<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
WORK RECOVERY, INC.
- - - --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, PAR VALUE $.01 PER SHARE
- - - --------------------------------------------------------------------------------
(Title of Class of Securities)
981370307
- - - --------------------------------------------------------------------------------
(CUSIP Number)
Dorcas Hardy, 2341 S. Friebus, Tuscon, Arizona 85713 (520) 322-6634
- - - --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
February 1, 1997
- - - --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ]
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities and Exchange Act
of 1934 ("Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
(Continued on following pages)
(Page 1 of 8 pages)
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Page 2 of 8 Pages
SCHEDULE 13D
CUSIP No. 981370307
================================================================================
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Allsup, Inc. 37-1170934
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [X]
- - - --------------------------------------------------------------------------------
3 SEC USE ONLY
- - - --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- - - --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
- - - --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
- - - --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER
2,573,555 shares
OF SHARES -------------------------------------------------------------
8 SHARED VOTING POWER
BENEFICIALLY
- 0 -
OWNED -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
BY EACH
2,573,555 shares
PERSON -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
WITH
- 0 -
- - - --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,573,555 shares
- - - --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ]
- - - --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
17.5%
- - - --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
================================================================================
*SEE INSTRUCTIONS BEFORE FILLING OUT!
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Page 3 of 8 Pages
Item 1. Security and Issuer.
This statement relates to the shares of common stock, par value $.01 per
share (the "Common Stock") of Work Recovery, Inc., a Delaware corporation (the
"Company"). The address of the Company's principal executive office is 2341 S.
Friebus, Tuscon, Arizona 85713.
Item 2. Identity and Background
This statement is filed on behalf of Allsup, Inc., an Illinois corporation
("Allsup"). Allsup's primary business is the provision of financial services to
disabled persons, with its principal executive office at 300 Allsup Place,
Belleville, Illinois 62223.
Attached hereto as Schedule I is the information required by Items 2(a) -
(c) and 2(f) with respect to each executive officer and director of Allsup. To
the best of the knowledge of Allsup, no other person controls Allsup.
Neither Allsup, nor to the best of its knowledge any person listed on
Schedule I hereto, has been, during the last five years (a) convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
(b) a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violations with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
Work Recovery, Inc., a Colorado corporation ("WRIC") filed for relief
pursuant to Chapter 11 of Title 11 of the United States Code, Case No. 96-1640
TUC-JMM in the United States Bankruptcy Court for the District of Arizona. The
Court confirmed a Restated Amended Joint Plan of Reorganization dated November
26, 1996 (the "Plan"), the effective date of which was February 1, 1997. The
Company is the reorganized debtor under the Plan.
On February 26, 1996, Allsup loaned $500,000 to WRIC. Under the Plan,
Allsup had the option to convert the outstanding balance of the loan, including
accrued and unpaid interest, into shares of Common Stock. Allsup elected to
convert the outstanding balance of the loan on February 1, 1997, and acquired
363,969 shares of Common Stock at $1.50 per share. Allsup borrowed funds under
its credit line with Mark Twain Illinois Bank to lend to WRIC. Allsup has since
repaid this amount from its earnings.
On November 7, 1996, during the post-petition bankruptcy period, Allsup
loaned an additional $500,000 to WRIC with an option to convert the outstanding
balance of the loan, including accrued and unpaid interest, to shares of Common
Stock. Allsup elected to convert the outstanding balance of the loan on February
1, 1997, and acquired 341,200 shares of Common Stock at $1.50 per share. Allsup
borrowed funds under its credit line with Mark Twain Illinois
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Page 4 of 8 Pages
Bank to lend to WRIC. Allsup's obligation under the credit line remains
outstanding and interest payments are current.
On January 31, 1997, Allsup acquired 1,868,386 shares of Common Stock from
the Company for a total price of $1,000,000. Allsup borrowed funds under its
credit line with Mark Twain Illinois Bank to acquire the shares of Common Stock.
Item 4. Purpose of Transaction
The purpose of the acquisition of Common Stock by Allsup is to facilitate
the emergence of the Company out of bankruptcy under the Plan. Under the Plan,
the Company has issued to Allsup warrants to acquire an additional 300,000
shares of Common Stock at a price of $2.50 per share within 200 days after
February 1, 1997. Should Allsup elect to purchase all or a portion of the
300,000 shares, the stock certificates delivered to Allsup shall contain a
restriction that Allsup may not resell the shares for a period of two years from
the date of issuance.
To provide further financial support to the Company, on January 30, 1997,
Allsup, jointly with another lender, Quest Trading, Inc. (collectively, "the
Lenders"), entered into a Loan Agreement with the Company whereby the Lenders
would, in the aggregate, establish a credit line of $2,000,000 having a maturity
date of December 31, 1997 (the "Loan Agreement"). For establishing the credit
line, the Company agreed to grant to the Lenders options to purchase 100,000
shares of Common Stock at a price equal to 60% of the average daily closing
price of the Common Stock for the first five business days beginning February 3,
1997. In addition, at the time that the average outstanding principal balance of
the loan first equals or exceeds $500,000, $1,000,000, $1,500,000, and
$2,000,000 during any calendar month, the Lenders will receive options to
purchase 75,000 shares of Common Stock at a price equal to 60% of the average
daily closing price for every trading day during such calendar month. Each of
the Lenders shall receive a pro rata portion of the options based upon its
portion of advances made under the Loan Agreement. Allsup anticipates borrowing
funds under its credit line with Mark Twain Illinois Bank to extend advances to
the Company.
In the event any indebtedness remains unpaid under the Loan Agreement after
December 31, 1997, each of the Lenders, within 30 days after such date, is
permitted to convert the indebtedness, including accrued and unpaid interest and
attorneys' fees incurred in connection with the Loan Agreement, into Common
Stock based upon their respective pro rata interest in the outstanding
indebtedness. The conversion rate for such indebtedness is the lesser of: (a)
the average of the daily closing prices of the Common Stock for the five
business days prior to each advance under the Loan Agreement; or (b) the average
of the daily closing prices of the Common Stock for the five business days after
the maturity date. Should Allsup elect to exercise its options or conversion
right under the Loan Agreement, the stock certificates delivered to Allsup shall
contain a restriction that Allsup may not resell the shares for a period of two
years from the date of issuance.
Allsup does not contemplate any extraordinary corporate transaction
involving the Company nor the sale or transfer of a material amount of assets of
<PAGE>
Page 5 of 8 Pages
the Company. Material financial and marketing plans of the Company are disclosed
in the Plan, which is attached hereto as Exhibit 3 and made a part hereof, and
in other public disclosures.
Mr. Jerald L. Fenstermaker, Director, Vice President and Chief Operating
Officer of Allsup became a member of the Board of Directors and the Acting Chief
Financial Officer of the Company on the effective date of the Company's Plan.
Allsup is unaware of any plans to add or replace any members of the Company's
Board of Directors.
At the present time, Allsup has no plans or proposals which would make any
material change in the Company's capitalization or dividend policy, business or
corporate structure, charter, bylaws or other corresponding instruments. Under
the terms of an Investment Agreement between Allsup and the Company dated
October 11, 1996 (the "Investment Agreement"), a copy of which is attached
hereto as Exhibit 2 and made a part hereof, the parties agree to explore ways in
which the goals of any existing joint marketing program may be realized. Allsup
has agreed for a period of four years not to directly or indirectly attempt to
take control of the Company without its prior written consent.
Allsup has no present plans or proposals which would cause the delisting of
any class of securities of the Company from a national securities exchange nor
the cessation of any quotation thereof on any quotation system, and has no
present intent to cause any class of equity securities of the Company from
becoming eligible for termination pursuant to Section 12(g)(4) of the Securities
Exchange Act of 1934, as amended.
Item 5. Interest in Securities of the Issuer.
Allsup holds, with sole voting and dispositive power, 2,573,555 shares of
the Company's Common Stock, representing approximately 17.5% of the issued and
outstanding shares. None of the identified persons listed in Item 2 presently
hold, nor have they in the past ever held, securities of the Company.
Other than the transactions described in Item 3, there have been no
transactions involving the Company's Common Stock effected in the past 60 days
by any person named in Item 2.
No other person is known to have the right to receive or the power to
direct the receipt of dividends from, or the proceeds from the sale of, the
shares of Common Stock held by Allsup, nor the shares that may be acquired by
Allsup under the terms of the options, warrants and conversion rights as
described in Item 4.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to
Securities of the Issuer.
None.
<PAGE>
Page 6 of 8 Pages
Item 7. Material to be Filed as Exhibits.
1. Commercial/Agricultural Revolving or Draw Note - Variable Rate between
Allsup, Inc. and Mark Twain Illinois Bank dated October 15, 1996.
2. Investment Agreement between Allsup and Work Recovery, Inc. dated
October 11, 1996.
3. Restated and Amended Joint Plan of Reorganization of Work Recovery, Inc.
dated November 26, 1996.
4. Loan Agreement among Allsup, Inc. and Quest Trading, Inc., and Work
Recovery, Inc. dated January 30, 1997.
<PAGE>
Page 7 of 8 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
February 10, 1997 /s/ Robert E. Sylvia
- - - -------------------------------------- ----------------------------------------
Date Allsup, Inc.
By: Robert E. Sylvia
Title: Vice President, Operations
<PAGE>
Page 8 of 8 Pages
Schedule I
Directors and Executive Officers of Allsup, Inc.
Set forth below are the names, residence or business address, principal
occupation or employment (together with the name, principal business and address
of the employer, if other than Allsup, Inc.) and citizenship of each of the
directors and executive officers of Allsup, Inc.
James F. Allsup, President, Chief Executive Officer and Director of Allsup,
Inc.; 300 Allsup Place, Belleville, IL 62223; U.S.A.
Jerald L. Fenstermaker, Vice President, Chief Operating Officer and
Director of Allsup, Inc.; 300 Allsup Place, Belleville, IL 62223; U.S.A.
Robert E. Sylvia, Vice President of Allsup, Inc.; 300 Allsup Place,
Belleville, IL 62223, U.S.A.
Alan J. Dixon, Director of Allsup, Inc.; Attorney, Bryan Cave LLP; a law
firm; 211 N. Broadway, Suite 3600, St. Louis, MO 63102-2750; U.S.A.
John S. McCarthy, Director of Allsup, Inc.;Managing General Partner,
Gateway Associates, Suite 1190, 8000 Maryland Avenue, St. Louis, MO 63105;
U.S.A.
George M. Morvis, Director of Allsup, Inc.; President and CEO, Financial
Shares Corporation, 62 W. Huron Street, Chicago, IL 66610; U.S.A.
James M. Usdan, Director of Allsup, Inc.; President and CEO, RehabCare
Group, Inc., Suite 1700, 7733 Forsyth Boulevard, Clayton, MO 63105; U.S.A.
<PAGE>
EXHIBIT 1
MARK ALLSUP, INC. COMMERCIAL/
TWAIN AGRICULTURAL
BANKS REVOLVING OR DRAW
NOTE-VARIABLE
RATE
MARK TWAIN ILLINOIS BANK
ONE MARK TWAIN BANK PLAZA
EDWARDSVILLE, IL 62025
(Lender)
ADDRESS
300 ALLSUP PLACE
BELLEVILLE, IL 62223
TELEPHONE NO. IDENTIFICATION NO.
- - - --------------------------------------------------------------------------------
OFFICER INTEREST PRINCIPAL FUNDING/ MATURITY CUSTOMER LOAN
INITIALS RATE AMOUNT/ AGREEMENT DATE DATE NUMBER NUMBER
- - - --------------------------------------------------------------------------------
MD VARIABLE $2,250,000.00 10/15/96 10/15/01 8022873 54726
- - - --------------------------------------------------------------------------------
ACQUISITION AND RELATED EXPENSE OF ERGOS TECHNOLOGY FROM WORK RECOVERY, INC.
PROMISE TO PAY: For value received, Borrower promises to pay to the order of
Lender indicated above the principal amount of TWO MILLION TWO HUNDRED FIFTY
THOUSAND AND NO/100 Dollars ($2,250,000.00) or, if less, the aggregate unpaid
principal amount of all loans or advances made by the Lender to the Borrower,
plus interest on the unpaid principal balance at the rate and in the manner
described below. All amounts received by Lender shall be applied first to late
payment charges and expenses, then to accrued interest, and then to principal or
in any other order as determined by Lender, in Lender's sole discretion, as
permitted by law.
INTEREST RATE: This Note has a variable interest rate feature. Interest on the
Note may change from time to time if the Index Rate identified below changes.
Interest shall be computed on the basis of 360 days per year. Interest on this
Note shall be calculated at a variable rate equal to 500/1000 percent (0.500%)
per annum over the Index Rate. The Initial Index Rate is currently EIGHT AND
250/1000 percent (8.250%) per annum. Therefore, the initial interest rate on
this Note shall be EIGHT AND 750/1000 percent (8.750%) per annum. Any change in
the interest rate resulting from a change in the Index Rate will be effective
on: THE DATE OF SUCH CHANGE.
INDEX RATE: The Index Rate for this Note shall be: MARK TWAIN BASE RATE, WHICH
LENDER MAY INCREASE OF DECREASE AT ANY TIME AT LENDER'S DISCRETION, IS PUBLICLY
AVAILABLE, AND WHICH MAY NOT NECESSARILY REFLECT THE RATE LENDER CHARGES TO ITS
OTHER CUSTOMERS, WHICH MAY BE LOWER.
MINIMUM RATE/MAXIMUM RATE: The minimum interest rate on this Note shall be n/a
percent (n/a%) per annum. The maximum interest rate on this Note shall not
exceed n/a percent (n/a%) per annum or the maximum interest rate Lender is
permitted to charge by law, whichever is less.
DEFAULT RATE: In the event of any default under this Note, the Lender may
determine that all amounts owed to Lender shall bear interest at the lesser of:
MARK TWAIN BASE RATE PLUS 3.50% or the maximum interest rate Lender is permitted
to charge by law.
PAYMENT SCHEDULE: Borrower shall pay the principal and interest according to the
following schedule: ON DEMAND, IF NO DEMAND IS MADE, THEN INTEREST SHALL BE
PAYABLE MONTHLY BEGINNING NOVEMBER 15, 1996 THEN PRINCIPAL AND INTEREST PAYMENTS
OF $71,423.31 SHALL BEGIN NOVEMBER 15, 1998 AND CONTINUE ON THE SAME DAY OF EACH
MONTH THEREAFTER WITH THE UNPAID PRINCIPAL AND INTEREST BALANCE DUE ON
OCTOBER 15, 2001.
All payments will be made to Lender at its address described above and in lawful
currency of the United States of America.
RENEWAL: If checked, [ ] this Note is a renewal of loan number _______________.
SECURITY: To secure the payment and performance of obligations incurred under
this Note, Borrower grants Lender a security interest in, and pledges and
assigns to Lender all of Borrower's rights, title, and interest, in all monies,
instruments, savings, checking and other deposit accounts of Borrower's,
(excluding IRA, Keogh and trust accounts and deposits subject to tax penalties
if so assigned) that are now or in the future in Lender's custody or control. x/
If checked, the obligations under this Note are also secured by a lien and/or
security interest in the property described in the documents executed in
connection with this Note as well as any other property designated as security
for this Note now or in the future. THIS NOTE IS SECURED BY A SECURITY AGREEMENT
DATED MARCH 27, 1995.
PREPAYMENT: This Note may be prepaid in part or in full on or before its
maturity date. If this Note contains more than one installment, all prepayments
will be credited as determined by Lender and as permitted by law. If this Note
is prepaid in full, there will be: [X] No minimum finance charge or prepayment
penalty. [ ] A minimum finance charge of $____________. [ ] A prepayment penalty
of ______% of the principal prepaid.
LATE PAYMENT CHARGE: If a payment is received more than 10 days late, Borrower
will be charged a late payment charge of: [ ] ______% of the unpaid late
installment; [X] $10.00 or 10.00% of the payment amount, whichever is [X]
greater [ ] less; as permitted by law.
REVOLVING OR DRAW FEATURE: [ ] This Note possesses a revolving feature. Upon
satisfaction of the conditions set forth in this Note, Borrower shall be
entitled to borrow up to the full principal amount of the Note and to repay and
reborrow from time to time during the term of this Note. [X] This Note possesses
a draw feature. Upon satisfaction of the conditions set forth in this Note,
Borrower shall be entitled to make one or more draws under this Note. The
aggregate amount of such draws shall not exceed the full principal amount of
this Note. Lender shall maintain a record of the amounts loaned to and repaid by
Borrower under this Note. The aggregate unpaid principal amount shown on such
record shall be rebuttable presumptive evidence of the principal amount owing
and unpaid on this Note. The Lender's failure to record the date and amount of
any loan or advance shall not limit or otherwise affect the obligations of the
Borrower under this Note to repay the principal amount of the loans or advances
together with all interest accruing thereon. Lender shall not be obligated to
provide Borrower with a copy of the record on a periodic basis. Borrower shall
be entitled to inspect or obtain a copy of the record during Lender's business
hours.
CONDITIONS FOR ADVANCES: If there is no default under this Note, Borrower shall
be entitled to borrow monies under this Note (subject to the limitations
described above) under the following conditions:
BORROWER ACKNOWLEDGES THAT BORROWER HAS READ, UNDERSTANDS, AND AGREES TO THE
TERMS AND CONDITIONS OF THIS NOTE INCLUDING THE PROVISIONS ON THE REVERSE SIDE.
BORROWER ACKNOWLEDGES RECEIPT OF AN EXACT COPY OF THIS NOTE.
NOTE DATE: OCTOBER 15, 1996
BORROWER: ALLSUP, INC. BORROWER:
/S/ James F. Allsup
- - - --------------------------------------- ----------------------------------------
JAMES F. ALLSUP
PRESIDENT
BORROWER: BORROWER:
- - - --------------------------------------- ----------------------------------------
BORROWER: BORROWER:
- - - --------------------------------------- ----------------------------------------
BORROWER: BORROWER:
- - - --------------------------------------- ----------------------------------------
<PAGE>
TERMS AND CONDITIONS
1. DEFAULT: Borrower will be in default under this Note in the event that
Borrower or any guarantor:
(a) fails to make any payment on this note or any other indebtedness to
Lender when due;
(b) fails to perform any obligation or breaches any warranty or covenant to
Lender contained in this Note or any other present or future written
agreement regarding this or any indebtedness of Borrower to Lender;
(c) provides or causes any false or misleading signature or representation
to be provided to Lender;
(d) allows the collateral securing this Note (if any) to be lost, stolen,
destroyed, damaged in any material respect, or subjected to seizure or
confiscation;
(e) permits the entry or service of any garnishment, judgment, tax levy,
attachment or lien against Borrower, any guarantor, or any of their
property;
(f) dies, becomes legally incompetent, is dissolved or terminated, ceases
to operate its business, becomes insolvent, makes an assignment for the
benefit of creditors, or becomes the subject of any bankruptcy,
insolvency or debtor rehabilitation proceeding; or
(g) causes Lender to deem itself insecure for any reason, or Lender, for
any reason, in good faith deems itself insecure.
2. RIGHTS OF LENDER ON DEFAULT: If there is a default under this Note, Lender
will be entitled to exercise one or more of the following remedies without
notice or demand (except as required by law):
(a) to cease making additional advances under this Note;
(b) to declare the principal amount plus accrued interest under this Note
and all other present and future obligations of Borrower immediately
due and payable in full;
(c) to collect the outstanding obligations of Borrower with or without
resorting to judicial process;
(d) to take possession of any collateral in any manner permitted by law;
(e) to require Borrower to deliver and make available to Lender any
collateral at a place reasonably convenient to Borrower and Lender;
(f) to sell, lease or otherwise dispose of any collateral and collect any
deficiency balance with or without resorting to legal process;
(g) to set-off Borrower's obligations against any amounts due to Borrower
including, but not limited to monies, instruments, and deposit accounts
maintained with Lender; and
(h) to exercise all other rights available to Lender under any other
written agreement or applicable law.
Lender's rights are cumulative and may be exercised together, separately,
and in any order. Lender's remedies under this paragraph are in addition to
those available at common law, including, but not limited to, the right of
set-off.
3. DEMAND FEATURE: If this Note contains a demand feature, then
notwithstanding anything to the contrary contained in this Note, Lender's
rights with respect to the events of default identified above shall not be
limited, restricted, impaired or otherwise adversely affected by the demand
feature of this Note. Lender's right to demand payment, at any time, and
from time to time, shall be in Lender's sole and absolute discretion,
whether or not any default has occurred.
4. FINANCIAL INFORMATION: Borrower will provide Lender with current financial
statements and other financial information (including, but not limited to,
balance sheets and profit and loss statements) upon request.
5. MODIFICATION AND WAIVER: The modification or waiver of any of Borrower's
obligations or Lender's rights under this Note must be contained in a
writing signed by Lender. Lender may perform any of Borrower's obligations
or delay or fail to exercise any of its rights without causing a waiver of
those obligations or rights. A waiver on one occasion will not constitute a
waiver on any other occasion. Borrower's obligations under this Note shall
not be affected if Lender amends, compromises, exchanges, fails to
exercise, impairs or releases any of the obligations belonging to any
co-borrower or guarantor or any of its rights against any co-borrower,
guarantor or collateral.
6. SEVERABILITY AND INTEREST LIMITATION: If any provision of this note is
invalid, illegal or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby. Notwithstanding anything contained in this Note to the
contrary, in no event shall interest accrue under this Note, before or
after maturity, at a rate in excess of the highest rate permitted by
applicable law, and if interest (including any charge or fee held to be
interest by a court of competent jurisdiction) in excess thereof be paid,
any excess shall constitute a payment of, and be applied to, the principal
balance hereof, and if the principal balance has been fully paid, then such
interest shall be repaid to the Borrower.
7. ASSIGNMENT: Borrower will not be entitled to assign any of its rights,
remedies or obligations described in this Note without the prior written
consent Lender which may be withheld by Lender in its sole discretion.
Lender will be entitled to assign some or all of its rights and remedies
described in this Note without notice to or the prior consent of Borrower
in any manner.
8. NOTICE: Any notice or other communication to be provided to Borrower or
Lender under this Note shall be in writing and sent to the parties at the
addresses described in this Note or such other address as the parties may
designate in writing from time to time.
9. APPLICABLE LAW: This Note shall be governed by the laws of the state
indicated in Lender's address. Borrower consents to the jurisdiction and
venue of any court located in the state indicated in Lender's address in
the event of any legal proceeding pertaining to the negotiation, execution,
performance or enforcement of any term or condition contained in this Note
or any related loan document and agrees not to commence or seek to remove
such legal proceeding in or to a different court.
10. COLLECTION COSTS: If Lender hires an attorney to assist in collecting any
amount due or enforcing any right or remedy under this Note, Borrower
agrees to pay Lender's attorney's fees, to the extent permitted by
applicable law, and collection costs.
11. MISCELLANEOUS: This Note is being executed for commercial/agricultural
purposes. Borrower and Lender agree that time is of the essence. Borrower
waives presentment, demand for payment, notice of dishonor and protest.
Borrower hereby waives any right to trial by jury in any civil action
arising out of, or based upon, this Note or the collateral securing this
Note. If Lender obtains a judgment for any amount due under this Note,
interest will accrue on the judgment at the Default Rate described in this
Note. All references to Borrower in this Note shall include all of the
parties signing this Note. If there is more than one Borrower, their
obligations will be joint and several. This Note and any related documents
represent the complete and integrated understanding between Borrower and
Lender pertaining to the terms and conditions of those documents.
12. CONFESSION OF JUDGMENT: IN ADDITION TO THE RIGHTS OF LENDER ON DEFAULT
LISTED ABOVE, BORROWER IRREVOCABLY AUTHORIZES ANY ATTORNEY TO APPEAR IN A
COURT OF RECORD AND WAIVE THE ISSUANCE OR SERVICE OF PROCESS AND CONFESS
JUDGMENT AGAINST BORROWER, IN FAVOR OF LENDER, FOR ANY SUM UNPAID AND DUE
ON THIS NOTE, TOGETHER WITH ALL FEES, COSTS AND EXPENSES OF COLLECTION AND
OTHERWISE AS PROVIDED HEREIN, INCLUDING REASONABLE ATTORNEYS' FEES, AND
FURTHER AUTHORIZES SUCH ATTORNEY TO WAIVE ALL RIGHT OF APPEAL AND CONSENT
TO IMMEDIATE EXECUTION UPON SUCH JUDGMENT. BORROWER HEREBY AGREES THAT NO
WRIT OF ERROR OR APPEAL WILL BE PROSECUTED FROM ANY SUCH JUDGMENT, NOR ANY
BILL IN EQUITY FILED TO RESTRAIN THE OPERATION OF SUCH JUDGMENT OR ANY
EXECUTION THEREON.
13. ADDITIONAL TERMS: BORROWER AGREES THAT LENDER, AT ITS OPTION, MAY EXTEND OR
RENEW THIS NOTE. $15 IS CHARGED FOR NON MARK TWAIN CHECKS RETURNED FOR
INSUFFICIENT FUNDS. THE UNDERSIGNED AGREE THAT THE CONSENT TO JURISDICTION
AND VENUE HEREIN SHALL NOT PROHIBIT OR LIMIT LENDER FROM BRINGING ANY
ACTION OR PROCEEDING HEREUNDER IN ANY JURISDICTION OR VENUE THAT IS
OTHERWISE PROPER.
<PAGE>
EXHIBIT 2
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT is entered into as of the 11 day of October,
1996, by and between Work Recovery, Inc., a Colorado corporation ("WRI"), and
Allsup Inc., an Illinois corporation ("Allsup").
STATEMENT OF BACKGROUND INFORMATION
WRI has previously filed for relief pursuant to Chapter 11 of Title 11 of
the United States Code (the "Reorganization"). In connection with the
reorganization, WRI has filed an Amended Plan of Reorganization dated October 4,
1996 (the "Plan of Reorganization") which contemplates infusion of additional
working capital. WRI is currently seeking confirmation of the Plan of
Reorganization by the Bankruptcy Court, and in connection therewith has
submitted an Amended Disclosure Statement on October 4, 1996 (the "Disclosure
Statement"). In addition, WRI is in need of additional working capital of
$500,000 prior to confirmation of the Plan of Reorganization.
WRI has previously entered into a Loan Agreement dated as of May 17, 1996
(the "Loan Agreement") with Recovery Lender, L.L.C. ("Recovery Lender"),
pursuant to which Recovery Lender has agreed to loan WRI up to an aggregate
principal amount of $5,000,000. The Loan Agreement provides for, among other
things, the right for Recovery Lender to convert into common stock of WRI, as
reorganized, on the basis of one percent (1%) of the Reorganized WRI's issued
and outstanding stock (on a fully diluted basis, giving effect to all stock
issuances, but excluding warrants, pursuant to the Reorganization Plan) for each
$100,000 of indebtedness under the Loan Agreement. In addition, WRI previously
entered into a Loan Agreement dated February 26, 1996 with Allsup (the "Initial
Allsup Loan Agreement"), pursuant to which Allsup loaned WRI $500,000 (the
"Initial Allsup Loan").
AGREEMENT
NOW, THEREFORE, the parties hereto agree as follows:
1. Investment by Allsup. Allsup hereby agrees to invest the aggregate sum
of $1,500,000 in WRI pursuant to the terms and conditions of this Agreement (the
"Investment"). The Investment shall consist of a $500,000 loan, upon the terms
and conditions specified in Section 2 below, and a $1,000,000 acquisition of
common stock in WRI in accordance with the provisions of Section 3 set forth
below.
<PAGE>
2. The New Allsup Loan.
2.1 Loan of $500,000. Allsup agrees to loan WRI the sum of $500,000
(the "New Allsup Loan").
2.2 Terms of New Allsup Loan. Subject to Section 2.3 below, the New
Allsup Loan shall be made generally on the same terms and conditions as set
forth in Sections 2 and 3 of the Loan Agreement, including, without limitation,
conversion rights similar to those set forth in Section 2.8 thereof, and the
covenants set forth in Section 6 of the Loan Agreement and the default
provisions of Section 7 shall be applicable.
2.3 Modifications to Terms of Loan Agreement. The following provisions
apply, notwithstanding any provision to the contrary in the Loan Agreement or
related documentation:
2.3.1 Security Interest in Intellectual Property. Any limitations
on the security interest in WRI's intellectual property granted to Recovery
Lender pursuant to the Loan Agreement or any related documents, shall be
eliminated. Pursuant to the terms of the Intercreditor Agreement, Allsup, to the
extent of the New Allsup Loan, and Recovery Lender shall each have liens of
equal priority, on WRI's intellectual property and all other collateral granted
to Recovery Lender pursuant to the terms of the Loan Agreement (collectively,
the "Collateral"). As will be provided in the Intercreditor Agreement, any
amounts realized from the foreclosure of Allsup's and Recovery Lender's
respective security interests in the Collateral shall be apportioned between
Allsup and Recovery Lender pro rata based upon the outstanding principal
balances of their respective loans, excluding the Initial Allsup Loan.
2.3.2 Future Borrowings. Prior to the Effective Date of the Plan
of Reorganization, WRI agrees not to borrow any additional monies without first
complying with the Right of First Refusal provisions in Section 4.5 below.
2.4 Conditions Precedent to Closing of New Allsup Loan. Allsup's
obligation to make the New Allsup Loan shall be conditioned upon satisfaction of
the following contingencies:
2.4.1 Execution of Intercreditor Agreement. Execution of an
Intercreditor Agreement by and among Allsup, WRI and Recovery Lender (the
"Intercreditor Agreement"), in form satisfactory to Allsup, the terms of which
effectuate the provisions of Section 2.3.1 above.
2.4.2 Bankruptcy Court Approval. Approval of the terms of the New
Allsup Loan by the Bankruptcy Court.
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2.5 Closing. The closing on the New Allsup Loan (the "Initial
Closing") will be held on or before two (2) days after approval of this
Agreement by the Bankruptcy Court, or soon thereafter as practicable after the
satisfaction of the various conditions precedent to such loan as set forth
herein (the "Initial Closing Date"). At the Initial Closing, the parties of this
Agreement will exchange certificates and other instruments and documents in
order to determine whether the conditions precedent to Initial Closing have been
satisfied. Upon such determination, Allsup shall disburse the proceeds from the
New Allsup Loan to WRI.
3. Acquisition of Shares of WRI.
3.1 Acquisition of Shares. Subject to satisfaction of the conditions
precedent set forth below, Allsup agrees to acquire the "Target Number of
Shares" from WRI or the Reorganized Debtor under the Debtor's Approved Plan (the
"Subject Shares") for the purchase price of $1,000,000 (the "Purchase Price").
For purposes of this Agreement, the "Target Number of Shares" shall be the
number of shares of WRI's common stock that, when combined with the number of
shares of WRI's common stock to be issued to Allsup in connection with (a) the
Initial Allsup Loan and (b) the New Allsup Loan, will provide Allsup with
ownership of 17.5% of the outstanding common stock of WRI immediately after the
Effective Date of the Plan of Reorganization or to be distributed under the Plan
of Reorganization after the Effective Date. In addition, on the Effective Date
of the Plan of Reorganization, Allsup will be issued warrants to purchase up to
300,000 shares of the common stock of WRI (the "Allsup Warrants") upon the terms
and conditions set forth in Section 5.3 of the Plan of Reorganization.
3.2 Conditions Precedent to Acquisition of Stock. Allsup's agreement
to acquire the Subject Shares shall be conditioned upon satisfaction of the
following conditions:
3.2.1 Confirmation of Plan of Reorganization. Entry of an order
in the Reorganization confirming the Plan of Reorganization, with such
modifications thereto as Allsup approves in the exercise of its reasonable
discretion, on or before March 1, 1997, which order shall be final and not
appealable.
3.2.2 No Material Changes. There shall not have occurred any
material adverse change in WRI's financial condition, business or assets, or
material failure to meet the Company's projected cash flows, as set forth in the
Disclosure Statement.
In the event that the foregoing conditions precedent are not satisfied
on or before March 1, 1997, Allsup's obligation to acquire the Subject Shares
shall terminate.
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3.3 Payment of Purchase Price. The Purchase Price will be paid to WRI
in cash in full at Closing.
3.4 Closing.
3.4.1 Time, Place and Manner of Closing . Unless this Agreement
has otherwise been terminated, the closing (the "Purchase Closing") will be held
on the Effective Date of the Plan of Reorganization, but in no event earlier
than January 3, 1997, or such earlier date as agreed to by Allsup. At the
Purchase Closing, the parties to this Agreement will exchange certificates and
other instruments and documents in order to determine whether the terms and
conditions of this Agreement have been satisfied. Upon such determination, and
upon payment of the Purchase Price, WRI shall issue to Allsup the certificate(s)
evidencing the Subject Shares.
3.4.2 Standby Letter of Credit. Within ten (10) days after
execution of this Agreement by the parties, Allsup shall deliver to WRI a
standby letter of credit from a bank and in a form reasonably acceptable to WRI
(the "Letter of Credit") pursuant to which WRI shall have the unconditional
right to require payment of the Purchase Price in the event that Allsup fails
pay the Purchase Price to WRI at the Purchase Closing as required pursuant to
this Section 3. WRI shall pay for the cost of obtaining the Letter of Credit in
an amount not in excess of 1.5% per annum based upon the face amount of the
Letter of Credit and the number of days for which the Letter of Credit is
issued, plus customary costs of issuance. In the event that Allsup's obligation
to purchase the Subject Shares is terminated as provided in Section 3.2 above,
the Letter of Credit shall be released to Allsup.
3.5 Piggyback Registration.
3.5.1 Allsup's Right to Require Registration. At such time that
WRI proposes to register any of its securities under the Securities Act (other
than a registration effected solely to implement an employee benefit plan, a
transaction to which Rule 145 of the Commission is applicable or any other form
or type of registration in which shares of WRI held by Allsup ("Registrable
Securities") cannot be included pursuant to Commission rule of practice), WRI
will give written notice to Allsup of such intention to register any of the
securities of the WRI. If such registration is proposed to be on a form which
permits inclusion of the Registrable Securities, upon the written request
(stating the intended method of disposition of such securities) of Allsup, WRI
will, subject to the limits contained in this Section 3.5.1, use its best
efforts to cause all such Registrable Securities of Allsup to be registered
under the Securities Act and qualified for sale under certain state blue sky
laws, all to the extent requisite to permit such sale or other disposition by
Allsup of the Registrable Securities so registered. Notwithstanding the above,
however, if the underwriter managing such registration notifies Allsup in
writing that market or economic conditions limit the amount of securities which
may reasonably
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be expected to be sold, Allsup will be allowed to register its Registrable
Securities pro rata based on the aggregate number of shares of securities being
registered in the applicable registration.
3.5.2 Registration Procedures. If and whenever WRI is required by
the provisions of this Section 3.5 to use its best efforts to effect the
registration of any of its securities under the Securities Act, WRI will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of at least
ninety (90) days;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise disclose of the same, but only to the extent provided in this Section
3.5;
(c) furnish to each seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such seller;
(d) use every reasonable effort to register or qualify the
securities covered by such registration statement under such other securities or
state blue sky laws of such jurisdictions as WRI's Board of Directors may
reasonably determine, and do any and all other acts and things which may be
necessary under such securities or blue sky laws to enable such seller to
consummate the public sale or other disposition in such jurisdictions of the
securities owned by such seller, provided, however, that in no event shall WRI
be obligated to qualify to do business in any jurisdiction where it is not at
the time so qualified or to take any action that would subject it to the service
of process of suits other than those arising out of the offer or sale of the
Registrable Securities covered by such registration statement in any
jurisdiction where it is not at the time so subject;
(e) before filing the registration statement or prospectus
or amendments or supplements thereto, furnish to one counsel selected by the
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holders of Registrable Securities copies of such documents proposed to be filed
which shall be subject to the reasonable approval of such counsel; and
(f) furnish to each prospective seller a signed counterpart,
addressed to the prospective seller, of (i) an opinion of counsel for WRI, dated
the effective date of the registration statement, and (ii) a "comfort" letter
signed by the independent public accountants who have certified WRI's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and (in the case of the accountants' letter) with respect to
events subsequent to the date of financial statements, as are customarily
covered (at the time of such registration) in opinions of WRI's counsel and in
accountants' letter delivered to the underwriters in underwritten public
offerings of securities. Provided, however, notwithstanding any other provisions
of this Agreement, WRI shall not in any event be required to use its best
efforts to maintain the effectiveness of any such registration statement for a
period in excess of ninety (90) days (or at the request of the selling holders,
an additional 90 days).
3.5.3 Expenses. WRI shall pay for the following listed expenses
incurred in effecting the registration provided for in this Section 3.5, namely
expenses for: (a) registration and filing fees, (b) printing expenses, (c)
underwriting expenses other than fees, commissions or discounts, (d) expenses of
any audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws of any jurisdictions pursuant to
Section 3.5.2(d) hereof, (e) WRI's legal fees, and (f) legal fees of Allsup; all
of which expenses (which specifically exclude Allsup's broker's fees) are
hereinafter referred to as "Registration Expenses". Allsup shall pay the fees
and expenses of its own legal counsel, brokerage commissions and other expenses
which are not specifically included in the definition of Registration Expenses.
3.5.6 Indemnification
(a) Indemnification by WRI. In the event of any registration
of any of WRI's securities under the Securities Act pursuant to this Article 11,
WRI shall indemnify and hold harmless (i) Allsup, (ii) the officers, directors,
trustees and partners of Allsup, (iii) each underwriter (as defined in the
Securities Act), (iv) each other Person who participates in the offering of such
securities, and (v) each other Person, if any, who controls (within the meaning
of the Securities Act) Allsup, underwriter or participating Person (individually
and collectively the "Indemnified Person") against any losses, claims, damages
or liabilities (collectively the "liability"), joint or several, to which such
Indemnified Person may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or action in respect
thereof) arises out of or is based upon (i) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such securities are registered under the Securities Act,
any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any alleged omission
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to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading. Except as otherwise provided in
paragraph (c) of this Section 3.5.6, WRI shall reimburse each such indemnified
Person in connection with investigating or defending any such liability;
provided, however, that WRI shall not be liable to any indemnified Person in any
such case to the extent that any such liability arises out of or is based upon
any alleged untrue statements or alleged omissions made in such registration
statement, preliminary or final prospectus, or amendment or supplement thereto
in reliance upon and in conformity with information fished in writing to WRI by
such Person specifically for use therein; and provided further, that WRI shall
not be required to indemnify any Person against any liability arising from any
untrue or misleading statement or omission contained in any preliminary
prospectus if such deficiency is corrected in the final prospectus, or for any
liability which arises out of the failure of any Person to deliver a prospectus
as required by the Act, regardless of any investigation made by or on behalf of
such Indemnified Person and shall survive transfer of such securities by Allsup.
(b) Indemnification by Allsup. Allsup shall, by acceptance
thereof, indemnify and hold harmless WRI, the directors, officers, trustees and
partners of WRI, each underwriter and each other Person, if any, who controls
WRI or such underwriter (individually and collectively also the "Indemnified
Person"), against any liability, joint or several, to which any such Indemnified
Person may become subject under the Securities Act or any other state or at
common law, in so far as such liability (or actions in respect thereof) arises
out of or is based upon (i) the disposition by Allsup of such Registrable
Securities in violation of the provisions of this Section 3.5, or (ii) any
alleged untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which securities were registered
under the Securities Act at the request of such holder, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or (iii) any alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
in the case of (ii) and (iii) to the extent, but only to the extent, that such
alleged untrue statement or alleged omission was made in such registration
statement, preliminary or final prospectus, amendment or supplement thereto in
reliance upon and in conformity with information furnished in writing to WRI by
Allsup specifically for use therein. Allsup shall reimburse any Indemnified
Person for any legal fees incurred in investigating or defending any such
liability; provided, however, that Allsup shall not be required to indemnify any
Person against any liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any liability which arises out of the failure of
any Person to deliver a prospectus as required by the Securities Act.
(c) Procedure for Indemnification. In the event Allsup or
other person receives a complaint, claim or other notice of any liability or
action, giving rise to a claim for indemnification under paragraphs (a) or (b)
of this
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Section 3.5.6, the Person claiming indemnification under such paragraphs shall
promptly notify the Person against whom indemnification is sought of such
complaint, notice, claim or action, and such indemnifying Person shall have the
right to investigate and defend any such loss, claim, damage, liability or
action. The Person claiming indemnification shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
but the fees and expenses of such counsel shall not be at the expense of the
Person against whom indemnification is sought (unless the indemnifying party
fails to promptly defend, in which case the fees and expenses of such separate
counsel shall be borne by the Person against whom indemnification is sought). In
no event shall a Person against whom indemnification is sought be obligated to
indemnify any Person for any settlement of any claim or action effected without
the indemnifying Persons' prior written consent.
3.5.7 Termination of Registration. Notwithstanding the foregoing
provisions of this Section 3.5, the rights to registration and the designation
of Allsup's Common Stock as Registrable Securities shall terminate as to any
particular securities when such securities shall have been lawfully sold by
Allsup to a registration statement or Rule 144.
3.5.8 Consent to Be Bound. Each subsequent holder of Registrable
Securities must consent in writing to be bound by the terms and conditions of
this Section 3.5 in order to acquire the rights granted pursuant to Section 3.5.
3.5.8 Amendments. The provisions of this Section 3.5 may be
amended, and WRI may take any action herein prohibited. or omit to perform any
act herein required to be performed by it, only if WRI has obtained the written
consent of Allsup.
3.5.9 Assignability of Registration Rights. Subject to Section
3.5.7 hereof, the registration rights set forth in this Section 3.5 are
assignable to each assignee as to each share of Registrable Securities conveyed
in accordance herewith who agrees in writing to be bound by the terms and
conditions of this Agreement and who (a) after such transfer owns at least
100,000 shares of Registrable Securities (as adjusted to reflect stock splits,
stock dividends, or other recapitalizations), or (b) is a shareholder of Allsup.
3.5.10 Designation of Underwriter. In the case of any
registration effected pursuant to this Section 3.5, WRI shall have the right to
designate the managing underwriter, subject to the approval of Allsup, which
approval will not be unreasonably withheld.
3.5.11 Lock-Up Provision. Upon receipt of a written request by
WRI or by its underwriters, Allsup will not sell, sell short, grant an option to
buy, or
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otherwise dispose of Registrable Securities or other securities of WRI (except
for any such shares included in the registration) for a period of one hundred
fifty (150) days after WRI has completed the sale of stock pursuant to the
registration in question. WRI may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until the end
of said 150-day period.
4. Additional Covenants. The parties hereby covenant and agree as follows:
4.1 Appointment of Jerry Fenstermaker as a Director of WRI. WRI agrees
to take, on or before the date of the Purchase Closing, such actions as may be
necessary to appoint Mr. Jerry Fenstermaker to the Board of Directors of WRI and
the Audit Committee of WRI's Board of Directors, with such appointment to be
effective as of the date of the Purchase Closing. Allsup's obligations under
this Agreement are expressly conditioned upon the foregoing appointments.
4.2 Appointment of Robert D. Judson, Jr. as Chief Financial Officer.
WRI agrees that Robert D. Judson, Jr., currently the acting Chief Financial
Officer of WRI, will be retained as Chief Financial Officer of WRI; pursuant to
an employment agreement between Mr. Judson and WRI which would be subject to
review and approval by the Compensation Committee of WRI's Board of Directors.
4.3 Further Effort into Joint Marketing Agreement. WRI and Allsup
agree to explore ways in which the goals of the Joint Marketing Program dated
April 8, 1996 between Allsup and WRI will be realized, including, without
limitation, putting additional effort and concentration into each party's
obligations thereunder.
4.4 Support for WRI's Efforts. Allsup agrees to take, or refrain from
taking, the following actions:
4.4.1 Support for Plan of Reorganization. Provided that the
Bankruptcy Court approves the Disclosure Statement, Allsup shall endorse,
approve and actively support confirmation of the Plan of Reorganization.
Notwithstanding the above, Allsup shall not be required to support any amendment
to the Plan of Reorganization that it has not previously approved.
4.4.2 No Disparagement. Neither Allsup nor its officers,
directors or employees shall not make any disparaging comments, verbally or in
writing, with respect to WRI or its current officers, directors or management
team prior to the date of confirmation of the Plan of Reorganization.
4.4.3 No Takeover Attempt. For a period of four (4) years
commencing with the date of this Investment Agreement, Allsup shall not,
directly or
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indirectly through any third party or parties, attempt or assist any third party
or parties in their attempt of, any takeover of WRI, whether through acquisition
of WRI shares or through a proxy solicitation, without the prior written consent
of WRI. Allsup's agreement hereunder shall be reflected in any Form 13D filed by
Allsup in connection with its acquisition of shares in WRI, including, without
limitation, the Subject Shares or any shares acquired through conversion of the
Initial Allsup Loan or the New Allsup Loan.
4.4.4 Replacement of Current Management of WRI. Allsup shall not,
for a period of four (4) years commencing with this Investment Agreement, seek
the removal, or assist any third party or parties in seeking the removal, by
proxy solicitation or otherwise, or any current officer or director of WRI or
any other member of WRI's management team.
4.4.5 Exercise of Business Judgment. Notwithstanding the
provisions of Sections 4.4.3 or 4.4.4 above, Allsup, as a shareholder of WRI,
and Jerry Fenstermaker, as a director of WRI, shall be entitled to take such
actions as deemed necessary in the exercise of their business judgment or in the
fulfillment of any fiduciary duty that may exist, with respect to the operations
of WRI.
4.5 Right of First Refusal to Provide Additional Financing. In the
event that, prior to confirmation of the Plan of Reorganization, WRI seeks to
borrow any monies in addition to the New Allsup Loan, Allsup and Recovery LP
Lender shall have a right of first refusal, on a pro rata basis, based upon the
respective principal balances due Recovery Lender under the Loan Agreement and
Allsup pursuant to the Initial Allsup Loan and the New Allsup Loan, to provide
such financing. WRI will not secure any such additional financing without first
providing Allsup and Recovery Lender with written notice of WRI's intention to
obtain such additional financing, and the terms applicable to such financing.
Allsup and Recovery Lender shall have ten (10) days after receipt of such
written notice from WRI to commit to providing the requested financing upon the
same terms and conditions as specified in the written notice. In the event that
either Allsup or Recovery Lender, but not both, elect to provide such financing,
the party electing to provide such financing shall have the right to provide all
of the requested financing. In the event that Allsup and Recovery Lender
collectively fail to notify WRI within said ten (10) day period of its election
to provide the full amount of such financing, then WRI is automatically
permitted to pursue said financing from third parties upon the terms and
conditions specified in WRI's notice to Allsup and Recovery Lender. The
provisions of this Section 4.5 will be incorporated into the Intercreditor
Agreement.
4.6 Prohibition Against Grant of Security Interest. WRI shall not
grant, prior to the date of confirmation of the Plan of Reorganization, any
security interest in WRI's assets to any third party, other than in connection
with a financing permitted by Section 4.5 above.
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4.7 Approval of Plan of Reorganization. WRI agrees to seek
confirmation of the Plan of Reorganization as expeditiously as reasonably
practicable, after taking into account all required notices.
5. WRI's Representations and Warranties. As a material inducement to
Recovery Lender and Allsup to enter into this Agreement, WRI represents and
warrants that:
5.1 Organization and Corporate Power. WRI is a corporation duly
incorporated and validly existing under the laws of Colorado and it is qualified
to do business in every jurisdiction in which its ownership of property or
conduct of business requires it to qualify. WRI has all requisite corporate
power and authority and all material licenses, permits, and authorizations
necessary to own and operate its properties and to carry on its business as now
conducted. The copies of the WRI's Articles of Incorporation and other
organizational documents have been furnished to Allsup reflect all amendments
made thereto at any time prior to the date of this Agreement and are correct and
complete.
5.2 Authorization. The making and performance by WRI of this Agreement
and the transactions described herein have been duly authorized by all necessary
corporate action; provided, however, that approval of this Agreement by the
Bankruptcy Court shall be required.
5.3 Enforceability. This Agreement constitutes the legal and binding
obligation of WRI, enforceable against WRI in accordance with its terms.
6. Representations of Allsup. Allsup represents and warrants as follow:
6.1 Adequate Disclosure; Access to Information. As a result of its
independent due diligence investigation, it is familiar with and fully aware of
WRI's business operations and financial condition.
6.2 Speculative Investment; Ability to Assume Financial Risk. It is
aware of and understands that the Investment is a speculative investment which
involves a high degree of risk of loss by it of its entire investment. It is
able to assume the economic risks of the Investment and could absorb a complete
loss on such investment without significantly affecting its financial condition.
6.3 No Representations. It is not relying on representations
concerning WRI, express or implied, other than those set forth herein and in the
Plan of Reorganization and the Disclosure Statement.
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6.4 Legends. It is aware and agrees that all certificates for the
Subject Shares shall bear a legend describing transfer restrictions requiring
compliance with state and federal securities laws. Allsup agrees that it will
not dispose of any of the Subject Shares unless it has delivered to WRI an
opinion of counsel in form acceptable to the WRI that the proposed disposition
does not violate applicable federal or state blue sky securities laws.
6.5 Accredited Investor. It is an accredited investor as defined in
Regulation D, Rule 501(a) (17 C.F.R. 230.501(a)).
6.6 Additional Information. It has had the opportunity, at minimal
inconvenience, to ask questions of and obtain from WRI any additional
information, to the extent possessed or obtainable without unreasonable effort
or expense, necessary to evaluate the merits and risks of the Investment. There
is no additional information that it wishes to obtain from WRI or from any other
source with respect to the Investment.
6.7 Sole Party in Interest. Except as otherwise indicated, it is the
sole party in interest in making the Investment, and is making the New Allsup
Loan and acquiring the Subject Shares solely for investment for its own account
or as indicated and have no present agreement, understanding or arrangement to
subdivide, sell, assign, or transfer any part or all of the New Allsup Loan, the
Subject Shares or the Allsup Warrants to any other person.
7. Miscellaneous Provisions.
7.1 Severability. Should any one or more of the provisions hereunder
be determined to be illegal or unenforceable, all other provisions hereof shall
be given effect separately therefrom and shall not be affected thereby.
7.2 Notices and Bank Accounts. Any notice or other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given upon delivery if personally delivered or when sent if sent by
facsimile or two days after mailing by certified mail, postage prepaid, and
addressed as follows, and any disbursements or payment in connection with the
Investment shall be deemed delivered upon deposit of immediately available funds
to the accounts indicated below:
It to Allsup: Allsup Inc.
300 Allsup Place
Belleville, IL 62223-9626
Fax: (618) 236-5778
Acct:
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If to WRI: Work Recovery, Inc.
2341 S. Friebus, Suite 14
Tucson, AZ 85713
Acct:
Each of the above addressees may change its address or bank account
information for purposes of this paragraph by providing notice of the new
address or bank account in the manner herein provided.
7.3 Choice of Law. It is the intention of the parties that the
internal laws of the State of Arizona (and not the laws of conflict) shall
govern the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
7.4 Counterparts. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
7.5 Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of either party shall bind and inure to the benefit of
their respective successors and assigns.
7.6 Definitions. All terms not otherwise defined herein shall have the
meanings assigned to such terms by the Plan of Reorganization.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
WORK RECOVERY, INC.
By: /s/ Dorcas R. Hardy
------------------------------------
Its: President & CEO Acting
ALLSUP INC.
By: /s/ Jerald L. Fenstermaker
------------------------------------
Its: C.O.O.
10/11/96
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EXHIBIT 3
C. Taylor Ashworth, No. 010143 Gary A. Gotto, No. 007401
OSBORN MALEDON, P.A. DALTON GOTTO SAMSON & KILGARD
2929 North Central Avenue 3101 North Central Avenue
Suite 21 00 Suite 900
Phoenix, Arizona 95012-2798 Phoenix, Arizona 95012
(602) 207-1288 (602) 248-0088
Attorneys for Debtor
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
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In re:
WORK RECOVERY, INC., a Case No. B-96-01640-TUC-JMM
Colorado corporation,
Debtor Chapter 11
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In re:
WORK RECOVERY CENTERS, Case No. B-96-01641-TUC-JMM
INC., an Arizona corporation.
Debtor Chapter 11
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DEBTORS' RESTATED AMENDED
JOINT PLAN OF REORGANIZATION
DATED OCTOBER 4, 1996
MODIFIED AS OF NOVEMBER 25, 1996
EXHIBIT 1
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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re:
WORK RECOVERY, INC., a Case No. B-96-01640-TUC-JMM
Colorado corporation,
Debtor Chapter 11
In re:
WORK RECOVERY CENTERS, Case No. B-96-01641-TUC-JMM
INC., an Arizona corporation.
Debtor Chapter 11
DEBTORS' RESTATED AMENDED JOINT PLAN OF REORGANIZATION
DATED OCTOBER 4, 1996, MODIFIED AS OF NOVEMBER 25, 1996
WORK RECOVERY, INC., a Colorado corporation, and WORK RECOVERY CENTERS,
INC., an Arizona corporation, Debtors and Debtors In Possession in the above
captioned jointly administered cases, propose the following Chapter 11 Plan of
Reorganization pursuant to Chapter 11 of Title 11 of the United States Code.
ARTICLE 1
DEFINITIONS
The following terms, when used in the Plan, shall, unless the context
otherwise requires, have the meanings set forth in this Article.
1.1 GENERAL DEFINITIONS
1.1.1 Administrative Claim shall mean a claim or portion of a claim
which is a cost or expense of the administration of Debtors' Estates allowed
under Section 503(b) of the Code that is entitled to priority under Section
507(a)(1) of the Code, including but not limited to any actual and necessary
cost and expense of preserving the Estates, or operating the business of
Debtors, and all fees and expenses of professionals entitled to compensation
pursuant to Sections 328, 330 and 503(b) of the Code.
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1.1.2 Allowed Claim means a claim to the extent that:
(a) a proof of such claim was filed with the Court within the
applicable time period fixed by the Court, or deemed filed pursuant to Section
1111(a) of the Bankruptcy Code, or was not required to be filed pursuant to a
Final Order; and
(b) to which no objection has been made, or which is allowed (and
only to the extent allowed) by a Final Order. Multiple proofs of claim within
the same Class filed by one claimant shall be aggregated and shall constitute a
single Allowed Claim.
1.1.3 Allowed Secured Claim shall mean an Allowed Claim as defined
herein and further defined as secured under Section 506(a) of the Bankruptcy
Code.
1.1.4 Bankruptcy Code means the Bankruptcy Code, as set forth in Title
11 of the United States Code, 11 U.S.C. Sections 101 et seq., as amended.
1.1.5 Bankruptcy Court means the United States Bankruptcy Court for
the District of Arizona (or such other court as may have jurisdiction over this
Chapter 11 case) and, with respect to any particular proceeding arising under
Title 11 of the United States Code, or arising in or related to this Chapter 11
case, any other court which has jurisdiction over such proceeding.
1.1.6 Bankruptcy Rules means the Rules of Bankruptcy Procedure and the
Local Rules of Bankruptcy Procedure for the District of Arizona.
1.1.7 Bar Date means October 1, 1996, the date . established by order
of the Court by which any holder of a Claim or Interest must file a proof of
claim or interest in order for such claim or interest to be considered for
allowance.
1.1.8 Claim means a claim against Debtors within the meaning of
Section 101 (5) of the Bankruptcy Code that arose prior to the Confirmation
Date.
1.1.9 Class means a category or group of holders of Claims or
Interests as designated pursuant to this Plan.
1.1.10 Confirmation means entry of the Confirmation Order.
1.1.11 Confirmation Date means the date on which the Confirmation
Order is entered on the docket by the Clerk of the Bankruptcy Court.
1.1.12 Confirmation Hearing means the hearing conducted by the
Bankruptcy Court to consider confirmation of the Plan, as such hearing may be
continued from time to time.
1.1.13 Confirmation Order means the order of the Bankruptcy Court
confirming this Plan pursuant to Section 1129 of the Bankruptcy Code.
1.1.14 Creditors' Committee means the Official Unsecured Creditors'
Committee appointed in the WRI Reorganization Case, as constituted from time to
time.
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1.1.15 Debtors means Work Recovery, Inc., a Colorado corporation, and
Work Recovery Centers, Inc., an Arizona corporation, each a Debtor and
Debtor-in-Possession in these proceedings.
1.1.16 Disclosure Statement means the written disclosure statement
concerning the Plan approved by the Court pursuant to Section 1125(b) of the
Bankruptcy Code, including any amendments thereto which have been approved by
the Court.
1.1.17 Discount Factor means a factor to be applied to the Share Rate
to account for the diminution in value of New Common Stock distributable on
account of Class 2E Claims because such stock will be restricted. At the
Confirmation Hearing, Debtors will request the Court to determine the Discount
Factor to be forty percent (40%).
1.1.18 Disputed Claim means any claim as to which any party in
interest has filed an objection, which objection has not been withdrawn or
resolved by a Final Order.
1.1.19 Effective Date means the first business day after the tenth
(10th) day after the Confirmation Date on which the Confirmation Order is not
stayed, or such later date as Debtors shall select, not later than ninety (90)
days after the Confirmation Date.
1.1.20 Equity Conversion Rate means a ratio of an Allowed Interest to
the number of shares of New Common Stock into which such claim may be converted
pursuant to the terms of this Plan, which rate shall be one (1) share of New
Common Stock for each ten (10) shares of Old Common Stock.
1.1.21 Estates means the estates created in the Reorganization Cases
under the Bankruptcy Code.
1.1.22 Estimated Claim means a Disputed Claim which has been estimated
for distribution purposes pursuant to Section 14.3 hereof.
1.1.23 Final Order means an order, judgment or other decree of the
Court, including, without limitation, a stipulation or other agreement entered
into which is 'so ordered" by the Court, the operation or effect of which has
not been reversed or stayed and as to which order, judgment or other decree (or
any revision, modification or amendment thereof) the time to appeal or seek
review has expired, and as to which no appeal or petition for review or
certiorari has been taken or is pending (or if such appeal or petition has been
taken or granted, it has been finally decided).
1.1.24 Interest or Interests means the rights of any holder of shares
of stock in a Debtor or of any holder of warrants or rights to acquire stock in
a Debtor.
1.1.25 MetLife means Metlife Capital Financial Corporation, the holder
of the Class 2A and Class 2B Claims.
1.1.26 MetLife Louisiana Rate means a rate of interest to be paid on
the principal amount of the Class 2A Claim, such rate to be determined by the
Bankruptcy Court at the Confirmation Hearing as sufficient to meet the
requirements of Sections 506(b) and 1129(b)(2)(A)(i)(ii) of the Bankruptcy Code.
At the hearing, Debtors shall request the Court to find that the MetLife
Louisiana Rate should be two percent (2%) above the yield rate then prevailing
for three-year Treasury obligations as reported in the "Wall Street Journal".
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1.1.27 New Common Stock means stock in New WRI issued pursuant to this
Plan. Pursuant to the terms of this Plan, approximately 15,000,000 shares of New
Common Stock may be issued, in addition to New Common Stock that may be issued
pursuant to the exercise of New Warrants, as provided for herein.
1.1.28 New Warrant means a warrant permitting the purchase of New
Common Stock issued pursuant to Section 5.2 hereof at page 1 5.
1.1.29 New WRI means the corporation, organized under the laws of the
State of Delaware, to be formed pursuant to the provisions of Article 10 to be
the successor to the Debtors.
1.1.30 Old Common Stock means the common stock of WRI issued and
outstanding immediately prior to the Effective Date.
1.1.31 Petition Date means May 29, 1996, the date upon which the
Reorganization Cases commenced.
1.1.32 Plan means this plan of reorganization, including any amendment
or modification made in accordance with the terms of the Plan or the applicable
provisions of the Bankruptcy Code.
1.1.33 Plan Shares means shares of New Common Stock to be issued
pursuant to the terms of this Plan; PROVIDED, Plan Shares do not include the
shares provided for herein to be issued to the Employee Stock Option Plan and do
not include any shares issued pursuant to New Warrants.
1.1.34 Priority Claims means those Allowed Claims which are entitled
to priority under Section 507(a)(1) through (a)(7) of the Bankruptcy Code.
1.1.35 Recovery Conversion Rate means a ratio of certain Allowed
Claims or administrative expenses to the number of shares of New Common Stock
into which such claims or expenses may be converted pursuant to the terms of
this Plan, which rate shall be fixed so that the claimant receives one percent
(1%) of the Plan Shares for each $100,000 of Allowed Claim or expense.
1.1.36 Pro Rata means the ratio of an Allowed Claim or Interest in a
particular Class to the aggregate amount of all Allowed Claims or Interests in
that Class.
1.1.37 Recovery Lender means Recovery Lender, L.L.C., an Arizona
limited liability company, the lender under the Recovery Lender Financing
Agreement.
1.1.38 Recovery Lender Financing Agreement means the Financing
Agreement between WRI and Recovery Lender providing for certain pre-petition and
post-petition loans to WRI, as such agreement has been or may be modified from
time to time.
1.1.39 Reorganization Cases means In re Work Recovery, Inc.,
Case No. 96-01640-TUC-JMM and In re Work Recovery Centers, Inc.,
Case No. 96-01641-TUC-JMM.
1.1.40 Reorganized Debtor means New WRI, as successor to Work
Recovery, Inc. and Work Recovery Centers, Inc. after the Effective Date of the
Plan.
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1.1.41 Securities Fraud Claim means a claim arising from rescission of
a purchase or sale of a security of WRI, for damages arising from the purchase
or sale of such a security, or for reimbursement or contribution on account of
such claim, within the meaning of Section 510(b) of the Bankruptcy Code, to the
extent such claim arises in connection with securities purchased after September
30, 1993, and before April 30, 1996.
1.1.42 Securities Fraud Claim Bar Date means the date set by the Court
for the filing of proofs of claim for Securities Fraud Claims. Currently, the
Court has set October 1, 1996 as the date for filing all claims; Debtors have
filed a motion to extend such date as it applies to Securities Fraud Claims.
1.1.43 Share Rate means an amount of money equal to the likely fair
market value of a share of New Common Stock after the Effective Date, as
determined by the Bankruptcy Court at the Confirmation Hearing. The Share Rate
is applicable in determining the exercise price for New Warrants as provided for
in this Plan. The Share Rate is also applicable in determining the amount of
shares issuable under the Plan on account of Allowed Claims in Class 3C
(Unresolved Claims WRI). Debtors currently anticipate that they will request the
Court to find such value to be $2.50, but reserve the right to propose a
different value based upon the facts and circumstances as of the Confirmation
Hearing.
1.1.44 Tax Claim means a claim for taxes of the kind specified in
Section 507(a)(7) of the Bankruptcy Code.
1.1.45 TEAM means the Team for New Management, L.L.C., the limited
liability company which currently manages the Debtors pursuant to an agreement
with Debtors, as approved by the Bankruptcy Court.
1.1.46 Unresolved Claim means a Disputed Claim included in a list of
such claims to be filed by Debtors and the Creditors' Committee on or before
November 1, 1996. PROVIDED, Unresolved Claims shall not include Securities Fraud
Claims.
1.1.47 Wage Claim means a claim for wages, salaries, commissions,
including vacation pay, severance and sick leave pay, of the kind and in the
amount specified in Section 507(a)(3) of the Bankruptcy Code.
1.1.48 WRI means Work recovery, Inc., a Colorado corporation.
1.1.49 WRC means Work Recovery Centers, Inc,, an Arizona corporation.
1.2 PROPERTY DESCRIPTIONS
Certain properties of WRI are referred to herein and described with
particularity in the Schedules hereto:
1.2.1 The Louisiana Property means that certain real property located
in Metairie, Louisiana as more particularly described in Schedule 1 , consisting
of all property interests which are covered by the security interest of MetLife
securing the Class 2A Claim.
1.2.2 The Tucson Property means that certain real property located in
Tucson, Arizona as more particularly described in Schedu1e 2, consisting of all
property interests which are covered by the security interest of MetLife
securing the Class 2B Claim.
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1.2.3 The Engmann Collateral means that certain personal property more
particularly described in Schedule 3, consisting of all property interests which
are covered by the security interest securing the Class 2C Claim.
1.2.4 The Recovery Lender Collateral means that certain personal
property more particularly described in Schedule 4, consisting of all property
interests which are covered by the security interest securing the Class 2D
Claim.
1.2.5 The Allsup Collateral means that certain personal property more
particularly described in Schedule 5, consisting of all property interests which
are covered by the security interest securing the Class 2E Claim.
1.3 TERMS DEFINED IN BANKRUPTCY CODE
A term not defined in the Plan but defined in the Bankruptcy Code shall
have the meaning given in the Bankruptcy Code.
ARTICLE 2
CLASSIFICATION OF CLAIMS
AND INTERESTS
For the purposes of the Plan, Claims against and Interests in the Debtors,
of whatever nature, whether or not scheduled, liquidated or unliquidated,
absolute or contingent, direct or indirect, including all Claims arising from
the rejection of executory contracts, and all Claims or Interests arising from
the ownership of equity securities of Debtor, shall be bound by the provisions
of this Plan and are classified as follows:
2.1 PRIORITY CLAIMS
2.1.1 Class 1 A. Allowed Administrative Claims WRI. Class 1 A shall
consist of all Allowed Administrative Claims against the Estate of Work
Recovery, Inc.
2.1.2 Class 1 B. Allowed Administrative Claims WRC. Class 1 B shall
consist of all Allowed Administrative Claims against the Estate of Work Recovery
Centers, Inc.
2.1.3 Class 1 C. Allowed Wage Claims WRI. Class 1 C shall consist of
all Allowed Wage Claims.
2.1.4 Class 1 D. Allowed Tax Claims WRI. Class 1 D shall consist of
all Allowed Tax Claims against the Estate of WRI.
2.1.5 Class 1 E. Allowed Tax Claims WRC. Class 1 E shall consist of
all Allowed Tax Claims against the Estate of WRC.
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2.2 SECURED CLAIMS
2.2.1 Class 2A. Louisiana Property Secured Claim WRI. Class 2A shall
consist of the Allowed Secured Claim of MetLife Finance Corporation secured by
the Louisiana Property.
2.2.2 Class 2B. Tucson Property Secured Claim WRI. Class 2B shall
consist of the Allowed Secured Claim of MetLife Finance Corporation secured by
the Tucson Property.
2.2.3 Class 2C. Engmann Secured Claim WRI. Class 2C shall consist of
the Allowed Secured Claim of Doug Engmann secured by the Engmann Collateral.
2.2.4 Class 2D. Recovery Lender Secured Claim WRI. Class 2D shall
consist of the Allowed Secured Claim of Recovery Lender, L.L.C., secured by the
Recovery Lender Collateral.
2.2.5 Class 2E. Allsup Secured Claim WRI. Class 2E shall consist of
the Allowed Secured Claim of Allsup, Inc. secured by the Allsup Collateral.
2.2.6 Class 2F. Ford Motor Secured Claim WRI. Class 2E shall consist
of the Allowed Secured Claim of Ford Motor Credit Company, secured by an
automobile.
2.3 UNSECURED CLAIMS
2.3.1 Class 3A. Small Claims WRI. Class 3A shall consist of all
Allowed Claims against the Estate of WRI, not entitled to priority, which are
either (a) $500 or less, or (b) greater than $500, but the holders of which
voluntarily elect to reduce their claims to $500 in order to be treated as Class
3A Claims pursuant to Article 4 hereof.
2.3.2 Class 38. Small Claims WRC. Class 3B shall consist of all
Allowed Claims against the Estate of WRC, not entitled to priority, which are
either (a) $500 or less, or (b) greater than $500, but the holders of which
voluntarily elect to reduce their claims to $500 in order to be treated as Class
3B Claims pursuant to Article 4 hereof.
2.3.3 Class 3C. Unresolved Claims WRI. Class 3C Claims shall consist
of all Allowed Unresolved Claims against WRI. The Class 3C Claims shall include
certain claims which are disputed, unliquidated, or contingent claims, including
without limitation, any claims for damages resulting from the rejection of
leases or executory contracts, and claims subject to set off by the Debtor. The
Claims to be included in such Class shall be identified in accordance with the
provisions of Article 6 of this Plan at page 16 hereof.
2.3.4 INTENTIONALLY OMITTED.
2.3.5 Class 3E. Securities Fraud Claims WRI. Class 3E Claims shall
consist of all Allowed Securities Fraud Claims. Such claims arise from
rescission of a purchase or sale of a security of WRI, or are for damages
arising from the purchase or sale of such security, or are for reimbursement or
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contribution on account of such a claim, within the meaning of Section 510(b) of
the Bankruptcy Code, and include only those claims with respect to securities of
WRI purchased by the claimant after September 30, 1993 and before April 30,
1996. Notwithstanding the foregoing, Class 3E Claims shall not include claims
included within Class 3F or Class 3G.
2.3.6 Class 3F. B Warrants Claims WRI. Class 3F Claims shall consist
of all Allowed Claims against the Estate of WRI arising from or relating to the
issuance of B Warrants, including any claims based upon the exercise of such
warrants.
2.3.7 Class 3G. Dealer Warrants Claims WRI. Class 3G Claims shall
consist of all Allowed Claims against the Estate of WRI arising from or relating
to the issuance of Dealer Warrants, including any claims based upon the exercise
of such warrants.
2.3.8 Class 3H. General Unsecured Claims WRI. Class 3H Claims shall
consist of all Allowed Claims against the Estate of WRI not otherwise classified
herein.
2.3.9 Class 31. General Unsecured Claims WRC. Class 31 Claims shall
consist of all Allowed Claims against the Estate of WRC not otherwise classified
herein.
2.4 INTERESTS
2.4.1 Class 4A. Series A Preferred Stock WRI. Class 4A shall consist
of all Allowed Interests of the holders of Series A Preferred Stock in WRI,
except those classified in Class 4H.
2.4.2 Class 4B. Series B Preferred Stock WRI. Class 4B shall consist
of all Allowed Interests of the holders of Series B Preferred Stock in WRI,
except those classified in Class 4H.
2.4.3 Class 4C. Series C Preferred Stock WRI. Class 4C shall consist
of all Allowed Interests of the holders of Series C Preferred Stock in WRI,
except those classified in Class 4H.
2.4.4 Class 4D. Common Stock WRI. Class 4D shall consist of all
Allowed Interests of the holders of WRI Common Stock, except those classified in
Class 4H.
2.4.5 INTENTIONALLY OMITTED.
2.4.6 Class 4F. Common Stock WRC. Class 4F shall consist of all
Allowed Interests of WRI, as the holder of Common Stock in WRC.
2.4.7 Class 4G. Employee Stock Option Plan WRI. Class 4G shall consist
of all Allowed Interests of the beneficiaries of WRI's Employee Stock Option
Plan.
2.4.8 Class 4H. Brandon Interests WRI. Class 4H shall consist of all
Allowed Interests of Thomas Brandon, and his affiliates and insiders, to the
extent that the Bankruptcy Court determines that such Interests should be
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subordinated to the Interests of other Interest holders. Debtors will request
the Court to make such determination at the Confirmation Hearing.
ARTICLE 3
TREATMENT OF CLASSES OF
CLAIMS AND INTERESTS
3.1 PRIORITY CLAIMS
3.1.1 Class 1 A. Allowed Administrative Claims WRI. Each holder of an
Allowed Class 1A Claim shall receive, on account of such Claim, cash in the full
amount of such Claim on the later of (i) the Effective Date, (ii) the date on
which the Claim is allowed, or (iii) the date upon which such obligation becomes
due in accordance with its terms.
Professionals and entities who may be entitled to allowance of fees
and expenses from the estate pursuant to Section 503(b)(2) through (6) of the
Bankruptcy Code will receive cash in the amount awarded to such professionals or
entities at such times and in accordance with Final Orders entered pursuant to
Sections 330 or 503(b)(2) through (6) of the Bankruptcy Code.
Any holder of a Class 1A Claim may agree to deferred payment or a
different treatment, provided such treatment is no more favorable than provided
for herein.
Class 1 A Claims are not impaired.
3.1.2 Class 1 B. Allowed Administrative Claims WRC. Each holder of an
Allowed Class 1B Claim shall receive, on account of such Claim, cash in the full
amount of such Claim on the later of (i) the Effective Date, (ii) the date on
which the Claim is allowed, or (iii) the date upon which such obligation becomes
due in accordance with its terms.
Professionals and entities who may be entitled to allowance of fees
and expenses from the estate pursuant to Section 503(b)(2) through (6) of the
Bankruptcy Code will receive cash in the amount awarded to such professionals or
entities at such times and in accordance with Final Orders entered pursuant to
Section 330 or 503(b) (2) through (6) of the Bankruptcy Code.
Any holder of a Class 1B Claim may agree to deferred payment or a
different treatment, provided such treatment is no more favorable than provided
for herein.
Class 1 B Claims are not impaired.
3.1.3 Class 1 C. Allowed Wage Claims WRI. Each holder of an Allowed
Class 1 C Claim shall receive, on account of such claim, payment in full, in
cash, on the later of (i) the Effective Date, (ii) the date on which the Claim
becomes an Allowed Claim, or (iii) the date upon which such obligation becomes
due in accordance with its terms.
Any holder of a Class 1C Claim may agree to deferred payment or a
different treatment, provided such treatment is no more favorable than provided
for herein.
Class 1C Claims are not impaired.
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3.1.4 Class 1 D. Allowed Tax Claims WRI. Each holder of an Allowed
Class 1 D Claim shall receive, on account of such claim, cash in the full amount
of such claim, on the later of the Effective Date or the date upon which such
Claim becomes an Allowed Claim.
Class 1 D Claims are not impaired.
3.1.5 Class 1 E. Allowed Tax Claims WRC. Each holder of an Allowed
Class 1E Claim shall receive, on account of such claim, cash in the full amount
of such claim, on the later of the Effective Date or the date upon which such
Claim becomes an Allowed Claim.
Class 1 E Claims are not impaired.
3.2 SECURED CLAIMS
3.2.1 Class 2A. Louisiana Property Secured Claim WRI. To the extent
that such claim has not been paid as of the Effective Date, the holder of the
Class 2A Claim shall, on account of such claim, receive cash in the full amount
of the Allowed Class 2A Claim, together with any accrued and unpaid interest on
the principal amount of such claim at the MetLife Louisiana Rate from the
Petition Date until the Effective Date as and to the extent such interest may be
authorized by Final Order of the Bankruptcy Court in accordance with Section
506(b) of the Bankruptcy Code. The payment shall be made from the proceeds of
the sale of the Louisiana Property and as part of the closing of such sale.
Until the closing of the sale of the Louisiana Property, the holder of
the Class 2A Claim shall (i) retain its lien on the Louisiana Property to secure
payment of the amounts specified herein, and (ii) receive monthly payments of
interest on the principal amount of such claim, commencing on the first day of
the calendar month which is at least thirty (30) days after the Effective Date,
and continuing until the closing of the Louisiana Property sale.
The Class 2A Claim is impaired.
3.2.2 Class 2B. Tucson Property Secured Claim WRI. The holder of the
Class 2B Claim shall retain its lien on the Tucson Property to secure payment of
the deferred payments provided for in this Section.
The holder of the Class 2B Claim shall receive, on account of such
claim, (i) on the Effective Date, an amount equal to any payments required to
cure any existing defaults that occurred before or after the Petition Date,
other than a default of a kind specified in Section 365(b)(2) of the Bankruptcy
Code, and (ii) thereafter, monthly payments as provided for in the existing
agreement with the holder of the Class 2B Claim. Upon the payment on the
Effective Date provided for herein, the maturity date for the obligation shall
be reinstated as it existed prior to any defaults, as provided for in Section
1124(2)(B) of the Bankruptcy Code.
The Class 2B Claim is not impaired.
3.2.3 Class 2C. Engmann Secured Claim WRI. The holder of the Class 2C
Claim shall, on account of such claim, receive, at the election of the holder,
either (i) payment in the full amount of the Allowed Claim in six (6) equal
monthly installments commencing on the thirtieth (30th) day after the Effective
Date with interest at eight percent (8%) per annum, or (ii) New Common Stock in
an amount based upon the Recovery Conversion Rate.
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The Class 2C Claim is impaired.
3.2.4 Class 2D. Recovery Lender Secured Claim WRI. The holder of the
Class 2D Claim shall, on account of such claim, receive New Common Stock in an
amount based upon the Recovery Conversion Rate.
The Class 2D Claim is impaired.
3.2.5 Class 2E. Allsup Secured Claim WRI. The holder of the Class 2E
Claim shall, on account of such claim, receive, at the election of the holder,
either (i) payment in the full amount of the Allowed Class 2E Claim in
thirty-six (36) equal monthly installments commencing on the thirtieth (30th)
day after the Effective Date with interest at ten percent (10%) per annum, or
(ii) New Common Stock equal in value to the amount of the Allowed Claim with
allowed interest, based upon the Share Rate and the Discount Factor.
The Class 2E Claim is impaired.
3.2.6 Class 2F. Ford Motor Secured Claim WRI. The holder of the Class
2F Claim shall retain its lien on the automobile to secure payment of the
deferred payments provided for in this Section.
The holder of the Class 2F Claim shall receive, on account of such
claim, (i) on the Effective Date, an amount equal to any payments required to
cure any existing defaults that occurred before or after the Petition Date,
other than a default of a kind specified in Section 365(b)(2) of the Bankruptcy
Code, and (ii) thereafter, monthly payments as provided for in the existing
agreement with the holder of the Class 2F Claim. Upon the payment on the
Effective Date provided for herein, the maturity date for the obligation shall
be reinstated as it existed prior to any defaults, as provided for in Section
1124(2)(B) of the Bankruptcy Code.
The Class 2F Claim is not impaired.
3.3 UNSECURED CLAIMS WITHOUT PRIORITY
3.3.1 Class 3A. Small Claims WRI. Each holder of an Allowed Class 3A
Claim shall receive, on account of such claim, cash in the amount of ninety
percent (90%) of its Allowed Claim, within thirty (30) days of the Effective
Date.
Class 3A Claims are impaired.
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3.3.2 Class 3B. Small Claims WRC. Each holder of an Allowed Class 3B
Claim shall receive, on account of such claim, cash in the amount of ninety
percent (90%) of its Allowed Claim, within thirty (30) days of the Effective
Date.
Class 3B Claims are impaired.
3.3.3 Class 3C. Unresolved Claims WRI. Each holder of an Allowed Class
3C Claim shall, on account of such Claim, receive shares of New Common Stock, of
a value as of the Effective Date equal to the Allowed Amount of such claim,
provided, that the total amount of shares distributable on account of Claims in
Class 3C shall not exceed 1,500,000 shares. The value of the New Common Stock
shall be based upon the Share Rate. Shares shall be issuable in accordance with
the provisions of Article 6 hereof.
The Class 3C Claims are impaired.
3.3.4 INTENTIONALLY OMITTED.
3.3.5 Class 3E. Securities Fraud Claims WRI. Each holder of an Allowed
Class 3E Claim shall, on account of such Claim, receive its pro rata share of
1,500,000 shares of New Common Stock in accordance with the provisions of
Article 7 of this Plan at page 17, and also a pro rata interest in the Claims
Trust, in accordance with the provisions of Article 8 of this Plan at page 17.
The Class 3E Claims are impaired.
3.3.6 Class 3F. B Warrants Claims WRI. Each holder of an Allowed Class
3F Claim shall, on account of such Claim, receive its pro rata share of 150,000
shares of New Common Stock.
The Class 3F Claims are impaired.
3.3.7 Class 3G. Dealer Warrants Claims WRI. Each holder of an Allowed
Class 3F Claim shall, on account of such Claim, receive its pro rata share of
350,000 shares of New Common Stock.
The Class 3G Claims are impaired.
3.3.8 Class 3H. General Unsecured Claims WRI. Each holder of an
Allowed Class 3H Claim shall, on account of such Claim, receive cash equal to
eighty percent (80%) of its Allowed Claim, in two (2) equal installments, the
first such installment being payable within thirty (30) days of the Effective
Date, and the final installment being payable within one hundred eighty (180)
days of the Effective Date. Such holders shall also receive additional
distributions from the Claims Trust in accordance with the provisions of Article
8 hereof.
The Class 3H Claims are impaired.
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3.3.9 Class 31. General Unsecured Claims WRC. Each holder of an
Allowed Class 3I Claim shall, on account of such Claim, receive cash equal to
eighty percent (80%) of the Allowed Claim, in two (2) equal installments, the
first such installment being payable within thirty (30) days of the Effective
Date, and the final installment being payable within one hundred eighty (180)
days of the Effective Date. Such holders shall also receive additional
distributions from the Claims Trust in accordance with the provisions of Article
8 hereof.
The Class 3I Claims are impaired.
3.4 INTERESTS
3.4.1 Class 4A. Series A Preferred Stock WRI. Prior to the Effective
Date of the Plan, the Series A Preferred Stock shall be redeemed in accordance
with its terms. The funds required to redeem the stock, approximately $1800,
shall be contributed to Debtor by Doug Engmann, as additional capital and
without compensation, exchange or reimbursement.
The Class 4A Interest is unimpaired.
3.4.2 Class 4B. Series B Preferred Stock WRI. Each holder of a Class
4B Interest shall, on account of such Interest, receive (i) cash in an amount
equal to twenty percent (20%) of all accrued and unpaid dividends, as of the
Petition Date, attributable to such Interest, and (ii) New Common Stock in an
amount determined based upon the Equity Conversion Rate and the number of shares
of Old Common Stock into which the Class 4B Interest is convertible.
The Class 4B Interests are impaired.
3.4.3 Class 4C. Series C Preferred Stock WRI. Each holder of a Class
4C Interest shall, on account of such Interest, receive (i) cash in an amount
equal to twenty percent (20%) of all accrued and unpaid dividends, as of the
Petition Date, attributable to such Interest, and (ii) New Common Stock in an
amount determined based upon the Equity Conversion Rate and the number of shares
of Old Common Stock into which the Class 4C Interest is convertible.
The Class 4C Interests are impaired.
3.4.4 Class 4D. Common Stock WRI. Each holder of a Class 4D Interest
shall, on account of such interest, receive (i) shares of New Common Stock based
upon the Equity Conversion Rate, and, (ii) subject to the conditions specified
in section 5.2.6 hereof at page 15, New Warrants to purchase a like amount of
additional New Common Stock, in accordance with the provisions of Article 5 of
this Plan at page 14 hereof, and (iii) a pro rata interest in the Claims Trust
in accordance with the provisions of Article 8 of this Plan at page 17 hereof.
The Class 4D Interests are impaired.
3.4.5 INTENTIONALLY OMITTED.
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3.4.6 Class 4F. Common Stock WRC. The holder of the Class 4F Interest
shall retain its interest in WRC.
The Class 4F Interests are impaired.
3.4.7 Class 4G. Employee Stock Option Plan WRI. The holders of the
Class 4G Interest shall receive a Pro Rata portion of options to purchase
211,805 shares of New Common Stock. Each beneficiary of the Employee Stock
Option Plan who has unexpired, unexercised options will receive a replacement
option to acquire one (1) share of New Common Stock for each ten (10) shares of
Old Common Stock for which such employee has such options, such option
exercisable at the average market price for New Common Stock from February 1,
1997 through February 28, 1997. The Stock Option Plan will receive the balance
of the options and will be authorized to award such options in accordance with
the terms of the existing Employee Stock Option Plan.
The Class 4G Interests are impaired.
3.4.8 Class 4H. Brandon Interests WRI. The holders of Class 4H
Interests will receive nothing on account of their Interests.
Class 4H Interests are impaired.
ARTICLE 4
ELECTIONS BY CLAIMANTS
4.1 SMALL CREDITOR ELECTIONS
Simultaneously with the distribution of ballots on the Plan, each holder of
a Claim in excess of $500 shall be requested to elect whether to reduce its
Claim to $500 and thereby choose the Class in which its Claim shall be
classified and treated. Each Claim holder having an election shall make its
election by filing its ballot with the Bankruptcy Court within the time
specified by the Bankruptcy Court for the filing of ballots on the Plan. Unless
a holder of an Allowed Claim in excess of $500 elects to reduce its claim to
$500, it shall not be treated as a member of Class 3A or Class 3B.
4.2 NEW COMMON STOCK ELECTIONS
Simultaneously with the distribution of ballots on the Plan, each holder of
a Class 2C or 2E Claim shall be requested to elect whether to accept New Common
Stock in exchange for its Claim. Each such Claim holder shall make its election
by filing its ballot with the Bankruptcy Court within the time specified by the
Bankruptcy Court for the filing of ballots on the Plan. Unless a holder of a
Class 2C or 2E Claim elects to accept New Common Stock, it shall be deemed to
have elected the alternative treatment provided for herein.
ARTICLE 5
ISSUANCE OF NEW COMMON STOCK AND WARRANTS
5.1 ISSUANCE OF NEW COMMON STOCK
On the Effective Date, New WRI shall issue to the Disbursing Agent
sufficient shares of New Common Stock to satisfy the distribution requirements
of this Plan.
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5.2 ISSUANCE OF NEW WARRANTS
On the Effective Date, and subject to the condition specified in section
5.2.6 hereof, New WRI shall issue to the Disbursing Agent, for distribution to
holders of Allowed Class 4D Interests as provided in this Plan, New Warrants for
the purchase of New Common Stock. The New Warrants shall be freely transferable
and shall give the holders the following rights:
5.2.1 The right to purchase, at the Share Rate, a number.- of shares
of New Common Stock in the Reorganized Debtor equal to one (1) share for every
ten (10) shares of Old Common Stock held by the Class 4D Interest holder.
5.2.2 The exercise of a New Warrant shall be irrevocable.
5.2.3 Each New Warrant shall expire and be of no further effect on the
earlier of (i) 1 80 days after the Effective Date, or (ii) the date upon which
2,700,000 shares of New Common Stock have been purchased pursuant to the
exercise of New Warrants.
5.2.4 Notwithstanding the foregoing, the New Warrants shall be limited
so that no more than 2,700,000 shares of New Common Stock may be issued in the
aggregate pursuant to such warrants.
5.2.5 New Warrants for all or any portion of the indicated number of
shares may be exercised by surrendering the New Warrant and delivering the
exercise price to WRI.
5.2.6 The issuance of Warrants under the Plan is expressly conditioned
on the entry by the Bankruptcy Court of a Final Order concluding that Section 5
of the Securities Act of 1933 and any State of local law requiring registration
for offer or sale of security or registration or licensing of an issuer of,
underwriter of, or broker or dealer in, a security are not applicable to the
offer or distribution of such warrants by virtue of Section 1145 of the
Bankruptcy Code.
5.3 ISSUANCE OF ALLSUP WARRANTS
On the Effective Date, New WRI shall issue, to Allsup, Inc., warrants (the
"Allsup Warrants") to purchase additional shares of New Common Stock. The Allsup
Warrants will be non-transferable and shall give the holder the following
rights:
5.3.1 The right to purchase, at the Share Rate, up to 300,000 shares
of New Common Stock.
5.3.2 Unless exercised previously, the Allsup Warrants shall expire
and be of no further effect 200 days after the Effective Date.
5.3.3 The Allsup Warrants shall be exercisable, in whole or in part,
by surrendering the Allsup Warrants and delivering the exercise price to WRI.
5.4 ISSUANCE OF CONDITIONAL WARRANTS
On the Effective Date, new WRI shall issue to the Disbursing Agent, for the
benefit of all recipients of Plan Shares, a Conditional Warrant. Rights in the
Conditional Warrant shall be non-transferable and shall bestow the following
rights:
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5.4.1 To purchase, at the Share Rate, a number of shares of New Common
Stock in an amount equal to the difference, if any, between 2,700,000 and the
number of shares issued pursuant to the exercise of New Warrants.
5.4.2 Rights under the Conditional Warrant shall be exercisable from
180 days after the Effective Date and until 200 days after the Effective Date.
5.4.3 Rights under the Conditional Warrant shall be exercisable only
in response to a specific written proposal from New WRI to a beneficiary of the
Conditional Warrant, such proposal to require payment of the purchase price
within ten (10) days of receipt of the proposal.
5.4.4 New WRI shall make such written proposals to the recipients of
Plan Shares based upon the order in which Debtors and/or New WRI receive written
expressions of interest in exercising the rights granted under the Conditional
Warrant.
ARTICLE 6
DISTRIBUTIONS ON ACCOUNT OF
UNRESOLVED CLAIMS
6.1 IDENTIFICATION OF CLAIMS
On or before November 1, 1996, Debtors shall prepare and file a list of
Disputed Claims that the Debtors and the Creditors' Committee determine are
substantial Disputed Claims arising from improvident or suspect transactions.
Such Claims shall be referred to herein as "Unresolved Claims." Debtors shall
notify the holder of each such Claim of the filing of such list.
6.2 RESOLUTION OF CLAIMS
The Bankruptcy Court shall resolve all Unresolved Claims.
6.3 INITIAL DISTRIAUTION
On the thirtieth (30th) day after the Effective Date, holders of Allowed
and Estimated Class 3C Claims shall receive a distribution of New Common Stock,
which distribution shall be prorated only among such Claims which have been
Allowed or Estimated. The distribution to all holders of Allowed and Estimated
Claims in such Class shall total the lesser of (i) 500,000 shares of New Common
Stock, or (ii) a number of shares determined by dividing the Allowed and
Estimated Amount of such claims by the Share Rate.
6.4 FINAL DISTRIBUTION
On the first anniversary of the Effective Date, holders of Allowed and
Estimated Class 3C Claims shall receive a final distribution of New Common
Stock, which distribution shall be distributed only among such Claims which have
been Allowed or Estimated. The distribution to
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all holders of Allowed and Estimated Claims in such Class shall be total the
lesser of (i) 1,500,000 shares of New Common Stock less those shares issued in
the Initial Distribution, or (ii) a number of shares determined by dividing the
Allowed and Estimated Amount of such claims by the Share Rate, less those shares
issued in the Initial Distribution. The final distribution shall be made, first,
on account of such Claims that were Allowed or Estimated after the Initial
Distribution, and then, pro rata, among all such Allowed and Estimated Claims.
ARTICLE 7
SECURITIES FRAUD CLAIMS
7.1 IDENTIFICATION OF CLAIMS
Debtors anticipate that the method of identifying Securities Fraud Claims
and making distributions on account of such Claims shall be determined in
accordance with a settlement agreement to be approved by the United States
District Court for the District of Arizona and the Bankruptcy Court. If a
settlement agreement is not reached or not approved, Debtors shall prepare and
file with the Bankruptcy Court a list of all claims filed in these proceedings
that constitute Securities Fraud Claims within sixty (60) days after the
Securities Fraud Bar Date.
7.2 DISTRIBUTION ON ACCOUNT OF CLAIMS
As soon as practicable after the identification of all such claims, the
Disbursing Agent shall disburse 1,500,000 shares of New Common Stock Pro Rata to
the holders of Allowed Securities Fraud Claims.
ARTICLE 8
THE CLAIMS TRUST
8.1 ESTABLISHMENT OF TRUST
On the Effective Date, Debtors shall cause to be created a Trust (the
'Claims Trust") and shall transfer and assign to the Claims Trust all claims and
causes of action Debtors may have against Thomas Brandon, relatives and
affiliates of Tom Brandon, and all other persons and entities who acted in
concert with Tom Brandon in the suspect transactions described in WRI's
financial statements for the period ending June 30, 1995. Within thirty (30)
days after the Effective Date, New WRI will transfer $50,000 in cash to the
Claims Trust. On or before the first anniversary of the Effective Date, New WRI
will transfer an additional $250,000 to the Claims Trust.
8.2 APPOINTMENT AND RESPONSIBILITIES OF TRUSTEE
After the confirmation hearing, the Creditors Committee will request the
Bankruptcy Court to designate a person or entity to serve as trustee of the
Claims Trust, who will manage and conduct the affairs of the Claims Trust. The
Trustee shall be responsible for prosecuting the claims transferred to the
Trust, and shall be primarily responsible for pursuing objections to Unresolved
Claims.
8.3 EXCESS SHARES OF NEW COMMON STOCK
If some portion of the 1,500,000 shares of New Common Stock allocated under
this Plan on account of Class 3C Claims are not required under the terms of this
Plan to be distributed
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to the holders of such Claims, one half of the excess shares will be canceled
and one half of the excess shares will be transferred to the Claims Trust.
8.4 BENEFICIARIES And DISTRIBUTIONS
The beneficiaries of the Claims Trust shall be (i) the holders of Allowed
Claims in Classes 3H, 3I and 3E, and (ii) the holders of Class 4D Interests.
Until the holders of Class 3H and 3I Claims have received distributions from the
Claims Trust equal to twenty percent (20%) of the Allowed Amount of their
claims, the Trustee shall distribute the net funds available in the Claims Trust
(after allowance for expenses of the Claims Trust) pro rata among the holders of
Class 3H and 3! Claims. After the holders of Class 3H and 3I Claims have
received such amount, The Trustee shall distribute all net funds thereafter
among the holders of Class 3E Claims and Class 4D Interests, prorated based upon
the ratio between the number of shares of New Common Stock issuable to such
holder under this Plan and the number of all such shares issuable on account of
claims in Class 3E and Interests in Class 4D. Distributions shall be made in
accordance with the terms of a Trust Agreement to be approved by the Court at
the Confirmation Hearing.
ARTICLE 9
IMPLEMENTATION PROVISIONS -
CERTAIN ENABLING AGREEMENTS
Consummation of the Plan is contingent upon the completion, on or prior to
the Effective Date, of certain agreements. These agreements are described in the
following sections.
9.1 STOCK ACCEPTANCE BY RECOVERY LENDER
Consummation of the Plan is contingent upon the election by Recovery Lender
to convert its administrative claim and its Class 2D Claim to New Common Stock
in accordance with the conversion privilege afforded in the Recovery Lender
Financing Agreement. Such agreement provides that, upon conversion, Recovery
Lender shall receive one percent (1 %) of the New Shares issued pursuant to the
Plan for every $100,000 in advances made pursuant to the Recovery Lender
Financing Agreement.
9.2 AGREEMENT WITH TEAM.
Consummation of the Plan is also contingent upon the execution of an
agreement between WRI and the TEAM providing for continued management of the
Debtor after the Effective Date. To obtain such agreement, New WRI will agree to
issue an aggregate of 2,500,000 shares of New Common Stock to the TEAM, to key
employees, and to existing members of the board of directors in full
satisfaction of their existing claims for warrants and in partial payment for
services rendered during the administration of these proceedings. Dorcas R.
Hardy and Robert D. Judson, Jr. will agree to enter into employment agreements,
providing for their full time services. Ms. Hardy will agree to hold stock
issued to her through the TEAM for a period of at least six (6) months after the
Effective Date.
9.3 AGREEMENT WITH ALLSUP, INC.
Consummation of the Plan is also contingent upon the approval by the
Bankruptcy Court and the performance by the parties of an agreement between WRI
and Allsup, Inc., providing for a post-petition loan to Debtor in the amount of
$500,000, and the purchase of stock
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in New WRI, on the Effective Date for an additional $1,000,000. Under the terms
of this agreement, New WRI will be required to secure the services of Ms. Hardy
and Mr. Judson to provide full time services to New WRI after the Effective
Date.
ARTICLE 10
IMPLEMENTATION PROVISIONS -- NEW CORPORATION
10.1 FORMATION OF NEW WORK RECOVERY, INC.
Prior to the Effective Date, WRI will cause to be formed a corporation
("New WRI"), organized under the laws of the State of Delaware, with the name
"Work Recovery, Inc.," or a similar name, and will issue one share of WRI common
stock to New WRI. Until the Effective Date, WRI will be the sole shareholder of
New WRI.
10.2 TRANSFER OF ASSETS AND LIABILITIES
On the Effective Date, WRI and WRC will transfer all of their assets to New
WRI, except as otherwise provided in this Plan. New WRI will assume all
liabilities of WRI and WRC as such liabilities are modified pursuant to the
terms of this Plan.
10.3 DISSOLUTION OF WRI AND WRC
After the Effective Date, WRI and WRC will continue in existence as wholly
owned subsidiaries of New WRI until the completion of the distribution of New
Common Stock pursuant to the terms of this Plan. Thereafter, WRI and WRC will be
dissolved.
ARTICLE 11
THE DISBURSING AGENT
11.1 APPOINTMENT
A Disbursing Agent shall be appointed pursuant to the Confirmation Order.
The Disbursing Agent shall, among other things, act instead of and as the
nominee of the holders of Claims and Interests, receive payments from New WRI
and its Estate, and make all payments and distributions contemplated by the
Plan.
11.2 COMPENSATION OF THE DISBURSING AGENT
The Disbursing Agent shall be entitled to no compensation for services
rendered. If any reimbursement of expenses is sought by the Disbursing Agent,
the same shall be subject to the approval of the Bankruptcy Court and shall be
payable from cash on hand after the entry of such an order by the Bankruptcy
Court.
11.3 NEW WRI As DISBURSING AGENT
New WRI may be appointed as Disbursing Agent pursuant to the Confirmation
Order to act in all such things as are required of the Disbursing Agent.
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11.4 DEBTORS' OBLIGATIONS ON EFFECTIVE DATE
11.4.1 Delivery of Funds to Disbursing Agent.
On or before the Effective Date, New WRI shall deliver to the
Disbursing Agent sufficient funds to pay in full all Allowed Class 1A, 1B, 1C,
1D and 1E Claims to the extent such Claims are to be paid on the Effective Date.
Thereafter, New WRI shall deliver to the Disbursing Agent, from time to time as
required, sufficient funds to make all subsequent payments required to be made
on account of Claims in Classes 1A, 1B, 1C, 1D, 1E, 3A, 3B, 3H, and 3I, and
Interests in Classes 4B and 4C.
11.4.2 Delivery of Stock and Warrants to Agent.
On or before the Effective Date, New WRI shall deliver to the
Disbursing Agent an aggregate of 15,000,000 shares of New Common Stock (or such
lesser number as may be required to make the distributions provided for in the
Plan) and Warrants to purchase an additional 5,000,000 shares of New Common
Stock.
11.5 DISBURSEMENT OF FUNDS, STOCK AND WARRANTS
11.5.1 Disbursement of Funds.
The Disbursing Agent shall deposit all funds received from New WRI in
a separate, interest bearing account (the "Disbursement Account"). From the
Disbursement Account, the Disbursing Agent shall, on the Effective Date and
thereafter, disburse the amounts owed on such date to the holders of Allowed
Claims in Classes 1A, 1B, 1C, 1D, 1E, 3A, 3B, 3H, and 3I and Allowed Interests
in Classes 4B and 4C.
11.5.2 Disbursement of Stock.
The Disbursing Agent shall own and retain all New Common Stock issued
to it pursuant to this plan until disbursement of such stock is required
pursuant to this section.
On the Effective Date, the Disbursing Agent shall deliver shares of
New Common Stock to, or at the direction of, Recovery Lender, Allsup, Inc., the
Team, and the holder of the Class 2C Claim.
On or prior to the Effective Date, the Disbursing Agent shall request
the holders of Class 4B, 4C, and 4D Interests to surrender their existing shares
of stock in WRI in exchange for shares of New Common Stock. Thereafter, at least
quarterly, the Disbursing Agent shall distribute New Common Stock to such
Interest holders upon delivery of the certificates for existing stock in WRI.
11.5.3 Disbursement of New Warrants.
The Disbursing Agent shall own and retain all New Warrants issued to
it pursuant to this plan until disbursement of such New Warrants is required
pursuant to this section.
As shares of New Common Stock are distributed to Class 4D Interest
holders, the Disbursing Agent shall also deliver New Warrants to such Interest
holders in amounts determined in accordance with this Plan.
ARTICLE 12
CONDITIONS PRECEDENT TO PLAN
The following are conditions precedent to the Plan:
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12.1 EXECUTION OF DOCUMENTS
All documents necessary and appropriate to effectuate Debtor's Plan shall
have been executed and delivered by all parties.
12.2 CORPORATE ACTION
All corporate actions of Debtors shall be properly completed by the
Effective Date. The directors and officers of the Reorganized Debtor will take
such actions as may be necessary to the end that, among other things, the
articles and bylaws of the Reorganized Debtor contain provisions which are
consistent with the interests of creditors and equity security holders and with
public policy with respect to the manner of selection of any officer or director
and any successor to such officer or director.
12.3 RECOVERY LENDER CONVERSION
The Plan is contingent upon Recovery Lender electing to convert its claims
and administrative expenses to New Common Stock.
12.4 ALLSUP AGREEMENT
The Plan is contingent upon the Bankruptcy Court approval of and the
performance by the parties of the Allsup Agreement.
ARTICLE 13
CONDITIONS PRECEDENT TO DISTRIBUTIONS
13.1 DOCUMENTS OF EXCHANGE AND SURRENDER
The Disbursing Agent may, as a condition to receipt of distributions of
funds or stock herein, require a holder of a Claim or Interest to return and
cancel instruments respecting such Claim or Interest, or to execute separate
releases provided for under this Plan.
13.2 FRACTIONAL SHARES
Fractional shares of New Common Stock shall not be issued. For purposes of
distributing New Common Stock, a Creditor otherwise entitled to 0.5 or more of
one (1) share shall receive one share therefor, and a Creditor entitled to less
than 0.5 of one (1) share shall not receive a share therefor.
13.3 UNCLAIMED FUNDS AND INTERESTS
For a period of one (1) year from the Effective Date, the Disbursing Agent
shall retain any New Common Stock, Warrant, or distribution otherwise
distributable hereunder which remains unclaimed or as to which the Disbursing
Agent has not received documents required under Section 13.1 hereof. Thereafter,
the unclaimed New Common Stock and Warrants shall be canceled, and any unclaimed
funds will be returned to the Reorganized Debtor.
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ARTICLE 14
OBJECTIONS TO AND
ESTIMATIONS OF CLAIMS
14.1 OBJECTIONS AND BAR DATE FOR FILING OBJECTIONS
As soon as practicable, but in no event later than ninety (90) days after
the Confirmation Date, objections to claims shall be filed with the Bankruptcy
Court and served upon the holders of each of the claims to which objections are
made pursuant to the Bankruptcy Code and Bankruptcy Rules. Objections filed
after such date will be barred. The primary responsibility for objecting to
claims shall be with Debtors. Debtors shall have full right, power and authority
to investigate and, if necessary, object to claims within the time stipulated.
14.2 SETTLEMENT OF CLAIMS
Settlement of any objection to a claim not exceeding $5,000 shall be
permitted on the eleventh (11th) day after notice of the settlement has been
provided to Debtor, the settling party, and other persons specifically
requesting such notice, and if on such date there is no written objection filed,
such settlement shall be deemed approved. In the event of a written objection to
the settlement, the settlement must be approved by the Bankruptcy Court on
notice to the objecting party.
14.3 ESTIMATION OF CLAIMS
Any holder of a Disputed Claim may request the Bankruptcy Court to conduct
a hearing to estimate its Claim at any time prior to its allowance or
disallowance. A Claim which has been estimated shall not be re-classified, but
shall be entitled to distributions on the basis of such estimate until such
Claim is allowed, disallowed or allowed in a different amount.
14.4 CLAIMS AGAINST BOTH DEBTORS
For the purposes of voting and distribution under the Plan, (a) any
obligation of either of the Debtors and all guaranties thereof executed by the
other Debtor will be treated as though they were one obligation, (b) any Claim
or Claims filed against either of the Debtors in connection with any such
obligation and any such guaranties will be treated as though they were one
Claim; and (c) the intercompany claim arising therefrom shall be canceled and
extinguished. Any Claim for which both Debtors are alleged to be liable shall be
treated as a single Claim.
ARTICLE 15
NONALLOWANCE OF
PENALTIES AND FINES
No distribution shall be made under this Plan on account of, and no Allowed
Claim, whether secured, unsecured or priority, and no Allowed Administrative
Claim shall include any fine, penalty, exemplary or punitive damages, late
charges or other monetary charge relating to or arising from any default or
breach by Debtors, and any claim on account thereof shall be deemed disallowed
whether or not an objection is filed to it.
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ARTICLE 16
EFFECT OF PLAN ON CLAIMS AND INTERESTS AND ASSETS
16.1 DISCHARGE OF CLAIMS
Except for the obligations imposed under this Plan, the consideration
distributed under the Plan to any holder of a Claim shall be in exchange for and
in complete discharge and release of all claims of any nature whatsoever against
Debtors and the Estates, and in any of the assets or properties of Debtors or
the Estates. The Confirmation Order shall constitute a judicial determination of
the discharge, as of the Effective Date, of all liabilities of Debtors and the
Estates.
16.2 INJUNCTION
In accordance with Section 524 of the Bankruptcy Code, the discharge
provided for in this Article 16 and Section 1141 of the Bankruptcy Code, among
other things, acts as a permanent injunction against the commencement or
continuation of any action, employment or process or act to collect, offset or
recover the Claims discharged hereby.
16.3 CANCELLATION OF INTERESTS
The consideration distributed under the Plan to any holder of an Interest
shall be in exchange for and in complete discharge and release of all claims of
any nature whatsoever against Debtors and the Estate, and in any of the assets
or properties of Debtor or the Estate, arising out of such Interests. Except as
otherwise provided herein, all shares, warrants, options, and subscription
rights in Debtors shall be canceled and void as of the Effective Date, except
for the one (1) share in WRI to be issued to New WRI in accordance with Article
10 hereof.
16.4 VESTING OF ASSETS
On the Effective Date, all assets of Debtors shall vest in New WRI, except
as otherwise provided in Article 8 hereof, free and clear of all liens, claims
and encumbrances, except as otherwise provided herein.
16.5 ASSUMPTION OF LIABILITIES
On the Effective Date, New WRI will assume only those obligations imposed
under this Plan and shall assume no other liabilities of Debtors.
ARTICLE 17
LEASES AND EXECUTORY CONTRACTS
17.1 LEASES REJECTED UNLESS ASSUMED
All leases and executory contracts not assumed on or prior to the Effective
Date shall be rejected as of the Effective Date, unless specific written notice
of intent to assume is mailed or delivered to the lessor or other contracting
party before Confirmation. In the event of assumption, all pre-petition defaults
will be cured on the Effective Date, or as soon thereafter as practicable.
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ARTICLE 18
RETENTION OF JURISDICTION
Until the case is closed, the Court will retain jurisdiction to insure that
the purposes and intent of the Plan are carried out. Without limiting the
generality of the foregoing, the Court will retain jurisdiction. until the Plan
is fully consummated, for the following purposes:
18.1 CLAIMS
The classification, allowance, subordination and liquidation of the claim
of any creditor (including Administrative Claims) and the reexamination of
Allowed Claims for purposes of determining acceptances at the time of
Confirmation, and the determination of such objections as may be filed. The
failure by Debtors to object to or to examine any claim for the purpose of
determining Plan acceptance, shall not be deemed to be a waiver of any right to
object to or reexamine any claim in whole or in part.
18.2 TITLE AND DISPUTES
The determination of all questions and disputes regarding title to the
assets of the Estate, and determination of all causes of action, controversies,
disputes, or conflicts, known or unknown, whether or not subject to action
pending as of the Confirmation Date, between Debtors or either of them and any
other party, including but not limited to, Debtor's right to recover assets,
avoid transfers, recover fraudulent transfers, offset claims, recover money or
property from any party or return assets which were or are the property of the
Estate pursuant to the provisions of the Bankruptcy Code.
18.3 EXECUTORY CONTRACTS
The determination of all matters relating to the assumption, assignment, or
rejection of executory contracts and unexpired leases, including claims for
damages from the rejection of any executory contract or unexpired lease within
such time as the Bankruptcy Court may direct.
18.4 ESTIMATION
The liquidation or estimation of damages or the determination of the manner
and time for such liquidation or estimation in connection with any contingent,
disputed, or unliquidated Claims.
18.5 PLAN CORRECTIONS
The correction of any defect, the curing of any omission, or the
reconciliation of any inconsistency in the Plan, the Confirmation Order, or any
and all documents executed or to be executed in connection therewith, as may be
necessary to carry out the purposes and the intent of the Plan, on such notice
as the Bankruptcy Court shall determine to be appropriate.
18.6 PLAN MODIFICATIONS
The modification of the Plan after Confirmation pursuant to the Bankruptcy
Rules and the Bankruptcy Code.
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18.7 ADMINISTRATIVE CLAIMS
The adjudication of all claims, controversies, contested matters or
adversary proceedings arising out of any purchases, sales, agreements or
obligations made or undertaken by and between Debtors and any third party during
the pendency of Debtors' reorganization case.
18.8 INTERPRETATION
The enforcement and interpretation of the terms and Conditions of the Plan
and the determination of all controversies and disputes that may arise in
connection with the enforcement, interpretation or consummation of the Plan.
18.9 EXTENSIONS OF TIME
The shortening or extending, for cause, of the time fixed for doing any act
or thing under the Plan, on such notice as the Bankruptcy Court shall determine
to be appropriate.
18.10 ENFORCEMENT
The entry of any order, including injunctions, necessary to enforce the
title, rights, and powers of Debtors, and to impose such limitations,
restrictions, terms and conditions on such title, rights, and powers as the
Bankruptcy Court may deem appropriate.
18.11 TERMINATION
The entry of an order concluding and terminating this Reorganization Case.
18.12 OTHER MATTERS
The determination of such other matters as may be provided in the
Confirmation Order or as may be authorized under the Bankruptcy Code.
ARTICLE 19
MODIFICATION OF THE PLAN
In addition to the modification rights under Section 1127 of the Bankruptcy
Code, Debtors may propose amendments to or modifications of this Plan at any
time prior to entry of the Confirmation Order, with leave of the Bankruptcy
Court, upon such notice as may be prescribed by the Court. After entry of the
Confirmation Order, the Debtors may, with the approval of the Court, and so long
as it does not materially or adversely affect the interest of creditors, cure
any omission, correct any defect, or reconcile any inconsistencies in the Plan,
the Confirmation Order, or any and all documents executed or to be executed in
accordance therewith, in such manner as may be necessary to carry out the
purposes and intent of this Plan.
ARTICLE 20
MISCELLANEOUS
20.1 NOTICES
All notices, requests, or demands for payment provided for in the Plan
shall be in writing and shall be deemed to have been given when personally
delivered by hand, or deposited
25
<PAGE>
in any general or branch post office of the United States Postal Service, or
received by telecopy. Notices, requests and demands for payment shall be
addressed and sent postage prepaid or delivered to:
Work Recovery, Inc.
Attn.: Dorcas R. Hardy
2341 S. Friebus, Suite 14
Tucson, Arizona 85713
With copies to:
Osborn Maledon
Attn: C. Taylor Ashworth
2929 N. Central Avenue, Suite 2100
Phoenix, Arizona 85012-2794
20.2 HEADINGS
The headings used in the Plan are inserted for convenience only and neither
constitute a portion of the Plan nor in any manner affect the provisions or
interpretation of the Plan.
20.3 TIME OF THE ESSENCE
Time is of the essence in the interpretation and enforcement of this Plan.
Without limiting the generality of such statement, the rights provided hereunder
are intended to expire immediately upon the expiration of the period provided
for herein, and are intended not to be extended under Section 362 or Section 105
of the Bankruptcy Code for any reason.
20.4 CONFIRMATION WITHOUT ACCEPTANCE OF ALL CLASSES
Debtors will request the Bankruptcy Court to confirm the Plan
notwithstanding the rejection of the Plan by an impaired Class, pursuant to the
provisions of 1129(b) of the Bankruptcy Code.
DATED the 25th day of November, 1996
WORK RECOVERY, INC.,
a Colorado corporation
By /s/ Robert D. Judson, Jr.
------------------------------------
Robert D. Judson, Jr.,
Chief Financial Officer
WORK RECOVERY CENTERS, INC.,
an Arizona corporation
By /s/ Robert D. Judson, Jr.
------------------------------------
Robert D. Judson, Jr.,
Chief Financial Officer
26
<PAGE>
OSBORN & MALEDON, P.A.
By /s/ C. Taylor Ashworth
-----------------------------------
C. Taylor Ashworth
2929 N. Central Avenue, Suite 2100
Phoenix, Arizona 85012-2798
Attorneys for Debtors
27
<PAGE>
SCHEDULE 1
Description of - Louisiana Property
A certain piece or parcel of ground situated in the Parish of Jefferson, State
of Louisiana, designated at Lot 16-A, Harlem Subdivision. Said Lot 1 6-A forms
the corner of Ridgelake Drive and Interstate Highway No. 10 right of way and
measures thence 170 feet front on Ridgelake Drive, a first depth and front on
I-10 right of way of 7.39 feet; thence a second depth and front on l-10 right of
way of 163.85 feet, thence a third depth and front on I-10 right of way of 89.93
feet; thence a fourth depth and front on I- 1 0 right of way of 53-04 feet, a
width in the rear of 17.37 feet by a depth on the sideline nearest 27th Street
of 270 feet, all allocated in Square 15 thereof.
<PAGE>
SCHEDULE 2
Description of Tucson Property
Lots 2 and 3 of Friebus Industrial Park, a subdivision recorded in Book 29, of
Maps at Page 84, Records of Pima County, Arizona
<PAGE>
SCHEDULE 3
Description of Engmann Collateral
(a) all claims, liabilities, accounts receivables, and notes owed to
Grantor by Toyota (the "Receivable");
(b) those certain ERGOS WorkStations identified as follows: (i) the R&D
WorkStation; Serial Number EWS-9206123-El1-11111; and (ii) the Suite 8
WorkStation, Serial Number EWS-9412262-EAl-AAAAA (the "Equipment").
(c) All accounts receivable, contract rights, chattel paper, instruments,
general intangibles, instruments, notes, drafts, acceptances, cash, bank
balances and other obligations of any kind now or hereafter existing, and all
rights now or hereafter existing in and to all security agreements, leases, and
other contracts securing or otherwise relating to the Receivable or the
Equipment (any and all such accounts, contract rights, chattel paper,
instruments, general intangibles and obligations being also included within the
term the "Receivables" and any and all such leases, security agreements and
other contracts relating thereto being the "Related Contracts");
(d) All proceeds of any and all of the foregoing Collateral and, to the
extent not otherwise included, all payments under insurance (whether or not
Secured Party is the loan payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing; and
(e) The products and proceeds of all of the foregoing. It is the intent and
understanding of the parties hereto that the coverage of the security interest
granted hereby be broadly and liberally construed to include all personal
property of any nature arising out of or relating to the specifically described
collateral.
<PAGE>
SCHEDULE 4
Description of Recovery Lender Collateral
(a) all claims, liabilities, accounts receivables and notes. owed to
Grantor, including without limitation all accounts receivable owed to Grantor by
Toyota (the "Receivables");
(b) those certain ERGOS WorkStations identified on Exhibit A attached
hereto and incorporated herein (the "Equipment");
(c) all accounts receivable, contract rights, chattel paper, instruments,
drafts, acceptances, cash, bank balances and general intangibles, instruments,
notes, drafts, acceptances, cash, bank balances and other obligations of any
kind now or hereafter existing, and all rights now or hereafter existing in and
to all security agreements, leases, and other contracts securing or otherwise
relating to the Receivables or the Equipment (any and all such accounts,
contract rights, chattel paper, instruments, general intangibles and obligations
being also included within the term the "Receivables" and any and all such
leases, security agreements and other contracts relating thereto being the
"Related Contracts");
(d) all general intangibles, trade secrets, and rights under licensing
agreements and royalty agreements, and patents and copyrights, including without
limitation all of Grantor's rights to ERGOS technology and all related rights
(the "ERGOS Technology");
(e) all proceeds of any and all of the foregoing described collateral and,
to the extent not otherwise included, all payments under insurance (whether or
not Secured Party is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing; and
(f) the products and proceeds of all of the foregoing;
<PAGE>
EXHIBIT "A" to
Description of Recovery Lender Collateral
Serial Numbers of ERGOS(R) Work Stations:
EWS-9206123-E-11-11111
EWS-9412252-E-Al-AAAAA
EWS-9206211-E-11-11111
EWS-9206148-E-Al-AAAAA
EWS-9612372-E-Al-AAAAA
EWS-9206137-E-Al-AAAAA
EWS-9306245-E-Al-AAAAA
EWS-9206183-E-J1-11111
EWS-9206215-E-Al-AAAAA
EWS-9303238-E-Al-AAAAA
EWS-9 206129-E-A1-AAAAA
EWS-9206130-E-11-11111
EWS-9 206143-E-11-11111
Four (4) new builds on Manufacturing floor, essentially complete, except for
computers Serial numbers not yet assigned
<PAGE>
SCHEDULE 5
Description of Allsup Collateral
Two (2) ERGOS(R) Work Simulators
Serial Number EWS-95-12328-E-A1-AAAAA
Serial Number EWS-92-06214-E-A1-AAAAA
<PAGE>
<TABLE>
EXHIBIT 2 TO ORDER CONFIRMING PLAN
SUMMARY OF CLASS TREATMENTS
<CAPTION>
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
CLASS DESCRIPTION OF CLASS TREATMENT
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
<C> <C> <C>
1A Administrative claims WRI To be paid in full in cash on later of (i) Effective Date, (ii) when allowed,
or (iii) when due, unless holder agrees to different treatment.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
1B Administrative Claims WRC To be paid in full in cash on later of (i) Effective Date, (ii) when allowed,
or (iii) when due, unless holder agrees to different treatment.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
1C Wage Claims WRI To be paid in full in cash on later of (i) Effective Date, (ii) when allowed,
or (iii) when due, unless holder agrees to different treatment.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
1D Tax Claims WRI To be paid in full in cash on later of (i) Effective Date, or (ii) when
allowed.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
1E Tax Claims WRC To be paid in full in cash on later of (i) Effective Date, or (ii) when
allowed.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
2A MetLife Secured Claim on Louisiana Property WRI To be paid in full, together with interest, fees and expenses to the extent
permitted under Section 506(b) of the Bankruptcy Code.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
2B MetLife Secured Claim on Tucson Property WRI Debtors to cure existing defaults as of the Effective Date and to resume
payments under existing agreement thereafter.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
2C Engmann Secured Claim WRI Claims will be converted to shares of New Common Stock at the Recovery
Conversion Rate.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
2D Recovery Lender Secured Claim WRI Claim will be converted t New Common Stock at the Recovery Conversion Rate.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
2E Allsup Secured Claim WRI Claim will be converted to New Common Stock at the Share Rate times the
Discount Factor.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3A Small Claims WRI Each holder will receive an amount equal to 90% of its allowed claim within
thirty days after Effective Date, or, if later, when allowed.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3B Small Claims WRC Each holder will receive an amount equal to 90% of its allowed claim within
thirty days after Effective Date, or, if later, when allowed.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
B-1
<PAGE>
<CAPTION>
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
CLASS DESCRIPTION OF CLASS TREATMENT
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
<C> <C> <C>
3C Unresolved Claims WRI Each holder of an allowed claim will receive New Common Stock of a value
(based upon the Share Rate) equal to the allowed amount of such claim.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3E Securities Fraud Claims WRI Each holder will receive (i) a pro rata share of 1,500,000 shares of New
Common Stock, and (ii) a share (prorated among this class and existing
stockholders) of a trust (the "Claim Trust") to be established to own the
company's existing claims against former insiders and other acting with them.
Distributions will be made after the amount of claims in the class in the
class have been determined and as proceeds from the trust become available.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3F B Warrant Claims WRI Each holder of a claim will receive it s pro rata share of 150,000 shares of
New Common Stock, as of the Effective Date.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3G Dealer Warrant Claims WRI Each holder of a claim will receives its pro rata share of 350,000 shares of
New Common Stock, as of the Effective Date.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3H General Unsecured Claims WRI Each holder would receive a total of 80% of claim in two installments 90 and
180 days after Effective Date, plus distributions from the Claims Trust.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
3I General Unsecured Claims WRC Each holder would receive a total of 80% of claim in two installments 90 and
180 days after Effective Date, plus distributions from the Claims Trust.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4A Series A Preferred Stock WRI The holder of the Series A Preferred Stock will receive cash from the
redemption of such stock prior to the Effective Date.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4B Series B Preferred Stock WRI Each holder would receive, on the Effective Date, an amount equal to 20% of
accrued dividends plus one share of New Common Stock for each 10 shares of
old common stock to which their stock could have been converted.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4C Series C Preferred Stock WRI Each holder would receive, on the Effective Date, an amount equal to 20% of
accrued dividends plus one share of New Common Stock for each 10 shares of
old common stock to which their stock could have been converted.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4D Common Stock WRI Each holder of old stock would receive (i) one share of New Common Stock for
each 10 shares of old common stock, (ii) a share of the Claims Trust prorated
among existing share-holders and securities fraud claimants, and (iii) a
warrant to buy one share of New Common Stock for each 10 shares of old common
stock, the exercise price being the Share Rate.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
B-2
<PAGE>
<CAPTION>
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
CLASS DESCRIPTION OF CLASS TREATMENT
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
<C> <C> <C>
4F Common Stock in WRC WRI would retain 100% ownership of WRC.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4G Employee Stock Option WRI Each holder of a claim shall be entitled to options to acquire New Common
Stock equal to one share for each 10 shares for which options are now held,
with such option being exercisable at the market price for such stock.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
4H Former insiders of WRI Nothing.
- - - ----- ------------------------------------------------ -----------------------------------------------------------------------------
</TABLE>
B-3
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS .................................................. 2
1.1 GENERAL DEFINITIONS ............................................ 2
1.1.1 Administrative Claim ...................................... 2
1.1.2 Allowed Claim ............................................. 3
1.1.3 Allowed Secured Claim ..................................... 3
1.1.4 Bankruptcy Code ........................................... 3
1.1.5 Bankruptcy Court .......................................... 3
1.1.6 Bankruptcy Rules .......................................... 3
1.1.7 Bar Date .................................................. 3
1.1.9 Class ..................................................... 3
1.1.10 Confirmation ............................................. 3
1.1.11 Confirmation Date ........................................ 3
1.1.12 Confirmation Hearing ..................................... 3
1.1.13 Confirmation Order ....................................... 3
1.1.1 4 Creditors' Committee .................................... 4
1.1.15 Debtors .................................................. 4
1.1.16 Disclosure Statement ..................................... 4
1.1.17 Discount Factor .......................................... 4
1.1.18 Disputed Claim ........................................... 4
1.1.19 Effective Date ........................................... 4
1.1.20 Equity Conversion Rate ................................... 4
1.1.21 Estates .................................................. 4
1.1.22 Estimated Claim .......................................... 4
1.1.23 Final Order .............................................. 4
1.1.24 Interest or Interests .................................... 4
1.1.25 MetLife .................................................. 5
1.1.26 MetLife Louisiana Rate ................................... 5
1.1.27 New Common Stock ......................................... 5
1.1.28 New Warrant .............................................. 5
1.1.29 New WRI .................................................. 5
1.1.30 Old Common Stock ......................................... 5
1.1.31 Petition Date ............................................ 5
1.1.32 Plan ..................................................... 5
1.1.33 Plan Shares .............................................. 5
1.1.34 Priority Claims .......................................... 5
1.1.35 Recovery Conversion Rate ................................. 5
1.1.36 Pro Rata ................................................. 6
1.1.37 Recovery Lender .......................................... 6
1.1.38 Recovery Lender Financing Agreement ...................... 6
1.1.39 Reorganization Cases ..................................... 6
1.1.40 Reorganized Debtor ....................................... 6
1.1.41 Securities Fraud Claim ................................... 7
1.1.42 Securities Fraud Claim Bar Date .......................... 7
1.1.43 Share Rate ............................................... 7
1.1.44 Tax Claim ................................................ 7
1.1.45 TEAM ..................................................... 7
1.1.46 Unresolved Claim ......................................... 7
1.1.47 Wage Claim ............................................... 7
1.1.48 WRI ...................................................... 7
1.1.49 WRC ...................................................... 7
1.2 PROPERTY DESCRIPTIONS
1.2.1 The Louisiana Property .................................... 7
i
<PAGE>
1.2.2 The Tucson Property........................................ 8
1.2.3 The Engmann Collateral..................................... 8
1.2.4 The Recovery Lender Collateral............................. 8
1.2.5 The Allsup Collateral...................................... 8
1.3 TERMS DEFINED IN BANKRUPTCY CODE................................ 8
ARTICLE 2 CLASSIFICATION OF CLAIMS AND INTERESTS........................ 8
2.1 PRIORITY CLAIMS................................................. 8
2.1.1 Class 1 A. Allowed Administrative Claims WRI.............. 8
2.1.2 Class 1 B. Allowed Administrative Claims WRC.............. 8
2.1.3 Class 1 C. Allowed Wage Claims WRI........................ 9
2.1.4 Class 1 D. Allowed Tax Claims WRI....................... 9
2.1.5 Class 1 E. Allowed Tax Claims WRC....................... 9
2.2 SECURED CLAIMS.................................................. 9
2.2.1 Class 2A. Louisiana Property Secured Claim WRI............. 9
2.2.2 Class 2B. Tucson Property Secured Claim WRI................ 9
2.2.3 Class 2C. Engmann Secured Claim WRI.................... 9
2.2.4 Class 2D. Recovery Lender Secured Claim WRI............ 9
2.2.5 Class 2E. Allsup Secured Claim WRI......................... 9
2.2.6 Class 2F. Ford Motor Secured Claim WRI..................... 9
2.3 UNSECURED CLAIMS................................................ 9
2.3.1 Class 3A. Small Claims WRI................................. 9
2.3.2 Class 38. Small Claims WRC................................. 10
2.3.3 Class 3C. Unresolved Claims WRI............................ 10
2.3.4 INTENTIONALLY OMITTED...................................... 10
2.3.5 Class 3E. Securities Fraud Claims WRI...................... 10
2.3.6 Class 3F. B Warrants Claims WRI............................ 11
2.3.7 Class 3G. Dealer Warrants Claims WRI....................... 11
2.3.8 Class 3H. General Unsecured Claims WRI..................... 11
2.3.9 Class 31. General Unsecured Claims WRC.................... 11
2.4 INTERESTS....................................................... 11
2.4.1 Class 4A. Series A Preferred Stock WRI..................... 11
2.4.2 Class 4B. Series B Preferred Stock WRI..................... 11
2.4.3 Class 4C. Series C Preferred Stock WRI..................... 11
2.4.4 Class 4D. Common Stock WRI................................. 11
2.4.5 INTENTIONALLY OMITTED...................................... 11
2.4.6 Class 4F. Common Stock WRC................................. 12
2.4.7 Class 4G. Employee Stock Option Plan WRI................... 12
2.4.8 Class 4H. Brandon Interests WRI............................ 12
ARTICLE 3 TREATMENT OF CLASSES OF CLAIMS AND INTERESTS.................. 12
3.1 PRIORITY CLAIMS................................................. 12
3.1.1 Class 1 A. Allowed Administrative Claims WRI............... 12
3.1.2 Class 1 B. Allowed Administrative Claims WRC............... 12
3.1.3 Class 1 C. Allowed Wage Claims WRI......................... 13
3.1.4 Class 1 D. Allowed Tax Claims WRI.......................... 13
3.1.5 Class 1 E. Allowed Tax Claims WRC.......................... 13
3.2 SECURED CLAIMS.................................................. 13
3.2.1 Class 2A. Louisiana Property Secured Claim WRI............. 13
3.2.2 Class 2B. Tucson Property Secured Claim WRI................ 14
3.2.3 Class 2C. Engmann Secured Claim WRI........................ 14
3.2.4 Class 2D. Recovery Lender Secured Claim WRI................ 14
3.2.5 Class 2E. Allsup Secured Claim WRI......................... 14
3.2.6 Class 2F. Ford Motor Secured Claim WRI..................... 14
3.3 UNSECURED CLAIMS WITHOUT PRIORITY............................... 15
ii
<PAGE>
3.3.1 Class 3A. Small Claims WRI................................. 15
3.3.2 Class 3B. Small Claims WRC................................. 16
3.3.3 Class 3C. Unresolved Claims WRI............................ 16
3.3.4 INTENTIONALLY OMITTED...................................... 16
3.3.5 Class 3E. Securities Fraud Claims WRI...................... 16
3.3.6 Class 3F. 8 Warrants Claims WRI............................ 16
3.3.7 Class 3G. Dealer Warrants Claims WRI....................... 16
3.3.8 Class 3H. General Unsecured Claims WRI..................... 16
3.3.9 Class 31. General Unsecured Claims WRC..................... 18
3.4 INTERESTS....................................................... 18
3.4.1 Class 4A. Series A Preferred Stock WRI..................... 18
3.4.2 Class 4B. Series B Preferred Stock WRI..................... 18
3.4.3 Class 4C. Series C Preferred Stock WRI..................... 18
3.4.4 Class 4D. Common Stock WRI................................. 18
3.4.5 INTENTIONALLY OMITTED...................................... 19
3.4.6 Class 4F. Common Stock WRC................................. 20
3.4.7 Class 4G. Employee Stock Option Plan WRI................... 20
3.4.8 Class 4H. Brandon Interests WRI............................ 20
ARTICLE 4 ELECTIONS BY CLAIMANTS........................................ 20
4.1 SMALL CREDITOR ELECTIONS........................................ 20
4.2 NEW COMMON STOCK ELECTIONS...................................... 20
ARTICLE 5 ISSUANCE OF NEW COMMON STOCK AND WARRANTS..................... 21
5.1 ISSUANCE OF NEW COMMON STOCK.................................... 21
5.2 ISSUANCE OF NEW WARRANTS........................................ 21
5.3 ISSUANCE OF ALLSUP WARRANTS..................................... 21
5.4 ISSUANCE OF CONDITIONAL WARRANTS................................ 22
ARTICLE 6 DISTRIBUTIONS ON ACCOUNT OF UNRESOLVED CLAIMS................. 22
6.1 IDENTIFICATION OF CLAIMS........................................ 22
6.2 RESOLUTION OF CLAIMS............................................ 22
6.3 INITIAL DISTRIAUTION............................................ 22
6.4 FINAL DISTRIBUTION.............................................. 23
ARTICLE 7 SECURITIES FRAUD CLAIMS....................................... 24
7.1 IDENTIFICATION OF CLAIMS........................................ 24
7.2 DISTRIBUTION ON ACCOUNT OF CLAIMS............................... 24
ARTICLE 8 THE CLAIMS TRUST.............................................. 24
8.1 ESTABLISHMENT OF TRUST.......................................... 24
8.2 APPOINTMENT AND RESPONSIBILITIES OF TRUSTEE..................... 24
8.3 EXCESS SHARES OF NEW COMMON STOCK............................... 24
8.4 BENEFICIARIES And DISTRIBUTIONS................................. 26
ARTICLE 9 IMPLEMENTATION PROVISIONS --CERTAIN ENABLING AGREEMENTS....... 26
9.1 STOCK ACCEPTANCE BY RECOVERY LENDER............................. 26
9.2 AGREEMENT WITH TEAM............................................. 26
9.3 AGREEMENT WITH ALLSUP, INC...................................... 26
ARTICLE 10 IMPLEMENTATION PROVISIONS -- NEW CORPORATION................. 28
10.1 FORMATION OF NEW WORK RECOVERY, INC............................ 28
10.2 TRANSFER OF ASSETS AND LIABILITIES............................. 28
10.3 DISSOLUTION OF WRI AND WRC..................................... 28
iii
<PAGE>
ARTICLE 11 THE DISBURSING AGENT ....................................... 28
11.1 APPOINTMENT .................................................. 28
11.2 COMPENSATION OF THE DISBURSING AGENT ......................... 28
11.3 NEW WRI As DISBURSING AGENT .................................. 29
11.4 DEBTORS' OBLIGATIONS ON EFFECTIVE DATE ....................... 30
11.4.1 Delivery of Funds to Disbursing Agent ................... 30
11.4.2 Delivery of Stock and Warrants to Agent ................. 30
11.5 DISBURSEMENT OF FUNDS, STOCK AND WARRANTS .................... 30
11.5.1 Disbursement of Funds ................................... 30
11.5.2 Disbursement of Stock ................................... 30
11.5.3 Disbursement of New Warrants ............................ 30
ARTICLE 12 CONDITIONS PRECEDENT TO PLAN ............................... 31
12.1 EXECUTION OF DOCUMENTS ....................................... 32
12.2 CORPORATE ACTION ............................................. 32
12.3 RECOVERY LENDER CONVERSION ................................... 32
12.4 ALLSUP AGREEMENT ............................................. 32
ARTICLE 13 CONDITIONS PRECEDENT TO DISTRIBUTIONS ...................... 32
13.1 DOCUMENTS OF EXCHANGE AND SURRENDER .......................... 32
13.2 FRACTIONAL SHARES ............................................ 32
13.3 UNCLAIMED FUNDS AND INTERESTS ................................ 32
ARTICLE 14 OBJECTIONS TO AND ESTIMATIONS OF CLAIMS .................... 34
14.1 OBJECTIONS AND BAR DATE FOR FILING OBJECTIONS ................ 34
14.2 SETTLEMENT OF CLAIMS ......................................... 34
14.3 ESTIMATION OF CLAIMS ......................................... 34
14.4 CLAIMS AGAINST BOTH DEBTORS .................................. 34
ARTICLE 15 NONALLOWANCE OF PENALTIES AND FINES ........................ 34
ARTICLE 16 EFFECT OF PLAN ON CLAIMS AND INTERESTS AND ASSETS .......... 36
16.1 DISCHARGE OF CLAIMS .......................................... 36
16.2 INJUNCTION ................................................... 36
16.3 CANCELLATION OF INTERESTS .................................... 36
16.4 VESTING OF ASSETS ............................................ 36
16.5 ASSUMPTION OF LIABILITIES .................................... 36
ARTICLE 17 LEASES AND EXECUTORY CONTRACTS ............................. 36
17.1 LEASES REJECTED UNLESS ASSUMED ............................... 36
ARTICLE 18 RETENTION OF JURISDICTION .................................. 38
18.1 CLAIMS ....................................................... 38
18.2 TITLE AND DISPUTES ........................................... 38
18.3 EXECUTORY CONTRACTS .......................................... 38
18.4 ESTIMATION ................................................... 38
18.5 PLAN CORRECTIONS ............................................. 38
18.6 PLAN MODIFICATIONS ........................................... 38
18.7 ADMINISTRATIVE CLAIMS ........................................ 39
18.8 INTERPRETATION ............................................... 39
18.9 EXTENSIONS OF TIME ........................................... 39
18.10 ENFORCEMENT.................................................. 39
18.11 TERMINATION ................................................. 39
18.12 OTHER MATTERS ............................................... 39
iv
<PAGE>
ARTICLE 19 MODIFICATION OF THE PLAN ................................... 39
ARTICLE 20 MISCELLANEOUS .............................................. 40
20.1 NOTICES....................................................... 40
20.2 HEADINGS ..................................................... 41
20.3 TIME OF THE ESSENCE .......................................... 41
20.4 CONFIRMATION WITHOUT ACCEPTANCE OF ALL CLASSES ............... 41
SCHEDULES
1. Description of Louisiana Property
2. Description of Tucson
3. Description of Engmann Collateral
4. Description of Recovery Lender Collateral
5. Description of Allsup Collateral
v
<PAGE>
EXHIBIT 4
LOAN AGREEMENT
This Loan Agreement (this "Agreement"), is dated as of January 30, 1997,
between WORK RECOVERY, INC., a Delaware corporation ("Borrower"), and ALLSUP
INC., an Illinois corporation ("Allsup"), and QUEST TRADING, INC., a California
corporation ("Quest") ("Lenders").
Background Information
Work Recovery, Inc., a Colorado corporation ("WRIC") filed for
relief pursuant to Chapter 11 of Title 11 of the United States Code, Case No.
96-1640 TUC-LO, in the United States Bankruptcy Court for the District of
Arizona (the "Case").
WRIC confirmed a Restated Amended Joint Plan of Reorganization dated
November 26, 1996 (the "Plan") pursuant to the bankruptcy court's order filed
December 4, 1996. The "Effective Date" of the Plan, as defined therein, is
scheduled to be February 1, 1997. Borrower is the "Reorganized Debtor" under the
Plan.
Borrower is in immediate need of a loan for working capital
purposes, and will require financing in order to make the payments required
under the Plan.
Lenders have agreed to provide financing in an amount not to exceed
$2,000,000 on the terms and conditions hereinafter set forth.
Agreements
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. LOAN; BORROWING PROCEDURES.
1.1 Loan. Subject to the terms and conditions of this Agreement, Lenders
agree to make such advances to the Borrower as the Borrower may from time to
time request up to, but not including, December 31, 1997 (the "Maturity Date"),
in a total amount not to exceed $2,000,000 (the "Loan"). Lenders shall make the
initial advance on the first business day after the conditions specified in
Section 4.1 have been satisfied, and subsequent advances on the conditions set
forth in Section 4.2. Advances shall be in the minimum amount of $100,000.
1.2 Maximum Amount of Loan. The aggregate principal amount of the Loan
shall not exceed $2,000,000.
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1.3 Loan Borrowing Procedures. Borrower shall give Lenders irrevocable
telephone notice of each borrowing of each requested advance no later than 11:00
a.m., Arizona time, on the same business day as the proposed date of borrowing.
Each such notice shall be effective upon receipt by Lenders and shall specify
the date and the amount of the borrowing, and, subject to the terms and
conditions hereof, Lenders shall make an advance to the Borrower in such amount
on the date specified in such notice. Borrower agrees that Lenders may rely on
any notice referred to in this Section that Lenders reasonably believes to be
made by a person authorized to request an advance, without the necessity of
independent investigation. Borrower shall confirm in writing by facsimile the
same business day any telephonic notice of borrowing. Each request for an
advance shall automatically constitute a representation and warranty by the
Borrower that, as of the date of such requested advance, all conditions
precedent to the making of such advance set forth herein shall be satisfied.
Each advance shall be funded on a business day. Communications with Lenders with
respect to matters described in this Section 1.3 shall be made to:
Quest Trading, Inc.
Attention: Douglas Engmann
c/o Sage Clearing, L.P.
220 Bush Street, Suite 660
San Francisco, CA 94104
Telephone: (415) 781-7430
Facsimile: (415) 78104641
Allsup, Inc.
Attention: Mr. Jerry Fenstermaker
Chief Operating Officer
300 Allsup Place
Belleville, IL 62223-8626
Telephone: 618/236-5798
Facsimile: 618/236-5778
1.4 Pro-Rata Advances. Each Lender's portion of each advance shall be
pro-rata as determined by their Intercreditor Agreement.
2. NOTE; INTEREST; PAYMENTS.
2.1 Note; Loan Balances. The Loan shall be evidenced by one Promissory Note
in the form attached hereto as Exhibit "A" (the "Note"). The date and amount of
each individual advance hereunder and of each repayment of principal shall be
recorded by Lenders in their records. The outstanding principal balance of the
Loan reflected in Lenders' records from time to time shall be rebuttable
presumptive evidence of such outstanding principal balances as of such time. The
failure so to record such amount or any error in so recording any such amount
shall not limit or otherwise affect Borrower's obligations hereunder or under
the Note to repay the principal amount of the Loan, together with all interest
accruing thereon.
2.2 Interest Rate on Loan. Interest shall accrue at a rate equal to ten
percent (10%) per annum on the principal amount of the Loan outstanding from
time
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to time pursuant hereto from the date of advance until repaid or converted
(pursuant to Section 2.9 below).
2.3 Computation of Interest. Interest on the Loan shall be computed for the
actual number of days elapsed on the basis of a 365 or 366-day year, as the case
may be.
2.4 Maturity. The Loan, together with all accrued interest thereon, unless
converted pursuant to Section 2.9 below, shall be due and payable in full on the
Maturity Date, or upon notice from Lenders upon an Event of Default.
2.5 Prepayments. Borrower may from time to time prepay the Loan in whole or
in part without notice and without penalty.
2.6 Warrants Proceeds. Borrower shall use 50% of the proceeds of the sale
of Borrower's warrants pursuant to the Plan to pay the Loan. Borrower shall, not
later than the last business day of each month, apply 50% of all proceeds
received during that month from warrant sales with the exception of those
exercised by the Lenders, to the outstanding Note balance. Payment application
shall be as set forth in Section 2.8 below.
2.7 Interest on Principal Prepaid. Any prepayment of the Loan shall include
accrued and unpaid interest to the date of prepayment on the principal amount
being prepaid.
2.8 Making of Payments. All payments of principal or interest on the Note
shall be made to Lenders at the addresses set forth in Section 1.2 above or such
other address as Lenders shall designate in writing. Any payments, fees,
warrants or other distributions to Lenders shall be made pro-rata as provided in
the Intercreditor Agreement.
2.9 Conversion Option. The indebtedness evidenced by the Note (outstanding
principal and interest) shall, at each Lender's option, within 30 days after the
Maturity Date, be convertible into common stock of Borrower in an amount equal
to the outstanding Note balance plus unpaid interest and attorneys= fees
incurred in connection with the Loan described in this Agreement using as the
conversion rate the lesser of:
(a) the average of the daily closing prices of Borrower's common stock
for the 5 business days prior to each advance on the Loan; or
(b) the average of the daily closing prices of Borrower's common stock
for the 5 business days after the Maturity Date.
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3. COMMITMENT FEES. Borrower shall pay the following commitment fees:
3.1 Initial Options. Upon execution of the documentation for the Loan,
Borrower shall issue to Lenders options to purchase, in the aggregate, 100,000
shares of Borrower common stock at a price equal to 60% of the average daily
closing prices for Borrower's shares for the first 5 business days beginning
February 3, 1997.
3.2 Additional Options. Lenders shall be issued options to acquire 75,000
shares of Borrower's common stock the first time that the average outstanding
principal balance of the Loan equals or exceeds $500,000; $1,000,000;
$1,500,000; and $2,000,000 during any calendar month (as a result, the maximum
number of shares of Borrower's common stock subject to such options is 300,000).
The exercise price for the options granted pursuant to this Section 3.2 shall be
equal to 60% of the average closing prices for every trading day of the calendar
month in which the average outstanding principal balance of the Loan equals or
exceeds $500,000, $1,000,000, $1,500,000 or $2,000,000, as the case may be.
3.3 Term of Options. Each option issued pursuant to this paragraph 3, if
not exercised, shall expire 12 months from the date such option is delivered to
Lenders.
4. CONDITIONS PRECEDENT TO LOAN.
Each and every advance hereunder shall be subject to Lenders' agreement, in
the exercise of their reasonable discretion, in good faith, to make such
advance. For this purpose, "good faith" means honesty in fact.
4.1 Initial Advance. Lenders' obligation to make the initial advance of the
Loan shall be subject to the satisfaction or waiver by Lenders of the following
conditions precedent:
(a) The Note. Lenders shall have received the Note, executed and
delivered by Borrower.
(b) The Security Agreement. Lenders shall have received the Security
Agreement in the form attached hereto as Exhibit "B" (the "Security Agreement"),
executed and delivered by Borrower, granting Lenders a senior security interest
in all assets of Borrower to secure repayment of the Loan at any time that the
balance of the Note exceeds $500,000.
(c) Perfection of Security Interests. Lenders shall have received
originals, each duly executed by Borrower, of all financing statements under the
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Uniform Commercial Code reasonably required by Lenders to be filed in connection
with the Security Agreement.
(d) Fees. Borrower shall have paid the Commitment Fees provided in
Section 3.
(e) Board Approval. Borrower's Board of Directors shall have
authorized the execution, delivery and performance of this Agreement, the Note
and the Security Agreement.
(f) The Effective Date. The conditions precedent to the consummation
of WRIC's Plan and the Effective Date shall have occurred.
(g) Opinions. Borrower shall have delivered to Lenders such opinions
of counsel as Lenders may reasonably require assuring Lenders that Borrower is a
valid entity, that its actions hereunder are valid, binding and enforceable
according to their terms, and that approval of the Bankruptcy Court in WRIC's
bankruptcy case is not required.
(h) Intercreditor Agreement. Lenders shall have executed an
Intercreditor Agreement in form acceptable to Allsup and Quest.
4.2 Conditions Precedent to Subsequent Advances. The obligations of Lenders
to make any advance of the Loan is subject to the satisfaction of the following
additional conditions at the time of making such advance:
(a) All representations and warranties of Borrower contained in this
Agreement shall be true and correct as of the date of the advance;
(b) Borrower shall not be in default under the terms of this
Agreement; and
(c) Borrower shall have complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the date of
such advance.
4.3 Excess Advances. Lenders shall have no obligation to fund advances in
excess of $2,000,000, however, disbursement of such additional advances shall be
subject to such additional conditions precedent as Lenders in their sole and
absolute discretion shall require.
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5. STOCK RESTRICTION. All stock issued to Lenders pursuant to this Agreement
shall be held for 2 years before any resale. The stock certificates issued to
Lenders shall contain a legend evidencing such restriction.
6. REPRESENTATIONS AND WARRANTIES OF BORROWER.
As a material inducement to Lenders to enter into this Agreement, Borrower
hereby represents and warrants that as of the date of this Agreement:
6.1 Organization, Corporate Powers, Etc. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is duly qualified to transact business in all places where
such qualification is necessary (excluding places where the failure to so
qualify would not materially adversely affect the business of Borrower) and has
all requisite authority and legal right to incur the obligations provided for
under, to execute and deliver, and to perform and observe and provisions of,
this Agreement and the Note.
6.2 Authorization. The making and performance by Borrower of this
Agreement, the Note and the Security Agreement have been duly authorized by all
necessary corporate action.
6.3 Enforceability. This Agreement, the Note and the Security
Agreement shall constitute legal and binding obligations of Borrower,
enforceable against Borrower in accordance with their terms.
6.4 Subsidiaries. None of Borrower's subsidiaries own property of any
significant value; provided, that if it is determined that a subsidiary of
Borrower does own property of significant value, the foregoing representation
and warranty shall not give rise to an Event of Default hereunder if Borrower
shall cause such subsidiary to grant Lenders a first lien security interest in
any such property of significant value to further secure the Note.
7. COVENANTS.
So long as all or any portion of the Note remains outstanding, Borrower
hereby agrees as follows:
7.1 Compliance with Laws. Borrower shall comply in all material
respects with all applicable laws, rules, regulations and orders of, and
restrictions imposed by, governmental authorities, the violation of which could
reasonably by expected to materially adversely effect the financial condition,
results, assets or operations of Borrower.
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7.2 Inspection. Borrower shall allow representatives of Lenders, upon
reasonable prior notice to Borrower, to inspect, copy and make extracts of all
applicable records, and all properties, of Borrower at any reasonable time for
any reasonable purpose.
7.3 Litigation. Borrower shall promptly notify Lenders of any
litigation instituted, or to Borrower's knowledge, threatened against Borrower,
that is instituted or threatened after the date of this Agreement.
7.4 Further Borrowing. In the event that, prior to the Maturity Date,
Borrower seeks to borrow any monies other than under this Agreement, Borrower
shall offer Lenders a right of first refusal, on a pro rata basis, to provide
such financing. Borrower shall not borrow any sums before expiration of a 10 day
notice of such right of first refusal.
8. EVENTS OF DEFAULT; REMEDIES.
8.1 Event of Default. An Event of Default shall be deemed to have
occurred upon the occurrence and during the continuance of any of the following
events:
(a) Payment. Any amount payable on the Loan shall not be paid
when due;
(b) Covenants. A breach or failure of performance by Borrower of
any covenant, condition or agreement on its part to be observed or performed
pursuant to this Agreement, the Note or the Security Agreement which shall not
have been cured within 30 days after receipt by Borrower of notice thereof given
on behalf of Lenders or of any other agreement between Borrower and Lenders,
whether jointly or severally;
(c) Management. Dorcas Hardy resigns and no longer has a
management role with Borrower;
(d) Hiring of Key Personnel. Failure of Borrower to hire key
personnel acceptable to Lenders, including a Chief Operating Officer/ Chief
Financial Officer and Sales Manager;
(e) Misrepresentation. Any material representation or warranty
made by Borrower herein or in the Security Agreement shall provide to have been
false or in breach in any material respect on and as of the date on which made;
or
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(f) Bankruptcy. Borrower shall file a voluntary bankruptcy
petition or shall be subject to an order for relief in an involuntary bankruptcy
case or in an equivalent state case or proceeding, or a trustee or receiver
shall be appointed for Borrower's business.
8.2 Consequences of an Event of Default.
(a) Acceleration. If an Event of Default shall have occurred and
be continuing, Lenders may (by written notice delivered to Borrower) declare all
or any portion of the Loan immediately due and payable.
(b) Other Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default:
(i) Lenders' commitment to make further advances shall, at
Lenders' option, terminate, and Lenders shall have no further obligation to make
advances hereunder;
(ii) Lenders shall also be entitled to exercise all their
rights and remedies as may exist at law or as set forth in the Security
Agreement or the Note.
9. MISCELLANEOUS.
9.1 Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of either party shall bind and inure to the benefit of their
respective successors and assigns, including any subsequent holder of the Note.
9.2 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under applicable law, then such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement.
9.3 No Waiver. No delay, extension of time, renewal, compromise or other
indulgence which may occur or be granted by a party shall impair that party's
rights or powers hereunder. No party shall be deemed to have waived any of its
rights hereunder, unless the party or its authorized agent shall have signed
such waiver in writing. No such waiver, unless expressly as stated therein,
shall be effective as to any transaction which occurs after the date of such
waiver, nor as to any continuance of a breach after such waiver.
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9.4 Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original hereof, and all of which taken
together shall constitute one and the same agreement.
9.5 Descriptive Headings; Interpretation. Descriptive headings in this
Agreement are inserted for convenience of reference only and are not intended to
be part of or affect the meaning or interpretation of this Agreement.
9.6 Governing Law. THIS AGREEMENT SHALL BE ENFORCED IN ACCORDANCE WITH, AND
ALL QUESTIONS REGARDING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND PURPOSE
OF THIS AGREEMENT SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF
ARIZONA, WITHOUT GIVING EFFECT TO PROVISIONS THEREOF REGARDING CONFLICT OF LAWS.
9.7 Notices. Any notice provided or in this Agreement must be in writing
and must be either (a) hand delivered, (b) mailed by registered or certified
first class mail, postage prepaid with return receipt requested, (c) sent by
reputable overnight courier serve for next business morning delivery, or (d)
sent by facsimile to the recipient at the address/telecopy number below
indicated:
If to Lenders:
Allsup, Inc. Rob Charles
Attention: Mr. Jerry Fenstermaker Lewis and Roca LLP
Chief Operating Officer One South Church Ave., Suite 700
300 Allsup Place Tucson, Arizona 85701-1620
Belleville, Illinois 62223-8626 Telephone: (520) 622-2090
Telephone: 618/236-5798 Facsimile: (520) 622-5311
Facsimile: 618/236-5778
Quest Trading, Inc. Lowell E. Rothschild, Esq.
Attention: Douglas Engmann Michael McGrath, Esq.
c/o Sage Clearing, L.P. Mesch, Clark & Rothschild, P.C.
220 Bush Street, Suite 660 259 N. Meyer Ave.
San Francisco, California 94104 Tucson, Arizona 85701
Telephone: (415) 781-7430 Telephone: (520) 624-8886
Facsimile: (415) 78104641 Facsimile: (520) 798-1037
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If to Borrower:
Work Recovery, Inc. C. Taylor Ashworth
Attention: Mr. Robert Judson Osborn Maledon, P.A.
Chief Financial Officer, Acting 2929 N. Central Ave., Suite 2100
2341 S. Friebus, Suite 14 P.O. Box 36379
Tucson, Arizona 85713 Phoenix, Arizona 85067-6379
Telephone: (520) 322-6634 Telephone: (602) 207-1288
Facsimile: (520) 321-9481 Facsimile: (602) 235-9444
or such other address/telecopy number or to the attention of such other person
as the recipient party shall have specified by prior written notice to the
sending party. Any notice under this Agreement shall be deemed to have been
given (i) on the date such notice is hand delivered, (ii) 3 days after the date
of mailing if mailed by certified or registered mail, (iii) on the business day
next following the day notice is sent via overnight courier service, or (iv) as
of the beginning of the next day if such notice is sent by telecopy.
9.8 Entire Agreement. This Agreement, the Note and the Security Agreement
embody the complete agreement and understanding among the parties with respect
to the subject matter hereof and thereof and supersede and preempt any prior
understandings, agreements and/or representations by or among the parties,
written or oral, related to the subject matter hereof in any way.
9.9 Attorneys' Fees. In the event Lenders are required to employ counsel to
enforce Lenders' rights under this Agreement, the Note or the Loan Agreement,
including any proceeding in the Bankruptcy Court, Borrower shall pay Lenders'
actual attorneys' fees and expenses incurred therein.
9.10 Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved through arbitration in Tucson, Arizona, which shall
be the exclusive means of resolving such disputes except as provided below. The
parties waive any right to a jury trial, to a trial by the court, or to appeal
the arbitrator's decision of any dispute. Arbitration will be governed by the
provisions of the Arizona Arbitration Act, A.R.S. Section 12-1501, et seq. (the
"Act").
Arbitration may be initiated by either party by making a written demand for
arbitration on the other party. The demand shall contain a statement setting
forth the nature of the dispute, the amount of damages involved, if any, and the
remedy sought. Within ten business days of receipt of that demand, the parties
shall select one arbitrator, having at least 10 years experience in commercial
arbitration. If for any reason the parties are unable to agree upon the
selection of an arbitrator within 10 calendar days after a demand for
arbitration (or any extension of time agreed upon by the parties), then they
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will request a list of six names of experienced commercial arbitrators from the
American Arbitration Association (the "AAA"), and each party may strike up to
two names from the list. The AAA will choose the arbitrator from the remaining
names. If for any reason this process does not result in selection of a
qualified arbitrator, the arbitrator shall be selected in the manner provided
for by the Act.
The arbitrator shall schedule a hearing promptly. The arbitrator shall
render a decision no more than sixty days after such arbitrator's selection.
Subject to the terms of the Act, any decision and award of the arbitrator shall
be final, binding and conclusive upon the parties. Costs of the arbitration and
the prevailing party's attorneys' fees and expenses shall be assessed against
the non-prevailing party by the arbitrator. All other aspects of this binding
arbitration shall be governed by the Act and, to the extent consistent with such
Act, the Commercial Rules of the AAA unless the parties agree otherwise at the
time.
Except as otherwise provided in this Agreement, if a party wishes to seek
interim relief, whether affirmative or prohibitive, in the form of a temporary
restraining order or a preliminary injunction or other interim equitable relief
concerning the dispute either before beginning or at any point in the
arbitration proceedings concerning such dispute, such party may initiate the
appropriate litigation to obtain such relief, which shall be subject to and
controlled by the ultimate decision in the arbitration proceedings.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ALLSUP INC., an Illinois corporation
By /s/ James S. Allsup
--------------------------------------
Its President and CEO
WORK RECOVERY, INC., a
Delaware corporation
By /s/ Dorcas R. Hardy
--------------------------------------
Its President and CEO, Acting
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QUEST TRADING, INC., a
California corporation
By /s/ Douglas Engmann
--------------------------------------
Its Secretary
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