be exhausted by any one exercise thereof but may be
exercised as often as occasion therefor shall occur. No act of Payee shall
be deemed or construed as an election to proceed under any one such right
or remedy the exclusion of any other such right or remedy; furthermore,
each such right and remedy of Payee shall be separate, distinct and
cumulative, and none shall be given effect to the exclusion of any other to
exercise or delay in exercising any such right or remedy, or the failure to
insist upon strict performance of any term of any of such documents, shall
not be construed as a waiver or release of the same, or of any Event of
Default, or any obligation or liability of Maker thereunder, nor shall
Payee be deemed, by any act of omission or commission, to have waived any
of its rights or remedies hereunder unless such waiver is in writing and
signed by Payee and when only to the extent specifically set forth in the
writing. A waiver as to one event shall not be construed as continuing or a
bar to or waiver of any right or remedy as to a subsequent event.
(d) The recovery of any judgment by Payee and/or the levy of execution
under any judgment upon any collateral for the Loan shall not effect in any
manner or to any extent the lien of any security interest in any such
collateral, or any rights, remedies or powers of Payee under any documents
evidencing or securing the Loan or with respect to any guaranty or any
such collateral, but such lien and security interests and rights, remedies
and powers of Payee shall continue unimpaired as before. The exercise by
Payee of its rights and remedies and the entry of any judgment by payee
shall not affect in any way the interest rate payable hereunder or any
amounts due to Payee but interest shall continue to accrue on such amounts
at the rate specified herein.
(e) Maker agrees that any action or proceeding against it to enforce
this Note may be commenced in the appropriate Court and Maker waives
personal service process and agrees that a
4
<PAGE>
summons and complaint commencing an action or proceeding in any such court
shall be properly served and shall confer personal jurisdiction if served
by registered or certified mail in accordance with the notice provisions
set forth herein.
(f) The delivery of notice under this Note or under any other loan
document shall constitute sufficient notice under all the Loan Documents,
and the notice and cure periods provided in this Note and the other Loan
Documents, if any be so provided, shall run concurrently and not
consecutively. Time is of the essence of this Note.
11. COSTS AND EXPENSES. If Payee retains the services of counsel in order
to enforce any remedy available to Payee under any document or instrument
evidencing or securing the Loan, attorney's fees as hereinbefore provided shall
be payable on demand by Maker to Payee, and Maker shall also pay on demand the
cost of any title search and all other costs incurred by Payee in connection
with proceedings to recover any sums due hereunder. Any such amounts not paid
promptly on demand shall be added to the outstanding principal balance of this
Note, shall bear interest at the Default Rate from the date of such demand until
paid in full and shall be secured by the Loan Documents. Maker shall also pay on
demand any reasonable recording and similar costs of Payee in connection with
the cancellation of this Note. Nothing contained in this Section ll shall
limit or impair the obligation of Maker to pay any and all costs and expenses
provided by law.
12. NOTE TAXES, ETC. Maker shall pay the cost of any revenue and personal
property tax, tax, or other stamps now or hereafter required by the laws of the
Commonwealth of Pennsylvania, or the United States to be affixed to this Note.
If Maker does not or may not do so, Payee may at its option accelerate the
indebtedness evidenced by this Note to maturity as in the case of default by
Maker.
13. INTEREST LIMITATIONS; SEVERABILITY.
(a) Nothing herein contained nor any transaction related hereto shall
be construed or shall operate either presently or prospectively to require
Maker to pay interest at the rate greater than is now lawful in such case
to contract for, but shall require payment of interest only to the extent
of such lawful rate. Any interest paid in excess of the lawful rate shall
be refunded to Maker. Such refund shall be made by application of the
excessive amount of interest paid against any sums outstanding hereunder,
and shall be applied in such order as Payee may determine. If the excessive
amount of interest paid exceeds the sums outstanding hereunder, the portion
exceeding the said sums outstanding hereunder shall be refunded in cash by
Payee. Any such crediting or refund shall not cure or waive any default by
Maker hereunder or under the other Loan Documents. Maker agrees, however,
that in determining whether or not any interest payable hereunder exceeds
the highest rate permitted by law, any non-principal payment (except
payments specifically stated herein to be "interest"), shall be deemed, to
the extent permitted by law, to be an expense, fee, premium, or penalty
rather than interest.
(b) In the event that for any reason one more of the provisions of
this Note or their application to any person or circumstances shall be held
to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall, to such extent, be held for naught as though not
herein contained but shall nevertheless remain valid, legal and enforceable
in all such other respects and to such extent as may be permissible. In
addition, any such invalidity, illegality or unenforceability shall not
affect any other provisions of this Note, but this Note shall be construed
as if such invalid, illegal or unenforceable provisions had never been
contained herein.
14. NO JOINT VENTURE. Payee shall in no event be construed for any purpose
to be a partner, joint venture or associate of Maker or of any lessee, operator,
concessionaire, or licensee of Maker in the conduct of their respective
businesses.
15. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of Payee, his
heirs, personal representatives and assigns, and its binding upon Maker, its
successors, and assigns and the words "Payee" and "Maker" whenever used herein
shall be deemed and construed to include such respective personal
representatives successors, and assigns.
5
<PAGE>
16. NOTICES. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, or by courier service
with guaranteed overnight delivery, addressed to such party at its address as
set forth in the beginning of this Note. Such notice shall be deemed to be given
when received if delivered personally, or two (2) days after the date deposited
with the United States Postal Service if sent by certified or registered mail,
return receipt requested, or one (1) day after the same is delivered to a
courier service with guaranteed overnight delivery. Any notice of any change in
such address shall also be given in the manner set forth above. Whenever the
giving of notice is required, the giving of such notice may be waived in writing
by the party entitled to receive such notice.
17. DEFINITIONS; NUMBER AND GENDER. In the event Maker consists of more
than one person or entity, the obligations and liabilities hereunder of each of
such persons and entities shall be joint and several and the word "Maker" shall
mean all or some of any of them. For purposes of this Note, the singular shall
be deemed to include the plural and the neuter shall be deemed to include the
masculine and feminine, as the context may require.
18. CAPTIONS. The captions or headings of the sections of this Note are for
convenience only and shall not control or affect the meaning or construction of
any of the terms or provisions of this Note.
19. GOVERNING LAW; AMENDMENT. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania. This Note may
only be amended by an instrument in writing signed by both Maker and Payee.
20. SERIES OF NOTES. This Note is one of series of substantially identical
Notes issued by the Maker on even date herewith. Each individual Note entitles
the Note's Payee to all rights of payment of interest, principal and late
charges in accordance with the amounts set forth in each individual Note. Each
Note shall rank on a pari pasu and pro-rata basis with all other Notes with
respect to the Security Agreement set forth in Section 5. The declaration of an
Event of Default in any single Note shall be considered as an Event of Default
in all other Notes and the rights and remedies set forth in each Note shall be
applied on a pro-rata basis with respect to the relation between the principal
amount of each Note and the amount represented by the total of all of the
principal amounts of all Notes.
21. USE OF PROCEEDS. The use of the proceeds from the issuance of all Notes
shall first be to repay Maker's revolving credit line outstanding with First
Service Bank of Doylestown, Pennsylvania account number 02-50060 in the
approximate amount of $122,603. Any proceeds in excess of this amount not
applied to fully repay the First Service Bank line shall be used for working
capital purposes by Maker. After the First Service Bank has been fully repaid,
Maker shall close the revolving credit line account.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused
this Note to be duly executed, under seal, the date and year first above
written.
CARDIOVASCULAR LABORATORIES, INC.
BY: /s/ Timothy W. Cunningham
--------------------------
ATTEST: /s/ Paul A. Toomey (CORP SEAL)
------------------------------
6
Amendment #1
to the
Promissory Note Dated 3-30-98
made by
Cardiovascular Laboratories, Inc. of PA
to
James W. Porter, Jr.
This Amendment #1 (hereinafter referred to as the "Amendment") to the Promissory
Note dated March 30, 1998 (hereinafter the "Note") between Cardiovascular
Laboratories, Inc. (hereinafter referred to as the "Maker") and James W. Porter,
Jr (hereinafter referred to as, the " Payee") is dated June 28, 1999.
WHEREAS Maker is unable, as of the date of this Amendment, to make payment on
the interest and principal as set forth in the Note; and Maker is thereby in
default of the terms and conditions set forth in the Note; and
WHEREAS Maker is entering into this Amendment to offer Payee incentive to
refrain from enforcing such remedies as the Payee is lawfully entitled to under
the terms of the Note; and
WHEREAS Payee wishes to retain its rights and remedies under the Note; and
WHEREAS Payee wishes to restructure Note to enhance the chance of obtaining
repayment of interest and principal of Note and to obtain such additional
payment as may be available under the terms of this Amendment.
NOW, THEREFORE, in consideration of their mutual covenants, and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Parties hereto, intending to be legally bound, hereby agree to amend the Note as
follows:
1. Interest rate. In accordance with the terms of the Note, the interest rate on
the outstanding unpaid principal amount shall be increased to the Default Rate
(as defined in the original Note) of 11% per annum, which interest shall accrue
from April 1, 1999 until the Maker has paid the outstanding principal in its
entirety.
2. Principal and Interest Payment. Obligations under the Note shall remain
outstanding until repaid in their entirety. The final maturity of the Note shall
be extended to July 1, 2002, with twenty equal principal and interest payments
due on a monthly basis as set forth in Exhibit B. Additionally, any or all
outstanding principal and accrued but unpaid interest shall be eligible for
payment from the Payee's participation in the compensation plan of a proposed
network marketing organization organized to sell nutritional supplements
(hereinafter referred to as the ("NMO") as further described in this Amendment.
3. Current Interest Payments. Notwithstanding the provisions contained above in
Section 2 of this Amendment, Maker shall, in accordance with the provisions in
this Section 3, pay current interest at an 11% annualized rate on all
outstanding unpaid principal obligations
<PAGE>
under the Note and this Amendment. Such current interest payments shall begin
prior to the payment schedule set forth in Exhibit B to this Amendment under the
following conditions:
A. Net Free Cash Flow Statements Maker shall prepare a statement of net
free cash flow on a quarterly basis showing the net free cash flows of
Maker for each month in the preceding quarter and present such statements
of net free cash flow to Payee no later than 30 days following the close of
each calendar quarter. For the purposes of this Amendment, net free cash
flow ("Net Free Cash Flow") shall mean the gross cash revenues received by
the Maker during each month minus the gross cash payments made for expenses
during each month.
B. Current Interest Payments Once Maker's Net Free Cash Flow reaches $2,500
or more for any calendar quarter, Maker shall become obligated to make
interest payments to Payee on all outstanding principal amounts of the
Note, as follows: First; all accrued interest payments up to the amount of
the Net Free Cash Flow. Second, all current interest payments to the end of
the last quarter.
4. Network Marketing Organization. Maker and its affiliates intend to launch a
NMO that will consist of the creation of a multi-level marketing distributor
sales force to sell nutritional supplements. Maker represents and Payee
expressly acknowledges that the NMO is not yet established, and may never become
successful enough to repay the principal, and interest on the Note,
Notwithstanding this fact, however, in an effort to induce the Payee not to
exercise all of its rights and remedies under the terms of the Note, Maker
offers the following additional incentive to Payee:
A. Establishment of NMO. The establishment of NMO shall take place as soon
as Maker is able to do so following the execution of this Amendment. Maker
represents and Payee expressly acknowledges that the establishment and
successful operation of the NMO is subject to inherent uncertainties,
including, but not limited to, the inexperience of Maker in the
establishment and operation of NMO's such as that contemplated by Maker.
B. Establishment of the Compensation Plan. Maker represents and warrants to
Payee that Maker shall ensure that NMO shall have a compensation plan (the
"Compensation Plan") established to compensate distributors on retail sales
of products made by distributors in the NMO. Such Compensation Plan shall
form a means by which Payee may have all obligations of Maker fulfilled as
well as affording Payee the opportunity to earn additional payments above
the full amount of interest and principal due under the Notes as amended
under terms set forth in this Amendment to compensate Payee for their
forbearance in accepting the terms of this Amendment.
C. NMO Compensation Plan With Respect to Payee. The Compensation Plan is
intended to motivate and incentivize independent distributors to build
their business through revenues generated within their downline multi-level
organization of distributors. The Compensation Plan shall be structured to
permit the Payee to be compensated at 25% of the Presidential Level of the
Compensation Plan. The Presidential Level of the Compensation Plan shall
consist of a 10% override on all net sales made by all distributors in the
NMO. For the Purposes of this Amendment, net sales ("Net Sales")
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<PAGE>
shall refer to all revenues generated by the NMO for the sale of retail
products within the NMO minus any credits for returned merchandise, credit
card processing fees, distributor commissions, distributor rebates and
royalties. It is expressly represented by Maker and acknowledged by Payee
that this Compensation Plan may require the recruitment of experienced NMO
management and/or capital to launch and grow the NMO, and that such
management or investors may insist on being considered as distributors for
the purposes of calculating Net Sales under this agreement. It is expressly
represented by Maker and acknowledged by Payee that the formation,
operation and success of the NMO is highly dependent on Timothy W.
Cunningham ("Cunningham") and that therefore the Compensation Plan shall
consider Cunningham as a distributor for the purposes of calculating Net
Sales, provided, however, that any compensation received by Cunningham from
NMO retail sales shall not exceed 5% of the Net Sales unless the Payee has
received in excess of $500,000 in cumulative payment from the Compensation
Plan, at which time Cunningham's compensation from the NMO shall be subject
to adjustment by the Board of Directors of Maker at whatever level such
Board believes appropriate given the contribution of Cunningham to the
success of the NMO enterprise.
5. Payee Agrees to Subordinate Notes to DVIBC, No Action. Payee agrees to
subordinate the Note to DVIBC in accordance with Exhibit A, and to execute
Exhibit A as evidence of such subordination. Additionally, the Payee agrees to
take no further action evidencing a default under the original terms of the Note
provided Maker complies with the terms of this Amendment in its entirety.
6. Descriptive Headings, Arbitration/Jurisdiction of the Court. The headings of
the several paragraphs of this Amendment are inserted for convenience only and
do not constitute a part of this Amendment, Any controversy or claim arising out
of or relating to this Amendment, or the breach thereof shall be settled by
arbitration in the County of Montgomery, Pennsylvania, USA, in accordance with
the rules of the American Arbitration Association there in effect, except that
the Parties thereto shall have any rights to discovery as would be permitted by
the Federal Rules of Civil procedure and the prevailing Party shall be entitled
to reasonable costs and reasonable attorney's fees from arbitration or any other
civil action. Judgement upon the a-ward rendered therein may be entered in any
Court having jurisdiction thereof Jurisdiction for any legal action is
stipulated between the Parties to lie in the County of Montgomery, Pennsylvania,
USA.
7. Partial Invalidity. In the event that one or more of the provisions contained
in this Amendment shall be held to be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
8. Assignability. Except as otherwise provided herein, neither Party may assign
this Amendment or any right or obligation under this Amendment without the prior
written consent of the other Party, and any purported assignment without such
prior written consent shall be void and ineffective.
9. Notice. Any notice required or permitted herein shall be in writing and shall
be deemed to have been properly given if delivered personally, or if sent by
facsimile (with a copy mailed by international air mail or U.S. mail), or if
sent by international registered air mail, return
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<PAGE>
receipt requested, or if sent by US mail, postage prepaid, return receipt
requested, or if sent by overnight courier in either case properly addressed to
the Party notified at the address set forth below or to the last known address
given by such Party to the other Party:
It to Payee:
If to Maker:
Cardiovascular Laboratories, Inc. of PA
999 Old Eagle School Road - Suite 108
Wayne, PA 19087
10. Entire Amendment/Counterparts. This Amendment constitutes the entire
amendment to the Note as agreed upon between the Parties and cancels and
supersedes any and all existing agreements or arrangements to amend the note by
and between Payee and Maker relating to the subject matter hereof whether
written or oral, and all such prior agreements or arrangements are hereby deemed
terminated by mutual consent of the Parties. No amendment or modification of
this Amendment shall be deemed effective unless and until executed in writing by
Payee and Maker. This Amendment may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
Cardiovascular Laboratories, Inc. of PA
/s/ Timothy W. Cunningham 06/22/99
- ---------------------------------- -------------------------------------
Date signed
/s/ James W. Porter, Jr. 06/28/99
- ---------------------------------- -------------------------------------
Date signed
<PAGE>
SUBORDINATION AGREEMENT
This Subordination Agreement ("Agreement") is made and entered into June 28,
1999 between Anchor Investment Partnership, Lid. (hereinafter collectively and
individually referred to as the "Subordinated Creditor"), Cardiovascular
Laboratories. Inc. of PA ("Debtor"), and DVI Business Credit Corporation
("DVIBC").
RECITALS
WHEREAS, Debtor is indebted to Subordinated Creditor; and
WHEREAS. Debtor desires to obtain loans, extensions of credit, and Other
financial services from DVIBC and
WHEREAS, DVIBC is unwilling to extend credit or provide financial services to
Debtor unless Debtor and Subordinated Creditor enters into this Agreement with
DVIBC.
NOW, THEREFORE, for value received and in consideration of the mutual covenants
herein and to induce DVIBC to extend credit and provide financial services to
Debtor, the parties hereto intend to be legally bound, hereby, do agree as
follows:
AGREEMENT
1. Far the purposes of this Agreement the following definitions shall
apply:
1.1 "Junior Debt" means ail loans. advances, liabilities debit balances,
covenants and duties at any time owed by Debtor to Subordinated Creditor.
whether direct or indirect: absolute or contingent, secured or Unsecured, due or
to become due, now existing or hereafter arising, and whether created directly
or acquired indirectly by assignment, pledge, purchase or otherwise and whether
arising in connection with creditors, shareholders, directors or officers'
rights or ether rights to distributions, dividends, salaries, bonuses, loan
payments, note payments, professional, fees. management fees, or compensation of
any nature whether matured or not, together with all interest, few, charges,
expenses and attorneys fees for which Debtor is now or hereafter becomes liable
to pay to Subordinated Creditor under any agreement or by law.
1.2 "Senior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties it any time owed by Debtor to DVIBC, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due.
now existing or hereafter arising, including without limitation any debt,
liability or obligation owing from Debtor to others which DVIBC may have
obtained by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorney for which Debtor is now or
hereafter becomes liable to pay to DVIBC under any agreement or by- law. and
including all deferrals, renewals, extensions, refundings and refinancings, in
- -hole or in part of arty of the foregoing.
2. Subordinated Creditor hereby postpones and subordinates, to the extent
and in the manner provided In this Agreement, all of the Junior Debt, to the
payment of all of the Senior Debt. If Debtor issues or has Issued any instrument
or document evidencing the Junior Debt, each Such instrument and document
shall bear a conspicuous legend that it is subordinated to the Senior Debt. All
instruments and documents evidencing the Junior Debt shall upon request be
delivered DVIBC properly assigned or endorsed to DVIBC.
3. Subordinated Creditor agrees not sue upon, or to collect, or to receive
payment upon, by setoff in any other manner, the Junior Debt, now or hereafter
existing, nor to sell, assign: transfer, pledge. or give a security interest in
the Junior Debt (execpt subject expressly to this Agreement), nor to enforce or
apply any security now or hereinafter existing, nor to join in arty petition to
bankruptcy or any assignment for the benefit of creditors, or tiny creditors
agreement, not to take any lien or security on Debtor's property real or
personal, nor to incur any obligations nor to receive distributions except as
provided In Section 4 below, any lows, advances or gifts from Debtor. so long as
any Senior Debt shall exist or so long as DVIBC is committed or otherwise
obligated to make any loan to or gram any credit to Debtor.
4. All Senior Debt now or hereafter existing shall be first paid by Debtor
before any payment shall be made by Debtor to Subordinated Creditor on the
Junior Debt. provided, however that so long as (a) no Event of Default, or any
even, which with the giving of notice or lapse of time (or both would constitute
an Event of Default (as defined in any agreement evidencing any Senior Debt)
exists with respect to any Senior Debt; or (b) such payment Will not cause such
an Event of Default, or otherwise render Debtor unable to pay the Senior Debt,
Debtor may pay valid claims owing to Subordinated Creditor Incurred in the
ordinary course of business in accordance with the terms of that certain
Promissory Note of Debtor payable to Subordinated Creditor in the original
principal amount of $50,000, dated as of Match 30, 1998 (which shall no, be
modified without DVIBC's written consent thereto), but not by prepayment,
acceleration or otherwise.
5. The priority of payment set Forth in Section 4 above shall apply during
the ordinary course of Debtor's business and in case of any assignment by Debtor
for the benefit of Debtor's creditors, and in case of any bankruptcy proceedings
instituted by or against Debtor's assets, and in case of arty dissolution or
other winding up of the affairs of Debtor. or of Debtor's business and In all
such cases respectively, the officers of Debtor and any assignee, trustee in
bankruptcy, receiver. and other person or persons in charge are hereby
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<PAGE>
directed to pay DVIBC the full amount of any Senior Debt before making any
payments to Subordinated Creditor, and so far as may be necessary for that
purpose, Subordinated Creditor hereby transfers, assigns and grants to DN78C a
security interest in all of Its interests and rights in and to the Junior Debt.
6. DVIBC is hereby irrevocably constituted and appointed the
attorney-in-fact of Subordinated Creditor with full power to act in the place
and stead of Subordinated Creditor, to make, present, Ale mid vote any and all
proofs of claim and any other documents and to take all other action. tithe, in
DVIBC's name or in the name of the Subordinated Creditor, which in DVIBC's
opinion Is necessary or desirable to enable DVIBC to effecutate the provisions
of this Agreement.
7. No subordination, of any Junior Debt has previously been executed by
Subordinated Creditor for the benefit of anyone else and any hereof. This
Agreement such subordinations hereafter executed will be and shall be expressed
to be subject and subordinate to the effect shall be continuing in effect, it
shall not be cancelled or otherwise rendered ineffective by the payment or
discharge of any time of the Senior Debt and it shall apply to any and all
Senior Debt subsequently granted, renewed or extended by DVIBC for Debtor unless
Subordinated Creditor shall deliver To DVIBC a written notice of revocation as
to future transactions at a time when Debtor is no longer obligated to DVIBC In
any way and while DVIBC is not committed to or otherwise obligated to make any
leases, loans or other financial accommodations to Debtor.
8. Subordinated Creditor hereby further agrees that Subordinated Creditor
shall not permit Debtor to: (i) make payment to any of the other panics
constituting a relative, affiliate or related In tiny way to Subordinated
Creditor contrary to the terms of this Agreement, including, without limitation,
payment of any distribution, professional fees, salary, bonus or other farm of
compensation to Subordinated Creditor; and (ii) make payment to any other party
other than DVISC in satisfaction of any Senior Debt and any other obligations as
may be owing to DVIBC from time to time except as may otherwise be consented to
by DVIBC in writing.
9. THE CONSTRUCTION, INTERPRETATION VALIDITY AND ENFORCEABILITY OF THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA SUBORDINATED CREDITOR AGREE T10 SUBMIT TO THE JURISDICTION AND VENUE
OF THE STATE AND THE FEDERAL COURTS IN CALIFORNIA. In any action, suit,
arbitration, or mediation relating to the enforcement of this Agreement the
prevailing party shall be entitled to recover its Costs and expenses including
reasonable attorney's fees.
10. This Agreement may be signed in any number of counterparts, each of
which will constitute an original, and all of which, taken together, shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written.
DEBTOR;
CARDIOVASCULAR LABORATORIES. INC. OF PA DVI BUSINESS CREDIT CORPORATION
By: Timothy W. Cunningham By:
--------------------------------- ------------------------------
Name: Timothy W. Cunningham Name:
--------------------------------- ----------------------------
Title: Chairman Title:
--------------------------------- ---------------------------
SUBORDINATED CREDITOR:
ANCHOR INVESTMENT PARTNERSHIP, LTD.
By: James W. Porter, Jr.
---------------------------------
Name: James W. Porter, Jr.
---------------------------------
Title: Chairman
---------------------------------
PROMISSORY NOTE
$25,000.00 Wayne, PA
March 30, 1998
FOR VALUE RECEIVED, Cardiovascular Laboratories, Inc., a Pennsylvania
Corporation, having an address at 100 S. Main St. Doylestown PA 18901 ("Maker"),
promises to pay to the order of F. Stanton Moyer ("Payee"), at 445 Caversham
Rd., Bryn Mawr, PA, or at such other address as may hereafter be specified by
Payee, in lawful money of the United States of America, the principal sum of
twenty-five thousand and 00/100 Dollars ($25,000), together with interest
thereon at the rate or rates and in the installments and at the times
hereinafter provided (the "Loan").
1. DEFINITIONS. Whenever used in this Note, the following words and phrases
shall have the respective meanings ascribed to them in the Sections of this Note
referred to below:
(a) "Base Rate" - as defined in Section 7 hereof.
(b) "Default Rate" - as defined in Section 7 hereof.
(c) "Event of Default" - as defined in Section 6 hereof.
(d) "Maturity Date" - as defined in Section 3 hereof.
(e) "Loan" - as defined in the caption hereof.
(f) "Loan Documents" - as defined in Section 5 hereof.
(g) "Maker" - as defined in the caption hereof.
(h) "Payee" - as defined in the caption hereof.
(i) "Security Agreement" - as defined in Section 5 hereof.
2. INTEREST RATE. Interest shall accrue on the outstanding principal amount
hereunder at the rate of seven percent (7%) per annum.
3. PRINCIPAL AND INTEREST PAYMENTS; MATURITY DATE.
(A) Interest shall be payable quarterly on the following dates in the
appropriate years: March 31, June 30, September 30, and December 31.
(B) twenty-five thousand Dollars ($25,000) of the principal balance of the
Loan, together with all accrued and unpaid interest thereon shall become due and
payable on that date which is one (1) year after the date hereof (the "Maturity
Date"). Such payment may, at the option of the Maker, be in cash or in the
common stock of Maker. If the payment is in common stock, such stock must be
non-restricted and freely-tradable; otherwise, the payment must be in cash.
(C) Both before and after any default, interest shall be calculated on the
basis of a 360-day year but charged on the basis of the actual number of days
elapsed in any calendar year or part thereof.
(D) To the extent that any payment date hereunder occurs on a Saturday,
Sunday, or recognized bank holiday in the Commonwealth of Pennsylvania, such
payment date shall occur on the first business day thereafter.
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<PAGE>
(E) This Note may be prepaid, in whole or in part, at any time by Maker
without Premium or penalty upon ten (10) days prior written notice in Payee.
4. LATE CHARGES. If any installment of principal or interest or both
hereunder or any other payment required to be made under the other Loan
Documents is not paid when due, Maker shall pay to Payee on demand a late charge
of five percent (5%) of such overdue amount to reimburse Payee for the
additional expenses to be incurred as a result of such delinquency, but such
late payment fee shall not obligate Payee to accept any overdue payment
hereunder nor limit the rights and remedies available to Payee as a result of
Maker's default, as hereinafter provided. The amount of any such late charge not
paid promptly following demand shall be deemed outstanding and payable pursuant
to this Note and shall be secured by the Loan Documents.
5. SECURITY INTEREST. The payment of this Note is secured by: a present and
continuing second security interest in all the accounts receivable (the
"Collateral") of Maker to be evidenced by filings under the Uniform Commercial
Code. The second security interest granted hereunder in the Collateral shall
secure the payment of any and all present and future amounts due to the Payee
under this Loan. Maker represents and covenants and the Payee expressly agrees
that that the Collateral is subject to a first security interest in favor of
Core States Bank, under the terms of a line of credit extended to the Maker.
Except for the first security interest granted to Core States Bank under the
terms of this line of credit, Maker shall keep all Collateral free and clear of
any security interests, liens, or encumbrances of any kind. Without the Payee's
consent, the Maker Shall not sell, assign or otherwise dispose of any of the
Collateral. Upon reasonable written request of the Payee, and at the sole
expense of the Maker, the Maker will promptly deliver and duly execute and
deliver such further assignments financing statements, instruments and other
documents and take such further action as the Payee may reasonably request for
the purposes of obtaining or preserving the full benefits of, and the
attachment, perfection and priority of the second security interest granted
hereunder and of the rights and powers granted herein. A photocopy or other
reproduction of this Note or any financing statement shall be sufficient as a
financing statement for filing in any jurisdiction where so permitted. The Note,
and all other documents evidencing or securing the Loan executed by Maker in
favor of Payee are hereinafter referred to collectively as the "Loan Documents".
6. EVENTS OF DEFAULT. Each of the following shall constitute an event of
default each, an "Event of Default" hereunder:
(a) If Maker fails to make any payment of any installment of interest,
principal and/or principal and interest hereunder or any other sum due
hereunder when such payment is due and such failure continues for ten (10)
business days after written notice to Maker:
(b) If there occurs any default under or specified in any other Loan
Document and such default continues after the expiration of the applicable
notice and grace periods, if any, provided therein;
(c) If any proceeding under the Bankruptcy Code or any law of the
United States or of any state relating to insolvency or receivership is
instituted by Maker or if any such proceeding is instituted against Maker
and is consented to by the respondent or an order for relief shall be
entered in such proceeding or such proceeding shall remain undismissed for
sixty (60) days, or if Maker makes an assignment for the benefit of
creditors, admits in writing its inability to pay debts generally as they
become due or becomes insolvent:
(d) If any representation, warranty, certificate, financial statement
or other information made or given by Maker to Payee is materially
incorrect or misleading:
(e) If Maker sells or transfers any of the stock (issued or unissued)
or assets of Maker, in individual transactions or in the aggregate (other
than in the ordinary course of business, as to assets) and including if by
merger, consolidation, reorganization gift, or bequest;
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(f) Upon the filing of dissolution proceedings or election to
liquidate by or on behalf of Maker:
(g) The entry of any final, unappealable judgment against Maker in
excess of Ten Thousand Dollars ($10,000) which remains unsatisfied for
fifteen (15) days or the issuance of any attachment, tax lien, levy or
garnishment in excess of Ten Thousand Dollars ($10,000) (except for
carriers) against any property of material value in which Maker has an
interest.
7. DEFAULT RATE. Upon the occurrence of an Event of Default hereunder, the
interest rate otherwise payable under Section 2 hereof (the "Base Rate") shall
increase immediately and without notice and thereafter shall be payable at a
rate of four percent (4%) per annum in excess of the Base Rate (said higher rate
is hereinafter called the "Default Rate"), until the Event of Default has been
accelerated or is cured, until this Note is paid in full, including the period
following entry of any judgment on or relating to this Note or the other Loan
Documents. Interest on any such judgment shall accrue and be payable at the
Default Rate, and not at the statutory rate of interest, after judgment, any
execution thereon, and until actual receipt by the holder of payment in full of
this Note and said judgment. Interest at the Default Rate shall be collective as
part of any judgment hereunder and shall be secured by the Loan Documents.
8. REMEDIES. Upon the occurrence of any Event of Default hereunder, the
entire unpaid principal balance of the Loan, together with all accrued and
unpaid interest thereon and all other sums owing hereunder or under the Loan
Documents, shall, at the option of the holder hereof, become immediately due
and payable, without presentation, demand or further action of any kind and
Payee may forthwith exercise, singly, concurrently, successively or otherwise,
any and all rights and remedies available to Payee hereunder, or under any other
document executed in connection with the Loan or with respect to any collateral
pledged, mortgaged, or assigned a security therefor or otherwise available to
Payee at law or in equity. Maker agrees that any real estate that may be levied
upon pursuant to a judgment obtained by virtue hereof, on any writ of execution
issued thereon, may be sold upon any such writ in whole or in part in any order
described by Payee. The failure of the holder hereof to accelerate the
outstanding principal balance of the Loan upon the occurrence of an Event of
Default hereunder shall not constitute a waiver of such default or of the right
to accelerate the Loan at any time thereafter so long as the Event of Default
remains uncured.
9. CONFESSION OF JUDGMENT. THE FOLLOWING PARAGRAPHS SET FORTH A WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST MAKER. IN GRANTING THIS WARRANT OF
ATTORNEY, MAKER HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND ON THE
ADVICE OF ITS SEPARATE COUNSEL, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS WITH
RESPECT TO SUCH WARRANT THAT MAKER MAY HAVE PRIOR NOTICE TO PAYEE AND AN
OPPORTUNITY FOR HEARING UNDER THE CONSTITUTION AND LAWS OF THE UNITED STATES AND
THE COMMONWEALTH OF PENNSYLVANIA.
UPON THE OCCURRENCE OF AN EVENT OF DEFAULT PURSUANT TO SECTION 6(a) OR (c)
HEREUNDER, MAKE HEREBY IRREVOCABLY AUTHORIZED AND EMPOWERS ANY ATTORNEY OF
RECORD, OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR FOR MAKER AT ANY TIME OR TIMES, IN ANY
SUCH COURT IN ANY ACTION BROUGHT AGAINST MAKER BY PAYEE WITH RESPECT TO THE
AGGREGATE AMOUNT PAYABLE HEREUNDER WITH OR WITHOUT DECLARATION FILED, AS OF ANY
TERM, AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST MAKER FOR ALL SUMS
PAYABLE BY MAKER TO PAYEE HEREUNDER AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A
DULY AUTHORIZED DESIGNEE OF PAYEE SETTING FORTH SUCH AMOUNT THEN DUE FROM MAKER
TO PAYEE, PLUS ATTORNEY'S FEES OF TEN PERCENT (10%) OF THE SUM OF THE FOREGOING,
BUT IN NO EVENT LESS THAN FIVE THOUSAND DOLLARS ($5,000.00), WITH COSTS OF
SUIT, RELEASE OF PROCEDURAL ERRORS AND WITHOUT RIGHT OF APPEAL. IF A COPY OF
THIS NOTE, VERIFIED BY AFFIDAVIT, SHALL HAVE BEEN FILED IN SUCH ACTION, IT SHALL
NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY, MAKER WAIVES THE
RIGHT TO ANY STAY OR EXECUTION AND THE BENEFIT OF ALL EXEMPTION LAWS NOW
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OR HEREAFTER IN EFFECT. NO SINGLE EXERCISE OF THE FOREGOING WARRANT AND POWER TO
BRING ANY ACTION OR CONFESS JUDGMENT THEREIN SHALL BE DEEMED TO EXHAUST THE
POWER, BUT THE POWER SHALL CONTINUE UNDIMINISHED AND MAY BE EXERCISED FROM TIME
TO TIME AS OFTEN AS PAYEE SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO PAYEE
HEREUNDER SHALL HAVE BEEN PAID IN FULL.
10. WAIVERS BY MAKER, CUMULATIVE REMEDIES, ETC.
(a) Maker hereby waives the benefit of any laws which now or hereafter
might otherwise authorize the stay of any execution to be issued on any
judgment recovered on this Note, or the exemption of any, property from
levy, attachment and sale thereunder. Maker waives and releases unto the
holder hereof and said attorney all errors, defects and imperfections
whatsoever of a procedural nature in the entering of the said judgment or
any process or proceedings relating hereto. Maker waives the right of
inquisition on all real estate, voluntarily condemns it, and agrees that
the real estate may be sold on writ of execution. MAKER HEREBY WAIVES ITS
RIGHTS TO TRIAL BY JURY IN CONNECTION WITH THE ENFORCEMENT OF THIS NOTE OR
ANY OTHER LOAN DOCUMENT IN ANY LEGAL PROCEEDINGS ARISING HEREUNDER OR
THEREUNDER.
(b) Maker and all endorsers of this obligation severally waive
presentment, demand, protest and notice of nonpayment. Maker and the
endorsers hereof and sureties therefor, if any, and all others who may be
liable for all or any part of the indebtedness evidenced by this Note,
consent to any number of renewals or extensions of the time of payment
hereof without notice to any of those parties. The granting, without
notice, of any extension of time for the payment of any sum due under this
Note or for the performance of any covenant, condition or agreement hereof
of thereof or the taking or release of other or additional security shall
in no way release or discharge the liability of Maker or of any such
endorsers or sureties.
(c) No right or remedy conferred upon or served to Payee hereunder or
under any other document evidencing or securing the Loan, or with respect
to any guaranty or any collateral securing the Loan, or now or hereafter
existing at law or in equity or by statute or other legislative enactment,
is intended to be exclusive of any other right or remedy, and each and
every such right and remedy shall be cumulative and concurrent, and shall
be in addition to every other such right and remedy, and may be pursued
singly, concurrently, successively or otherwise, at the sole discretion of
Payee, and shall not be exhausted by any one exercise thereof but may be
exercised as often as occasion therefor shall occur. No act of Payee shall
be deemed or construed as an election to proceed under any one such right
or remedy the exclusion of any other such right or remedy; furthermore,
each such right and remedy of Payee shall be separate, distinct and
cumulative, and none shall be given effect to the exclusion of any other to
exercise or delay in exercising any such right or remedy, or the failure to
insist upon strict performance of any term of any of such documents, shall
not be construed as a waiver or release of the same, or of any Event of
Default, or any obligation or liability of Maker thereunder, nor shall
Payee be deemed, by any act of omission or commission, to have waived any
of its rights or remedies hereunder unless such waiver is in writing and
signed by Payee and when only to the extent specifically set forth in the
writing. A waiver as to one event shall not be construed as continuing or a
bar to or waiver of any right or remedy as to a subsequent event.
(d) The recovery of any judgment by Payee and/or the levy of execution
under any judgment upon any collateral for the Loan shall not effect in any
manner or to any extent the lien of any security interest in any such
collateral, or any rights, remedies or powers of Payee under any documents
evidencing or securing the Loan or with respect to any guaranty or any
such collateral, but such lien and security interests and rights, remedies
and powers of Payee shall continue unimpaired as before. The exercise by
Payee of its rights and remedies and the entry of any judgment by payee
shall not affect in any way the interest rate payable hereunder or any
amounts due to Payee but interest shall continue to accrue on such amounts
at the rate specified herein.
(e) Maker agrees that any action or proceeding against it to enforce
this Note may be commenced in the appropriate Court and Maker waives
personal service process and agrees that a summons and complaint commencing
an action or proceeding in any such court shall be properly served
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<PAGE>
and shall confer personal jurisdiction if served by registered or certified
mail in accordance with the notice provisions set forth herein.
(f) The delivery of notice under this Note or under any other loan
document shall constitute sufficient notice under all the Loan Documents,
and the notice and cure periods provided in this Note and the other Loan
Documents, if any be so provided, shall run concurrently and not
consecutively. Time is of the essence of this Note.
11. COSTS AND EXPENSES. If Payee retains the services of counsel in order
to enforce any remedy available to Payee under any document or instrument
evidencing or securing the Loan, attorney's fees as hereinbefore provided shall
be payable on demand by Maker to Payee, and Maker shall also pay on demand the
cost of any title search and all other costs incurred by Payee in connection
with proceedings to recover any sums due hereunder. Any such amounts not paid
promptly on demand shall be added to the outstanding principal balance of this
Note, shall bear interest at the Default Rate from the date of such demand until
paid in full and shall be secured by the Loan Documents. Maker shall also pay on
demand any reasonable recording and similar costs of Payee in connection with
the cancellation of this Note. Nothing contained in this Section ll shall
limit or impair the obligation of Maker to pay any and all costs and expenses
provided by law.
12. NOTE TAXES, ETC. Maker shall pay the cost of any revenue and personal
property tax, tax, or other stamps now or hereafter required by the laws of the
Commonwealth of Pennsylvania, or the United States to be affixed to this Note.
If Maker does not or may not do so, Payee may at its option accelerate the
indebtedness evidenced by this Note to maturity as in the case of default by
Maker.
13. INTEREST LIMITATIONS; SEVERABILITY.
(a) Nothing herein contained nor any transaction related hereto shall
be construed or shall operate either presently or prospectively to require
Maker to pay interest at the rate greater than is now lawful in such case
to contract for, but shall require payment of interest only to the extent
of such lawful rate. Any interest paid in excess of the lawful rate shall
be refunded to Maker. Such refund shall be made by application of the
excessive amount of interest paid against any sums outstanding hereunder,
and shall be applied in such order as Payee may determine. If the excessive
amount of interest paid exceeds the sums outstanding hereunder, the portion
exceeding the said sums outstanding hereunder shall be refunded in cash by
Payee. Any such crediting or refund shall not cure or waive any default by
Maker hereunder or under the other Loan Documents. Maker agrees, however,
that in determining whether or not any interest payable hereunder exceeds
the highest rate permitted by law, any non-principal payment (except
payments specifically stated herein to be "interest"), shall be deemed, to
the extent permitted by law, to be an expense, fee, premium, or penalty
rather than interest.
(b) In the event that for any reason one more of the provisions of
this Note or their application to any person or circumstances shall be held
to be invalid, illegal or unenforceable in any respect or to any extent,
such provisions shall, to such extent, be held for naught as though not
herein contained but shall nevertheless remain valid, legal and enforceable
in all such other respects and to such extent as may be permissible. In
addition, any such invalidity, illegality or unenforceability shall not
affect any other provisions of this Note, but this Note shall be construed
as if such invalid, illegal or unenforceable provisions had never been
contained herein.
14. NO JOINT VENTURE. Payee shall in no event be construed for any purpose
to be a partner, joint venture or associate of Maker or of any lessee, operator,
concessionaire, or licensee of Maker in the conduct of their respective
businesses.
15. SUCCESSORS AND ASSIGNS. This Note inures to the benefit of Payee, his
heirs, personal representatives and assigns, and its binding upon Maker, its
successors, and assigns and the words "Payee" and "Maker" whenever used herein
shall be deemed and construed to include such respective personal
representatives successors, and assigns.
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16. NOTICES. All notices required to be given to any of the parties
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, or by courier service
with guaranteed overnight delivery, addressed to such party at its address as
set forth in the beginning of this Note. Such notice shall be deemed to be given
when received if delivered personally, or two (2) days after the date deposited
with the United States Postal Service if sent by certified or registered mail,
return receipt requested, or one (1) day after the same is delivered to a
courier service with guaranteed overnight delivery. Any notice of any change in
such address shall also be given in the manner set forth above. Whenever the
giving of notice is required, the giving of such notice may be waived in writing
by the party entitled to receive such notice.
17. DEFINITIONS; NUMBER AND GENDER. In the event Maker consists of more
than one person or entity, the obligations and liabilities hereunder of each of
such persons and entities shall be joint and several and the word "Maker" shall
mean all or some of any of them. For purposes of this Note, the singular shall
be deemed to include the plural and the neuter shall be deemed to include the
masculine and feminine, as the context may require.
18. CAPTIONS. The captions or headings of the sections of this Note are for
convenience only and shall not control or affect the meaning or construction of
any of the terms or provisions of this Note.
19. GOVERNING LAW; AMENDMENT. This Note shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania. This Note may
only be amended by an instrument in writing signed by both Maker and Payee.
20. ADDITIONAL CONSIDERATION; ISSUANCE OF SHARES OF MAKER. In addition to
the payment of all sums due under this Note to Payee, as additional
consideration to Payee for making the Loan to Maker, Maker agrees to issue to
Payee at the closing of this Loan that number of non-restricted and
freely-traded shares of common stock of Maker equal in value to the amount of
the principal due hereunder.
21. SERIES OF NOTES. This Note is one of a series of substantially
identical Notes issued by the Maker on even date herewith. Each individual Note
entitles the Note's Payee to all rights of payment of interest, principal and
late charges in accordance with the amounts set forth in each individual Note.
Each Note shall rank on a pari pasu and pro-rata basis with all other Notes with
respect to the Security Agreement set forth in Section 5. The declaration of an
Event of Default in any single Note shall be considered as an Event of Default
in all other Notes and the rights and remedies set forth in each Note shall be
applied on a pro-rata basis with respect to the relation between the principal
amount of each Note and the amount represented by the total of all of the
principal amounts of all Notes.
22. USE OF PROCEEDS. The use of the proceeds from the issuance of all Notes
shall first be to repay Maker's revolving credit line outstanding with First
Service Bank of Doylestown, Pennsylvania account number 02-50060 in the
approximate amount of $122,603. Any proceeds in excess of this amount not
applied to fully repay the First Service Bank line shall be used for working
capital purposes by Maker. After the First Service Bank has been fully repaid,
Maker shall close the revolving credit line account.
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused
this Note to be duly executed, under seal, the date and year first above
written.
CARDIOVASCULAR LABORATORIES, INC.
BY: /s/ Timothy W. Cunningham
---------------------------
ATTEST: /s/ Paul A. Toomey (CORP SEAL)
------------------------------
6
Amendment #1
to the
Promissory Note Dated 3-30-98
made by
Cardiovascular Laboratories, Inc. of PA
to
F. Stanton Moyer
This Amendment #1 (hereinafter referred to as the "Amendment") to the Promissory
Note dated March 30, 1998 (hereinafter the "Note") between Cardiovascular
Laboratories, Inc. (hereinafter referred to as the "Maker") and F. Stanton Moyer
(hereinafter referred to as, the "Payee") is dated June 10, 1999.
WHEREAS Maker is unable, as of the date of this Amendment, to make payment on
the interest and principal as set forth in the Note; and Maker is thereby in
default of the terms and conditions set forth in the Note; and
WHEREAS Maker is entering into this Amendment to offer Payee incentive to
refrain from enforcing such remedies as the Payee is lawfully entitled to under
the terms of the Note; and
WHEREAS Payee wishes to retain its rights and remedies under the Note; and
WHEREAS Payee wishes to restructure Note to enhance the chance of obtaining
repayment of interest and principal of Note and to obtain such additional
payment as may be available under the terms of this Amendment.
NOW, THEREFORE, in consideration of their mutual covenants, and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Parties hereto, intending to be legally bound, hereby agree to amend the Note as
follows:
1. Interest rate. In accordance with the terms of the Note, the interest rate on
the outstanding unpaid principal amount shall be increased to the Default Rate
(as defined in the original Note) of 11% per annum, which interest shall accrue
from April 1, 1999 until the Maker has paid the outstanding principal in its
entirety.
2. Principal and Interest Payment. Obligations under the Note shall remain
outstanding until repaid in their entirety. The final maturity of the Note shall
be extended to July 1, 2002, with twenty equal principal and interest payments
due on a monthly basis as set forth in Exhibit B. Additionally, any or all
outstanding principal and accrued but unpaid interest shall be eligible for
payment from the Payee's participation in the compensation plan of a proposed
network marketing organization organized to sell nutritional supplements
(hereinafter referred to as the ("NMO") as further described in this Amendment.
3. Network Marketing Organization. Maker and its affiliates intend to launch a
NMO that will consist of the creation of a multi-level marketing distributor
sales force to sell nutritional supplements. Maker represents and Payee
expressly acknowledges that the NMO is not yet established, and may never become
successful enough to repay the principal, and interest on the
<PAGE>
Note. Notwithstanding this fact, however, in an effort to induce the Payee not
to exercise all of its rights and remedies under the terms of the Note, Maker
offers the following additional incentive to Payee:
A. Establishment of NMO. The establishment of NMO shall take place as
soon as Maker is able to do so following the execution of this Amendment.
Maker represents and Payee expressly acknowledges that the establishment
and successful operation of the NMO is subject to inherent uncertainties,
including, but not limited to, the inexperience of Maker in the
establishment and operation of NMO's such as that contemplated by Maker.
B. Establishment of the Compensation Plan. Maker represents and
warrants to Payee that Maker shall ensure that NMO shall have a
compensation plan (the "Compensation Plan") established to compensate
distributors on retail sales of products made by distributors in the NMO.
Such Compensation Plan shall form a means by which Payee may have all
obligations of Maker fulfilled as well as affording Payee the opportunity
to earn additional payments above the full amount of interest and principal
due under the Notes as amended under terms set forth in this Amendment to
compensate Payee for their forbearance in accepting the terms of this
Amendment.
C. NMO Compensation Plan With Respect to Payee. The Compensation Plan
is intended to motivate and incentivize independent distributors to build
their business through revenues generated within their downline multi-level
organization of distributors. The Compensation Plan shall be structured to
permit the Payee to be compensated at 25% of the Presidential Level of the
Compensation Plan. The Presidential Level of the Compensation Plan shall
consist of a 10% override on all net sales made by all distributors in the
NMO. For the Purposes of this Amendment, net sales ("Net Sales") shall
refer to all revenues generated by the NMO for the sale of retail products
within the NMO minus any credits for returned merchandise, credit card
processing fees, distributor commissions, distributor rebates and
royalties. It is expressly represented by Maker and acknowledged by Payee
that this Compensation Plan may require the recruitment of experienced NMO
management and/or capital to launch and grow the NMO, and that such
management or investors may insist on being considered as distributors for
the purposes of calculating Net Sales under this agreement. It is expressly
represented by Maker and acknowledged by Payee that the formation,
operation and success of the NMO is highly dependent on Timothy W.
Cunningham ("Cunningham") and that therefore the Compensation Plan shall
consider Cunningham as a distributor for the purposes of calculating Net
Sales, provided, however, that any compensation received by Cunningham from
NMO retail sales shall not exceed 5% of the Net Sales unless the Payee has
received in excess of $500,000 in cumulative payment from the Compensation
Plan, at which time Cunningham's compensation from the NMO shall be subject
to adjustment by the Board of Directors of Maker at whatever level such
Board believes appropriate given the contribution of Cunningham to the
success of the NMO enterprise.
4. Payee Agrees to Subordinate Notes to DVIBC, No Action. Payee agrees to
subordinate the Note to DVIBC in accordance with Exhibit A, and to execute
Exhibit A as evidence of such subordination. Additionally, the Payee agrees to
take no further action evidencing a default under
2
<PAGE>
the original terms of the Note provided Maker complies with the terms of this
Amendment in its entirety.
5. Descriptive Headings, Arbitration/Jurisdiction of the Court. The headings of
the several paragraphs of this Amendment are inserted for convenience only and
do not constitute a part of this Amendment. Any controversy or claim arising out
of or relating to this Amendment, or the breach thereof, shall be settled by
arbitration in the County of Montgomery, Pennsylvania, USA, in accordance with
the rules of the American Arbitration Association there in effect, except that
the Parties thereto shall have any rights to discovery as would be permitted by
the Federal Rules of Civil procedure and the prevailing Party shall be entitled
to reasonable costs and reasonable attorney's fees from arbitration or any other
civil action. Judgement upon the award rendered therein may be entered in any
Court having jurisdiction thereof. Jurisdiction for any legal action is
stipulated between the Parties to lie in the County of Montgomery, Pennsylvania,
USA.
6. Partial Invalidity. In the event that one or more of the provisions contained
in this Amendment shall be held to be invalid, illegal or unenforceable in any
respect under any law, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
7. Assignability. Except as otherwise provided herein, neither Party may assign
this Amendment or any right or obligation under this Amendment without the prior
written consent of the other Party, and any purported assignment without such
prior written consent shall be void and ineffective.
8. Notice. Any notice required or permitted herein shall be in writing and shall
be deemed to have been properly given if delivered personally, or if sent by
facsimile (with a copy mailed by international air mail or U.S. mail), or if
sent by international registered air mail, return receipt requested, or if sent
by U.S. mail, postage prepaid, return receipt requested, or if sent by overnight
courier in either case properly addressed to the Party notified at the address
set forth below or to the last known address given by such Party to the other
Party:
If to Payee:
If to Maker:
Cardiovascular Laboratories, Inc. of PA
999 Old Eagle School Road - Suite 108
Wayne, PA 19087
9. Entire Amendment/Counterparts. This Amendment constitutes the entire
amendment to the Note as agreed upon between the Parties and cancels and
supersedes any and all existing agreements or arrangements to amend the note by
and between Payee and Maker relating to the subject matter hereof, whether
written or oral, and all such prior agreements or arrangements are hereby deemed
terminated by mutual consent of the Parties. No amendment or modification of
3
<PAGE>
this Amendment shall be deemed effective unless and until executed in writing by
Payee and Maker. This Amendment may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
shall constitute one instrument.
Cardiovascular Laboratories, Inc. of PA
/s/ Timothy W. Cunningham June 9, 1999
- ----------------------------------- --------------------------------------
Timothy W. Cunningham Date signed
F. Stanton Moyer
/s/ F. Stanton Moyer June 10, 1999
- ----------------------------------- ---------------------------------------
Date signed
4
<PAGE>
EXHIBIT A TO AMENDMENT TO NOTE DATED MARCH 30, 1998
SUBORDINATION AGREEMENT
This Subordination Agreement ("Agreement") is made and entered into __________,
1999 between F. Stanton Moyer (hereinafter collectively and individually
referred to as the "Subordinated Creditor"), Cardiovascular Laboratories, Inc.
of PA ("Debtor"), and DVI Business Credit Corporation ("DVIBC"). RECITALS
WHEREAS, Debtor is indebted to Subordinated Creditor; and
WHEREAS, Debtor desires to obtain leases, loans, extensions of credit, and other
financial services from DVIBC; and
WHEREAS, DVIBC is unwilling to extend credit or provide financial services to
Debtor unless Debtor and Subordinated Creditor enters into this Agreement with
DVIBC.
NOW, THEREFORE, for value received and in consideration of the mutual covenants
herein, and to induce DVIBC to extend credit and provide financial services to
Debtor, the parties hereto intend to be legally bound, hereby, do agree as
follows:
AGREEMENT
1. For the purposes of this Agreement the following definitions shall
apply:
1.1 "Junior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to Subordinated Creditor,
whether direct or indirect, absolute or contingent, secured or unsecured, due or
to become due, now existing or hereafter arising, and whether created directly
or acquired indirectly by assignment, pledge, purchase or otherwise and whether
arising in connection with creditors, shareholders, directors or officers'
rights or other rights to distributions, dividends, salaries, bonuses, loan
payments, note payments, professional fees, management fees, or compensation of
any nature whether matured or not, together with all interest, fees, charges,
expenses and attorneys' fees for which Debtor is now or hereafter becomes liable
to pay to Subordinated Creditor under any agreement or by law.
1.2 "Senior Debt" means all loans, advances, liabilities, debit balances,
covenants and duties at any time owed by Debtor to DVIBC, whether direct or
indirect, absolute or contingent, secured or unsecured, due or to become due,
now existing or hereafter arising, including without limitation any debt,
liability or obligation owing from Debtor to others which DVIBC may have
obtained by assignment, pledge, purchase or otherwise, together with all
interest, fees, charges, expenses and attorneys' fees for which Debtor is now or
hereafter becomes liable to pay to DVIBC under any agreement or by law, and
including all deferrals, renewals, extensions, refundings and refinancings, in
whole or in part of any of the foregoing.
2. Subordinated Creditor hereby postpones and subordinates, to the extent
and in the manner provided in this Agreement, all of the Junior Debt, to the
payment of all of the Senior Debt. If Debtor issues or has issued any instrument
or document evidencing the Junior Debt, each such instrument and document
shall bear a conspicuous legend that it is subordinated to the Senior Debt. All
instruments and documents evidencing the Junior Debt shall upon request be
delivered DVIBC properly assigned or endorsed to DVIBC.
3. Subordinated Creditor agrees not to sue upon, or to collect, or to
receive payment upon, by setoff in any other manner, the Junior Debt, now or
hereafter existing, nor to sell, assign, transfer, pledge, or give a security
interest in the Junior Debt (except subject expressly to this Agreement), nor to
enforce or apply any security now or hereinafter existing, nor to join in any
petition to bankruptcy or any assignment for the benefit of creditors, or any
creditors agreement, not to take any lien or security on Debtor's property real
or personal, nor to incur any obligations nor to receive distributions except as
provided in Section 4 below, any lows, advances or gifts from Debtor, so long as
any Senior Debt shall exist or so long as DVIBC is committed or otherwise
obligated to make any loan to or grant any credit to Debtor.
4. All Senior Debt now or hereafter existing shall be first paid by Debtor
before any payment shall be made by Debtor to Subordinated Creditor on the
Junior Debt; provided, however that so long as (a) no Event of Default, or any
event which with the giving of notice or lapse of time (or both) would
constitute an Event of Default (as defined in any agreement evidencing any
Senior Debt) exists with respect to any Senior Debt; or (b) such payment will
not cause such an Event of Default, or otherwise render Debtor unable to pay the
Senior Debt, Debtor may pay valid claims owing to Subordinated Creditor incurred
in the ordinary course of business in accordance with the terms of that certain
Promissory Note of Debtor payable to Subordinated Creditor in the original
principal amount of $50,000, dated as of March 30, 1998 (which shall not be
modified without DVIBC's written consent thereto), but not by prepayment,
acceleration or otherwise.
5. The priority of payment set forth in Section 4 above shall apply during
the ordinary course of Debtor's business and in case of any assignment by Debtor
for the benefit of Debtor's creditors, and in case of any bankruptcy proceedings
instituted by or against Debtor's assets, and in case of any dissolution or
other winding up of the affairs of Debtor, or of Debtor's business, and in all
such cases respectively, the officers of Debtor and any assignee, trustee in
bankruptcy, receiver, and other person or persons in charge are hereby
1
<PAGE>
directed to pay DVIBC the full amount of any Senior Debt before making any
payments to Subordinated Creditor, and so far as may be necessary for that
purpose, Subordinated Creditor hereby transfers, assigns and grants to DVIBC a
security interest in all of its interests and rights in and to the Junior Debt.
6. If Debtor defaults at any time under any agreement evidencing any Senior
Debt, and if Debtor has at any time from the inception of any such agreement
made any payment to Subordinated Creditor, Subordinated Creditor will be fully
liable for any and all loss or damage incurred by DVIBC as a result of Debtor's
default under such agreement up to the amount of any and all payments received
by Subordinated Creditor. DVIBC is hereby irrevocably constituted and appointed
the attorney-in-fact of Subordinated Creditor to file any and all proofs of
claim and any other documents and to take all other action, either in DVIBC's
name, or in the name of the Subordinated Creditor, which in DVIBC's opinion is
necessary or desirable to enable DVIBC to obtain such payments.
7. No subordination of any Junior Debt has previously been executed by
Subordinated Creditor for the benefit of anyone else and any such subordinations
hereafter executed will be and shall be expressed to be subject and subordinate
to the effect hereof. This Agreement shall be continuing in effect, it shall not
be cancelled or otherwise rendered ineffective by the payment or discharge at
any time of the Senior Debt, and it shall apply to any and all Senior Debt
subsequently granted, renewed or extended by DVIBC for Debtor, unless
Subordinated Creditor shall deliver to DVIBC a written notice of revocation as
to future transactions at a time when Debtor is no longer obligated to DVIBC in
any way and while DVIBC is not committed to or otherwise obligated to make any
leases, loans or other financial accommodations to Debtor.
8. Subordinated Creditor hereby further agrees that Subordinated Creditor
shall not permit Debtor to: (i) make payment to any of the other parties
constituting a relative, affiliate or related in any way to Subordinated
Creditor contrary to the terms of this Agreement, including, without limitation,
payment of any distribution, professional fees, salary, bonus or other form of
compensation to Subordinated Creditor; and (ii) make payment to any other party
other than DVIBC in satisfaction of any Senior Debt and any other obligations as
may be owing to DVIBC from time to time except as may otherwise be consented to
by DVIBC in writing.
9. THE CONSTRUCTION, INTERPRETATION, VALIDITY AND ENFORCEABILITY OF THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS BY THE LAWS OF THE STATE OF
CALIFORNIA. SUBORDINATED CREDITOR AGREE TO SUBMIT TO THE JURISDICTION AND VENUE
OF THE STATE AND THE FEDERAL COURTS IN CALIFORNIA. In any action, suit,
arbitration, or mediation relating to the enforcement of this Agreement the
prevailing party shall be entitled to recover its costs and expenses including
reasonable attorneys' fees.
10. This Agreement may be signed in any number of counterparts, each of
which will constitute an original, and all of which, taken together, shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written.
DEBTOR:
CARDIOVASCULAR LABORATORIES, INC. OF PA DVI BUSINESS CREDIT CORPORATION
By: /s/ Timothy W. Cunningham By:
--------------------------------- ------------------------------
Name: Timothy W. Cunningham Name:
--------------------------------- ----------------------------
Title: Chairman Title:
--------------------------------- ---------------------------
SUBORDINATED CREDITOR:
F. STANTON MOYER
By: /s/ F. Stanton Moyer
---------------------------------
2
<PAGE>
Exhibit B to Amendment to Note Dated 3-30-98
Amortization Schedule
<TABLE>
<CAPTION>
Interest on
Accrued Outstanding Accrued Payment of Principal Total
Principal Interest Principal Interest Accrued P&I Balance Balance Payment
--------- -------- ----------- -------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5/1/99 25000 229.17 12/1/00 25000.00 4354.17 1467.71 27886.46 229.17 1696.88
6/1/99 25000 229.17 1/1/01 23750.00 4136.46 1467.71 26418.75 217.71 1685.42
7/31/99 25000 229.17 2/1/01 22500.00 3918.75 1467.71 24951.04 206.25 1673.96
8/1/99 25000 229.17 3/1/01 21250.00 3701.04 1467.71 23483.33 194.79 1662.50
9/1/99 25000 229.17 4/1/01 20000.00 3483.33 1467.71 22015.63 183.33 1651.04
10/1/99 25000 229.17 5/1/01 18750.00 3265.63 1467.71 20547.92 171.88 1639.58
11/1/99 25000 229.17 6/1/01 17500.00 3047.92 1467.71 19080.21 160.42 1628.13
12/1/99 25000 229.17 7/1/01 16250.00 2830.21 1467.71 17612.50 148.96 1616.67
1/1/00 25000 229.17 8/1/01 15000.00 2612.50 1467.71 16144.79 137.50 1605.21
2/1/00 25000 229.17 9/1/01 13750.00 2394.79 1467.71 14677.08 126.04 1593.75
3/1/00 25000 229.17 10/1/01 12500.00 2177.08 1467.71 13209.38 114.58 1582.29
4/1/00 25000 229.17 11/1/01 11250.00 1959.38 1467.71 11741.67 103.13 1570.83
5/1/00 25000 229.17 12/1/01 10000.00 1741.67 1467.71 10273.96 91.67 1559.38
6/1/00 25000 229.17 1/1/02 8750.00 1523.96 1467.71 8806.25 80.21 1547.92
7/1/00 25000 229.17 2/1/02 7500.00 1306.25 1467.71 7338.54 68.75 1536.46
8/1/00 25000 229.17 3/1/02 6250.00 1088.54 1467.71 5870.83 57.29 1525.00
9/1/00 25000 229.17 4/1/02 5000.00 870.83 1467.71 4403.13 45.83 1513.54
10/1/00 25000 229.17 5/1/02 3750.00 653.12 1467.71 2935.42 34.38 1502.08
11/1/00 25000 229.17 6/1/02 2500.00 435.42 1467.71 1467.71 22.92 1490.63
4354.17 7/1/02 1250.00 217.71 1467.71 0.00 11.46 1479.17
</TABLE>
LOAN AND SECURITY AGREEMENT
Loan No.: 99-05-145
Client Code: "CLI"
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated and effective as of
June 30, 1999 ("Effective Date") by and between DVI Business Credit Corporation,
a Delaware corporation ("Lender"), and Cardiovascular Laboratories, Inc. of PA,
a Pennsylvania corporation ("Borrower").
SECTION 1
DEFINITIONS
Section 1.1. Specific Definitions The following definitions shall apply:
(a) "Account Debtors" shall mean Borrower's customers and all other persons
who are obligated or indebted to Borrower in any manner, whether directly or
indirectly, primarily or secondarily, contingently or otherwise, with respect to
Accounts.
(b) "Accounts" means all accounts, accounts receivable, monies and debt
obligations in any form owing to Borrower (whether arising in connection with
contracts, contract rights, instruments, general intangibles or chattel paper)
arising out of the rendition of services by Borrower whether or not earned by
performance and all other amounts due under any contract listed on Schedule 6.1.
(c) "Advance" shall mean an advance of loan proceeds constituting all or a
part of the Loan.
(d) "Borrower's Books" shall mean all of Borrower's books and records
including but not limited to: minute books, ledgers; records indicating,
summarizing or evidencing Borrower's assets, liabilities and the Accounts; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs and other
computer-prepared information and the equipment containing such information;
provided, however, that confidential patient records shall not be included
therein, except to the extent otherwise provided by law.
(e) "Borrowing Base" shall mean, on the date of determination thereof, an
amount equal to the sum of eighty percent (80%) of the Net Collectible Value for
each type of Eligible Account.
(f) "Closing Date" shall mean the date of the first Advance of the Loan.
(g) "Collateral" shall have the meaning specified in Section 3.1 hereof.
(h) "Commitment Amount" shall have the meaning set forth in Section 2.1.
(i) "Distribution" shall mean, with respect to any shares of capital stock
or any warrant or right to acquire shares of capital stock or any other equity
security, (i) the retirement, redemption, purchase or other acquisition,
directly or indirectly, for value by the issuer of any such security, except to
the extent that the consideration therefor consists of shares of stock, (ii) the
declaration or (without duplication) payment of any dividend in cash, directly
or indirectly, on or with respect to any such security, (iii) any investment in
the holder of five percent (5%) or more of any such security if a purpose of
such investment is to avoid characterization of the transaction as a
Distribution, and (iv) any other cash payment constituting a distribution under
applicable laws with respect to such security.
(j) "Eligible Accounts" shall mean Borrower's accounts receivable from
commercial insurance, Medicare, Medicaid, HMO/PPO payors, and industrial
authorized (collectively referred to as "Retail Accounts"), which have been due
and payable for one hundred twenty (120) or fewer days from the date of service,
and Borrower's accounts receivable under contracts with hospitals, nursing homes
and other similar health service providers (referred to as "Institutional
Accounts") which have been due and payable for one hundred twenty (120) or fewer
days from the date of service.
1
<PAGE>
(k) "Eligible Payor" shall mean the obligor of an Eligible Account.
(l) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all references to sections thereof shall include such sections and
any predecessor provisions thereto, including any rules or regulations issued in
connection therewith.
(m) "Event of Default" shall have the meaning specified in Section 10
hereof.
(n) "GAAP" means generally accepted accounting principles set forth in the
opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants and/or in statements of the Financial Accounting
Standards Board, consistently applied.
(o) "Governmental Authority" shall mean any governmental or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality thereof, or any court, tribunal, grand jury or
arbitrator, in any case whether foreign or domestic.
(p) "Health Care Laws" shall mean all federal, state and local laws
specifically relating to health care providers and health care services,
including, but not limited to, Section 1877(a) of the Social Security Act as
amended by the Omnibus Budget Reconciliation Act of 1993, 42 USC ss. 1395nn.
(q) "Indebtedness" of a Person shall mean (i) all items (except items of
capital stock, capital or paid-in surplus or of retained earnings) which, in
accordance with GAAP, would be included in determining total liabilities as
shown on the liability side of the balance sheet of such Person as of the date
as of which Indebtedness is to be determined, including any lease which, in
accordance with GAAP would constitute indebtedness; (ii) all indebtedness
secured by any mortgage, pledge, security, lien or conditional sale or other
title retention agreement to which any property or asset owned or held by such
Person is subject, whether or not the indebtedness secured thereby shall have
been assumed; and (iii) all indebtedness of others which such Person has
directly or indirectly guaranteed, endorsed (otherwise than for the collection
or deposit in the ordinary course of business), discounted or sold with recourse
or agreed (contingently or otherwise) to purchase or repurchase or otherwise
acquire, or in respect of which such Person has agreed to supply or advance
funds (whether by way of loan, stock or equity purchase, capital contribution or
otherwise) or otherwise to become directly or indirectly liable.
(r) "Lender Expenses" shall mean (i) all costs or expenses (including,
without limitation, taxes and insurance premiums) required to be paid by
Borrower under this Agreement or under any of the other Loan Documents that are
paid or advanced by Lender; (ii) filing, recording, publication and search fees
paid or incurred by Lender in connection with Lender's transactions with
Borrower; (iii) costs and expenses incurred by Lender to correct any Event of
Default or enforce any provision of the Loan Documents or in gaining possession
of, maintaining, handling, preserving, storing, shipping, selling, and preparing
for sale or advertising to sell the Collateral, whether or not a sale is
consummated, after the occurrence of an Event of Default; (iv) costs and
expenses of suit incurred by Lender in enforcing or defending the Loan Documents
or any portion thereof, (v) costs and expenses incurred by Lender to convert any
data submitted to Lender by Borrower to an acceptable form; and (vi) Lender's
reasonable attorney fees and expenses incurred (before or after execution of
this Agreement) in advising Lender with respect to, or in structuring, drafting,
reviewing, negotiating, amending, terminating, enforcing, defending or otherwise
concerning, the Loan Documents or any portion thereof, irrespective of whether
suit is brought.
(s) "Lien" shall mean any security interest, mortgage, pledge, assignment,
lien or other encumbrance of any kind, including any interest of a vendor under
a conditional sale contract or consignment and any interest of a lessor under a
capital lease.
(t) "Lien Receivable" shall mean an Eligible Receivable arising out of a
worker's compensation or personal injury claim as to which the liability of a
commercial insurance company which is an Eligible Payor is being disputed,
litigated or contested and which will be payable by such Eligible Payor if the
outcome of the dispute, litigation or contest upholds the liability of such
Eligible Payor.
(u) "Loan" shall mean each loan or any other loan or loans made by Lender
to Borrower pursuant to this Agreement.
2
<PAGE>
(v) "Loan Availability" shall mean the lesser of (a) the Commitment Amount
or (b) the Borrowing Base minus the aggregate Advances and other Obligations
outstanding under this Agreement.
(w) "Loan Documents" shall mean (i) this Agreement; (ii) the Note; (iii)
any other agreements or documents hereafter delivered to secure repayment of the
Loan; (iv) the Lock Box Agreement and (v) any other certificates, documents,
instruments, or financing statements delivered by Borrower to Lender pursuant to
the terms of this Agreement.
(x) "Lock Box Agreement" shall mean those certain Lock Box Agreements
between Borrower and lock box servicer(s) ("Servicer(s)") chosen by Lender and
Borrower and the letter of instructions with respect thereto among Lender,
Borrower and Servicer.
(y) "Net Collectible Percentage" shall mean the percentages described on
Exhibit A attached hereto. The Net Collectible Percentage may change from time
to time in Lender's sole and absolute discretion, written notification of which
shall be given to Borrower by Lender.
(z) "Net Collectible Value" shall mean, for each type of Eligible Account,
the Net Collectible Percentage times the aggregate current outstanding amount
for such type of Eligible Account.
(aa) "Note" shall mean the Secured Promissory Note executed by Borrower
pursuant to the terms of this Agreement.
(bb) "Obligations" means (i) all obligations (monetary or otherwise) of
Borrower arising under or in connection with this Agreement, the Note and all
other Loan Documents.
(cc) "Permitted Liens" shall mean (i) Liens for property taxes and
assessments or governmental charges or levies and Liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not yet
due or is being contested as permitted in this Agreement; (ii) Liens of or
resulting from any judgment or award, the time for the appeal or petition for
rehearing of which has not expired, or in respect of which Borrower is in good
faith prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review has been secured;
(iii) Liens and priority claims incidental to the conduct of business or the
ownership of properties and assets (including warehouse's and attorney's Liens
and statutory landlord's Liens); deposits, pledges or Liens to secure the
performance of bids, tenders, or trade contracts, or to secure statutory
obligations; and surety or appeal bonds or other Liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided that in each case the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate actions
or proceedings; and further provided that any such warehouse's or statutory
landlord's Liens have been subordinated to the Liens of Lender in a manner
satisfactory to Lender; and (iv) Liens existing on the date of this Agreement
that secure Indebtedness of Borrower outstanding on such date and that are
disclosed on Schedule 1.1 hereto;
(dd) "Person" shall mean an individual, corporation, partnership, limited
liability company, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), Governmental Authority
or any other entity.
(ee) "Proceeds" shall mean all proceeds and products of Collateral and
documents covering Collateral; all property received wholly or partly in trade
or exchange for Collateral; all claims against third parties arising out of
damage, destruction or decrease in value of the Collateral; all leases of
Collateral; and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection or any other temporary or
permanent disposition of the Collateral or any interest therein.
(ff) "Reference Rate" means the variable rate of interest, per annum,
published by The Wall Street Journal as the "Prime Rate". The Reference Rate is
nothing more nor less than an index for determining the interest rate payable
under the terms of this Agreement. The Reference Rate is not necessarily the
lowest or best rate actually charged by Lender to any customer. In the event The
Wall Street Journal ceases to publish the "Prime Rate", Lender may substitute
any similar index for the Reference Rate.
3
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(gg) "Subordinate Obligations" shall mean all Indebtedness of Borrower
subordinated to the Obligations pursuant to subordination and/or intercreditor
agreements in form satisfactory to Lender.
(hh) "Termination Date" shall mean the last day of any term as to which a
written notice of nonrenewal pursuant to Section 2.7 has been received.
(ii) "Unmatured Default" shall mean any event or condition that, with
notice, passage of time, or a determination by Lender or any combination of the
foregoing would constitute an Event of Default.
Section 1.2. Generally Accepted Accounting Principles and Uniform
Commercial Code All financial terms used in this Agreement, other than those
defined in this Section 1, have the meanings accorded to them under GAAP. All
other terms used in this Agreement, other than those defined in this Section 1,
have the meanings accorded to them in the Uniform Commercial Code as enacted in
any applicable jurisdiction ("UCC").
Section 1.3. Construction
(a) Unless the context of this Agreement clearly requires otherwise, the
plural includes the singular, the singular includes the plural, the part
includes the whole, "including" is not limiting, and "or" has the inclusive
meaning of the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder" and other similar terms in this Agreement refer to this Agreement as
a whole and not exclusively to any particular provision of this Agreement.
(b) Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Lender or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has been reviewed by
each of the parties and its counsel and shall be construed and interpreted
according to the ordinary meaning of the words used so as to accomplish the
purposes and intentions of all parties hereto fairly.
SECTION 2
LOAN
Section 2.1. The Loan Subject to the terms and conditions and relying on
the representations and warranties set forth herein, Lender agrees to make
Advances to Borrower from time to time in an aggregate amount not to exceed the
lesser of (i) One Million Dollars ($ 1,000,000) (the "Commitment Amount"), or
(ii) the Borrowing Base. Within the limits of the Loan Availability, Borrower
may borrow, make repayments pursuant to Section 2.4 and reborrow. If, at any
time, the aggregate Advances and other Obligations outstanding exceed the then
Loan Availability, then Borrower shall pay to Lender a sum sufficient to reduce
the Advances and other Obligations outstanding to an amount not greater than the
Loan Availability. Lender's commitment to make Advances shall expire, and the
amount of the Loan then outstanding shall mature and be repaid by Borrower,
without further action on the part of Lender, on the Termination Date.
Section 2.2. Note All Loans made by the Lender under this Agreement shall
be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in substantially the form of Exhibit B duly
completed, in the original principal amount equal to the initial Commitment
Amount, dated the Effective Date, payable to the Lender and maturing as to
principal on the Termination Date (the "Note"). The amount of each Advance and
payment of principal amount received by the Lender shall be recorded in the
books and records of the Lender, which books and records shall, in the absence
of manifest error, be conclusive as to the outstanding balance of and other
information related to the Loan. Lender shall be entitled at any time to endorse
on a schedule attached to the Note the amount and type of each Advance and
information relating thereto.
Section 2.3. The Borrowing Base On a weekly basis the Borrowing Base will
be recalculated by adding weekly billings to the prior week's Eligible Accounts
and subtracting deposits and adjustments, if applicable, and then multiplying
this amount by the Net Collectible Percentage. The Borrowing Base shall be
calculated on the basis of the reports delivered to Lender pursuant to Section
5.4.
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Section 2.4. Notice of Borrowing Whenever Borrower desires to borrow under
Section 2.1, Borrower shall deliver to Lender a Drawdown Request Form, in a form
reasonably satisfactory to Lender, signed by an authorized officer no later than
2:00 p.m. Pacific Standard Time at least one (1) business day in advance of the
proposed funding date. The Drawdown Request Form shall specify (i) the funding
date (which shall be a business day) with respect to the requested Loan and (ii)
the amount of the proposed Advance.
Section 2.5. Use of Proceeds The proceeds of the Loan shall be used by
Borrower to payoff an existing debt with Prime Bank and to provide working
capital.
Section 2.6. Loan Repayment Via Lock Box/Servicer Account. Upon the
execution hereof, Borrower shall become a party to the Lock Box Agreement which
provides for the receipt and processing of Account payments. Borrower shall
irrevocably direct: (i) all nongovernment payors to remit payment to the
Servicer's post office box in Lender's name and control, and (ii) all government
payors to remit payment to a second post office box of such Servicer in
Borrower's name. Prior to funding and upon receipt of the lock box post office
box number(s), Borrower shall provide Lender re-direct letters (in a form
satisfactory to Lender) to all of Borrower's payors on Borrower's letterhead,
including envelopes for Lender to process and mail (Lender will add postage
which shall be charged to Borrower). The Lock Box Agreement provides for the
Servicer to deposit daily all receipts of the post office boxes into deposit
accounts, with non-government payor receipts paid into an account subject to
Lender's control and, government payor receipts paid into an account in
Borrower's name; such accounts shall be (i) at a financial institution
acceptable to Lender, and (ii) governed by terms and conditions acceptable to
Lender. Borrower agrees and acknowledges that all government payor receipts will
be immediately transferred to an account in the name and control of Lender. Upon
collectibility, deposits (net of fees) shall be applied to reduce the Loan
balance including Advances, interest, fees, all charges and other payments, if
applicable. Deposits/receipts will reduce the Borrowing Base in accordance with
Section 2.3 above. Any receipts (net of such Servicer's fees) remaining after
all such payments to Lender will be paid to Borrower within 24 hours of
availability. Borrower shall bear all charges for establishing and maintaining
the post office box accounts and all bank charges for such deposit accounts.
Lender shall deduct from the deposit accounts all sums Borrower owes to it
hereunder, including fees, interest, reimbursements and principal payments. Any
Obligations not paid by such deduction shall be satisfied by direct payment to
Lender at 4041 MacArthur Blvd., Suite 401, Newport Beach, California 92660. Any
amounts hereunder not paid as agreed shall be assessed a late payment penalty of
five percent (5%).
Section 2.7. Term of Agreement. The term of this Agreement is two (2) years
from the Effective Date ("Initial Term") and is non-cancelable. This Agreement
shall be renewed for consecutive one (1) year terms ("Additional Term") unless
this Agreement is terminated, effective as of the last day of a term, by written
notice by Lender or Borrower no later than thirty (30) days before the
expiration of such term. All of Lender's obligations, responsibilities and
duties shall cease upon the date of termination of this Agreement, except for
its obligation to remit excess receipts from the lock box deposit accounts in
accordance with the terms of this Agreement. To the extent this Agreement is
renewed after the Initial Term, regardless of the length of the renewal period,
Borrower shall pay Lender a renewal fee equal to one percent (1.0%) of the
Commitment Amount at the time of the renewal.
Section 2.8. Lender's Fees Upon execution hereof, Lender shall be entitled
to an origination fee equal to one percent (1.0%) of the Commitment Amount, less
$7,500 currently on deposit. Increases to the Commitment Amount during the term
will be charged on the incremental increase at the same origination percentage.
On or before the first day of each month following the Effective Date, Borrower
shall pay Lender a monthly maintenance fee of Eight Hundred Fifty Dollars
($850). Increases to the Commitment Amount during the term will be charged an
incremental increase in the monthly maintenance fee proportionate to the
percentage increase in the Commitment Amount, On or before the first day of each
month following the Effective Date, Borrower shall pay Lender an unutilized loan
fee equal to one half of one percent (.50%) of the difference between the
Commitment Amount and the average outstanding Loan amount as of the previous
month. Lender's fees will be deducted, when due, directly from receipts
deposited accordance with Section 2.6. Unutilized loan fee equal to .50% per
year.
Section 2.9 Audit Fees. Borrower shall pay Lender an audit fee in an amount
equal to Five Hundred Dollars ($500) per auditor per day plus out of pocket
expenses for each audit of Borrower performed by Lender subsequent to the
Closing Date hereunder.
Section 2.10. Interest on the Loans All Advances shall bear interest on the
unpaid principal amount thereof from the date made until paid in full at a
fluctuating rate equal to the Reference Rate plus three percent (3.0%) per
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annum. Interest shall be payable monthly in arrears on the first day of each
month for the preceding month. Interest shall be calculated on the basis of a
year of 360 days, but for the actual number of days elapsed. Interest accrued
but not paid pursuant to Section 2.6 shall be treated as an Advance if not
otherwise paid within five (5) days of the end of the month in which it accrues.
Section 2.11. Conditions to the Closing Lender's obligation to make the
initial Advance hereunder on the Closing Date is subject to Lender's
determination that Borrower as of the date of the Advance has satisfied, and
continues to satisfy, the following conditions:
(a) The representations and warranties set forth in this Agreement and in
the other Loan Documents shall be true and correct on and as of the date hereof
and shall be true and correct in all material respects as of the Closing Date
and Borrower shall have performed all obligations which were to have been
performed by it hereunder.
(b) Borrower shall have executed and delivered to Lender (or shall cause to
be executed and delivered to Lender by the appropriate Persons) the following:
(i) this Agreement;
(ii) the Note;
(iii) UCC-1 Financing Statements;
(iv) the Lock Box Agreement;
(v) Payor redirect letters;
(vi) pay-off letters, UCC Termination Statements and Lien Releases
as required to grant Lender a first priority security interest other than
Permitted Liens in Collateral pledged as security for repayment of the Loan;
(vii) certified copies of resolutions of the Board of Directors of
Borrower authorizing the execution and delivery of Loan Documents to be executed
by Borrower;
(viii) copies of the Articles of Incorporation of Borrower certified
by the Secretary of State of the applicable issuing state;
(ix) a certificate from an officer of Borrower indicating that the
representations and warranties contained herein are true and correct as of the
Closing Date;
(x) the Healthcare Technology Solutions Inc. Financial Control
System Windows NT Version Host System Questionnaire;
(xi) copies of Borrower's March, 1999 internal financial statement
and Borrower's final fiscal year end December, 1998 financial statement audited
by a certified public accounting firm showing an unqualified opinion;
(xii) original fully executed Lien Subordination and Intercreditor
Agreement among Rockford Industries, Inc., Chase Bank of Texas, N.A., and
Lender, acceptable to Lender;
(xiii) a Subordination Agreement executed by James W. Porter, Jr.
("Porter"), acceptable to Lender, which subordinates the promissory note dated
March 30, 1998, between Cardiovascular Laboratories, Inc. and Porter and in the
amount of $50,000;
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(xiv) a Subordination Agreement executed by Anchor Investment
Partnership, Ltd. ("Anchor"), acceptable to Lender, which subordinates the
promissory note dated March 30, 1998, between Cardiovascular Laboratories, Inc.
and Anchor in the amount of $50,000;
(xv) a Subordination Agreement executed by F. Stanton Moyer ("Moyer"),
acceptable to Lender, which subordinates the promissory note dated March 30,
1998, between Cardiovascular Laboratories, Inc. and Moyer in the amount of
$25,000;
(xvi) the Unconditional Continuing Guaranty of Cardiovascular
Laboratories, Inc. ("Guarantor") the parent corporation of Borrower; and
(xvii) TRW reports on all key officers and owners of Borrower.
(c) Neither an Event of Default nor an Unmatured Default shall have
occurred and be continuing as of the Closing Date.
(d) Borrower or Guarantor shall not have suffered a material adverse change
in its business, operations or financial condition from that reflected in the
financial statements of Borrower or Guarantor delivered to Lender or otherwise.
(e) Lender shall have received such additional supporting documents,
certificates and assurances as Lender shall reasonably request which shall be
satisfactory to Lender in form and substance.
Section 2.12. Additional Conditions to Advances Lender's obligation to make
any Advance hereunder after the Closing Date is subject to Lender's
determination that neither an Event of Default nor an Unmatured Default shall
have occurred and be continuing as of the date of such Advance.
Section 2.13. Post Closing Not later than thirty (30) days after the
Effective Date hereof, Borrower shall have established an interface,
satisfactory to Lender, with DVI Healthcare Technology Solutions ("HTS") (the
Accounts data maintenance service of Lender).
SECTION 3
SECURITY INTEREST
Section 3.1. Grant of Security Interest In order to secure prompt payment
and performance of all Obligations, Borrower hereby grants to Lender a
continuing first-priority pledge and security interest in all of Borrower's:
(i) present and future Accounts, contracts, contract rights, chattel paper,
instruments, documents, security agreements, and general intangibles;
(ii) deposit accounts, credit insurance, guaranties, and letters of credit;
(iii) deposits, reserves, Medicare or Medicaid pools, cost report settlements,
prospective payments, adjustments and incentive payments of any kind;
(iv) inventory, equipment and fixtures; (v) attachments, accessories,
accessions, returns, repossessions, exchanges, substitutions and replacements
thereto; (vi) Borrower's Books related to the foregoing; and (vii) any Proceeds
thereof and any and all security for any of the foregoing; all whether now owned
or existing or hereafter acquired or arising and regardless of where located
(collectively, the "Collateral"). This security interest in the Collateral shall
attach to all Collateral without further action on the part of Lender or
Borrower.
SECTION 4
SPECIFIC REPRESENTATIONS
Section 4.1. Name of Borrower
(a) The exact name of Borrower is Cardiovascular Laboratories, Inc. of
PA. Borrower was organized under the laws of the State of Pennsylvania. The
following are all previous legal names of Borrower:
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Borrower uses the following trade names: See attached Schedule 4. 1. The
following are all other trade names used by Borrower in the past:
Section 4.2. Mergers and Consolidations Except as disclosed on Schedule
4.2, no entity has merged into any of Borrower or been consolidated with
Borrower.
Section 4.3. Purchase of Assets Except as disclosed on Schedule 4.3 no
entity has sold substantially all of its assets to Borrower or sold assets to
Borrower outside the ordinary course of such seller's business at any time in
the past.
Section 4.4. Change of Name or Identity Borrower shall not change its name,
business structure or identity or use a new trade name without prior
notification to Lender or merge into or consolidate with any other entity.
SECTION 5
PROVISIONS CONCERNING ACCOUNTS
Section 5.1. Office and Records of Borrower Borrower's chief executive
offices are located at: 999 Old Eagle School Rd., Ste 108, Wayne PA 19087
Borrower maintains all of its records with respect to Accounts at 999 Old Eagle
School Rd., Ste 108, Wayne PA 19087. Borrower has not at any time within the
past four (4) months maintained their chief executive office or their records
with respect to Accounts at any other location and shall not do so hereafter
except with the prior wrItten consent of Lender.
Section 5.2. Representations Borrower represents and warrants that each
Account at the time of its assignment to Lender (a) will be owned solely by
Borrower, (b) will be for a liquidated amount maturing as stated in Borrower's
Books; (c) will be a bona fide existing obligation created by the rendition of
services to Account Debtors or their insured by Borrower in the ordinary course
of its business; (d) will not have been satisfied, subordinated or rescinded;
(e) except for Lien Receivables, will be the primary liability of an Eligible
Payor and will be recognized by the Eligible Payor as its primary liability; (f)
will be payable only in lawful currency of the United States; (g) will not be
subject to any known deduction, offset, counterclaim, return privilege, or other
condition, except as reflected on Borrower's Books; and (h) will be an "account"
within the meaning of the UCC and will not be evidenced by an "instrument"
within the meaning of the UCC. Borrower represents and warrants that at the time
of its assignment of each Account to Lender, Borrower has no knowledge of any
fact which should lead it to expect that the Net Collectible Value of such
Eligible Account would not be paid in full. Borrower shall neither redate any
invoices nor reissue new invoices in full or partial satisfaction of old
invoices. Allowances, if any, as between Borrower and its customers will be on
the same basis and in accordance with the usual customary practices of Borrower
as they exist on the date of this Agreement.
Section 5.3. Returns and Repossessions Borrower shall notify Lender within
five (5) business days of occurrence of all material claims asserted by Account
Debtors.
Section 5.4. Borrowing Base Reports Borrower shall on a weekly basis
deliver to Lender by Internet E-Mail or in a computer disc or tape format
acceptable to Lender, in form and content satisfactory to Lender (i) a Borrowing
Base report updated to reflect billings, adjustments and deposits; (ii) a
summary by payor class aging of Accounts; (iii) a charges, collections and
adjustment summary for the week; and (iv) all of Borrower's accounts receivable
data in a computer disc or tape format acceptable to Lender. On a monthly basis,
and no later than the 10th day of each month, Borrower shall submit by Internet
E-Mail or in a computer disc or tape format acceptable to Lender, and in form
and content satisfactory to Lender (i) a month-end Borrowing Base Report; (ii) a
detailed accounts receivable aging report as of the last day of the preceding
month; (iii) charges, collections and adjustments summary for the preceding
month; and (iv) a payor concentration schedule. Lender shall periodically review
Borrower's actual billings, adjustments and cash receipts, as well as Borrower's
payor profile. To the extent Borrower's method of handling billings, collections
and adjustments changes and/or Borrower's payor profile materially changes,
Lender may, in its sole discretion, change the Net Collectible Percentage
attributable to each type of Account by written notice to Borrower of such
change.
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Section 5.5. Compliance Certificate. With each final month-end Borrowing
Base report which Borrower delivers to Lender, Borrower also shall deliver to
Lender a Compliance Certificate in the form of Exhibit C attached hereto, which
Compliance Certificate shall be completed and signed by an officer of Borrower.
Section 5.6. Lender's Rights Any officer, employee or agent of Lender shall
have the right, at any time or times hereafter, in the name of Lender or its
nominee (including Borrower), to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone or otherwise; and all reasonable
costs thereof shall be payable by Borrower to Lender. Lender, or its designee
may at any time after default by Borrower hereunder notify customers or Account
Debtors that Accounts have been assigned to Lender or of Lender's security
interest therein and after default by Borrower hereunder collect the same
directly and charge all reasonable collection costs and expenses to Borrower's
account.
Section 5.7. Disclaimer of Liability Lender shall not be liable to Borrower
or any third person for the correctness, validity or genuineness of any
instruments or documents released or endorsed to Borrower by Lender (which shall
automatically be deemed to be without recourse to Lender in any event) or for
the existence, character, quantity, quality, condition, value or delivery of any
goods purporting to be represented by any such documents; and Lender, by
accepting a Lien on the Collateral or by releasing any Collateral to Borrower,
shall not be deemed to have assumed any obligation or liability to any supplier
or creditor of Borrower or to any other third party. Borrower agrees to
indemnify and defend Lender and hold it harmless in respect to any claim or
proceeding arising out of any matter referred to in this Section 5.7.
Section 5.8. Post Default Rights If an Event of Default has occurred and is
continuing hereunder, no discount, credit or allowance shall be granted or
permitted by Borrower to any Account Debtor; provided, however, that,
notwithstanding the existence of an Event of Default, (i) Borrower may continue
to invoice and bill Account Debtors under discount, credit and allowance
arrangements that Borrower maintained in the ordinary course of business prior
to such Event of Default occurring, and (ii) Account Debtors may, during the
continuance of an Event of Default, utilize discount, credit and allowance
arrangements that Borrower extended to them in the ordinary course of business.
Lender may, after default by Borrower, settle or adjust disputes and claims
directly with Account Debtors for amounts and upon terms that Lender considers
advisable, and in such cases, Lender will credit Borrower's account with only
the net amounts received by Lender in payment of such disputed Accounts, after
deducting all Lender Expenses incurred in connection therewith.
Section 5.9. Accounts Owed by Federal Government If any Accounts shall
arise out of a contract with the United States of America or any department,
agency, subdivision or instrumentality thereof, Borrower shall promptly notify
Lender thereof in writing and take all other action requested by Lender to
protect Lender's Lien on such Accounts under the provisions of the federal laws
on assignment of claims.
Section 5.10. Business Activity Reports Borrower has filed and shall file
all legally required notices and reports of its business activities with all the
appropriate taxing authorities and the appropriate Governmental Authority of
each jurisdiction in which Borrower is legally required to file such a notice or
report.
Section 5.11. Servicing Borrower shall be responsible for the complete
processing and maintenance of records for the Accounts including the following:
(a) the preparation of claims for submission to Eligible Payors; (b) the
submission of claims to Eligible Payors; and (c) follow-up with all Eligible
Payors.
SECTION 6
PROVISIONS CONCERNING CONTRACTS
Section 6.1. Contracts
(a) Schedule 6.1. is a true and complete list of all material contracts and
agreements to which Borrower is a party.
(b) Borrower shall not amend, modify or supplement any contract or
agreement included in the
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Collateral or waive any provision thereof other than in accordance with
Borrower's standard business practice, nor shall such standard business practice
be materially changed without Lender's consent, which shall not be unreasonably
withheld.
(c) Borrower shall remain liable to perform all of its duties and
obligations under any contracts and agreements included in the Collateral to the
same extent as if this Agreement had not been executed; and Lender shall not
have any obligation or liability under such contracts and agreements by reason
of this Agreement or otherwise.
(d) Borrower need not pay any amount due under any contract or agreement
listed on Schedule 6.1, nor otherwise perform any action required under the
terms of any such contract or agreement, if such payment or performance is being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted, if Lender is notified in advance of such contest, and if
Borrower establishes any reserve or other appropriate provision required by GAAP
and deposits with Lender cash or an acceptable bond reasonably requested by
Lender.
SECTION 7
OTHER PROVISIONS CONCERNING COLLATERAL
Section 7.1. Further Assurances Borrower shall execute and deliver to
Lender, concurrent with Borrower's execution of this Agreement and at any time
or times hereafter at the request of Lender, all financing statements,
continuation financing statements, security agreements, chattel mortgages,
assignments, endorsements of certificates of title, applications for titles,
affidavits, reports, notices, schedules of Accounts, letters of authority and
all other documents Lender may reasonably request, in form satisfactory to
Lender, to perfect and maintain perfected Lender's Liens in the Collateral and
in order to consummate fully all of the transactions contemplated under the Loan
Documents. Borrower hereby irrevocably makes, constitutes and appoints Lender
(and any of Lender's officers, employees or agents designated by Lender) as
Borrower's true and lawful attorney with power to sign the name of Borrower on
any of the above-described documents or on any other similar documents that need
to be executed, recorded or filed in order to perfect or continue to be
perfected Lender's Liens in the Collateral.
Section 7.2. Lender's Duty of Care Lender shall have no duty of care with
respect to the Collateral except that Lender shall exercise reasonable care with
respect to the Collateral in Lender's custody. Lender shall be deemed to have
exercised reasonable care if such property is accorded treatment substantially
equal to that which Lender accords its own property or if Lender takes such
action with respect to the Collateral as Borrower shall request or agree to in
writing provided that neither failure to comply with any such request nor any
omission to do any such act requested by Borrower shall be deemed a failure to
exercise reasonable care. Lender's failure to take steps to preserve rights
against any parties or property shall not be deemed to be failure to exercise
reasonable care with respect to the Collateral in Lender's custody. All risk,
loss, damage or destruction of the Collateral shall be borne by Borrower.
Section 7.3. Reinstatement of Liens If, at any time after payment in full
by Borrower of all Obligations and termination of Lender's Liens, any payments
on Obligations previously made by Borrower or any other Person must be disgorged
by Lender for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy, or reorganization of Borrower or such other Person),
this Agreement and Lender's Liens granted hereunder shall be reinstated as to
all disgorged payments as though such payments had not been made, and Borrower
shall sign and deliver to Lender all documents and other items necessary to
perfect all terminated Liens.
Section 7.4. Lender Expenses If Borrower fails, as required by the terms
hereof, (i) to pay any moneys (whether taxes, assessments, insurance premiums or
otherwise) due to third persons or entities, (ii) to make any deposits or
furnish any required proof of payment or deposit or (iii) to discharge any Lien
not permitted hereby, then Lender may, to the extent that it determines that
such failure by Borrower could have a material adverse effect on Lender's
interests in the Collateral, in its discretion and without prior notice to
Borrower, make payment of the same or any part thereof. Any amounts paid or
deposited by Lender shall constitute Lender Expenses, shall become part of the
Obligations, shall bear interest at the rate of eighteen percent (18%) per
annum, and shall be secured by the Collateral. Any payments made by Lender shall
not constitute (a) an agreement by Lender to make similar payments in the future
or (b) a waiver by Lender of any Event of Default under this Agreement. Lender
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance or Lien and the receipt of the usual official
notice for the payment of moneys to a governmental entity shall be conclusive
evidence that the same was validly due and owing
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Borrower shall immediately and without demand reimburse Lender for all sums
expended by Lender that constitute Lender Expenses, and Borrower hereby
authorizes and approves all advances and payments by Lender for items
constituting Lender Expenses.
Section 7.5. Inspection of Records During usual business hours, Lender
shall have the right to inspect Borrower's Books and records in order to verify
the amount or condition of, or any other matter relating to, the Collateral and
Borrower's financial condition and to copy and make extracts therefrom. Borrower
waives the right to assert a confidential relationship, if any, it may have with
any accounting firm or service bureau in connection with any information
requested by Lender pursuant to this Agreement and agrees that Lender may
directly contact any such accounting firm or service bureau in order to obtain
such information.
Section 7.6. Waivers Except as specifically provided for herein, Borrower
waives demand, protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable.
SECTION 8
REPRESENTATIONS AND WARRANTIES
As of the date hereof Borrower hereby warrants and represents to Lender the
following:
Section 8.1. Corporate Status Borrower is a corporation validly existing
and in good standing under the laws of the state of its incorporation; and is
qualified and licensed to do business and is in good standing in any state in
which the conduct of its business or its ownership of property requires that it
be so qualified or licensed, and has the power and authority (corporate and
otherwise) to execute and carry out the terms of the Loan Documents to which it
is a party, to own its assets and to carry on its business as currently
conducted.
Section 8.2. Authorization The execution, delivery, and performance by
Borrower of this Agreement and each other Loan Document have been duly
authorized by all necessary corporate or partnership action. Borrower, has duly
executed and delivered this Agreement and each other Loan Document to which it
is a party, and each of them constitutes a valid and binding obligation of
Borrower, as applicable, enforceable according to its terms except as such
enforceability may be limited by equitable principles and by bankruptcy,
insolvency or similar laws affecting the rights of creditors generally.
Section 8.3. No Breach The execution, delivery and performance by Borrower
of this Agreement and each other Loan Document to which they are a party (a)
will not contravene any law or any governmental rule or order binding on
Collateral; (b) will not violate any provision of the articles of incorporation,
bylaws or partnership agreement, as applicable, of Borrower; (c) will not
violate any agreement or instrument by which Borrower, as applicable, is bound;
(d) do not require any notice to consent by any Governmental Authority; and (e)
will not result in the creation of a Lien on any assets of Borrower except the
Lien to Lender granted herein.
Section 8.4. Taxes All assessments and taxes, whether real, personal or
otherwise, due or payable by or imposed, levied or assessed against Borrower or
any of its property have been paid in full before delinquency or before the
expiration of any extension period; and Borrower has made due and timely payment
or deposit of all federal, state, and local taxes, assessments or contributions
required of it by law, except only for items that Borrower is currently
contesting diligently and in good faith and that have been fully disclosed in
writing to Lender.
Section 8.5. Deferred Compensation Plans Borrower has made all required
contributions to all deferred compensation plans to which it is required to
contribute, and Borrower has no liability for any unfunded benefits of any
single-employer or multi-employer plans. Borrower is not and at no time has been
a sponsor of, provided, or maintained for any employees any defined benefit
plan.
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Section 8.6. Litigation and Proceedings Except as set forth on Schedule 8.6
attached hereto, there are no outstanding judgments against Borrower or any of
its assets and there are no actions or proceedings pending by or against
Borrower before any court or administrative agency. Borrower has no knowledge or
belief of any pending, threatened, or imminent litigation, governmental
investigations, or claims, complaints, actions, or prosecutions involving
Borrower, except for ongoing collection matters in which Borrower is the
plaintiff and except as set forth in Schedule 8.6 hereto.
Section 8.7. Business Borrower has all franchises, authorizations, patents,
trademarks, copyrights and other rights necessary to advantageously conduct its
business. They are all in full force and effect and are not in known conflict
with the rights of others. Borrower is not a party to or subject to any
agreement or restriction that is so unusual or burdensome that it might have a
material adverse effect on Borrower's business, properties or prospects.
Section 8.8. Laws and. Agreements Borrower is in compliance with all
material agreements applicable to it, including obligations to contribute to any
employee benefit plan or pension plan regulated by ERISA. Borrower is in
material compliance with all laws applicable to it.
Section 8.9. Ownership of Accounts Prior to the Lender making any Loan as
set forth herein, the Borrower will be the sole owner of, and have good and
marketable title to the Accounts pledged as security for such Loan.
Section 8.10. No conflict The granting of a security interest in the
pledged Accounts to the Lender will not violate the terms or provisions of any
loan document or any other agreement to which the Borrower then is a party or by
which it is bound.
Section 8.11. Security Interest After giving effect to each Loan
contemplated by this Agreement, the Lender will be the holder of a valid
perfected first priority security interest in the pledged Accounts. Accounts
pledged to the lender in connection with any Loan will be free and clear of all
liens.
Section 8:12. No Defaults As of the date on which an Account is pledged to
the Lender pursuant to the terms hereof there shall have been no default under
such Account.
Section 8.13. Origination Each Account will have been originated by the
Borrower in the ordinary course of its business in accordance with the
Borrower's regular credit approval process and does not contravene any laws,
rules or regulations applicable thereto. Borrower has submitted to each Eligible
Payor all necessary documentation and information for payment of such Eligible
Receivable and has fulfilled all of its other obligations in respect thereof,
including verification of the eligibility of the Eligible Receivable for payment
by such Eligible Payor. No pledged Account will have been selected on any basis
which would have any adverse effect on the Lender.
Section 8.14. Legality No pledged Account will have been originated in, or
be subject to the laws of, any jurisdiction whose laws would make the terms
hereof or any transaction contemplated hereby unlawful.
Section 8.15. Consents No consent or approval is required for the pledging
of any Accounts to the Lender pursuant to the terms of this Agreement, except
for such consents or approvals as have been obtained.
Section 8.16. Financial Condition All financial statements and information
relating to Borrower that have been or may hereafter be delivered by Borrower to
Lender are accurate and complete and have been prepared in accordance with GAAP.
Borrower has no material obligations or liabilities of any kind not disclosed in
that financial information, and there has been no material adverse change in the
financial condition of Borrower since the date of the most recent financial
statements submitted to Lender.
Section 8.17. Health Care Laws
(a) Borrower has obtained all permits, licenses and other authorizations
that are required under Health Care Laws applicable to Borrower and it is in
compliance in all material respects with all terms and conditions of the
required permits, licenses and authorizations, and is also in compliance in all
material respects with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such Health Care Laws.
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(b) Borrower is not aware of, and has not received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans that may interfere with or prevent compliance or
continued compliance in any material respect with Health Care Laws.
(c) There is no civil, criminal or administrative action, suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation or
proceeding pending or threatened against Borrower, relating in any way to Health
Care Laws.
Section 8.18. Cumulative Representations The warranties, representations
and agreements set forth herein shall be cumulative and in addition to any and
all other warranties, representations and agreements that Borrower shall give,
or cause to be given, to Lender, either now or hereafter.
SECTION 9
COVENANTS
Section 9.1. Encumbrance of Collateral Borrower shall not create, incur,
assume or permit to exist any Lien on any Collateral now owned or hereafter
acquired by Borrower, except for Liens to Lender and Permitted Liens.
Section 9.2. Business Borrower shall engage primarily in business of the
same general character as that now conducted by Borrower.
Section 9.3. Condition and Repair Borrower shall maintain in good repair
and working order all properties used in their business and from time to time
shall make all appropriate repairs and replacements thereof.
Section 9.4. Taxes Borrower shall pay all taxes, assessments and other
governmental charges imposed upon it or any of its assets or in respect of any
of its franchises, business, income or profits before any penalty or interest
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums that have become due and
payable and that by law have or might become a Lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially impaired as a result thereof) no such charge or claim
need be paid if it is being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, if Lender is notified in advance of
such contest, and if Borrower establishes any reserve or other appropriate
provision required by GAAP. Borrower shall make timely payment or deposit of all
FICA payments and withholding taxes required of it by applicable laws and will,
upon request, furnish Lender with proof satisfactory to Lender indicating that
Borrower has made such payments or deposits.
Section 9.5. Accounting System Borrower at all times hereafter shall
maintain a standard and modem system of accounting in accordance with GAAP, with
ledger and account cards or computer tapes, disks, printouts and records that
contain information pertaining to the Collateral that may from time to time be
requested by Lender. Borrower shall not modify or change its method Of
accounting or enter into any agreement hereafter with any third-party accounting
firm or service bureau for the preparation or storage of Borrower's accounting
records without said accounting firm's or service bureau's agreeing to provide
to Lender information regarding the Collateral and Borrower's financial
condition.
Section 9.6. Quarterly Financial Statements. Borrower shall furnish Lender
as soon as practicable but in no event later than forty-five (45) days after the
end of each of the first three quarterly fiscal periods of each fiscal year with
unaudited quarterly financial statements in form and substance as required by
Lender, including a balance sheet, an income statement and a statement of cash
flows, prepared in accordance with GAAP together with a certificate executed by
the chief financial officer of Borrower stating that the financial statements
fairly present the financial condition of Borrower as of the date and for the
periods covered and that as of the date of such certificate there has not been
any violation of any provision of this Agreement or the happening of any Event
of Default or Unmatured Default hereunder.
Section 9.7. Annual Financial Statements. Borrower shall furnish Lender as
soon as practicable but
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in no event later than ninety (90) days after the close of each fiscal year with
audited annual financial statements, which financial statements shall be
prepared in accordance with GAAP and shall be certified without qualification by
an independent certified public accounting firm satisfactory to Lender. With all
financial statements, Borrower will also deliver a certificate of its chief
financial officer attesting that no Event of Default or Unmatured Default under
the Agreement has occurred and is continuing.
Section 9.8. Semi-Annual Financial Statements of Guarantor. Borrower or
Guarantor shall furnish Lender during the term of the Loan with current
financial statements of Guarantor semi-annually.
Section 9.9. Borrower shall maintain at all times during the term hereof
the following financial covenants, measured in accordance with GAAP: (i) minimum
Tangible Net Worth of $N/A, (ii) Debt to Equity Ratio of not greater than N/A to
1.0, (iii) Interest Expense Coverage of not less than N/A to 1.0, and (iv)
Current Ratio of not less than NA to 1.0.
Section 9.10. Further Information Borrower shall promptly supply Lender
with such other information concerning its affairs as Lender may reasonably
request from time to time hereafter and shall promptly notify Lender of any
material adverse change in Borrower's financial condition and any condition or
event that constitutes a breach of or event that constitutes an Event of Default
under this Agreement. In addition, Borrower authorizes Lender to contact credit
reporting agencies concerning, Borrower's credit standing. Borrower also
authorizes Lender to utilize Borrower's name in Lender's marketing materials.
Section 9.11. ERISA Covenants Guarantor or Borrower shall comply with all
applicable provisions of ERISA and all other laws applicable to any deferred
compensation plans with which Guarantor or Borrower is associated, and shall
promptly notify Lender of the occurrence of any event that could result in any
material liability of Borrower to any person to any person whatsoever with
respect to any such plan.
Section 9.12. Restrictions on Merger, Consolidation, Sale of Assets,
Issuance of Stock, etc. Without prior written consent of Lender, Borrower shall
not:
(a) merge or consolidate with any Person;
(b) sell, lease or otherwise dispose of its assets in any transaction or
series of related transactions (other than sales in the ordinary course of
business);
(c) liquidate, dissolve or effect a recapitalization or reorganization in
any form of transaction;
(d) acquire interests of any business in excess of Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate in any calendar year in any
business (whether by purchase of assets, purchase of stock, merger or
otherwise);
(e) become subject to any agreement or instrument which by its terms would
restrict Borrower's right or ability to perform any of its obligations to Lender
pursuant to the terms of the Loan Documents; or
(f) authorize or issue any additional stock or equity interest.
Section 9.13. Health Care Covenants
(a) Borrower shall comply in all material respects with, and shall obtain
all permits required by, all Health Care Laws applicable to Borrower.
(b) Borrower shall promptly furnish to Lender a copy of any communication
from any Governmental Authority concerning any possible violation of any Health
Care Laws or any occurrence of which Borrower would be required to notify any
Governmental Authority with jurisdiction over Health Care Laws.
Section 9.14. Distributions Borrower shall not make any Distributions
except as (i) set forth on Schedule 9.14 hereto, and (ii) authorized by Lender,
upon Borrower's request, which authorization shall not be
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unreasonably withheld and which authorization shall not be deemed to authorize
any Distributions while an Event of Default is continuing or if such
Distribution would cause an Event of Default to occur.
Section 9.15. Subordinate Obligations Borrower shall not voluntarily prepay
any principal (including the making of any sinking fund payment), interest or
any other amount in respect of Subordinate Obligations.
Section 9.16. Amendments Borrower shall not amend any provision of any
Subordinate Obligation if such amendment would (i) affect any of the
subordination provisions thereof, (ii) advance the date of any required payment
or prepayment thereunder, (iii) make covenants therein more burdensome, when
considered in their entirety, to Borrower, (iv) reduce any default or grace
period therein provided, or (v) otherwise have a material adverse effect on the
interests of Lender.
SECTION 10
EVENTS OF DEFAULT
An Event of Default shall be deemed to exist if any of the following events
shall have occurred and be continuing:
(a) Borrower fails to make any payment of principal or interest or any
other payment on the Note or any other Obligation when due and payable, by
acceleration or otherwise, and such failure shall continue for five (5) business
days after the payment is due;
(b) Borrower fails to observe or perform any covenant, condition or
agreement to be observed or performed pursuant to the terms hereof or any other
Loan Document to which it is a party and such failure is not cured as soon as
reasonably practicable and in any event within thirty (30) days after written
notice thereof by Lender;
(c) A court enters a decree or order for relief in respect of Borrower in
an involuntary case under any applicable bankruptcy, insolvency, or other
similar law then in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or other similar official) of Borrower or
for any substantial part of its property, or orders the windup or liquidation of
Borrower's affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency, or similar law is filed against Borrower and is pending
for sixty (60) days without dismissal;
(d) Borrower commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law then in effect, makes any general assignment for
the benefit of creditors, fails generally to pay its debts as such debts become
due, or takes corporate action in furtherance of any of the foregoing;
(e) Final judgment for the payment of money on any claim in excess of
$50,000 is rendered against Borrower and remains undischarged for twenty (20)
days during which execution is not effectively stayed;
(f) Any guarantor of the Obligations revokes or attempts to revoke its
guaranty of any of the Obligations, or becomes the subject of an insolvency
proceeding of the type described in clauses (c) or (d) above with respect to
Borrower or fails to observe or perform any covenant, condition or agreement to
be performed under any Loan Document to which it is a party;
(g) Borrower makes any payment on account of any Subordinate Obligations,
other than payments specifically permitted by the terms of such subordination or
this Agreement;
(h) Any Person holding any Subordinate Obligations becomes the subject of
any proceeding resulting in the termination of the subordination arrangement,
terminates the subordination arrangement or asserts that it is terminated.
(i) Any Collateral or any part thereof is sold, agreed to be sold, conveyed
or allocated by operation of law or otherwise;
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(j) Borrower defaults under the terms of any indebtedness or lease
involving total payment obligations of Borrower in excess of $50,000 and such
default is not cured within the time period permitted pursuant to the terms and
conditions of such Indebtedness or lease, or an event occurs that gives any
creditor or lessor the right to accelerate the maturity of any such Indebtedness
or lease payments;
(k) Demand is made for payment of any Indebtedness in excess of $50,000
that was not originally payable upon demand when incurred but the terms of which
were later changed to provide for payment upon demand;
(l) Borrower is enjoined, restrained or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs;
(m) A judgment or other claim in excess of $50,000 becomes a Lien upon any
or all of Borrower's assets, other than a Permitted Lien;
(n) A notice of Lien, levy or assessment in excess of $50,000 is filed of
record with respect to any or all of Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal or other Governmental Authority, or any tax or debt
owning at any time hereafter to any one or more of such entities becomes a Lien
upon any or all of Borrower's assets and the same is not paid on the payment
date thereof, except to the extent such tax or debt is being contested by
Borrower as permitted in Section 8.4;
(o) There is a material impairment of the value of the Collateral or
priority of Lender's Liens on the Collateral;
(p) Lender believes in good faith that the prospect of payment of
performance of the Obligations by Borrower has been impaired; and there has been
a material adverse change in the financial and/or business condition of the
Borrower;
(q) Any of Borrower's assets in excess of $50,000 or any Collateral are
seized, subjected to a distress warrant, levied upon or come into the possession
of any judicial officer;
(r) Any representation or warranty made in writing to Lender by any officer
of Borrower in connection with the transactions contemplated in this Agreement
is materially incorrect when made;
(s) If the aggregate dollar value of all judgments, defaults, demands,
claims and notices of Liens under clauses (e), (j), (k), (m) and (n) hereof
exceeds $100,000; or
(t) Borrower shall fail to direct all receipts for Accounts to the Lock
Box.
SECTION 11
REMEDIES
Section 11.1. Specific Remedies. Upon the occurrence of any Event of
Default;
(a) Lender may cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any other Loan Document, or
under any other agreement between Borrower and Lender.
(b) Lender may declare all Obligations to be due and payable immediately,
whereupon they shall immediately become due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived
by Borrower.
(c) Lender may set off against the Obligations all Collateral, balances,
credits, deposits, accounts, or moneys of Borrower then or thereafter held with
Lender, including amounts represented by certificates of deposit.
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(d) Lender may pay, purchase, contest or compromise any encumbrance, charge
or Lien that, in the opinion of Lender, appears to be prior or superior to its
Lien and pay all reasonable expenses incurred in connection therewith.
(e) Lender may (i) notify Account Debtors to make payment on Accounts
directly to Lender; (ii) settle, adjust, compromise, extend or renew Accounts,
whether before or after legal proceedings to collect such Accounts have
commenced; (iii) prepare and file any bankruptcy proofs of claim or similar
documents against any Account Debtor; (iv) prepare and file any notice,
assignment, satisfaction, or release of Lien, UCC termination statement or any
similar document; (v) sell or assign Accounts, individually or in bulk, upon
such terms, for such amounts, and at such time or times as Lender deems
advisable; and (vi) complete the performance required of Borrower under any
contract or agreement to which Borrower is a party and out of which Accounts
arise or may arise.
(f) Lender may (i) endorse Borrower's name on all checks, notes, drafts,
money orders or other forms of payment of or security for Accounts or other
Collateral; (ii) sign Borrower's name on drafts drawn on Account Debtors or
issuers of letters of credit; and (iii) notify the postal authorities in
Borrower's name to change the address for delivery of Borrower's mail to an
address designated by Lender, receive and open all mail addressed to Borrower,
copy all mail, return all mail relating to Collateral, and hold all other mail
available for pickup by Borrower.
Section 11.2. Power of Attorney Borrower hereby appoints Lender (and any of
Lender's officers, employees, or agents designated by Lender) as Borrower's
attorney, with power whether before or after the occurrence of an Event of
Default; (a) to endorse Borrower's name on any checks, notes, acceptances, money
orders, drafts or other forms of payment or security that may come into Lender's
possession; (b) to sign Borrower's name on drafts against Account Debtors, on
schedules and assignments of Accounts, on verifications of Accounts, and on
notices to Account Debtors; (c) to notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
to receive and open all mail addressed to Borrower and to retain all mail
relating to the Collateral and forward all other mail to Borrower; (d) to send
requests for verification of Accounts; (e) to execute UCC Financing Statements;
and (f) to do all things necessary to carry out this Agreement. The appointment
of Lender as Borrower's attorney and each and every one of Lender's rights and
powers, being coupled with an interest, are irrevocable as long as any
Obligations are outstanding. Lender agrees not to exercise the power granted in
clause 11.2(b) prior to the occurrence of an Event of Default and agrees not to
exercise the power granted in clause 11.2(d) prior to notification of Borrower
of its intent to do so, but such limitations do no limit the effectiveness of
such power of attorney at any time. Any person dealing with Lender shall be
entitled to rely conclusively on any written or oral statement of Lender that
this power of attorney is in effect. Lender may also use Borrower's stationery
in connection with exercising its rights and remedies and performing the
Obligations of Borrower.
Section 11.3. Expenses Secured All expenses, including attorney fees,
incurred by Lender in the exercise of its rights and remedies provided in this
Agreement, in the other Loan Documents or by law shall be payable by Borrower to
Lender, shall be part of the Obligations, and shall be secured by the
Collateral.
Section 11.4. Equitable Relief Borrower recognizes that in the event
Borrower fails to perform, observe, or discharge any of its Obligations or
liabilities under this Agreement, no remedy of law will provide adequate relief
to Lender, and Borrower agrees that Lender, and Borrower agrees that Lender
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
Section 11.5. Remedies Are Cumulative No remedy set forth herein is
exclusive of any other available remedy or remedies, but each is cumulative and
in addition to every other right or remedy given under this Agreement or under
any other agreement between Lender and Borrower or now or hereafter existing at
law or in equity or by statute. Lender may pursue its rights and remedies
concurrently or in any sequence, and no exercise of one right or remedy shall be
deemed to be an election. No delay by Lender shall constitute a waiver, election
or acquiescence by it.
SECTION 12
INDEMNITY
Section 12.1. General Indemnity Borrower shall protect, indemnify and
defend and save harmless Lender and its directors, officers, agents and
employees from and against any and all loss, cost, liability (including
negligence, tort and strict liability), expense, damage, suits or demands
(including fees and disbursements of counsel) on
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account of any suit or proceeding before any Governmental Authority which arises
from the transactions contemplated in this Agreement or otherwise arising in
connection with or relating to the Loan and any security therefor, unless such
suit, claim or damages are caused by the negligence or intentional malfeasance
of Lender or its directors, officer, agents or employees. Upon receiving
knowledge of any suit, claim or demand asserted by a third-party that Lender
believes is covered by this indemnity, Lender shall give Borrower timely notice
of the matter and an opportunity to defend it, at Borrower's sole cost and
expense, with legal counsel acceptable to Lender. Lender may, at its option,
also require Borrower to so defend the matter. This obligation on the part of
Borrower shall survive the termination of this Agreement and the repayment of
the Note.
SECTION 13
MISCELLANEOUS
Section 13.1. Delay and Waiver No delay or omission to exercise any right
shall impair any such right or be a waiver thereof, but any such right may be
exercised from time to time and as often as may be deemed expedient. A waiver on
one occasion shall be limited to that particular occasion.
Section 13.2. Complete Agreement This Agreement and the Schedules are the
complete agreement of the parties hereto and supersede all previous
understandings relating to the subject matter hereof. This Agreement may be
amended only by an instrument in writing that explicitly states that it amends
this Agreement and is signed by the party against whom enforcement of the
amendment is sought. This Agreement may be executed in counterparts, each of
which will be an original and all of which will constitute a single agreement.
Section 13.3. Severability; Headings If any part of this Agreement or the
application thereof to any Person or circumstance is held invalid, the remainder
of this Agreement shall not be affected thereby. The section headings herein are
included for convenience only and shall not be deemed to be a part of this
Agreement.
Section 13.4. Binding Effect This Agreement shall be binding upon and inure
to the benefit of the respective legal representatives, successors and assigns
of the parties hereto; however, Borrower may not assign any of its rights or
delegate any of its Obligations hereunder. Lender (and any subsequent assignee)
may transfer and assign this Agreement and deliver the Collateral to the
assignee, who shall thereupon have all of the rights of Lender; and Lender (or
such subsequent assignee who in turn assigns as aforesaid) shall then be
relieved and discharged of any responsibility or liability with respect to this
Agreement and said Collateral.
Section 13.5. Notices Any notices under or pursuant to this Agreement shall
be deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, or when delivered by courier or when
transmitted by telex, telecopy, or similar electronic medium to the following
addresses:
To Borrower: Cardiovascular Laboratories, Inc. of PA
999 Old Eagle School Road
Wayne, PA 19087
Attention: James Wiley, Chief Financial Officer
Telephone: (610) 293-7650; Telecopier: (610) 293-7459
To Lender: DVI Business Credit Corporation
4041 MacArthur Blvd., Suite 401
Newport Beach, CA 92660
Attention: Cynthia J. Cohn, Executive Vice President
Telephone: (949) 474-5800; Telecopier: (949) 474-6171
Copies to: DVI Business Credit Corporation
500 Hyde Park
Doylestown, PA 18901
Attention: Melvin C. Breaux, Esquire
General Counsel
Telephone: (215) 230-2931; Telecopier: (215) 230-3537
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Either party may change such address by sending notice of the change to the
other party; such change of address shall be effective only upon actual receipt
of the notice by the other party.
Section 13.6. Governing Law ALL ACTS AND TRANSACTIONS HEREUNDER AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF CALIFORNIA, WITHOUT GIVING EFFECT TO
CONFLICTS OF LAW PRINCIPLES.
Section 13.7. Waiver of Trial by Jury LENDER AND BORROWER HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS OR THE RELATIONSHIP BETWEEN LENDER AND BORROWER.
Section 13.8. Submission to Jurisdiction. (a) BORROWER HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA OR FEDERAL COURT SITTING IN ORANGE
COUNTY, CALIFORNIA, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT. BORROWER HEREBY AGREES THAT SERVICE OF COPIES OF SUMMONS AND
COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING
ARISING HEREUNDER MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO BORROWER AT ITS ADDRESS SET
FORTH AT SECTION 13.5.
(b) NOTHING IN THIS PARAGRAPH 13.8 SHALL AFFECT THE RIGHT OF LENDER TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ANY OF ITS
PROPERTIES IN THE COURTS OF OTHER JURISDICTIONS TO THE EXTENT OTHERWISE
PERMITTED BY LAW.
(c) TO THE EXTENT THAT BORROWER HAS OR HEREAFTER MAY ACQUIRE (i) ANY
IMMUNITY FROM JURISDICTION OF ANY COURT OF CALIFORNIA OR ANY FEDERAL COURT
SITTING IN ORANGE COUNTY, CALIFORNIA OR FROM ANY LEGAL PROCESS OUT OF ANY SUCH
COURT (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, OR (ii) ANY OBJECTION TO THE LAYING OF THE VENUE OR OF AN
INCONVENIENT FORUM OF ANY SUIT, ACTION OR PROCEEDING, IF BROUGHT IN CALIFORNIA
OR FEDERAL COURT SITTING IN ORANGE COUNTY, CALIFORNIA UNDER PROCESS SERVED IN
ACCORDANCE WITH SUBPARAGRAPH (a) ABOVE, BORROWER HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY OR OBJECTION IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE LOANS.
THIS AGREEMENT SHALL BECOME EFFECTIVE ONLY UPON WRITTEN ACCEPTANCE BY LENDER.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement by
their duly authorized officers as of the date first above written.
BORROWER: LENDER:
CARDIOVASCULAR LABORATORIES, INC. OF PA DVI BUSINESS CREDIT CORPORATION
By: James J. Wiley By:
----------------------------------- -----------------------------
Print Name: James J. Wiley Print Name:
--------------------------- ---------------------
Title: Chief Financial Officer Title:
-------------------------------- --------------------------
19
LOAN AND SECURITY AGREEMENT
Loan #2360
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is made as of the date set
forth below BETWEEN:
Secured Party: DVI Financial Services Inc.; and
Debtor: Cardiovascular Laboratories, Inc. of PA
------------------------------------------------------------
1. Certain Definitions. The following terms shall have the following
respective meanings:
(a) Advance. Advances of funds to the Debtor pursuant to Section 2
hereof and Schedules which may be executed between Secured Party and Debtor from
time to time.
(b) Collateral. "Collateral" shall have the meaning set forth in Section
2.2 hereof.
(c) Event of Default. Those events set forth in Section 9 hereof
(d) Monthly Loan Repayment. The amount set forth in any Schedule
executed in connection with any Advance under this Agreement.
(e) Schedule(s). Any and all or each (as the context shall require) of
the Loan and Collateral Schedules of the Debtor, to be executed by the parties
under this Agreement.
(f) Secured Obligations. The payment of the principal and interest as
set forth in each and all of the Schedules, and the payment of all additional
amounts and other sums at any time due and owing under the Schedules for this
Agreement, and the performance and observance of all covenants and conditions
contained herein and therein.
(g) Supplier The entity from whom the Debtor purchased the Collateral
including manufacturers, dealers, sellers and vendors.
2. Purpose of Financing and Description of Loans; Grant of Security
Interest; Collateral.
(a) Secured Party agrees, subject to the terms and conditions of this
Agreement, to make Advances to the Debtor in an aggregate amount to be
determined by Secured Party in its sole and absolute discretion.
(b) Debtor agrees that the proceeds of any Advance will be used solely
to acquire the Collateral as described in the Schedule executed in connection
with said advance.
(c) The amount of any Advances to Debtor shall be set forth on the
Schedule executed in connection with said Advance.
(d) The term of repayment of any Advance made under this Agreement (the
"Term") shall commence on the date set forth in the Schedule executed in
connection with said Advance and shall continue for the period set forth in said
Schedule, and for all extensions and renewals of such period.
(e) Debtor shall pay to Secured Party the Monthly Loan an Repayment for
each Advance in amounts and on the dates set forth in the Schedule executed in
connection with said Advance, whether or not Secured Party has rendered an
invoice to Debtor. Debtor agrees to pay the Monthly Loan Repayment to Secured
Party at the office of the Secured Party set forth below, or to such entity
and/or at such other
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<PAGE>
place as Secured Party may from time to time designate by notice to Debtor. Any
other amounts required to be paid to Secured Party under this Agreement are due
upon Debtor's receipt of Secured Party's invoice and will be payable as directed
in the invoice. Payments under this Agreement may be applied to the Debtor's
then accrued Secured Obligations in such order as Secured Party may choose.
(f) The Advances shall not be subject to prepayment or redemption in
whole or in part prior to the expiration of the Term set forth in the Schedule
executed in connection with said Advance.
2.1 Grant of Security Interest. In consideration of the Advances to be made
by Secured Party to Debtor under this Agreement, and to secure the payment and
performance of the Secured Obligations, Debtor hereby grants and assigns to
Secured Party, its successors and assigns, a security interest in the Collateral
described in section 2.2 below.
2.2 Collateral. To the extent covered in any Schedules executed pursuant to
this Agreement, Collateral includes
(a) all personal property consisting of "equipment", and "proceeds" as
defined in the Pennsylvania Commercial Code and all furniture, fixtures,
machinery or other property, and
(b) accounts receivable, contract rights, instruments, documents,
chattel paper and all other forms of obligations owing to Debtor arising out of
the rendition of services by Debtor in connection with the medical equipment
financed under this Agreement, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as any
books and records relating to the forgoing, whether now owned or hereafter
acquired, and all substitutions, renewals or replacements of and alterations,
additions or improvements, if any, to such Collateral, together with, in each
and every case, all proceeds thereof. Each item of Collateral shall secure not
only the specific Advances made by Secured Party to Debtor as set forth in any
Schedule, but also all other present and future indebtedness or obligations of
Debtor to Secured Party of every kind and nature whatsoever. Debtor warrants and
agrees that the Collateral will be used primarily for business or commercial
purposes and that regardless of the manner of affixation, the Collateral shall
remain personal property and shall not become part of the real estate. Debtor
agrees to keep the Collateral at the locations set forth in the Schedule(s)
covering said Collateral and will not make any change in the location of the
Collateral within such state, and will not remove the Collateral from such state
without the prior written consent of Secured Party.
3. Time is of the Essence; Late Charges. Time is of the essence in this
Agreement and if any Monthly Loan Repayment is not paid within the ten (10) days
after the due date thereof, Secured Party shall have the right to add and
collect, and Debtor agrees to pay:
(a) A late charge on and in addition to, such Monthly Loan Repayment
equal to five percent (5%) of such Monthly Loan Repayment or a lesser amount if
established by any State or Federal statute applicable thereto; and
(b) Interest on such Monthly Loan Repayment from thirty (30) days after
the due date until paid at the rate of eighteen (18%) per annum.
4. No Warranties. This Agreement is solely a financing agreement. Debtor
acknowledges that: The Collateral has or will have been selected and acquired
solely by Debtor for Debtor's purposes; Secured Party is not the manufacturer,
dealer, vendor or supplier of the Collateral; the Collateral is of a size,
design, capacity, description and manufacture selected by Debtor; Debtor is
satisfied that the Collateral is suitable and fit for its purposes; and SECURED
PARTY HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR REPRESENTATION WHATSOEVER,
EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS, CONDITION, MERCHANTABILITY, DESIGN
OR OPERATION OF THE COLLATERAL, ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE
VALUE OF THE COLLATERAL, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE
COLLATERAL OR WORKMANSHIP IN THE COLLATERAL, NOR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER.
4.1 No Agency. Debtor acknowledges and agrees that none of the
manufacturer, vendor, dealer or supplier, nor any salesman, representative, or
other agent of the manufacturer, dealer, vendor or supplier, is an agent of
Secured Party. No salesman, representative or agent of the manufacturer, dealer
vendor or supplier is authorized to waive or alter any term or condition of this
Agreement, and no representation as to the Collateral or any other matter by any
manufacturer, dealer, vendor or supplier shall in any way affect Debtor's duty
to pay the Monthly Loan Repayment and perform his other obligations as set forth
in this Agreement.
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<PAGE>
5. Acceptance. Execution by Debtor and Secured Party of the Schedule
covering the Collateral will conclusively establish that such Collateral has
been included under and will be subject to all of the terms and conditions of
this Agreement. If Debtor has not furnished Secured Party with an executed
Schedule by the earlier of fourteen (14) days after receipt thereof or
expiration of the commitment set forth in any applicable Equipment Financing
Commitment, Secured Party may terminate its obligation to make any Advances with
respect to any applicable Collateral.
6. Insurance and Risk of Loss. All risk of loss of, damage to, or
destruction of the Collateral shall at all times be borne by Debtor. Debtor will
procure forthwith and maintain property and general liability insurance with
extended or combined additional coverage on the Collateral for the full
insurable value thereof for the life of this Agreement and any Schedule(s) plus
such other insurance as Secured Party may specify, and promptly deliver each
policy to Secured Party with a standard long form endorsement attached showing
Secured Party or assigns as additional insureds and loss payees. Each insurer
shall agree by endorsement upon such policy issued by it or by independent
instrument furnished to Secured Party and Debtor that it will give Secured Party
and Debtor thirty (30) days written notice before the policy in question shall
be materially altered or cancelled. Secured Party's acceptance of policies in
lesser amounts or risks shall not be a waiver of Debtor's foregoing obligation.
7. Debtor's Representations and Warranties.
Debtor represents and warrants to Secured Party as follows:
(a) Debtor is duly organized and existing under the laws of the State of
its formation without limit as to the duration of its existence, and is
authorized and in good standing to do business in said State; Debtor has
corporate powers and adequate authority, rights and franchises to own its own
property and to carry on its business as now conducted, and is duly qualified
and in good standing in each state in which the character of the properties
owned by it therein or the conduct of its business makes such qualifications
necessary; and Debtor has the corporate power and adequate authority to make and
carry out this Agreement.
(b) The execution, delivery and performance of this Agreement are duly
authorized and do not, to the best of the Debtor's knowledge, require the
consent or approval of any governmental body or other regulatory authority; are
not in contravention of or in conflict with any law, regulation or any term or
Provision of its articles of formation or bylaws, and this Agreement is a valid
and binding obligation of Debtor legally enforceable in accordance with its
terms.
(c) The execution, delivery and performance of this Agreement will not
contravene or conflict with any agreement, indenture or undertaking to which
Debtor is a party or by which it or any of its property may be bound by or
affected, and will not cause any lien, charge or other encumbrance to be created
or imposed upon any such property by reason thereof.
(d) There is no material litigation or other proceeding pending or
threatened against or affecting Debtor, and it is not in default with respect to
any order, writ, injunction, decree or demand of any court or other govemmental
or regulatory authority. The balance sheets of Debtor and the related profit and
loss statements and other financial data as submitted in writing by Debtor to
Secured Party in connection with this Agreement, are true and correct, and said
balance sheets and profit and loss statements truly represent the financial
condition of Debtor as of the dates thereof.
(e) Debtor has good and valid title to the Collateral which is free from
and will be kept free from all liens, claims, security interests and
encumbrances, except for the security interest granted hereby.
(f) No financing statement covering the Collateral or any proceeds
thereof is on file in favor of anyone other than Secured Party, but if such
other financing statement is on file, it will be terminated or subordinated.
(g) All necessary action, including the filing of UCC-1 Financing
Statements, has or will be made to give Secured Party a first priority security
interest in the Collateral. Debtor agrees to permit Secured Party to pre-file
any UCC-1 Financing Statement pursuant to California Commercial Code ss.9402.
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<PAGE>
8. Debtor's Agreements. Debtor agrees:
(a) To defend at Debtor's own cost and expense any action, proceeding or
claim affecting the Collateral.
(b) To pay reasonable attorneys fees and other expenses incurred by
Secured Party in enforcing its rights in the event of Debtor's default under
this Agreement.
(c) To pay promptly all taxes, assessments, license fees and other
public or private charges when levied or assessed against the Collateral or this
Agreement and this obligation shall survive the termination of this Agreement.
(d) That if a certificate of title is required or permitted by law,
Debtor shall obtain such certificate with respect to the Collateral, showing the
security interests of Secured Party thereon and in any event do everything
necessary or expedient to preserve or perfect the security interest of Secured
Party.
(e) That Debtor will not misuse, fail to keep in good repair, secrete,
or without the prior written consent of Secured Party, and notwithstanding
Secured Party's claim to proceeds, sell, rent, lend, encumber or transfer any of
the Collateral. The Collateral shall be maintained in accordance with the
manufacturer's specifications and shall at all times be eligible for the
manufacturer's maintenance program.
(f) That Secured Party may enter upon Debtor's premises or wherever the
Collateral may be located at any reasonable time to inspect the Collateral and
Debtor's books and records pertaining to the Collateral, and Debtor shall assist
Secured Party in making such inspection.
(g) That the security interest granted by Debtor to Secured Party shall
continue effective irrespective of the payment of the Secured Obligations, so
long as there are any obligations of any kind, including obligations under
guaranties or assignments, owed by Debtor to Secured Party.
(h) To mark and identify the Collateral with all information and in such
manner as Secured Party may request from time to time and replace promptly any
such markings or identifications which are removed, defaced or destroyed.
(i) To indemnify and bold Secured Party harmless from and against all
claims, losses, liabilities (including negligence, tort and strict liability),
damages, judgments, suits and all legal proceedings, and any and all costs and
expenses in connection therewith (including attorney's fees) arising out of or
in any manner connected with the manufacture, purchase, financing, ownership,
delivery, rejection, nondelivery, possession, use, transportation, storage,
operation, maintenance, repair, return or other disposition of the Collateral or
with this Agreement, including, without limitation, claims for injury to, or
death of, persons and for damage to property, and give Secured Party prompt
notice of such claims or liability.
(j) That Debtor will not part with possession of or control of or suffer
or allow to pass out of its possession or control items of Collateral or change
the location of the Collateral or any part thereof from the address shown in the
appropriate Schedule without the prior written consent of Secured Party.
(k) That Debtor shall not ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY
PART OF ITS RIGHTS OR OBLIGATIONS UNDER THIS AGREEMENT OR SELL, LEASE, TRANSFER,
PLEDGE OR HYPOTHECATE ANY PART OF THE COLLATERAL. DEBTOR'S INTEREST IN THIS
AGREEMENT AND THE COLLATERAL IS NOT ASSIGNABLE AND WILL NOT BE ASSIGNED OR
TRANSFERRED BY OPERATION OF LAW. CONSENT TO ANY OF THE FOREGOING PROHIBITED ACTS
APPLIES ONLY IN THE GIVEN INSTANCE AND IS NOT CONSENT TO SUBSEQUENT LIKE ACT BY
DEBTOR OR ANOTHER ENTITY.
9. Events of Default. Any of the following events or conditions shall
constitute an Event of Default hereunder:
(a) Debtor's failure to pay any Monthly Loan Repayment or any
installment of the principal or interest due under any Schedule when and after
the same shall become due and payable, whether at the due date thereof, or at
the date fixed for prepayment or by acceleration or otherwise;
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<PAGE>
(b) Debtor failure to observe or perform any covenant or agreement to
be observed or performed by Debtor under this Agreement, any Schedule or any
other instrument or agreement delivered by Debtor to Secured Party in connection
with this or any other transaction;
(c) Any representation or warranty made by Debtor herein or in any
report, certificate, financial or other statement furnished in connection with
this Agreement shall prove to be false or misleading in any material respect; or
(d) Debtor is (i) adjudicated insolvent or a bankrupt, or ceases,
becomes unable, or admits in writing its inability, to pay its debts as they
mature, or makes a general assignment for the benefit of, or enters into any
composition or arrangement with, creditors; (ii) applys for or consents to the
appointment of a receiver, trustee or liquidator of it or of a substantial part
of its property, or authorizes such application or consent, or proceedings
seeking such appointment shall be instituted against it without such
authorization, consent or application and continues undismissed for a period of
60 calendar days; (iii) authorizes or files a voluntary petition in bankruptcy
or applys for or consents to the application of any bankruptcy, reorganization
in bankruptcy, arrangement, readjustments or debts, insolvency, dissolution,
moratorium or other similar laws of any jurisdiction, or authorizes such
application or consent, or proceedings to such end shall be instituted against
it without such authorization, application or consent and such proceedings
instituted against it shall continue undismissed for a period of 60 calendar
days; or
(e) Secured Party, in good faith, believes the prospect of payment or
performance is impaired or in good faith believes the Collateral is insecure;
(f) Any agreement made by a guarantor, surety or endorser for Debtor's
default in any obligation or liability to Secured Party or any guaranty obtained
in connection with this transaction is terminated or breached.
10. Secured Party's Remedies. Debtor agrees that when an Event of Default
has occurred and is continuing, Secured Party shall have the rights, options,
duties and remedies of a Secured Party and Debtor shall have the rights and
duties of a Debtor under the Uniform Commercial Code in effect in each
jurisdiction where the Collateral or any part thereof is located and, without
limiting the foregoing, Secured Party may exercise one or more or all, and in
any order, of the remedies hereinafter set forth:
(a) By notice in writing to Debtor, declare the entire unpaid principal
balance due under any, each and all Schedule(s) to be immediately due and
payable; and thereupon all such unpaid balance(s), together with all accrued and
unpaid interest thereon, shall be immediately due and payable;
(b) Personally, or by agents or attorneys, take immediate possession of
the Collateral or any portion thereof and for that purpose pursue the same
wherever it may be found and enter any of the premises of Debtor with or without
notice, demand, process of law or legal procedure, and search for, take
possession of, remove, keep and store the same, or use, operate, or lease the
same until sold and otherwise exercise any and all of the rights and powers of
Debtor in respect thereof,
(c) Either with or without taking possession and without instituting
any legal proceedings whatsoever (having first given notice of such sale by mail
to Debtor once at least 10 calendar days prior to the date of such sale, and any
other notice of such sale which may be required by law, if said notice is
sufficient), sell and dispose of the Collateral or any part thereof at public
auction(s) to the highest bidder, or at a private sale(s) in one lot as an
entirety or in several lots, and either for cash or for credit and on such terms
as Secured Party may determine, and at any place (whether or not it is the
location of the Collateral or any part thereof, designated in the notice above
referred to. Any such sale or sales may be adjourned from time to time by
announcement of the time and place appointed for such sale or sales, or for such
adjourned sales or sales without further notice, and Secured Party may bid and
become the purchaser at any such sale;
(d) Secured Party may proceed to protect and enforce this Agreement and
any Schedule(s) by suit or suits or proceedings in equity, at law or in
bankruptcy, and whether for the specific performance of any covenant or
agreement herein contained, or execution or aid of any power herein granted, or
for foreclosure hereunder, or for the appointment of a receiver or receivers for
the Collateral, or any party thereof, or for the enforcement of any proper,
legal or equitable remedy available under applicable law.
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<PAGE>
(e) Secured Party may require Debtor to assemble the Collateral and
return it to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties.
(f) Debtor agrees to pay the Secured Party all expenses or retaking,
holding, preparing for sale, or selling the Collateral in addition to attorneys'
fees as set forth above.
11. Acceleration Clause. In case of any sale of the Collateral, or any part
thereof, pursuant to any judgment or decree of any court or otherwise in
connection with the enforcement of any of the terms of this Agreement, the
outstanding principal due under any Schedule, if not previously due, the
interest accrued thereon and all other sums required to be paid by Debtor
Pursuant to this Agreement shall at once become and be immediately due and
payable.
12. Exercise of Rights. No delay or omission of Secured Party in the
exercise of any right or power arising from any default shall act as a waiver of
or impair any such right or power or prevent its exercise during the continuance
of such default. No waiver by Secured Party of any such default, whether such
waiver be full or partial, shall extend to or be taken to affect any subsequent
default, nor shall it impair the rights resulting therefrom except as may be
otherwise provided therein. The giving, taking or enforcement of any other or
additional security, collateral, or guarantee for the payment of the Secured
Obligations shall not operate to prejudice, waive, or affect the security of
this Agreement or any rights, powers, or remedies hereunder, and Secured Party
shall not be required to look first to enforce or exhaust such other additional
security, collateral, or guarantees. All rights, remedies, and options of
Secured Party hereunder, or by law shall be cumulative.
13. Assignment by Secured Party. SECURED PARTY MAY ASSIGN OR TRANSFER THIS
AGREEMENT OR SECURED PARTY'S INTEREST IN THE COLLATERAL WITHOUT NOTICE TO
DEBTOR. Any assignee of Secured Party shall have all of the rights but none of
the obligations, of Secured Party under this Agreement, and Debtor agrees that
it will not assert against any assignee of Secured Party any defense,
counterclaim or offset that Debtor may have against Secured Party.
14. Non-Terminable Agreement; Obligations Unconditional. This Agreement
cannot be cancelled or terminated except as expressly provided herein. Debtor
hereby agrees that Debtor's obligation to pay all Secured Obligations shall be
absolute and unconditional and Debtor will not be entitled to any abatement of
Monthly Loan Repayments or other payments due under this Agreement or any
reduction thereof under circumstances or for any reason whatsoever. Debtor
hereby waives any and all existing and future claims, as offsets, against any
Monthly Loan repayments and other payments due under this Agreement as and when
due regardless of any offset or claim which may be asserted by Debtor or on its
behalf. The obligations and liabilities of Debtor hereunder will survive the
termination of this Agreement.
15. Additional Documents. In connection with and in order to provide
effective evidence of the security interest in the Collateral granted Secured
Party under this Agreement, Debtor will execute and deliver to Secured Party
such financing statements and similar documents as Secured Party requests.
Debtor authorizes Secured Party where permitted by law to make filings of such
financing statements without Debtor's signature. Debtor further agrees to
furnish Secured Party:
(a) On a timely basis, Debtor's future financial statements, including
Debtor's most recent annual report, balance sheet and income statement, prepared
in accordance with generally accepted accounting principles, which reports,
Debtor warrants, shall fully and fairly represent the true financial condition
of Debtor;
(b) Any other financial information normally provided by Debtor to the
public; and
(c) Such other financial data or information relative to this Agreement
and the Collateral, including, without limitation, copies of Suppliers'
proposals and purchase orders and agreements, listings of serial numbers or
other identification data and confirmations of such information, as Secured
Party may from time to time reasonably request. Debtor will procure and/or
execute, have executed, have acknowledged, and/or deliver to Secured Party,
record and file such other documents and notices as Secured Party deems
necessary or desirable to protect its interest in and rights under this
Agreement and Collateral. Debtor will pay for all filings, searches, title
reports, legal and other fees incurred by Secured Party in connection with any
documents to be provided by Debtor pursuant to this Agreement and any other
similar documents Secured Party may procure.
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16. Miscellaneous.
(a) Successors and Assign. Whenever any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such parties, and all the covenants, promises, and agreements in this
Agreement contained by or on behalf of Debtor or Secured Party shall bind and
inure to the benefit of the respective successors and assigns of each party
whether so expressed or not.
(b) Partial Invalidity. The enforceability or invalidity of any
provision(s) of this Agreement shall not render any other provision(s) herein
contained unenforceable or invalid.
(c) Communications. All communications provided for herein shall be in
writing and shall be deemed to have been given (unless otherwise required by the
specific provisions in respect of any matter) ((i) when addressed and delivered
personally or (ii) three (3) calendar days following deposit in the United
States mail, registered or certified, postage prepaid, and addressed to the
address set forth beneath the respective parties' signature lines below, or as
to Debtor or Secured Party at such other address as they may designate by notice
duly given in accordance with this Section to the other party.
(d) Counterpart; Governing Law. This Agreement may be executed,
acknowledged, and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Agreement. This
Agreement and any Schedule shall be construed and enforced in accordance with
and governed by the laws of the Commonwealth of Pennsylvania. Debtor agrees to
submit to the jurisdiction of the State and/or Federal Courts in Pennsylvania.
(e) Entire Agreement. This Agreement constitutes the entire
understanding or agreement between Secured Party and Debtor and there is no
understanding or agreement, oral or written, which is not set forth herein. This
Agreement may not be amended except by a writing signed by Secured Party and
Debtor and shall be binding upon and inure to the benefit of the parties hereto,
their permitted successors and assigns.
DATED: July 4, 1999
DEBTOR: SECURED PARTY:
Cardiovascular Laboratories, Inc. of PA DVI FINANCIAL SERVICES INC.
By /s/ Paul A. Toomey By /s/ Mark J. Gallagher
- --------------------------------------- ------------------------------
PAUL TOOMEY MARK J. GALLAGHER
- --------------------------------------- ------------------------------
(Print Name) (Print Name)
President & CEO Director of Credit
- --------------------------------------- ------------------------------
(Title) (Title)
Address: 999 Old Eagle School Rd., Address:
Suite 108 500 Hyde Park
Wayne, PA 19087 Doylestown, Pennsylvania 18901
No security interest in an Equipment Schedule may be created through the
transfer or possession of any counterpart of the original Equipment Schedule
other than that Equipment Schedule marked "Secured Party's Original" and a
certified copy of the Master Agreement.
THIS CONTRACT (AND EQUIPMENT SCHEDULE AND MASTER LEASE THE TERMS OF WHICH IT
INCORPORATES) HAS BEEN ASSIGNED TO, IS SUBJECT TO THE SECURITY INTEREST OF AND
IS HELD IN TRUST FOR THE BENEFIT OF FLEET BANK N.A., AS AGENT, PURSUANT TO THE
TERMS AND CONDITIONS OF A SECURITY AGREEMENT DATED JUNE 14, 1991 AND RELATED
DOCUMENTS, AS AMENDED FROM TIME TO TIME.
<PAGE>
LOAN AND COLLATERAL SCHEDULE NO. 001
Reference No. 2360
THIS LOAN AND COLLATERAL SCHEDULE is executed pursuant to that certain Loan
and Security Agreement (the "Agreement") dated as of July 4, 1998, between DVI
Financial Services Inc. ("Secured Party") and Cardiovascular Laboratories, Inc.
of PA ("Debtor").
1. Incorporation by Reference.
The Agreement is fully incorporated herein by reference.
2. Description of Collateral.
In consideration of the terms and conditions of the Agreement, and of
this Schedule, Secured Party has concurrently herewith made a cash Advance to
Debtor on the security of the Collateral described as follows:
THREE ATL HDI 3000 ULTRASOUND UNITS, TOGETHER WITH ALL PARTS, ACCESSORIES,
ATTACHMENTS, ACCESSIONS, ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS THERETO AND
THEREFOR
3. Amount of Advance.
The total amount of the Advance pursuant to this Schedule is $440,000.00
4. Term.
The Term for the Monthly Loan Repayments of the Advance made pursuant to
this Schedule shall commence on the date set forth below in Section 5, and
unless earlier terminated provided in the Loan and Security Agreement shall
continue for a period of 38 months.
5. Monthly Loan Repayments.
As Monthly Loan Repayments of the Advance made under this Schedule,
Debtor agrees to pay Secured Party the sum of ($518,315.44), payable, in
successive monthly installments of. 38 payments of ($13,639.88), beginning on
__________, 1999 and on the same day of each month thereafter until paid in
full. In the event there is an increase in the thirty (30) month Treasury Note
rate from the rate quoted in the proposal/commitment letter to the rate in
effect on the date this Schedule funds, then Secured Party reserves the right to
increase the Monthly Loan Repayment Amount by that same rate of increase.
Monthly Loan Repayments will be made to Secured Party as follows:
DVI Financial Services Inc.
500 Hyde Park
Doylestown, PA 18901
6. Duty to Pay Absolute.
Until the Debtor's obligation to make Monthly Loan Repayments has been
terminated as provided herein, it shall be absolute, unconditional, and without
deduction, offset, or abatement for any reason, and shall continue in full force
and effect regardless of Debtor's ability to use any item of Collateral or any
reason.
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7. Collateral Location.
The Collateral shall be located at
West Chester Square Medical Center 2475 St. Raymond Avenue
- --------------------------------------------------------------------------------
(Street)
Bronx Bronx County NY 10461
- --------------------------------------------------------------------------------
(City) (County) (State) (Zip)
The Collateral shall be located at
Tyler Memorial Hospital RD #1
- --------------------------------------------------------------------------------
(Street)
Tunkhannok Wyoming County PA 18657
- --------------------------------------------------------------------------------
(City) (County) (State) (Zip)
8. Other Provisions. (To be completed if appropriate).
DATED: July 14, 1999
DEBTOR: SECURED PARTY:
CARDIOVASCULAR LABORATORIES, INC. of PA DVI FINANCIAL SERVICES INC.
By /s/ Paul A. Toomey By /s/ Mark J. Gallagher
- --------------------------------------- ------------------------------
PAUL TOOMEY MARK J. GALLAGHER
- --------------------------------------- ------------------------------
(Print Name) (Print Name)
President & CEO Director of Credit
- --------------------------------------- ------------------------------
(Title) (Title)
Address: 999 Old Eagle School Road, Address:
Suite 108 500 Hyde Park
Wayne, PA 19087 Doylestown, PA 18901
THIS CONTRACT (AND EQUIPMENT SCHEDULE AND MASTER LEASE THE TERMS OF WHICH IT
INCORPORATES) HAS BEEN ASSIGNED TO, IS SUBJECT TO THE SECURITY INTEREST OF AND
IS HELD IN TRUST FOR THE BENEFIT OF FLEET BANK N.A., AS AGENT, PURSUANT TO THE
TERMS AND CONDITIONS OF A SECURITY AGREEMENT DATED JUNE 14, 1991 AND RELATED
DOCUMENTS, AS AMENDED FROM TIME TO TIME.
SECURED PARTY'S ORIGINAL
2
Corporate Indemnification Agreement
THIS Corporate Indemnification Agreement (hereinafter "Agreement") is entered
into on this fifteenth day of May 1998, between Timothy W. Cunningham
(hereinafter "TWC") and Cardiovascular Laboratories, Inc. and its subsidiaries
(hereinafter collectively referred to as "CLI" or the "Corporation")).
WHEREAS CLI wishes to protect, indemnify and hold harmless members of its Board
of Directors and corporate officers;
WHEREAS TWC is an officer and director of CLI, and requires such corporate
protection and indemnification in order to serve the needs of CLI;
NOW THEREFORE the parties hereto agree as follows:
1. Standard of Care and Justifiable Reliance - TWC shall stand in a fiduciary
relation to the Corporation and shall perform his or her duties, as a director,
including, duties as a member of any committee of the board upon which the
director serve, in good faith, in a manner TWC reasonably believes to be in the
best interests of the corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his or her duties, TWC shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented any of the following:
a. One or more officers or employees of the corporation whom TWC
reasonably believes to be reliable and competent in the matters presented.
b. Counsel, public accountants or other persons as to matters which
TWC reasonably believes to be within the professional or expert competence
of such person.
c. A committee of the board upon which TWC does not serve, duly
designated in accordance with law, as to matters within its designated
authority, which committee TWC reasonably believes to merit confidence.
TWC shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause his or her reliance to be
unwarranted.
2. Consideration of Factors
In discharging, the duties of his positions, TWC may, in considering the best
interests of the Corporation, consider the effects of any action upon employees,
upon suppliers and customers of the Corporation and upon communities in which
offices or other establishments of the corporation are located, and all other
pertinent factors. The consideration of those factors shall not constitute a
violation of Section 1 of this Agreement.
3. Presumption.
Absent breach of fiduciary duty, lack of good faith or self-dealing, actions
taken as a director or any failure to take any action shall be presumed to be in
the best interests of the corporation.
<PAGE>
4. Personal Liability of TWC.
TWC shall not be personally liable, as such, for monetary damages for any
action taken, or any failure to take any action, unless:
a. TWC has breached or failed to perform the duties of his or her
office under the section; and
b. The breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
The provisions of this Section 4 shall not apply to the responsibility or
liability of TWC pursuant to any criminal statute, or the liability of TWC for
the payment of taxes pursuant to local, State or Federal law.
5. Notice of Dissent.
If TWC is present at a meeting, of the board of directors, or of a committee of
the board at which action on any corporate matter is taken, then TWC shall be
presumed to have assented to the action taken unless his dissent is entered in
the minutes of the meeting or unless he files a written dissent to the action
with the secretary of the meeting before the adjournment of thereof or transmits
the dissent in writing to the secretary of the corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to TWC if he
voted in favor of the action. Nothing in this section shall bar TWC from
asserting that minutes of the meeting incorrectly omitted his dissent if,
promptly upon receipt of a copy of such minutes, TWC notifies the secretary in
writing, of the asserted omission or inaccuracy.
6. Indemnification.
CLI shall indemnify TWC and hold him harmless from and against, and shall
reimburse him for any and all demands, claims, losses, damages, costs and
expenses whatsoever, including, without limitation, reasonable attorneys' fees
which may be incurred by TWC by reason of his faithful discharge of his
fiduciary obligations as an officer and director of CLI in a manner consistent
with the terms of this Agreement.
7. Entire Agreement.
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions express
or implied, oral or written, except as contained in this agreement. The express
terms of this Agreement control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms of this Agreement. This
Agreement may not be modified or amended other than by an agreement in writing
signed by all of the parties.
8. Notices.
Any notice or other communication required or permitted to be given hereunder
shall be in writing, and shall be delivered to the parties at the addresses set
forth below (or to such other addresses as the parties may specify by due notice
to the other). Notices or other communications given by certified mail, return
receipt requested, postage prepaid, shall be deemed given three business days
after the date of mailing. Notices or other communications sent in any other
manner shall be given only when actually received.
2
<PAGE>
If to CLI: If to TWC:
Cardiovascular Laboratories, Inc Mr. Timothy W. Cunningham
999 Old Eagle School Road - Suite 108 151 Kent Circle
Wayne, PA 19087 Lower Gwynedd, PA 19002
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date
first above written.
/s/ Paul A. Toomey May 15, 1998
- --------------------------------------- -------------------------------------
Cardiovascular Laboratories, Inc. Date
/s/ Timothy W. Cunningham May 15, 1998
- --------------------------------------- -------------------------------------
Timothy W. Cunningham Date
3
Corporate Indemnification Agreement
THIS Corporate Indemnification Agreement (hereinafter "Agreement") is entered
into on this fifteenth day of May 1998, between Paul A. Toomey (hereinafter
"PAT") and Cardiovascular Laboratories, Inc. and its subsidiaries (hereinafter
collectively referred to as "CLI" or the "Corporation")).
WHEREAS CLI wishes to protect, indemnify and hold harmless members of its Board
of Directors and corporate officers;
WHEREAS PAT is an officer and director of CLI, and requires such corporate
protection and indemnification in order to serve the needs of CLI;
NOW THEREFORE the parties hereto agree as follows:
1. Standard of Care and Justifiable Reliance - PAT shall stand in a fiduciary
relation to the Corporation and shall perform his or her duties, as a director,
including duties as a member of any committee of the board upon which the
director serve, in good faith, in a manner PAT reasonably believes to be in the
best interests of the corporation and with such care, including, reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his or her duties, PAT shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following:
a. One or more officers or employees of the corporation whom PAT
reasonably believes to be reliable and competent in the matters
presented.
b. Counsel, public accountants or other persons as to matters which PAT
reasonably believes to be within the professional or expert competence
of such person.
c. A committee of the board upon which PAT does not serve, duty
designated in accordance with law, as to matters within its designated
authority, which committee PAT reasonably believes to merit
confidence.
PAT shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause his or her reliance to be
unwarranted.
2. Consideration of Factors
In discharging the duties of his positions, PAT may, in considering the best
interests of the Corporation, consider the effects of any action upon employees,
upon suppliers and customers of the Corporation and upon communities in which
offices or other establishments of the corporation are located, and all other
pertinent factors. The consideration of those factors shall not constitute a
violation of Section 1 of this Agreement.
3. Presumption.
Absent breach of fiduciary duty, lack of good faith or self-dealing, actions
taken as a director or any failure to take any action shall be presumed to be in
the best interests of the corporation.
<PAGE>
4. Personal Liability of PAT.
PAT shall not be personally liable, as such, for monetary damages for any action
taken, or any failure to take any action, unless:
a. PAT has breached or failed to perform the duties of his or her office
under the section; and
b. The breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
The provisions of this Section 4 shall not apply to the responsibility or
liability of PAT pursuant to any criminal statute, or the liability of PAT for
the payment of taxes pursuant to local, State or Federal law.
5. Notice of Dissent.
If PAT is present at a meeting of the board of directors, or of a committee of
the board at which action on any corporate matter is taken, then PAT shall be
presumed to have assented to the action taken unless his dissent is entered in
the minutes of the meeting or unless he files a written dissent to the action
with the secretary of the meeting before the adjournment of thereof or transmits
the dissent in writing to the secretary of the corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to PAT if he
voted in favor of the action. Nothing in this section shall bar PAT from
asserting, that minutes of the meeting incorrectly omitted his dissent if,
promptly upon receipt of a copy of such minutes, PAT notifies the secretary in
writing, of the asserted omission or inaccuracy.
6. Indemnification.
CLI shall indemnify PAT and hold him harmless from and against, and shall
reimburse him for any and all demands, claims, losses, damages, costs and
expenses whatsoever, including, without limitation, reasonable attorneys' fees
which may be incurred by PAT by reason of his faithful discharge of his
fiduciary obligations as an officer and director of CLI in a manner consistent
with the terms of this Agreement.
7. Entire Agreement.
This Agreement contains the entire understanding; among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions express
or implied, oral or written, except as contained in this agreement. The express
terms of this Agreement control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms of this Agreement. This
Agreement may not be modified or amended other than by an agreement in writing
signed by all of the parties.
8. Notices.
Any notice or other communication required or permitted to be given hereunder
shall be in writing, and shall be delivered to the parties at the addresses set
forth below (or to such other addresses as the parties may specify by due notice
to the other). Notices or other communications given by certified mail, return
receipt requested, postage prepaid, shall be deemed given three business days
after the date of mailing. Notices or other communications sent in any other
manner shall be given only when actually received.
2
<PAGE>
If to CLI: If to PAT:
Cardiovascular Laboratories, Inc Mr. Paul A. Toomey
999 Old Eagle School Road - Suite 108 Elm Garden Carriage House,
Wayne, PA 19087 1319 East Montgomery Avenue
Wynnewood, 19096
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
/s/ Timothy W. Cunningham May 15, 1998
- -------------------------------- -----------------------
Cardiovascular Laboratories, Inc. Date
/s/ Paul A. Toomey May 15, 1998
- --------------------------------- -----------------------
Paul A. Toomey Date
3
CORPORATE INDEMNIFICATION AGREEMENT
THIS Corporate Indemnification Agreement (hereinafter "Agreement") is entered
into on this second day of November 1998, between John R. Drexel, IV
(hereinafter "JRD") and Cardiovascular Laboratories, Inc. and its subsidiaries
(hereinafter collectively referred to as "CLI" or the "Corporation")).
WHEREAS CLI wishes to protect, indemnify and hold harmless members of its Board
of Directors and corporate officers;
WHEREAS JRD is an officer and director of CLI, and requires such corporate
protection and indemnification in order to serve the needs of CLI;
NOW THEREFORE the parties hereto agree as follows:
I Standard of Care and Justifiable Reliance - JRD shall stand in a fiduciary
relation to the Corporation and shall perform his or her duties, as a director,
including duties as a member of any committee of the board upon which the
director serve, in good faith, in a manner JRD reasonably believes to be in the
best interests of the corporation and with such care, including reasonable
inquiry, skill and diligence, as a person of ordinary prudence would use under
similar circumstances. In performing his or her duties, JRD shall be entitled to
rely in good faith on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by any of the following:
a. One or more officers or employees of the corporation whom JRD
reasonably believes to be reliable and competent in the matters presented.
b. Counsel, public accountants or other persons as to matters which
JRD reasonably believes to be within the professional or expert competence
of such person.
c. A committee of the board upon which JRD does not serve, duly
designated in accordance with law, as to matters within its designated
authority, which committee JRD reasonably believes to merit confidence.
JRD shall not be considered to be acting in good faith if he has knowledge
concerning the matter in question that would cause his or her reliance to be
unwarranted.
2. Consideration of Factors
In discharging the duties of his positions, JRD may, in considering the best
interests of the Corporation, consider the effects of any action upon employees,
upon suppliers and customers of the Corporation and upon communities in which
offices or other establishments of the corporation are located, and all other
pertinent factors. The consideration of those factors shall not constitute a
violation of Section 1 of this Agreement.
<PAGE>
3. Presumption.
Absent breach of fiduciary duty, lack of good faith or self-dealing, actions
taken as a director or any failure to take any action shall be presumed to be in
the best interests of the corporation.
4. Personal Liability of JRD.
JRD shall not be personally liable, as such, for monetary damages for any action
taken, or any failure to take any action, unless:
a. JRD has breached or failed to perform the duties of his or her
office under the section; and
b. The breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness.
The provisions of this Section 4 shall not apply to the responsibility or
liability of JRD pursuant to any criminal statute, or the liability of JRD for
the payment of taxes pursuant to local, State or Federal law.
5. Notice of Dissent.
If JRD is present at a meeting of the board of directors, or of a committee of
the board at which action on any corporate matter is taken, then JRD shall be
presumed to have assented to the action taken unless his dissent is entered in
the minutes of the meeting or unless he files a written dissent to the action
with the secretary of the meeting before the adjournment of thereof or transmits
the dissent in writing to the secretary of the corporation immediately after the
adjournment of the meeting. The right to dissent shall not apply to JRD if he
voted in favor of the action. Nothing in this section shall bar JRD from
asserting that minutes of the meeting incorrectly omitted his dissent if,
promptly upon receipt of a copy of such minutes, JRD notifies the secretary in
writing, of the asserted omission or inaccuracy.
6. Indemnification.
CLI shall indemnify JRD and hold him harmless from and against, and shall
reimburse him for any and all demands, claims, losses, damages, costs and
expenses whatsoever, including, without limitation, reasonable attorneys' fees
which may be incurred by JRD by reason of his faithful discharge of his
fiduciary obligations as an officer and director of CLI in a manner consistent
with the terms of this Agreement.
<PAGE>
7. Entire Agreement
This Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions express
or implied, oral or written, except as contained in this agreement. The express
terms of this Agreement control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms of this Agreement. This
Agreement may not be modified or amended other than by an agreement in writing
signed by all of the parties.
8. Notice
Any notice or other communication required or permitted to be given hereunder
shall be in writing, and shall be delivered to the parties at the addresses set
forth below (or to such other addresses as the parties may specify by due notice
to the other). Notices or other communications given by certified mail, return
receipt requested, postage prepaid, shall be deemed given three business days
after the date of mailing. Notices or other communications sent in any other
manner shall be given only when actually received.
If to CLI: If to JRD:
Cardiovascular Laboratories, Inc Mr. John R. Drexel, IV
999 Old Eagle School Road - Suite 108 40 East 94th Street
Wayne, PA 19087 NY, NY 10128
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.
/s/ Timothy W. Cunningham November 2, 1998
- -------------------------------------- ----------------------------
Cardiovascular Laboratories, Inc. Date
/s/ John R. Drexel, IV November 2, 1998
- -------------------------------------- ----------------------------
John R. Drexel, IV Date
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
CARDIOVASCULAR LABORATORIES, INC.
STOCK OPTION AGREEMENT
CARDIOVASCULAR LABORATORIES, INC. (the "Company") hereby grants to John R.
Drexel, IV (the "Optionee") this Company's Common Stock, without par value (the
"Common Stock"), at a price and on the terms and conditions set forth herein.
1. Grant. Effective as of June 1, 1998, (the "Date of Grant"), the
Company's Board of Directors granted to Optionee an option (the "Option") to
purchase up to 200,000 shares of the Common Stock of the Company (the "Option
Shares") at a price of $2.00 per shares (the "Option Price").
2. Type of Option. This Option is intended to be a non-qualified option and
is not intended to be an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
3. Term. The Option granted hereunder shall expire at 5:00 PM (local time
in the principal offices of the Company) on May 31, 2002 (the "Expiration
Date").
4. Method of Exercise and Payment.
4.1 This Option shall be exercisable by written notice to the Company
pursuant to Paragraph 9 hereof, specifying the number of Option Shares to
be purchased. The notice shall also be accompanied by payment of the
aggregate Option Price of the Option Shares being purchased.
4.2 If the listing registration or qualification of the Option Shares
upon any securities exchange or under any federal or state law, or the
consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of such Option Shares, the
Company shall not be obligated to issue or deliver the certificates
representing the Option Shares as to which the Option has been exercised
unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained.
4.3 To the extent permitted by the Board of Directors, payment of the
Option Price may be made: by cash, check, or such other instrument as the
Board of Directors may accept.
5. Rights of Stockholders. Neither an Optionee nor his or her legal
representatives or beneficiaries shall have any of the rights of a shareholder
with respect to
1
<PAGE>
any of the shares subject to any Option until such shares shall have been issued
upon the proper exercise of the Option.
6. Non transferability of the Option. Except as set forth herein, no Option
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code, or
Title I of the Employee Retirement Income Security Act, or the rules thereunder.
7. Adjustments. In the event of any change in the outstanding Common Stock
of the Company, such as merger, consolidation, reorganization, stock split,
stock dividend, combination of shares or exchange of shares, the Board of
Directors shall adjust appropriately the maximum number and class of shares
subject to the Option and/or Option Price, except that any fractional shares
resulting from such adjustments shall be eliminated by rounding any portion of a
share equal to .500 or greater up, and any portion of a share equal to less than
.005 down, in each case to the nearest whole number.
8. Transfer to Comply with the Securities Act of 1933. This Option may not
be exercised and neither this Option nor any of the Option Shares, nor any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered or
in any other manner transferred or disposed of, in whole of in part, except in
compliance with the applicable United States federal and state securities laws
and the terms and conditions hereof. Each Option shall bear a legend in
substantially the same form as the legend set forth on the first page of this
Option. Each certificate for Option Shares issued upon exercise of this Option,
unless at the time of exercise such Option Shares are acquired pursuant to a
registration statement that has been declared effective under the Act, shall
bear a legend substantially in the following form:
Sale, transfer, exchange or other disposition of these shares is
subject to the conditions specified in a shareholders' agreement which may
be examined at the office of the company. No transfers of these shares
shall be valid or effective until such conditions have been fulfilled. The
securities represented hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), or under the securities laws of any
state. These securities are subject to restrictions on transferability and
resale and may not be transferred, sold, pledged, hypothecated except as
permitted under the Act and applicable state securities laws, pursuant to
an effective registration statement or an exemption therefrom. The issuer
of these securities may require an opinion of legal counsel in form and
substance satisfactory to the issuer to the effect that any proposed
transfer or resale is in compliance with the act and any applicable state
securities laws.
Any certificate for any Option Shares issued at any time in exchange or
substitution for any certificate for any Option Shares bearing such legend
(except a new certificate for any Option Shares issued after the acquisition of
such Option Shares pursuant to a registration statement that has been declared
effective under the Act) shall also bear such legend unless, in the opinion of
legal counsel for the Company, the Option Shares represented thereby need no
longer be subject to the restriction contained herein. The provisions of this
Paragraph 8 shall be binding upon all subsequent holders of certificates for
Option Shares bearing the above legend and all subsequent holders of this
Option, if any.
9. Notices. Any notice to be given to the Company shall be addressed to the
Company at 999 Old Eagle School Road, Suite 108, Wayne, PA 19087, and any notice
given to the Optionee shall be addressed to the Optionee at Mr. John R. Drexel,
IV, 40 East 94th Street, NY, NY 10128, or at such other address as either party
hereafter may designate in writing to the other. Any such notice shall be deemed
to have been duly given when deposited in the United States mail, addressed as
aforesaid, registered or certified
2
<PAGE>
mail, and with proper postage and registration and certification fees prepaid,
or transmitted by hand delivery or overnight express.
10. Modification and Waiver. Neither this Option nor any term hereof may be
changed, waived, discharged or terminated other than by an instrument in writing
signed by the Company and by the Optionee.
11. Descriptive Headings, Arbitration/Jurisdiction of the Court. The
headings of the several paragraphs of this Option are inserted for convenience
only and do not constitute a part of this Option. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by arbitration in the County of Montgomery, Pennsylvania, USA, in
accordance with the rules of the American Arbitration Association there in
effect, except that the parties thereto shall have any rights to discovery as
would be permitted by the Federal Rules of Civil procedure and the prevailing
party shall be entitled to reasonable costs and reasonable attorney's fees from.
arbitration or any other civil action. Judgement upon the award rendered therein
may be entered in any Court having jurisdiction thereof. Jurisdiction for any
legal action is stipulated between the parties to lie in the County of
Montgomery, Pennsylvania, USA.
12. Assignment. This Option may not be assigned without the prior written
consent of the Company.
IN WITNESS WHEREOF, the Company has granted this Option as of the first day
of June, 1998.
CARDIOVASCULAR LABORATORIES, INC.
By: /s/ Timothy W. Cunningham
----------------------------------
ACKNOWLEDGMENT AND AGREEMENT:
Optionee acknowledges receipt of this Stock Option Agreement and agrees to
all of the terms and conditions contained herein.
OPTIONEE:
----------------------------------------
(Signature)
- -------------------------------------------------
(Name)
- -------------------------------------------------
(Street Address)
- -------------------------------------------------
(City)
- -------------------------------------------------
(State-Zip)
3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
CARDIOVASCULAR LABORATORIES, INC.
STOCK OPTION AGREEMENT
CARDIOVASCULAR LABORATORIES, INC. (the "Company") hereby grants to John R.
Drexel, IV (the "Optionee") this Company's Common Stock, without par value (the
"Common Stock"), at a price and on the terms and conditions set forth herein.
1. Grant. Effective as of August 1, 1998, (the "Date of Grant"), the
Company's Board of Directors granted to Optionee an option (the "Option") to
purchase up to 500,000 shares of the Common Stock of the Company (the "Option
Shares") at a price of $.01 per shares (the "Option Price").
2. Type of Option. This Option is intended to be a non-qualified option and
is not intended to be an incentive stock option within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
3. Term. The Option granted hereunder shall expire at 5:00 PM (local time
in the principal offices of the Company) on July 31, 2002 (the "Expiration
Date").
4. Method of Exercise and Payment.
4.1 This Option shall be exercisable by written notice to the Company
pursuant to Paragraph 9 hereof, specifying the number of Option Shares to
be purchased. The notice shall also be accompanied by payment of the
aggregate Option Price of the Option Shares being purchased.
4.2 If the listing registration or qualification of the Option Shares
upon any securities exchange or under any federal or state law, or the
consent or approval of any governmental regulatory body is necessary as a
condition of or in connection with the purchase of such Option Shares, the
Company shall not be obligated to issue or deliver the certificates
representing the Option Shares as to which the Option has been exercised
unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained.
4.3 To the extent permitted by the Board of Directors, payment of the
Option Price may be made: by cash, check, or such other instrument as the
Board of Directors may accept.
5. Rights of Stockholders. Neither an Optionee nor his or her legal
representatives or beneficiaries shall have any of the rights of a shareholder
with respect to
1
<PAGE>
any of the shares subject to any Option until such shares shall have been issued
upon the proper exercise of the Option.
6. Non transferability of the Option Except as set forth herein, no Option
may be sold, transferred, pledged, assigned or otherwise alienated or
hypothecated otherwise than by will or by the laws of descent and distribution
or pursuant to a qualified domestic relations order as defined by the Code, or
Title I of the Employee Retirement Income Security Act, or the rules thereunder.
7. Adjustments In the event of any chance in the outstanding Common Stock
of the Company, such as merger, consolidation, reorganization, stock split,
stock dividend, combination of shares or exchange of shares, the Board of
Directors shall adjust appropriately the maximum number and class of shares
subject to the Option and/or Option Price, except that any fractional shares
resulting from such adjustments shall be eliminated by rounding any portion of a
share equal to .500 or greater up, and any portion of a share equal to less than
.005 down, in each case to the nearest whole number.
8. Transfer to Comply with the Securities Act of 1933 This Option may not
be exercised and neither this Option nor any of the Option Shares, nor any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered or
in any other manner transferred or disposed of, in whole of in part, except in
compliance with the applicable United States federal and state securities laws
and the terms and conditions hereof. Each Option shall bear a legend in
substantially the same form as the legend set forth on the first page of this
Option. Each certificate for Option Shares issued upon exercise of this Option,
unless at the time of exercise such Option Shares are acquired pursuant to a
registration statement that has been declared effective under the Act, shall
bear a legend substantially in the following form:
Sale, transfer, exchange or other disposition of these shares is
subject to the conditions specified in a shareholders' agreement which may
be examined at the office of the company. No transfers of these shares
shall be valid or effective until such conditions have been fulfilled. The
securities represented hereby have not been registered under the Securities
Act of 1933, as amended (the "Act"), or under the securities laws of any
state. These securities are subject to restrictions on transferability and
resale and may not be transferred, sold, pledged, hypothecated except as
permitted under the Act and applicable state securities laws, pursuant to
an effective registration statement or an exemption therefrom. The issuer
of these securities may require an opinion of legal counsel in form and
substance satisfactory to the issuer to the effect that any proposed
transfer or resale is in compliance with the act and any applicable state
securities laws.
Any certificate for any Option Shares issued at any time in exchange or
substitution for any certificate for any Option Shares bearing such legend
(except a new certificate for any Option Shares issued after the acquisition of
such Option Shares pursuant to a registration statement that has been declared
effective under the Act) shall also bear such legend unless, in the opinion of
legal counsel for the Company, the Option Shares represented thereby need no
longer be subject to the restriction contained herein. The provisions of this
Paragraph 8 shall be binding upon all subsequent holders of certificates for
Option Shares bearing the above legend and all subsequent holders of this
Option, if any.
9. Notices. Any notice to be given to the Company shall be addressed to the
Company at 999 Old Eagle School Road, Suite 108, Wayne, PA 19087, and any notice
given to the Optionee shall be addressed to the Optionee at Mr. John R. Drexel,
IV, 40 East 94th Street, NY, NY 10128, or at such other address as either party
hereafter may designate in writing to the other. Any such notice shall be deemed
to have been duly given when deposited in the United States mail, addressed as
aforesaid, registered or certified
2
<PAGE>
mail, and with proper postage and registration and certification fees prepaid,
or transmitted by hand delivery or overnight express.
10. Modification and Waiver. Neither this Option nor any term hereof may be
changed, waived, discharged or terminated other than by an instrument in writing
signed by the Company and by the Optionee.
11. Descriptive Headings, Arbitration/Jurisdiction of the Court. The
headings of the several paragraphs of this Option are inserted for convenience
only and do not constitute a part of this Option. Any controversy or claim
arising out of or relating to this Agreement, or the breach thereof, shall be
settled by arbitration in the County of Montgomery, Pennsylvania, USA, in
accordance with the rules of the American Arbitration Association there in
effect, except that the parties thereto shall have any rights to discovery as
would be permitted by the Federal Rules of Civil procedure and the prevailing
party shall be entitled to reasonable costs and reasonable attorney's fees from
arbitration or any other civil action. Judgement upon the award rendered therein
may be entered in any Court having jurisdiction thereof. Jurisdiction for any
legal action is stipulated between the parties to lie in the County of
Montgomery, Pennsylvania, USA.
12. Assignment. This Option may not be assigned without the prior written
consent of the Company.
IN WITNESS WHEREOF, the Company has granted this Option as of the first day
of August, 1998.
CARDIOVASCULAR LABORATORIES, INC.
By: /s/ Timothy W. Cunningham
----------------------------------------
ACKNOWLEDGMENT AND AGREEMENT:
Optionee acknowledges receipt of this Stock Option Agreement and agrees to
all of the terms and conditions contained herein.
OPTIONEE:
---------------------------------
Signature
- ------------------------------------------
(Name)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City)
- ------------------------------------------
(State-Zip)
3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1993. AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
Re: Restricted Stock Award
Mr. James J. Wiley
Dear Jim:
It gives me pleasure on behalf of the Board of Directors of Cardiovascular
Laboratories, Inc. to inform you that the Board of Directors of Cardiovascular
Laboratories, Inc. (the "Company") have granted you (the "Optionee") a
Restricted Stock Award, (the "Option") on the 5th day of August, 1998 (the
"Grant Date") to purchase shares of the Company's Common Stock. Your performance
has helped strengthen the Company and this award represents the Company's
recognition of this as well as your potential for making significant
contributions in the years ahead. This Option provides you, as one of our key
employees, with added incentive to pursue the profitable growth of the Company.
The terms and conditions of your Option are as set forth below.
1. Grant. The Company hereby grants to the Optionee an Option to purchase
on the terms and conditions hereinafter set forth all or any part of any
aggregate of 100,000 shares of the Company's Common Stock, without par value
(the "Option Shares") at the purchase price of $0.10 per share (the "Option
Price"). This Option is not intended to be an "Incentive stock option" within
the meaning of section 422(b) of the Internal Revenue Code of 1986 (the "Code").
This Option is granted pursuant to and is subject to the terms and provisions of
the Company's 1998 Stock Option Plan (Effective May 1, 1998) (the "Plan"). All
questions of interpretation of the Plan and this Option shall be determined by
the Board, which determinations shall be final, binding and conclusive.
2. Term.
(a) General Rule. The Option granted hereunder shall be exercisable in
three cumulative annual installments, with each installment first exercisable on
the exercise date in the chart below for the number of Option Shares set across
from such exercise date, provided the Optionee then is a common law employee,
retained contractor or director of the Company or one of its Affiliates (as
defined in the Plan). Further, this Option may become sooner exercisable to the
extent provided under subsection 2(b) below. The Option granted hereunder shall
terminate in full at 5:00 P.M. Philadelphia, Pennsylvania time on December 31,
2009, unless sooner terminated under subsection 2(d) or (e) below. Any
installment may be
<PAGE>
exercised in whole or in part, except that this Option may in no event be
exercised with respect to fractional shares.
Exercise Date Option Shares
------------- -------------
Date of Grant 50,000
One Year Following Date of Grant 25,000
Two Years Following Date of Grant 25,000
(b) Special Rule for Death, Disability or Retirement. If the Optionee's
employment terminates due to death, disability, or retirement (as defined below)
prior to the date this Option is 100% exercisable, the installment which would
become exercisable on the next following exercise date shall become exercisable.
The Optionee's employment will be deemed to terminate due to "retirement" if, on
the Optionee's termination date, the Optionee is at least age 65 or the sum of
the Optionee's age and completed years of employment with the Company or its
subsidiaries (including employment with an entity acquired by the Company or a
subsidiary) measured from the Optionee's date of hire is at least 75. Except to
the limited extent provided in the preceding sentence, the portion of an Option
which is exercisable shall be fixed on the Optionee's employment termination
date.
(c) Forfeiture. This Option shall terminate immediately upon a finding
by the Committee, after full consideration of the facts presented on behalf of
both the Company and the Optionee, that the Optionee has engaged in any sort of
disloyalty to the Company or any of its Affiliates, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of the Optionee's employment or has disclosed trade
secrets or confidential information of the Company or an Affiliate. In such
event, in addition to immediate termination of the Option, the Optionee, upon a
determination by the Committee, shall automatically forfeit all Option Shares
upon the Company's refund of the Option Price. Further, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in a forfeiture. This Option shall also terminate
if, for any reason, the Participant ceases to be in the employ of the Company or
its Affiliates or ceases to be retained as a consultant for a period of one-year
from the date upon when this Option becomes first exercisable. In such event, in
addition to termination of the Option, if the Participant has acquired Option
Shares during a period of less than one-year from the date upon when each Option
installment set forth in Section 2(a) becomes first exercisable, the Participant
shall automatically forfeit all such Option Shares upon the Company's refund of
the Option Price.
3. Method of Option Exercise.
(a) Notice. When exercisable under Section 2, the Optionee may exercise
this Option by a written notice of such exercise to the Company's Secretary
pursuant to Section 8 and of payment in full of the Option Price for the Option
Shares to be purchased. Each such notice shall specify the number of Option
Shares to be purchased.
(b) Medium of Payment. The Optionee shall pay for the Option Shares
(i) in cash, (ii) by certified check payable to the order of the Company,
(iii) in shares of the Company's Common Stock which the Optionee held for at
least six months as of the
<PAGE>
exercise date, (iv) by a combination of the foregoing, (v) by delivery to the
Company of a properly executed notice of exercise together with irrevocable
instructions to a broker to deliver to the Company promptly the amount of the
proceeds of the sale of all or a portion of the Option Shares or of a loan from
the broker to the Optionee necessary to pay the aggregate exercise price
payable for the purchased Option Shares plus all applicable federal, state and
local taxes required to be withheld by the Company by reason of such exercise or
(vi) by such other mode of payment as the Committee may approve. If payment is
made in whole or in part in shares of the Company's Common Stock, then the
Optionee shall deliver to the Company certificates registered in the Optionee's
name representing shares of the Company's Common Stock owned by such Optionee,
free of all liens, claims and encumbrances of every kind and having a fair
market value on the date of delivery that is not greater than the Option Price
of the Option Shares with respect to which such Option is to be exercised,
accompanied by stock powers duly endorsed in blank by the Optionee.
Notwithstanding the foregoing, the Committee may impose such limitations and
prohibitions on the use of shares of the Company's Common Stock to exercise an
Option as it deems appropriate.
(c) Securities Laws. Each notice of exercise shall (unless the Option
Shares are covered by a then current registration statement under the Securities
Act of 1933, as amended (the "Act")), contain the Optionee's acknowledgment in
form and substance satisfactory to the Company that (i) such Option Shares are
being purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the Act),
(ii) the Optionee has been advised and understands that (A) the Option Shares
may not be registered under the Act and may be "restricted securities" within
the meaning of Rule 144 under the Act and may be subject to restrictions on
transfer and (B) the Company is under no obligation to register the Option
Shares under the Actor to take an action which would make available to the
Optionee any exemption from such registration, and (iii) such Option Shares may
not be transferred without compliance with all applicable federal and state
securities laws. Notwithstanding the foregoing, should the Company be advised by
counsel that issuance of Option Shares should be delayed pending (iv)
registration under federal or state securities laws or (v) the receipt of an
opinion that an appropriate exemption therefrom is available, the Company may
defer exercise of this Option until either such event in (iv) or (v) has
occurred.
(d) Transfer to Comply with the securities Act of 1933. This Option may
not be exercised and neither this Option nor any of the Option Shares, nor any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered or
in any other manner transferred or disposed of, in whole or in part, except in
compliance with applicable United States federal and state securities laws and
the terms and conditions hereof. Each Option shall bear a legend in
substantially the same form as the legend set forth on the first page of this
Option. Each certificate for Option Shares issued upon exercise of this Option,
unless at the time of exercise such Option Shares are acquired pursuant to a
registration statement that has been declared effective under the Act, shall
bear a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF
ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
<PAGE>
TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
Any certificate for any Option Shares issued at any time in exchange or
substitution for any certificate for any Option Shares bearing such legend
(except a new certificate for any Option Shares issued after the acquisition of
such Option Shares pursuant to a registration statement that has been declared
effective under the Act) shall also bear such legend unless, in the opinion of
legal counsel for the Company, the Option Shares represented thereby need no
longer be subject to the restriction contained herein. The provisions of this
Section 3(d) shall be binding upon all subsequent holders of certificates for
Option Shares bearing the above legend and all subsequent holders of this
Option, if any.
(e) Brokerage Account. Each notice of exercise may instruct the Company,
in such form as the Board shall prescribe, to deliver Option Shares upon Option
exercise to any registered broker or dealer which the Company approves in lieu
of delivery to the Optionee.
4. Transfers. During the Optionee's lifetime, the Optionee may transfer
this Option to a spouse or a lineal ascendant or descendant or a trust for the
benefit of such a person or persons or a partnership in which such persons are
the only partners, provided the Optionee receives no consideration for any such
transfer. At the Optionee's death, the Optionee may transfer this Option by will
or by the laws of descent and distribution. If a transfer occurs under this
Section, the transferred Option shall remain subject to all Plan provisions. A
transferee shall be required to furnish proof satisfactory to the Committee of
the transfer to the transferee by gift or by will or laws of descent and
distribution.
5. Adjustments on Changes in Common Stock. The number of shares issuable on
the exercise of this Option and the Option Price per Option Share shall be
subject to adjustment as provided in the Plan.
6. Amendment. The Board shall have the right to amend this Option subject
to the Optionee's consent.
7. Withholding of Taxes.
(a) General Rule. The Company may deduct from salary, fees or other
amounts payable to the Optionee any amount necessary to satisfy any federal,
state and/or local withholding tax requirements unless the Optionee pays over to
the Company an amount sufficient to satisfy such liability.
(b) Payment in Shares. The Optionee may elect that the Company satisfy
any applicable minimum withholding tax requirement by retaining a Option Shares
the Company would otherwise transfer to the Optionee upon exercise of the Option
which have a fair market value equal to such withholding requirement.
Notwithstanding the foregoing, the Committee may impose such limitations and
prohibitions on the use of Option Shares to satisfy withholding tax requirements
as it deems appropriate.
8. Notices. Any notice to be given to the Company shall be addressed to the
Secretary of the Company at its principal executive office, and any notice to be
given to the Optionee shall be addressed to the Optionee at the address then
appearing for the Optionee on the Company's records, or at such other address as
either party hereafter may designate in writing to the other. Any such notice
shall be deemed to have been duly given when deposited
<PAGE>
in the United States mail, addressed as aforesaid, registered or certified mail,
and with proper postage and registration or certification fees prepaid.
9. Employment. Nothing contained in this Option shall affect the right of
the Company or any Affiliate at any time for any reason whatsoever to terminate
the Optionee's employment of terminate or reduce the Optionee's
responsibilities, duties or authority to represent the Company or any Affiliate.
10. Counterparts. this Option may be executed in counterparts and when so
executed shall be effective as of the Grant Date.
Please indicate your acceptance of this Option by signing below, where
indicated, and then returning it to the Company's Secretary.
CARDIOVASCULAR LABORATORIES, INC.
By:
------------------------------
By: /s/ Timothy W. Cunningham
------------------------------
OPTIONEE: /s/ James J. Wiley
------------------------
(Signature)
James J. Wiley
----------------------------------
(Name)
522 Enfield Rd.
----------------------------------
(Address)
Oreland PA 19075
----------------------------------
(City) (State) (Zip Code)
Exhibit A to April 15, 1998 Consent of Majority Shareholder
1998 CLI STOCK OPTION PLAN
1. Purpose. Cardiovascular Laboratories, Inc., (the "Company") hereby
adopts the 1998 CLI Stock Option Plan effective April 17, 1998 (the "Plan") as
an additional incentive to eligible employees and eligible independent
contractors (as determined under Section 3) to enter into or remain in the
employ or service of the Company or any Affiliate (as defined below) and to
devote themselves to the Company's success by providing them with an opportunity
to acquire or increase their proprietary interest in the Company through receipt
of (a) rights (the "Options") to purchase the Company's Common Stock (the
"Common Stock") or (b) Common Stock subject to conditions of forfeiture (the
"Restricted Stock Awards"). Each Option granted under the Plan shall specify
whether or not it is intended to be an incentive stock option ("ISO") within the
meaning of section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code") or a non statutory stock option ("NSO") for federal income tax purposes.
For purposes of the Plan, the term "Affiliate" shall mean a corporation which is
a parent corporation or a subsidiary corporation with respect to the Company
within the meaning of section 424(e) or (f) of the Code.
2. Administration.
(a) Committee. The Plan shall be administered by the Board of
Directors (the "Board") or a committee designated by the Company's Board
(the "Committee").
(b) Meetings. The Board or the Committee shall hold meetings at such
times and places as it may determine. Acts approved at a meeting by a
majority of the members of the Board or the Committee present at a meeting
at which there is a quorum or acts approved in writing by the unanimous
consent of the Board or the Committee shall be the valid acts of the Board
or Committee.
(c) Grants. The Board or Committee shall from time to time at its
discretion direct the Company to grant Options or Restricted Stock Awards
pursuant to the terms of Plan. Subject to the express provisions of the
Plan, the Board or Committee shall have plenary authority to determine the
persons to whom and the times at which Options or Restricted Stock Awards
shall be granted, the number of shares of Common Stock to be granted under
an Option or Restricted Stock Award and the price and other terms and
conditions thereof, including a specification with respect to whether or
not an Option is intended to be an ISO. In making such determinations the
Board or Committee may take into account the nature of the person's
services and responsibilities, the person's present and potential
contribution to the Company's success and such other factors as it may deem
relevant. The Board's or Committee's interpretation of any provision of the
1
<PAGE>
Plan or of any Option or Restricted Stock Award granted under it shall
be final, binding and conclusive.
(d) Exculpation. Each Board or Committee member shall be acting in the
capacity of a director of the Company for the purpose of Articles VI and
VII of the Company's Articles of Incorporation in connection with the
administration of the Plan or the granting of Options or Restricted Stock
Awards under the Plan.
(e) Indemnification. Each Board or Committee member shall be entitled
to indemnification by the Company in accordance with the provisions and
limitations of Article VII of the Company's Bylaws, as the same may be
amended from time to time, in connection with or arising out of any action,
suit or proceeding with respect to the administration of the Plan or the
granting of Options or Restricted Stock Awards under the Plan in which he
may be involved by reason of his being or having been a Board or Committee
member, whether or not he continues to be a Board or Committee member at
the time of the action, suit or proceeding.
3. Eligibility. All persons the Company or its Affiliates employ as
employees or retained as independent contractors or directors of the Company
who, in the Committee's judgment, hold positions of responsibility or whose
performance can have a significant or material effect on the Company's long-term
success or achievement of specific objectives shall be eligible to participate
(the "Participants"). The Board or Committee, in its sole discretion, shall
determine whether an individual qualifies as a Participant. Subject to the
Plan's terms and restrictions, a Participant may receive more than one Option or
Restricted Stock Award; provided, however, a Participant may not receive Options
and Restricted Stock Awards in any one calendar year for more than an aggregate
of 100,000 Shares. A Participant who is an independent contractor or a
nonemployee member of the Company's Board of Directors may not receive an Option
which is intended to be an ISO.
4. Available Shares. The aggregate maximum number of shares of the Common
Stock for which the Committee may issue Options or Restricted Stock Awards under
the Plan is 1,750,000 shares, adjusted as provided in Section 9 (the "Plan
Shares" or "Shares"). Plan Shares shall be issued from authorized and unissued
Common Stock or Common Stock held in or hereafter acquired for the Company's
treasury. If any outstanding Option or Restricted Stock Award granted under the
Plan expires, lapses or is terminated for any reason, the Plan Shares allocable
to the unexercised portion of such Option or forfeited portion of such
Restricted Stock Award may again be the subject of grant pursuant to the Plan.
5. Term of Plan. The Plan is effective as of April 17, 1998, the date on
which it was adopted by the Company's Board of Directors. No Option or
Restricted Stock Award granted under the Plan shall be exercisable or
nonforfeitable unless the Plan is approved by vote of a majority of outstanding
voting stock of the Company on or before December 31, 1999. No Option or
Restricted Stock Award may be granted under the Plan after December 31, 2008.
2
<PAGE>
6. Terms and Conditions of Options. Options granted pursuant to the Plan
shall be evidenced by written documents (the "Option Documents") in such form or
forms as the Committee shall from time to time approve. Option Documents shall
comply with and be subject to the terms and conditions set forth below and such
other terms and conditions which the Committee shall from time to time specify
with respect to a particular Option or Options provided they are not
inconsistent with the terms of the Plan. The applicable terms need not be
uniform between or among Options.
(a) Number of Shares. Each Option Document shall state the number of
Shares to which it pertains.
(b) Option Price. Each Option Document shall state the price at which
Shares under Option may be purchased (the "Option Price"). It is expressly
intended that the Option Price may be less than the fair market value of
the Common Stock on the date the option is granted, except that the Option
Price with respect to ISOs shall not be less than 100% of the fair market
value of the Common Stock on the date of grant; provided, however, if an
ISO is granted to a Participant who then owns, directly or by attribution
under section 424(d) of the Code, shares possessing more than ten percent
of the total combined voting power of all classes of stock of the Company
or an Affiliate, then the Option Price for such ISO shall be at least 110%
of the Common Stock's closing price on the date the Option is granted.
(c) Exercisablity.
(i) Options shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the
Board or Committee at or after grant. If the Board or Committee
provides in its discretion, that any Option is exercisable only in
installments, the Board or Committee may waive such installment
exercise provisions at any time at or after grant in whole or in part,
based on such factors as the Board or Committee shall determine, in
its sole discretion.
(ii) Change in Control. A "Change in Control" for purposes of
this Plan shall mean any one of the following events:
(A) at any time during a period of two (2) consecutive
years, at least a majority of the Board shall not consist of
Continuing Directors. "Continuing Directors" shall mean directors
of the Company at the beginning of such two-year period and
directors who subsequently became such and whose selection or
nomination for election by the Company's shareholders was
approved by a majority of the ten Continuing Directors; or
(B) any person or "group" (as determined for purposes of
Regulation 13D-G promulgated by the Commission under the Exchange
Act or under any successor regulation), but excluding any
majority-owned subsidiary or any employee benefit plan sponsored
by the Company or any subsidiary or any trust or investment
manager for the account of such a plan, shall have acquired
"beneficial ownership" (as determined for purposes of such
regulation) of the Company's securities representing fifty
3
<PAGE>
percent (50%) or more of the combined voting power of the
Company's then outstanding securities unless such acquisition is
approved in advance by a majority of the directors of the Company
who were in office immediately preceding such acquisition and any
individual selected to fill any vacancy created by reason of the
death or disability of any such director; or
(C) the Company becomes a party to a merger, consolidation
or share exchange in which either (i) the Company will not be the
surviving corporation or (ii) the Company will be the surviving
corporation and any outstanding shares of Common Stock will be
converted into shares of any other company (other than a
reincorporation or the establishment of a holding company
involving no change in ownership of the Company or other
securities or cash or other property (excluding payments made
solely for fractional shares); or
(D) the Company's shareholders (i) approve any plan or
proposal for the disposition or other transfer of all, or
substantially all, of the assets of the Company, whether by means
of a merger, reorganization, liquidation or dissolution or
otherwise or (ii) dispose of, or become obligated to dispose of,
50% or more of the outstanding capital stock of the Company by
tender offer or otherwise. If a Change in Control has occurred,
all outstanding, and fully vested options granted under the Plan
shall be immediately exercisable by the holder of the option for
the total remaining number of Shares covered by the option and
shall survive any such event.
(d) Medium of Payment. A Participant shall pay for Shares under Option
(i) in cash, (ii) by certified check payable to the order of the Company,
(iii) in shares of the Common Stock held by the Participant for a least six
months as of the exercise date, (iv) by a combination of the foregoing, (v)
by delivery to the Company of a properly executed notice of exercise
together with irrevocable instructions to a broker to deliver to the
Company promptly the amount of the proceeds of the sale of all or a portion
of the Shares or of a loan from the broker to the Participant necessary to
pay the aggregate exercise price payable for the purchased Shares plus all
applicable federal, state and local income and employment taxes required to
be withheld by the Company by reason of such exercise or (vi) by such other
mode of payment as the Board or Committee may approve. If payment is made
in whole or in part in shares of the Common Stock, then the Participant
shall deliver to the Company certificates registered in the name of such
Participant representing shares of Common Stock owned by such Participant,
free of all liens, claims and encumbrances of every kind and having a fair
market value on the date of delivery that is not greater than the Option
Price of the Shares with respect to which such Option is to be exercised,
accompanied by stock powers duly endorsed in blank by the Participant.
Notwithstanding the foregoing, the Committee may impose such limitations
and prohibitions on the use of shares of the Common Stock to exercise an
Option as it deems appropriate.
(e) Termination of ISOs. Unless the Board or Committee provides
otherwise in an Option Document, no unvested ISO may be exercised until
vested and a fully vested ISO shall not be exercisable after the first to
occur of the following:
4
<PAGE>
(i) Term Capitation. Expiration of the term specified in the
Option Document, which shall not exceed ten years from the date of
grant or five years from the date of grant if the Participant on the
date of grant owns, directly or by attribution under section 424(d) of
the Code, shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or of an
Affiliate,
(ii) Employment Termination. Expiration of 10 days from the date
the Participant's employment with the Company or its Affiliates
terminates unless any of subsection 6(c)(iii) - 6(c)(vi) applies:
(iii) Retirement. Expiration of 30 days from the date the
Participant's employment with the Company or its Affiliates terminates
due to "retirement";
(iv) Disability. Expiration of six-months from the date the
Participant's employment with the Company or its Affiliates terminates
if the Participant terminates due to disability (within the meaning of
section 22(e)(3) of the Code);
(v) Death. Expiration of the Option term if the Participant's
employment terminates due to death, or
(vi) Forfeiture. The date on which forfeiture occurs under
subsection 6(g).
(f) Termination of NSO's. Unless the Committee provides otherwise in
an Option Document, no unvested NSO may be exercised until vested and a
fully vested NSO shall not be exercisable after the first to occur of the
following:
(i) Term Expiration. Expiration of the term specified in the
Option Document, which shall not exceed ten years from the date of
grant,
(ii) Forfeiture. The date on which forfeiture occurs under
subsection 6(g).
(g) Forfeiture. An Option shall terminate immediately upon a finding
by the Board or Committee, after full consideration of the facts presented
on behalf of both the Company and the Participant, that the Participant has
engaged in any sort of disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his employment or service or
has disclosed trade secrets or confidential information of the Company or
an Affiliate or engaged in competition with the Company or an Affiliate. In
such event, in addition to immediate termination of the Option, the
Participant, upon a determination by the Board or Committee, shall
automatically forfeit all Shares for which the Company has not yet
delivered the share certificate upon the Company's refund of the Option
Price.
5
<PAGE>
(h) Transfers. Generally, a Participant may not transfer any Option
granted under the Plan, except that (i) during his lifetime, a Participant
may transfer an NSO to a spouse or a lineal ascendant or descendant or a
trust for the benefit of such person or persons or a partnership in which
such persons are the only partners, provided the Participant receives no
consideration for any such transfer and (ii) at the Participant's death, a
Participant may transfer an Option by will or by the laws of descent and
distribution. If a transfer occurs under this subsection, the transferred
Option shall remain subject to all Plan provisions. A transferee shall be
required to furnish proof satisfactory to the Committee of the transfer to
him by gift or by will or laws of descent and distribution.
(i) Limits on ISOs. Each ISO shall provide that to the extent the
aggregate fair market value of Plan Shares with respect to which a
Participant may exercise an ISO for the first time during any calendar year
under any Company plan exceeds $100,000, then such Option shall be treated
as an NSO rather than as an ISO.
(j) Other Provisions. The Option Documents shall contain such other
provisions including, without limitation, additional restrictions upon the
exercise of the Option or additional limitations upon the term of the
Option, as the Board or Committee shall deem advisable.
(k) Amendment. The Board or Committee shall have the right to amend
Option Documents issued to a Participant subject to the Participant's
consent.
7. Method of Option Exercise.
(a) Notice. No Option shall be deemed to have been exercised prior to
the Company's receipt of written notice of such exercise and of payment in
fall of the Option Price for the Shares to be purchased. Each such notice
shall specify the number of Shares to be purchased.
(b) Securities Laws. Each notice of exercise shall (unless the Shares
are covered by a then current registration statement under the Securities
Act of 1933, as amended (the "Act")), contain the Participant's
acknowledgment in form and substance satisfactory to the Company that (i)
such Option Shares are being purchased for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without
violating the registration provisions of the Act), (ii) the Participant has
been advised and understands that (A) the Option Shares may not be
registered under the Act and may be "restricted securities" within the
meaning of Rule 144 under the Act and may be subject to restrictions on
transfer and (B) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to
the Participant any exemption from such applicable federal and state
securities laws. Notwithstanding the foregoing should the Company be
advised by counsel that issuance of Shares should be delayed pending (iv)
registration under federal or state securities laws or (v) the receipt of
an opinion that an appropriate exemption therefrom is available, the
Company may defer
6
<PAGE>
exercise of any Option granted hereunder until either such event in (iv) or
(v) has occurred.
(c) Brokerage Account. Each notice of exercise may instruct the
Company, in such form as the Board or Committee shall prescribe, to deliver
Shares upon Option exercise to any registered broker or dealer which the
Company approves in lieu of delivery to the Participant.
(d) Legend. Any certificate issued in respect of an Option shall be
registered in the Participant's name and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable under the
Plan and Option Documents to the covered Shares.
8. Terms and Conditions of Restricted Stock Awards. Restricted Stock Awards
made pursuant to the Plan shall be evidenced by written documents (the "award
Documents") in such form or forms as the Board or Committee shall from time to
time approve.
(a) Number of Shares. Subject to Section 4, each Award Document shall
state the number of Shares to which it pertains.
(b) Restrictions and Limitations. Each grant shall be subject to such
restrictions as the Board or Committee may impose. The applicable
restrictions may lapse separately or in combination at such time or times,
or in such installments, as the Board or Committee may deem appropriate. In
addition, the Board or Committee may impose limits on the Participant's
right to vote Shares or receive dividends or distributions on Shares under
a Restricted Stock Award until such Shares become nonforfeitable. Each
Award Document shall provide that the Participant has engaged in conduct
which violates subsection 6(g) and that all forfeitable Shares shall become
nonforfeitable upon the occurrence of a Chance in Control (as defined in
subsection 6(c)(ii)).
(c) Legend. Any certificate issued in respect of a Restricted Stock
Award shall be registered in the Participant's name and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable under the Plan and Award Document to the covered Shares. In
addition, until such time as all restrictions applicable to the Shares
lapse, the Board or Committee may provide for the certificate to be held in
escrow by an escrow agent which the Board or Committee selects and the
Company compensates.
(d) Forfeiture.
(i) General Rule. If a Participant terminates employment during
any restriction period under circumstances which result in a
forfeiture of Shares covered by the Restricted Stock Award or any
event occurs or fails to occur which results in a forfeiture, the
restricted Shares shall revert to the Company. Notwithstanding the
foregoing, the Board or Committee may waive any restriction applicable
to any Restricted Stock Award whenever the Board or Committee
determines that such waiver is in the
7
<PAGE>
Company's best interests. Unless otherwise set forth in the
Restricted Stock Award grant, an Option shall terminate if, for any
reason, the Participant ceases to be in the employ of the Company or
its Affiliates or ceases to be retained as a consultant for a period
of one-year as determined from the date upon when the Option becomes
first exercisable. In such event, in addition to termination of the
Option, if the Participant has acquired Option Shares during a period
of less than one-year from the date upon when each Option installment
set forth in The Restricted Stock Award document becomes first
exercisable, the Participant shall automatically forfeit all such
Option Shares upon the Company's refund of the Option Price.
(ii) Forfeiture for Cause. A Participant shall forfeit all
forfeitable Shares covered by a Restricted Stock Award immediately
upon a finding by the Board or Committee, after full consideration of
the facts presented on behalf of both the Company and the Participant,
that the Participants has engaged in any sort of disloyalty to the
Company or an Affiliate, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in
the course of his employment or service or has disclosed trade secrets
or confidential information of the Company or an Affiliate or engaged
in competition with the Company or an Affiliate.
(e) Transfers. Generally, a Participant may not transfer, assign,
alienate, sell, encumber, or pledge Shares under a Restricted Stock Award
until they are nonforfeitable and any purported transfer, assignment,
alienation, sale, encumbrance or pledge shall be void and unenforceable.
Notwithstanding the foregoing, (i) a Participant may transfer forfeitable
Shares under a Restricted Stock Award to a spouse or a lineal ascendant or
descendant or a trust for the benefit of such a person or persons or a
partnership in which such persons are the only partners, provided the
Participant receives no consideration for any such transfer and (ii) at the
Participant's death, a Participant may transfer forfeitable Shares under a
Restricted Stock Award by will or by the laws of descent and distribution.
If a permitted transfer occurs under this subsection, the transferred
Shares shall remain subject to all Plan provisions and all applicable
conditions and restrictions under the Award Document. A transferee shall
be required to furnish proof satisfactory to the Board or Committee of the
transfer to him by gift or by will or laws of descent and distribution.
(f) Securities Laws. Upon the advice of counsel, the Board or
Committee may require a Participant to take or defer any action with
respect to Shares covered under a Restricted Stock Award which counsel
determines is necessary to comply with federal or state securities laws.
9. Adjustments on Changes in Common Stock. The aggregate number of shares
and class of shares as to which Options or Restricted Stock Awards may be
granted hereunder, the number of Shares covered by each outstanding Option and
the Option Price thereof and each Restricted Stock Award shall be appropriately
adjusted in the event of a stock dividend, stock split, recapitalization or
other change in the number or class of issued and outstanding equity securities
of the Company resulting from a subdivision or consolidation of the Common Stock
and/or other outstanding equity security or recapitalization or other capital
adjustment (not including the issuance of Common Stock
8
<PAGE>
upon the conversation of other securities of the Company which are convertible
into Common Stock) affecting the Common Stock which is effected without receipt
of consideration by the Company. The Board or Committee shall have authority to
determine the adjustments to be made under this Section and any such
determination by the Board or Committee shall be final, binding and conclusive;
provided, however, that no adjustment shall be made which causes an ISO to lose
its status as such without the consent of the Participant.
10. Amendment of the Plan. The Board of Directors of the Company may amend
the Plan from time to time in such manner as it may deem advisable to terminate
the Plan in full. Nevertheless, the Board of Directors of the Company may not,
without obtaining approval by vote of a majority of the outstanding voting stock
of the Company within twelve months before or after such action, change the
class of individuals eligible to receive grants under the Plan or increase the
maximum number of shares of Common Stock as to which Options or Restricted Stock
Awards may be granted, except as provided in Section 9 hereof
11. Continued Employment. The grant of an Option or a Restricted Stock
Award pursuant to the Plan shall not be construed to imply or to constitute
evidence of any agreement, express or implied, on the part of the Company or any
Affiliate to retain the Participant in the employ of the Company or an Affiliate
or as a member of the Company's or an Affiliate's Board of Directors or in any
other capacity.
12. Withholding of Taxes.
(a) General Rule. As a condition for the receipt of an Option or
Restricted Stock Award, the Participant agrees that the Company (or the
Affiliate employing him) may deduct from wages or other amounts payable to
him or that he will pay over to the Company any amount necessary to satisfy
any federal, state and/or local withholding tax requirements and that the
Company shall have the right to take whatever action it deems necessary to
protect its interests with respect to tax liabilities resulting from any
act or event in connection with the Plan.
(b) Payment in Shares. The Participant may elect that the Company
satisfy any applicable minimum federal, state and/or local withholding tax
requirement by retaining Shares the Company would otherwise transfer to him
upon his exercise of an Option or satisfaction of all vesting conditions
under a Restricted Stock Award which have a fair market value equal to such
withholding requirement. Notwithstanding the foregoing, the Board or
Committee may impose such limitations and prohibitions on the use of shares
of the Common Stock to satisfy withholding tax requirements as it deems
appropriate.
13. Rules of Interpretation. Regardless of the number and gender
specifically used, words used in the Plan shall be deemed and construed to
include any other number (singular or plural) and any other gender (masculine,
feminine or neuter) as the context indicates is appropriate. Section headings
are for convenience only; they form no part of the Plan.
9
<PAGE>
14. Substitution of Options in a Merger, Consolidation or Share Exchange.
In the event that the Company becomes a party to a merger, consolidation or
share exchange (a "Business Combination") and in connection therewith
substitutes Options under the Plan for options of another party to such Business
Combination, notwithstanding the provisions of the Plan, the terms of such
substituted options may have the same terms and conditions (provided that the
number of shares issuable and the exercise prices are adjusted in accordance
with the terms of the Business Combination) as the former options of such other
party to the Business Combination, provided, however, that the exercise price of
the Options to be granted under the Plan shall be lawful consideration as
determined by the Board or Committee.
15. Notices and Communications. Should the Board of Directors deem it
appropriate or necessary to inform Plan Participants concerning any aspect of
the Plan, such notices and communications shall be sent to the Participant at
the address so noted in the Participant's Stock Option Grant or Restricted Stock
Award, as amended from time to time by sending written notice to the Company.
All such notices, advises and communications shall be deemed to have been
received (a) in the case of personal delivery or recognized overnight courier
service, on the date of such delivery and (1), in the case of mailing, on the
third business day following such mailing.
16. Necessary Documents. If any Shareholder is required to sell his Shares
under the terms of this Agreement, such Shareholder or his legal representative
shall execute and deliver all necessary documents that reasonably may be
required to accomplish a complete transfer of such Shares.
17. Specific Performance. In the event of a breach or threatened breach
under this Agreement, the parties agree that the remedy at law would be
inadequate and any party to this Agreement shall be entitled to appropriate
injunctive and other equitable relief including without limitation, specific
performance. Further, any non-breaching party shall be entitled to recover the
loss, cost and expense (including reasonable attorneys' fees) which such party
incurs in securing any relief at law or in equity.
18. Modification. No waiver by any part hereto of any condition, or the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed or construed as a
further or continuing waiver of any such conditions or breach or waiver of any
other condition.
19. Subsequent Signatories. As a condition to the transfer of any shares of
Common Stock, whether pursuant to an original issuance of shares of Common
Stock, a Permitted Transfer, or otherwise, the transferee of any of such shares
shall be required to enter into an agreement agreeing to be bound by all of the
provisions of this Agreement. Any transfer of any shares of Common Stock in
breach of the foregoing sentence shall be null and void and shall not be
reflected on the Company's transfer records.
20. Arbitration/Jurisdiction of the Court. Any controversy or claim arising
out of or relating to this Plan, or the breach thereof, shall be settled by
arbitration
10
<PAGE>
in the County of Delaware, Pennsylvania, USA, in accordance with the rules of
the American Arbitration Association there in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
----------------------------------------
By:
-------------------------------------
SHAREHOLDERS:
----------------------------------------
----------------------------------------
11
AGREEMENT
This Agreement is made and entered into as of this 6th day of May, 1998 between
Brennan, Dyer & Company, LLC (the "Adviser") and Cardiovascular Laboratories,
Inc., a Nevada corporation, (the "Company").
In consideration of the mutual promises made herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
The Company hereby engages the Adviser on a non-exclusive basis for the
term specified in Paragraph 2 hereof to render consulting advice to the Company
as a financial and investment relations specialist relating to corporate and
similar matters upon the terms and conditions set forth herein. During the term
of this Agreement, the Adviser and the Company intend to evaluate the
possibilities for additional engagements that may be embodied in one or more
separate written agreements.
Except as otherwise specified herein, this Agreement shall be effective
for twelve (12) months from the date hereof unless it is terminated by either
party upon one hundred twenty (120) days written notice received either by the
Adviser or the Company.
During the term of this Agreement, the Adviser shall provide the Company
with such regular and customary consulting advice as is reasonably within the
scope of the advisory services contemplated by this Agreement. It is understood
and acknowledged by the parties that the value of the Adviser's advice is not
readily quantifiable, and that the Adviser shall be obligated to render advice
upon the request of the Company, in good faith and on a best efforts basis, but
shall not be obligated to spend any specific amount of time in so doing. The
Adviser's duties may include, but will not necessarily be limited to, providing
recommendations to the Company concerning the following matters:
Assisting the Company in raising investment funds for the Company
Rendering advice and assistance to the Company generally in connection
with investment opportunities, including possible mergers and acquisitions.
Assisting the Company in promotion of the Company
Assisting the Company in financial public relations.
In the event the Company shall complete an acquisition of an entity
presented to the Company by the Adviser, or the Company shall effect the sale of
its capital stock to a third person or entity introduced to the Company by the
Adviser, the Company shall pay the Adviser a fee based on the purchase price
(the "Purchase price") for such entity, or the purchase price for the Company's
capital stock, as the case may be, in accordance with the following formula:
5% of the first $1 million of the Purchase Price
(or portion thereof)
4% of the 2nd $1 million of the Purchase Price
(or portion thereof)
3% of the 3rd $1 million of the Purchase Price
(or portion thereof)
<PAGE>
2% of the 4th $1 million of the Purchase Price
(or portion thereof)
1% of the balance of the Purchase price
For the purposes of this Agreement, "Purchase Price" shall mean the value on the
day of closing of stock, cash assets and all other property (real or personal)
paid, exchanged or received, directly by the Company.
The Company recognizes and confirms that for advising the Company and in
fulfilling its engagement hereunder, the Adviser will use and rely on data,
material and other information furnished to the Adviser by the Company. The
Company acknowledges and agrees that in performing its services under this
engagement, the Adviser may rely upon the data, material and other information
supplied by the Company without independently verifying the accuracy,
completeness or veracity of same. Accordingly, the Company expressly agrees that
all data, material and other information furnished to the Adviser by the Company
shall not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstance under which they were made, not
misleading.
The Adviser shall perform its services hereunder as an independent
contractor and not as an employee of the Company or an affiliate thereof. It is
understood and agreed to by the parties hereto that the adviser shall have no
authority to act for, represent or bind the Company or any affiliate thereof in
any manner except as may agreed to expressly by the Company in writing from time
to time.
(a) This Agreement constitutes the entire Agreement and understanding of
the parties hereto, and supercedes any and all previous agreements and
understandings, whether oral or written, between the parties with respect to the
matters set forth herein.
(b) All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when personally delivered, sent by registered or certified mail,
return receipt requested, postage prepaid, or by overnight mail service (e.g.
Airborne Express) to the party at the address set forth below, or to such other
address as either party may hereunder give notice of in accordance with the
provisions hereof:
If to the Company:
Cardiovascular Laboratories, Inc.
Suite 615
983 Old Eagle School Rd.
Wayne, PA 19087
If to the Adviser:
Brennan Dyer & Company, LLC
735 Broad Street - Suite 800
Chattanooga, TN 37402
(c) This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors, legal representatives and
assigns.
This Agreement may be executed in any number of counterparts, each of which
together shall constitute one and the same original document.
<PAGE>
No provision of this Agreement may be amended, modified, or waived except
in a writing signed by all of the parties hereto.
If the foregoing correctly sets forth the understanding between the Adviser and
the Company with respect to the foregoing, please so indicate your agreement by
signing in the place provided at which time this letter shall become a binding
contract.
Accepted and Agreed:
Cardiovascular Laboratories, Inc.
By: /s/ Timothy W. Cunningham
-----------------------------
Timothy W. Cunningham
Brennan Dyer & Company, LLC
By: /s/ James H. Brennan, III
-----------------------------
James H. Brennan, III
By: /s/ Douglas A. Dyer
-----------------------------
Douglas A. Dyer
Amendment (the "Amendment")
to
Agreement Dated May 6, 1998
between
Cardiovascular Laboratories, Inc
and
Brennan Dyer & Company, LLC
(the "Agreement")
Whereas Cardiovascular Laboratories, Inc. ("CLI"), a Nevada corporation, wishes
to amend the Agreement to reflect CLI's intention to more fully engage and
compensate Brennan Dyer & Company, LLC (the "Advisor") in an effort to raise
equity financing for CLI and,
Whereas the Advisor wishes to amend the Agreement to reflect the Advisor's
intention to secure such financing for CLI and to further define the
compensation the Advisor shall receive for such financing efforts,
Now therefore, intending to be legally bound hereby, the parties agree to amend
the Agreement by replacing the original Section 4 of the Agreement in its
entirety with the following amended Section 4:
4. The Advisor shall use its best efforts to complete an equity financing with
net cash proceeds to CLI of not less than $600,000 nor more than $750,000
(the "Equity Financing") as more fully described in this Section 4.
a. The Equity Financing shall be a transaction whereby CLI sells equity
securities, or securities that contain an equity component to an
investor or a group of investors (hereinafter referred to singularly
as an :Investor" or collectively as "Investors"). While CLI would
prefer to sell shares of its common stock to the Investor or
Investors, CLI recognizes that the Equity Financing may consist of a
sale of securities that may include, but is not limited to other
securities or combination of securities that include a common stock
equivalent component. Common stock equivalents include, without
limitation, securities that convert into shares of common stock, are
exchangeable for shares of common stock, or confer a right or
privilege to an Investor or Investors to otherwise acquire shares of
common stock.. An Equity Financing shall not be deemed to have taken
place if it consists solely of the sale of debt securities without an
common stock equity equivalent component.
b. Compensation for the Advisor's services shall consist of a fee of 10%
of the gross amount of proceeds of any Equity Financing consummated by
CLI during the term of the Agreement, regardless of whether such
Investor was introduced by the Advisor or otherwise. This 10% fee
shall be payable to the Advisor at the closing from the proceeds of
the Equity Financing.
c. Additional compensation for the Advisor's services shall consist of a
total of up to 250,000 shares of CLI unregistered common stock to be
paid as follows:
(i) 50,000 shares of CLI unregistered common stock to be issued upon
execution of this Agreement,
(ii) 200,000 shares of unregistered CLI common stock upon the closing
of an Equity Financing at a per share common equivalent price
equal to or greater than $0.25. ,
(iii) If CLI, fails to accept the terms of a proposed Equity Financing
(the "Proposed Equity Financing") with a per share common
equivalent price equal to or greater than $0.25, and net proceeds
to CLI equal to or greater than $600,000, then CLI
<PAGE>
shall pay to the Advisor a rejection fee (the "Rejection Fee")
equal to 200,000 shares of CLI's unregistered common stock
provided, however, that the Proposed Equity Financing consists of
a written offer directly from the Investor or Investors and is
accompanied by written confirmation from the Advisor stating
that, in the Advisor's professional opinion, the Proposed Equity
Financing is being made by an Investor or Investors who have both
the wherewithal and intention of proceeding to close an Equity
Financing within 60 days of the date of the written offer of
Proposed Equity Financing.
(iv) All shares of common stock issued as compensation to the Advisor
pursuant to the Agreement shall be subject to full piggyback
registration rights subject to underwriter's limitation should
such registration include an underwriter for the purposes of
registration of shares for sale to public investors.
Accepted and Agreed to:
Cardiovascular Laboratories, Inc.
/s/ Timothy W. Cunningham December 15, 1998
- ------------------------- -----------------
Timothy W. Cunningham Date Signed
Brennan Dyer & Company, LLC
/s/ James H. Brennan, III December 15, 1998
- ------------------------- -----------------
James H. Brennan, III Date Signed
/s/ Douglas A. Dyer December 15, 1998
- ------------------- -----------------
Douglas A. Dyer Date Signed
Consulting Services Agreement
THIS Consulting Services Agreement (hereinafter "Agreement") is entered into on
this day of January 4, 1998, between Springhouse Associates, Inc. (hereinafter
"SHA") and Cardiovascular Laboratories, Inc. (hereinafter "CLI").
HEREINAFTER, SHA and CLI are referred to collectively as "Parties" and
singularly as "Party"
WHEREAS the Parties desire to set forth the terms and conditions under which
certain consulting services shall be performed
NOW THEREFORE, in consideration of the promises of the mutual covenants herein,
the Parties hereto agree as follows:
SECTION I - Scope of Services
SHA agrees to perform for CLI, beginning immediately on the date this Agreement
is signed by both Parties, corporate advisory services as mutually agreed upon
by the Parties.
SECTION II - Period and Terms of Performance
The period of performance under this Agreement shall begin immediately and run
for a period of 60 months unless otherwise terminated in accordance with the
terms of this Agreement.
In performance of its duties, SHA shall provide CLI with the best of its
judgment and efforts. It is understood and acknowledged by the Parties that the
value of the SHA advice is not measurable in a quantitative manner, and, as
such, SHA shall not be obligated to spend a specific amount of time providing
advisory services concerning the affairs of CLI, nor shall the compensation
described in Section III of this Agreement be reflective of the expenditure of
any specific amount of time on the part of SHA.
SECTION III - Compensation
As full consideration for the performance of the services described in Articles
I and 11, above, CLI shall pay to SHA consideration $54,500 per annum, payable
in monthly installments of $4,541.66, or in such other manner as the Parties may
mutually agree.
SECTION IV - Contractual Relationship
In performing the services under this Agreement, SHA shall operate and have the
status of an independent contractor working as a contracted financial adviser to
CLI under the terms of this Agreement. SHA shall have the full responsibility
for compliance with all applicable state, local and federal laws and regulations
with respect to the payment of any taxes or other fees that may be related to
the compensation described herein. SHA shall not have the authority to enter
into any contract binding to CLI, or create any obligations on the part of CLI,
except as may be specifically authorized by CLI. CLI and SHA will be mutually
responsible for determining the means and the methods for performing the
services described in this Agreement.
<PAGE>
SECTION V - Company Information
Since SHA must, at all times rely upon the accuracy and completeness of
information supplied to him by the CLI officers, directors, employees and
agents, CLI agrees to indemnify and hold harmless SHA, and defend SHA, at CLI's
expense, in any proceeding or suit which may arise out of and/or due to any
inaccuracy or incompleteness of such material supplied by CLI to SHA.
SECTION VI - Notices
Notices related to this Agreement shall be in writing, and may be served
personally to CLI and to SHA at their respective addresses shown below, or at
such locations as may be selected by either Party upon written notice to the
other Party, or by registered mail to the address of each Party, or as
transmitted by fax as listed below:
Springhouse Associates, Inc. Cardiovascular Laboratories, Inc
151 Kent Circle 999 Old Eagle School Road - Suite 108
Lower Gwynedd, PA 19002 Wayne, PA 19087
Fax - 215-542-8872 Fax 610-293-7459
SECTION VII - Termination
This Agreement may not be terminated by either Party without the written consent
of the nonterminating Party.
SECTION VIII - Miscellaneous
This Agreement constitutes the entire Agreement between CLI and SHA. It
supersedes any and all prior or contemporaneous communications, representations
or agreements, whether oral or written, with respect to the subject matter
hereof. Any ambiguities arising from the interpretation of any part of this
Agreement shall be interpreted and inure to the benefit of CLI.
This Agreement is not assignable except with the written permission of the
non-assigning Party. This Agreement has been induced by no representations,
statements, or agreements other than those expressed herein. No agreements
hereafter made between the Parties shall be binding on either Party unless
reduced to writing and signed by an authorized officer of the Party bound
thereby.
This Agreement may be executed in any number of counterparts, and each
counterpart shall be deemed to be an original instrument, but all of such
counterparts taken together shall constitute but one agreement.
Any controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in the County of Montgomery,
Pennsylvania, USA, in accordance with the rules of the American Arbitration
Association there in effect, except that the Parties thereto shall have any
rights to discovery as would be permitted by the Federal Rules of Civil
procedure and the prevailing Party shall be entitled to reasonable costs and
reasonable attorney's fees from arbitration or any other civil action. Judgement
upon the award rendered therein may be entered in any Court having jurisdiction
thereof
<PAGE>
Jurisdiction for any legal action is stipulated between the Parties to lie in
the County of Montgomery, Pennsylvania, USA. This Agreement shall, in all
respects, be interpreted and construed, and the rights of the Parties hereto
shall be governed by the laws of the Commonwealth of Pennsylvania without giving
effect to any conflicts of law.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
by their duly authorized officers,
CARDIOVASCULAR
LABORATORIES, INC SPRINGHOUSE ASSOCIATES, INC
/s/ Paul A. Toomey /s/ Timothy W. Cunningham
- ------------------------ -----------------------------------
Mr. Paul A. Toomey Mr. Timothy W. Cunningham
1/4/98 1/4/98
- ------------------------ -----------------------------------
Date Signed Date Signed
SETTLEMENT AND RELEASE AGREEMENT
THIS AGREEMENT is entered into effective as of the 29th day of July, 1999, by
and between Cardiovascular Laboratories, Inc., with a principal place of
business at 999 Old Eagle School Road - Suite 108, Wayne, PA 19087 (hereinafter
referred to as "CLI") and ATL Financial Services, Inc., a Washington
Corporation, with a principal place of business at 22100 Bothall Everett
Highway, Bothell, WA, 98041, (hereinafter referred to as "ATLFS").
RECITALS
WHEREAS CLI entered into numerous leases with the predecessor and parent company
to ATLFS, known at various times as ATL Washington, Inc., ATL Ultrasound, Inc.,
and most recently as Advanced Technology Laboratories, Inc., (hereinafter
referred to as "ATL"), which leases are specifically identified in Exhibit I,
which is attached hereto and incorporated by this reference (hereinafter
referred to as "the Leases"), and which leases having been formally assigned to
ATLFS by such parent company and subsequently securitized by ATLFS; and
WHEREAS CLI failed to make timely payments under the Leases and received a
notice of default pursuant to the terms of the Leases by ATLFS; and
WHEREAS CLI made certain allegations of business interference with existing
business of CLI by a certain business representative of ATL; and
WHEREAS ATLFS now services the Leases and has full legal responsibility for
resolving any and all of the issues relative to the Leases with CLI; and
WHEREAS CLI has returned certain equipment to ATLFS to which ATLFS has given
value and credited the outstanding balance of lease payments due from CLI with
such amount, and CLI has obtained additional separate financing; and
WHEREAS CLI and ATL, after lengthy negotiation, now wish to resolve any and all
disputes between them;
NOW THEREFORE, for and in consideration of the mutual promises and covenants
contained herein, and for good and valuable consideration, the receipt and
adequacy of which is acknowledged by each of the parties hereto, the parties
hereto agree as follows:
CLI'S OBLIGATIONS
Payment. CLI agrees to pay ATLFS Four Hundred Thirty Eight Thousand Ninety
Seven and No/100 Dollars (438,097), by wire transfer to the account of ATLFS
pursuant to instructions to be provided by ATLFS prior to such transfer
immediately upon execution of this Agreement by CLI.
Waiver and Release of Claims by CLI. With the exception of the obligations
set forth in this Agreement, CLI hereby waives and releases any and all claims,
causes of action and rights, whether known or unknown, contingent or
non-contingent, contractual or otherwise against ATLFS and ATL, or any of its
related, affiliated or subsidiary
<PAGE>
organizations and each of their respective directors, officers, agents,
representatives and employees, including, but not limited to, Robert L. Cedzo
("Releases") arising out of, or relating to the Leases, or any other matter. CLI
makes this commitment even though it understands that it may not, as of this
date, know all of these claims, and that it is relinquishing the right to pursue
any claims which it could have pursued before courts or administrative agencies
without having the opportunity to pursue those claims to a trial and have the
damages set by a judge and/or jury.
Customer Service Provided by ATL. CLI agrees that issues concerning
customer service provided by ATL to CLI are, and will ultimately be subject to
the policies and decisions of ATL. CLI understands that ATLFS has not
participated and does not participate in the creation of such customer service
policies, and further, acknowledges that ATLFS cannot be responsible to CLI for
any decisions of ATL made concerning service issues, with respect to CLI.
ATLFS'S OBLIGATIONS
Value of Returned Equipment. ATLFS acknowledges that CLI has returned
equipment to ATLFS and agrees that the value of such equipment shall be equal to
the outstanding balance of CLI on the Leases. As of the date of this Agreement,
ATLFS acknowledges that CLI has fulfilled its equipment return obligation with
respect to this Agreement.
Satisfaction of Lease Payments. Upon execution of this Agreement by CLI,
ATLFS agrees to reduce all outstanding balances due ATLFS from CLI to zero and
thereafter the records of ATLFS shall reflect the satisfaction of all lease
payments due under the Leases from CLI to have been satisfied as of the date of
this Agreement.
Equipment Retained by CLI. ATLFS agrees that upon receipt of the payment
from CLI under paragraph 1 of this Agreement, that CLI shall retain and have
free and clear title to the equipment specified on Exhibit II, attached hereto
and incorporated herein by this reference, including all attachments,
accessories, replacement parts, substitutions, additions, repairs and all
proceeds thereof currently and in the future, in the possession of CLI.
Customer Service Provided by ATL. ATLFS acknowledges and is aware of ATL
customer service policies as they may apply to CLI, and it is ATLFS'
understanding and belief that upon payment in full of all outstanding balances
for past customer service provided by ATL to CLI, and only in that event, will
CLI become eligible for future customer service provided by ATL on a time and
materials basis. It is the further understanding and belief of ATLFS that such
eligibility of CLI to obtain ATL customer service is further conditioned upon
pre-paying for such services requested.
Waiver and Release of Claims by ATLFS. With the exception of the
obligations set forth in this Agreement, ATLFS hereby waives and releases any
and all claims, causes of action and rights, whether known or unknown,
contingent or non-contingent, contractual or otherwise against CLI, or any of
its related, affiliated or subsidiary organizations and each of their respective
directors, officers, agents, representatives and employees, past and present,
and each of their successors and assigns ("Releases") arising out of, or
<PAGE>
relating to the Leases, or any other matter, with the exception of any matter,
services or business CLI may have had or has directly with ATL. ATLFS makes this
commitment even though it understands that it may not, as of this date, know all
of these claims, and that it is relinquishing the right to pursue any claims
which it could have pursued before courts or administrative agencies without
having the opportunity to pursue those claims to a trial and have the damages
set by a judge and/or jury.
MISCELLANEOUS
No Admission of Liability. This Settlement and Release Agreement shall not
be construed as an admission of liability by ATL of any liability, breach of any
agreement between ATL and CLI, or violation by ATL of any statute, law or
regulation.
Governing Law and Venue. This Agreement shall be governed by the laws of
the State of Washington in effect as of the date of this Agreement. In any
dispute arising out of or related to this Agreement, the parties agree that
venue shall be had in King County, State of Washington.
Enforcement. Interpretation and enforcement of this Agreement shall be
governed by the substantive and procedural laws that exist in the State of
Washington on the date of execution of this Agreement. In any action to enforce
any of the provisions of this Agreement, the prevailing party shall be entitled
to recover its reasonable attorney's fees and costs, in addition to any other
damages and remedies available at law or in equity.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first set forth above.
ATL FINANCIAL SERVICES, INC.
By: /s/ John Medina
-------------------------------
John Medina, President
Date: July 29, 1999
CARDIOVASCULAR LABORATORIES, INC.
By: /s/ Timothy W. Cunningham
-------------------------------
Timothy W. Cunningham, Chairman
Date: July 29, 1999
