SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 2)*
Under the Securities Exchange Act of 1934
Health Systems Solutions, Inc.
(Name of Issuer)
Common Stock
(Title of Class of Securities)
82773R 20 2
(CUSIP Number)
Stanford Venture Capital Holdings, Inc.
5050 Westheimer Road
Houston, Texas 77056
Attention: P. Mauricio Alvarado, Esq.
Telephone No.: (713) 964-5100
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications)
July 6, 2004
(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: Schedules filed in paper formal shall included a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) 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 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).
SCHEDULE 13D
----------------------------------------------- -----------------------------
CUSIP No. 82773R 20 2 Page 2 of 8 Pages
----------------------------------------------- -----------------------------
-------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON Stanford Venture
Capital Holdings, Inc.
-------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
-------- -----------------------------------------------------------------------
3 SEC USE ONLY
-------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
WC
-------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
-------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
-------- -----------------------------------------------------------------------
------------------- ------- ----------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,978,177 shares of Common Stock (83.4%)*
------- ----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
------- ----------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 8,978, 177 shares of Common Stock * (83.4%)*
------- ----------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
------------------- ------- ----------------------------------------------------
-------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,978,177 shares of Common Stock*
-------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES*
-------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
83.4%*
-------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
-------- -----------------------------------------------------------------------
* Includes the exercise of 360,000 warrants that can be exercised within 60 days
of the date of the filing.
SCHEDULE 13D
----------------------------------------------- -----------------------------
CUSIP No. 82773R 20 2 Page 3 of 8 Pages
--- ---
----------------------------------------------- -----------------------------
-------- -----------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR IRS. IDENTIFICATION NO. OF ABOVE PERSON R. Allen Stanford
-------- -----------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
-------- -----------------------------------------------------------------------
3 SEC USE ONLY
-------- -----------------------------------------------------------------------
4 SOURCE OF FUNDS*
AF
-------- -----------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
-------- -----------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware and Antigua
-------- -----------------------------------------------------------------------
------------------- ------- ----------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 8,978, 177 shares of Common Stock (83.4%)**
------- ----------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
------- ----------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 8,978, 177 shares of Common Stock (83.4%)**
------- ----------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
------------------- ------- ----------------------------------------------------
-------- -----------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,978,177 shares of Common Stock*
-------- -----------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES SHARES*
-------- -----------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
83.4% of Common Stock*
-------- -----------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
-------- -----------------------------------------------------------------------
* Includes the exercise of 360,000 warrants that can be exercised within 60
days of the date of the filing.
Introductory Statement
This Amendment No. 2 relates to the Schedule 13D filed on behalf of
Stanford Venture Capital Holdings, Inc., a Delaware corporation ("SVCH") and
R. Allen Stanford (" Mr. Stanford"), the sole shareholder of SVCH (SVCH and
Mr. Stanford are sometimes collectively referred to herein as the "Reporting
Persons") and relates to the Common Stock, $0.001 par value per share (the
"Common Stock") of Health Systems Solutions, Inc., a Nevada corporation
("Issuer). This Schedule 13D also reports SVCH and Mr. Stanford's ownership
of warrants (Warrants") to acquireshares of Common Stock. As described in
this Schedule 13D, Mr. Stanford is joining SVCH in filing this Schedule 13D
because, as the sole shareholder of SVCH, Mr. Stanford may be deemed to
indirectly beneficially own the shares of Common Stock that are directly
beneficially owned by SVCH. This Amendment No. 2 amends the Schedule 13D
filed with the Securities and Exchange Commission on November 4, 2003 and
Amendment No. 1 filed on January 2, 2004. This Amendment No. 2 amends Items
3, 4, 5, 6 and 7 of a statement of Schedule 13D previously filed by the
Reporting Persons.
Item 3. Source and Amount of Funds or Other Consideration
On July 6, 2004, SVCH entered into a loan and security agreement
(the "Agreement") with Healthcare Quality Solutions, Inc. ("HQS"), a subsidiary
of the Issuer pursuant to which SVCH agreed to advance an aggregate of $1.6
million to HQS pursuant to a revolving credit facility. The loan accrues
interest at the rate of 8% per annum and expires in three years on July 5, 2007.
The loan is secured by a security interest in all of the assets of HQS and the
Issuer and a corporate guaranty executed by the Issuer in favor of SVCH.
Additionally, as consideration for entering into the Agreement, SVCH received
warrants ("Warrants") to purchase an aggregate of 720,000 shares of the Issuer's
common stock pursuant to a warrant purchase agreement dated July 6, 2004
("Warrant Purchase Agreement"). The exercise price of the Warrants is $0.001 per
share and the Warrants expire on June 30, 2009. On July 6, 2004, SVCH assigned
360,000 Warrants to four of its employees pursuant to a warrant assignment
agreement (the "Warrant Assignment Agreement"). The Issuer is obligated to
register the shares of common stock issuable upon exercise of the Warrants
pursuant to a registration rights agreement.
The summary of the Agreement, the Warrant Purchase Agreement, the
Warrants and the Warrant Assignment Agreement are qualified by reference to the
complete text of the agreements, which are filed in their entirety as exhibits
to this Amendment No. 2 to the Schedule 13D.
Item 4. Purpose of Transaction
The Reporting Persons purpose in acquiring the Warrants reported in
Item 5(a) hereof is for investment purposes. Except as set forth herein and in
the attached exhibits, the Reporting Persons do not have any plans or proposals
that relate to or would result in: (i) the acquisition by any person of
additional securities of the Issuer or the disposition of securities of the
Issuer; (ii) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer; (iii) a sale or transfer of
a material amount of assets of the Issuer; (iv) any change in the present board
of directors or management of the Issuer, including any plans or proposals to
change the number or term of directors or to fill any existing vacancies on the
board; (v) any material change in the present capitalization or dividend policy
of the Issuer; (vi) any other material change in the Issuer's business or
corporate structure; (vii) changes in the Issuer's charter, bylaws or
instruments corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person; (viii) causing a class of
securities of the Issuer to be delisted from a national securities exchange or
to cease to be authorized to be quoted in an interdealer quotation system of a
registered national securities association; (ix) a class of equity securities of
the Issuer becoming eligible for termination of registration pursuant to Section
12(g)(4) of the Securities Exchange Act of 1934; or (x) any action similar to
any of those enumerated above.
Item 5. Interest in Securities of the Issuer
(a) As of July 6, 2004, SVCH directly owns 8,618,177 shares of Common
Stock and Warrants to purchase 360,000 shares of the Issuer's common stock. The
Reporting Persons are deemed to beneficially own 8,978,177 shares of the
Issuer's issued and outstanding Common Stock, which represents approximately
83.4% of the Issuer's issued and outstanding Common Stock. SVCH directly
beneficially owns all the shares of Common Stock to which this Schedule 13D
relates. Mr. Stanford, as the sole shareholder of SVCH, could be deemed to have
direct beneficial ownership of the shares of Common Stock directly beneficially
owned by SVCH.
(b) Mr. Stanford , together with SVCH, has the sole power to vote or
direct the vote and the sole power to dispose or to direct the disposition of
the shares of Common Stock reported as beneficially owned by it in Item 5(a)
hereof.
(c) The Reporting Persons only transaction in shares of Common Stock
and Preferred Stock, respectively, during the past 60 days was the acquisition
of the 720,000 Warrants described herein and the subsequent assignment of
360,000 Warrants to four of its employees pursuant to the Warrant Assignment
Agreement and the conversion of the outstanding Series A preferred stock and
Series B preferred stock into common stock.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer
Except as described in Item 3 of this Amendment No. 2 to Schedule 13D
and in the attached exhibits, there are no contracts, arrangements,
understandings or relationships (legal or otherwise) with respect to any
securities of the Issuer to which SVCH or Mr. Stanford is a party or is subject.
Item 7. Materials to be filed as Exhibits
c. Exhibits.
10.1 Loan and Security Agreement dated July 6, 2004 by and among HQS and
SVCH.
10.2 Warrant Purchase Agreement dated July 6, 2004 by and between HSS and
SVCH
10.3 Warrant Assignment Agreement dated July 6, 2004 by and between SVCH,
Daniel Bogar, Ronald Stein, William Fusselmann and Osvaldo Pi.
10.4 Registration Rights Agreement dated as of July 6, 2004 among HSS, SVCH,
Daniel Bogar, Ronald Stein, Osvaldo Pi and William Fusselmann
SIGNATURES
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.
Date: July 6, 2004 /s/ R. Allen
------------------------------
Stanford
R. Allen Stanford
STANFORD VENTURE CAPITAL
HOLDINGS, INC.
Date: July 6, 2004 By: /s/ James M. Davis
------------------------------
Name: James M. Davis
Title: President
EXHIBIT INDEX
c. Exhibits.
10.1 Loan and Security Agreement dated July 6, 2004 by and among HQS and
SVCH.
10.4 Warrant Purchase Agreement dated July 6, 2004 by and between HSS and
SVCH
10.5 Warrant Assignment Agreement dated July 6, 2004 by and between SVCH,
Daniel Bogar, Ronald Stein, William Fusselmann and Osvaldo Pi.
10.4 Registration Rights Agreement dated as of July 6, 2004 among HSS, SVCH,
Daniel Bogar, Ronald Stein, Osvaldo Pi and William Fusselmann
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made on July 6, 2004, by and
between HEALTHCARE QUALITY SOLUTIONS, INC., a Florida corporation (the
"Borrower"), and STANFORD VENTURE CAPITAL HOLDINGS, INC., a Delaware corporation
(together with its successors and assigns, the "Lender"). Capitalized terms used
in this Agreement have the meanings assigned to them in Appendix A, General
Definitions.
R e c i t a l s:
Borrower has requested that Lender extend financing to Borrower in
accordance with the provisions of this Agreement.
Health Systems Solutions, Inc., a Nevada corporation ("the
"Guarantor"), owns all of the issued and outstanding capital stock of the
Borrower and is willing to unconditionally guarantee the obligations of the
Borrower to the Lender as set forth in a Guarantee of even date herewith as a
material inducement to the Lender to extend the financing contemplated hereby.
Lender is willing to make loans and other extensions of credit to
Borrower, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, receipt of which is acknowledged, the parties hereto, intending
to be legally bound hereby, agree as follows:
SECTION 1. FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Financing
Documents, Lender agrees, to the extent and in the manner hereinafter set forth,
to establish the Facility in an aggregate amount up to $1,600,000.00, as
follows:
1.1. Revolver Facility.
1.1.1. Revolver Loans. Lender agrees, upon the terms and
subject to the conditions set forth herein, to make Revolver Loans to Borrower
on any Business Day during the period from the date hereof through the day
before the last day of the Term, not to exceed the Gross Availability at such
time, and not in excess of the amount set forth in the Budget, which Revolver
Loans may be repaid and reborrowed in accordance with the provisions of this
Agreement; provided, however, that Lender shall have no obligation whatsoever to
make any Revolver Loan if at the time of the proposed funding thereof either (a)
the aggregate principal amount of all of the Revolver Loans and Pending Revolver
Loans then outstanding exceeds, or would exceed after the funding of such
Revolver Loan, the Gross Availability, or (b) the amount of consolidated EBITDA
to have been earned by the Guarantor as of the end of the month prior to the
date of borrowing or re-borrowing any Revolver Loan. The Revolver Loans shall
bear interest as set forth in Section 2.1 hereof.
1.1.2. Use of Proceeds. The proceeds of the Revolver Loans
shall be used by Borrower exclusively for one or more of the following purposes:
(i) to pay expenses of the financing provided for herein; (ii) to pay any of the
Obligations; (iii) for general working capital of the Borrower; (iv) to pay
property taxes with respect to any Collateral to the extent such property taxes
constitute a Lien senior to Lender's Liens; and (v) to pay up to $400,000 to
satisfy obligations to the Internal Revenue Service. Notwithstanding anything to
the contrary contained herein, in no event shall proceeds of Revolver Loans be
used to pay expenses incurred in connection with the assertion of or joinder in
any claim, counterclaim, action, contested matter, objection, defense or other
proceeding, the purpose of which is to seek or the result of which would be to
obtain any order, judgment, declaration, or similar relief (a) seeking damages
on account of any alleged cause of action arising on, before or after the
Effective Date; (b) invalidating, setting aside, avoiding or subordinating, in
whole or in part, any of the Obligations or Liens and security interests in any
Collateral granted to Lender under this Agreement; (c) declaring any of the
Financing Documents to be invalid, not binding or unenforceable in any respect;
(d) preventing, enjoining, hindering or otherwise delaying Lender's enforcement
of any of the Financing Documents or any realization upon any Collateral; (e)
declaring any Liens granted or purported to be granted under any of the
Financing Documents to have a priority other than the priority set forth
therein; (f) objecting to the amount or method of calculation by Lender of any
of the Obligations or any accounting rendered by Lender with respect to any of
those obligations; or (g) seeking to use the cash proceeds of any of the
Collateral without the prior written consent of Lender.
1.1.3. Revolver Note. The Revolver Loans made by Lender and
interest accruing thereon shall be evidenced by the records of Lender and by the
Revolver Note payable to Lender (or the assignee of Lender), which shall be
executed by Borrower, completed in conformity with this Agreement and delivered
to Lender on the Closing Date. All outstanding principal amounts and accrued
interest under the Revolver Note shall be due and payable as set forth in
Section 4.2 hereof.
SECTION 2. INTEREST, FEES AND CHARGES
2.1. Interest.
2.1.1. Rates of Interest. Borrower agrees to pay interest in
respect of all unpaid principal amounts of the Loans from the respective dates
such principal amounts are advanced until paid (whether at stated maturity, on
acceleration or otherwise) at a fixed rate per annum equal to 8%. Interest on
each Loan shall accrue from and including the date on which such Loan is made to
(but excluding) the date of any repayment thereof; provided, however, that, if a
Loan is repaid on the same day made, one day's interest shall be paid on such
Loan.
2
2.1.2. Default Rate of Interest. From and after the occurrence
of any Event of Default, the principal amount of the Obligations (and, to the
extent permitted by Applicable Law, all past due interest) shall bear interest
at the Default Rate. To the fullest extent permitted by Applicable Law, the
Default Rate shall apply and accrue on any judgment entered with respect to any
of the Obligations. Borrower acknowledges that the cost and expense to Lender
attendant upon the occurrence of an Event of Default are difficult to ascertain
or estimate and that the Default Rate is a fair and reasonable estimate to
compensate Lender for such added cost and expense.
2.2. Fees.
2.2.1. Audit and Appraisal Fees. Borrower shall be obligated
to reimburse Lender for all reasonable costs and expenses incurred by Lender in
connection with all appraisals of any Collateral and audits of any Obligor's
books and records and such other matters pertaining to any Obligor or any
Collateral as Lender shall deem appropriate.
2.2.2 General Provisions. All fees shall be fully earned by
the identified recipient thereof pursuant to the foregoing provisions of this
Agreement on the due date thereof and, except as otherwise set forth herein or
required by Applicable Law, shall not be subject to rebate, refund or proration.
All fees provided for in this Section 2.2 are and shall be deemed to be
compensation for services and are not, and shall not be deemed to be, interest
or any other charge for the use, forbearance or detention of money.
2.3. Computation of Interest and Fees. Interest shall be calculated on
a daily basis, commencing on the date hereof, and shall be payable monthly, in
arrears, on the tenth day of each month. All interest, fees and other charges
provided for in this Agreement shall be calculated daily and shall be computed
on the actual number of days elapsed over a year of 360 days. Borrower
acknowledges that the calculation of interest on the basis of a 360-day year, as
opposed to a year of 365 days, results in a higher effective rate of interest
hereunder. For purposes of computing interest hereunder, all Payment Items
received by Lender shall be deemed applied by Lender on account of the
Obligations (subject to Full Payment of such items) one Business Day after
Lender receives such items in immediately available funds in the Payment
Account, and Lender shall be deemed to have received such Payment Item on the
date specified in Section 4.5 hereof.
2.4. Reimbursement Obligations.
2.4.1. Borrower shall reimburse Lender, for all reasonable
legal, accounting, appraisal and other fees and expenses incurred by Lender
(including fees and expenses of Lender Professionals) in connection with (i) the
negotiation and preparation of any of the Financing Documents, any amendment or
modification thereto, any waiver of any Default or Event of Default thereunder,
or any restructuring or forbearance with respect thereto; (ii) the
administration of the Financing Documents and the transactions contemplated
thereby, to the extent that such fees and expenses are expressly provided for in
this Agreement or any of the other Financing Documents; (iii) action taken to
perfect or maintain the perfection or priority of any of Lender's Liens with
respect to any of the Collateral; (iv) any inspection of or audits conducted
with respect to any of Borrower's books and records or any of the Collateral;
3
(v) any effort to verify, protect, preserve, or restore any of the Collateral or
to collect, sell, liquidate or otherwise dispose of or realize upon any of the
Collateral; (vi) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by or against Lender, any Obligor or any other Person) in
any way arising out of or relating to any of the Collateral (or the validity,
perfection or priority of any of Lender's Liens thereon), any of the Financing
Documents or the validity, allowance or amount of any of the Obligations; (vii)
the protection or enforcement of any rights or remedies of Lender in any
Insolvency Proceeding; and (viii) any other action taken by Lender to enforce
any of the rights or remedies of Lender against any Obligor or any Account
Debtors to enforce collection of any of the Obligations or payments with respect
to any of the Collateral. All amounts chargeable to Borrower under this Section
2.4 shall constitute Obligations that are secured by all of the Collateral and
shall be payable on demand to Lender. Borrower shall also reimburse Lender for
reasonable expenses incurred by Lender in its administration of any of the
Collateral to the extent and in the manner provided in Section 7 hereof or in
any of the other Financing Documents. The foregoing shall be in addition to, and
shall not be construed to limit, any other provision of any of the Financing
Documents regarding the reimbursement by Borrower of costs, expenses or
liabilities suffered or incurred by Lender.
2.4.2. If at any time Lender shall agree to indemnify any
Person against losses or damages that such Person may suffer or incur in its
dealings or transactions with Borrower, or shall guarantee any liability or
obligation of Borrower to such Person, or otherwise shall provide assurances of
Borrower's payment or performance under any agreement with such Person, then
Borrower shall indemnify and defend Lender and shall hold them harmless from and
against any and all liability any of them may have under any such indemnity,
guaranty or assurance, and any amounts so paid by Lender shall be repaid to them
immediately by Borrower. Borrower's agreement to indemnify and defend Lender
shall constitute part of the Obligations that are secured by the Collateral and
Borrower shall repay, on demand, any amount so paid or any liability incurred by
Lender in connection with any such indemnity, guaranty or assurance. Nothing
herein shall be construed to impose upon Lender any obligation to provide any
such indemnity, guaranty or assurance. The foregoing agreement of Borrower shall
apply whether or not such indemnity, guaranty or assurance is in writing or oral
and regardless of Borrower's knowledge of the existence thereof, and shall be in
addition to any of the provision of the Financing Documents regarding
reimbursement by Borrower of costs, expenses or liabilities suffered or incurred
by Lender.
2.5. Bank Charges. Borrower shall pay to Lender, on demand, any and all
fees, costs or expenses which Lender pays to a bank or other similar institution
(including any fees paid by Lender to any Participant) arising out of or in
connection with (i) the forwarding to Borrower or any other Person on behalf of
Borrower by Lender of proceeds of Loans made by Lender to Borrower pursuant to
this Agreement and (ii) the depositing for collection by Lender of any Payment
Item received or delivered to Lender on account of the Obligations. Borrower
acknowledges and agrees that Lender may charge such costs, fees and expenses to
Borrower based upon Lender's good faith estimate of such costs, fees and
expenses as they are incurred by Lender.
4
2.6. Maximum Interest. Regardless of any provision contained in this
Agreement or any of the other Financing Documents, in no contingency or event
whatsoever shall the aggregate of all amounts that are contracted for, charged
or received by Lender pursuant to the terms of this Agreement or any of the
other Financing Documents and that are deemed interest under Applicable Law
exceed the highest rate permissible under any Applicable Law. No agreements,
conditions, provisions or stipulations contained in this Agreement or any of the
other Financing Documents or the exercise by Lender of the right to accelerate
the payment or the maturity of all or any portion of the Obligations, or the
exercise of any option whatsoever contained in any of the Financing Documents,
or the prepayment by Borrower of any of the Obligations, or the occurrence of
any contingency whatsoever, shall entitle Lender to charge or receive in any
event, interest or any charges, amounts, premiums or fees deemed interest by
Applicable Law (such interest, charges, amounts, premiums and fees referred to
herein collectively as "Interest") in excess of the Maximum Rate and in no event
shall Borrower be obligated to pay Interest exceeding such Maximum Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Borrower to pay
Interest exceeding the Maximum Rate shall be without binding force or effect, at
law or in equity, to the extent only of the excess of Interest over such Maximum
Rate. If any Interest is charged or received in excess of the Maximum Rate
("Excess"), Borrower acknowledges and stipulates that any such charge or receipt
shall be the result of an accident and bona fide error, and such Excess, to the
extent received, shall be applied first to reduce the principal Obligations and
the balance, if any, returned to Borrower, it being the intent of the parties
hereto not to enter into a usurious or otherwise illegal relationship. The right
to accelerate the maturity of any of the Obligations does not include the right
to accelerate any interest that has not otherwise accrued on the date of such
acceleration, and Lender does not intend to collect any unearned interest in the
event of any such acceleration. Borrower recognizes that, with fluctuations in
the rates of interest set forth in Section 2.1.1 of this Agreement, and the
Maximum Rate, such an unintentional result could inadvertently occur. All monies
paid to Lender hereunder or under any of the other Financing Documents, whether
at maturity or by prepayment, shall be subject to any rebate of unearned
interest as and to the extent required by Applicable Law. By the execution of
this Agreement, Borrower covenants that (i) the credit or return of any Excess
shall constitute the acceptance by Borrower of such Excess, and (ii) Borrower
shall not seek or pursue any other remedy, legal or equitable, against Lender,
based in whole or in part upon contracting for, charging or receiving any
Interest in excess of the Maximum Rate. For the purpose of determining whether
or not any Excess has been contracted for, charged or received by Lender, all
interest at any time contracted for, charged or received from Borrower in
connection with any of the Financing Documents shall, to the extent permitted by
Applicable Law, be amortized, prorated, allocated and spread in equal parts
throughout the full term of the Obligations. Borrower and Lender shall, to the
maximum extent permitted under Applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as Interest and
(ii) exclude voluntary prepayments and the effects thereof. The provisions of
this Section 2.6 shall be deemed to be incorporated into every DIP Financing
Document (whether or not any provision of this Section is referred to therein).
All such Financing Documents and communications relating to any Interest owed by
Borrower, and all figures set forth therein shall, for the sole purpose of
computing the extent of Obligations, be automatically recomputed by Borrower,
and by any court considering the same, to give effect to the adjustments or
credits required by this Section 2.6.
5
SECTION 3. LOAN ADMINISTRATION
3.1. Manner of Borrowing and Funding Revolver Loans. Borrowings under
the Revolver Commitment of the Facility established pursuant to Section 1 hereof
shall be made and funded as follows:
3.1.1. Notice of Borrowing.
(i) Whenever Borrower desires to make a Borrowing
under this Agreement, Borrower shall give Lender prior written notice
(or telephonic notice promptly confirmed in writing) of such Borrowing
request (a "Notice of Borrowing"), which shall be in the form of
Exhibit B annexed hereto and signed by an authorized officer of
Borrower. Such Notice of Borrowing shall be given by Borrower at the
office of Lender designated by Lender from time to time no later than
ten (10) Business Days prior to the requested funding date of such
Borrowing. Notices received after 11:00 a.m. shall be deemed received
on the next Business Day. Each Notice of Borrowing (or telephonic
notice thereof) shall be irrevocable and shall specify (a) the
principal amount of the Borrowing, and (b) the date of Borrowing (which
shall be a Business Day).
(ii) Unless payment is otherwise timely made by
Borrower, the becoming due of any amount required to be paid under this
Agreement or any of the other Financing Documents with respect to the
Obligations (whether as principal, accrued interest, fees or other
charges) shall be deemed irrevocably to be a request for Revolver Loans
on the due date of, and in an aggregate amount required to pay, such
principal, accrued interest, fees or other charges, and the proceeds of
such Revolver Loans may be disbursed by way of direct payment of the
relevant Obligation. Lender shall not have any obligation to Borrower
to honor any deemed request for a Revolver Loan after the Commitment
Termination Date, but may do so in its discretion and without regard to
the existence of, and without being deemed to have waived, any Default
or Event of Default.
(iii) Lender shall have no obligation to honor any
deemed request for a Revolver Loan after the Commitment Termination
Date or when any condition precedent in Section 10 hereof is not
satisfied, but may do so in its discretion and without regard to the
existence of, and without being deemed to have waived, any Default or
Event of Default and regardless of whether such Revolver Loan is funded
after the Commitment Termination Date.
(iv) As an accommodation to Borrower, Lender may
permit telephonic requests for Borrowings and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by
Borrower. Lender shall not have any liability to Borrower for any loss
or damage suffered by Borrower as a result of Lender's honoring of any
requests, execution of any instructions, authorizations or agreements
or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower
and Lender shall not have any duty to verify the origin of any such
communication or the identity or authority of the Person sending it.
6
3.1.2. Disbursement Authorization. Borrower hereby irrevocably
authorizes Lender to disburse the proceeds of each Revolver Loan requested by
Borrower, or deemed to be requested pursuant to Section 3.1.1, as follows: (i)
the proceeds of each Revolver Loan requested under Section 3.1.1(i) shall be
disbursed by Lender in accordance with the terms of the written disbursement
letter from Borrower in the case of the initial Borrowing, and, in the case of
each subsequent Borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time in writing; and (ii) the
proceeds of each Revolver Loan requested under Section 3.1.1(ii) shall be
disbursed by Lender by way of direct payment of the relevant interest or other
Obligation. Any proceeds disbursed in payment of any of the Obligations shall be
deemed to have been received by Borrower.
3.2. All Loans to Constitute One Obligation. The Loans shall constitute
one general Obligation of Borrower and shall be secured by Lender's Lien upon
all of the Collateral.
SECTION 4. PAYMENT
4.1. General Payment Provisions. All payments of principal of and
interest on the Loans and other Obligations that are payable to Lender shall be
made to Lender in Dollars without any offset or counterclaim and free and clear
of (and without deduction for) any present or future Taxes, and, with respect to
payments made other than by application of balances in the Payment Account, in
immediately available funds not later than 12:00 noon on the due date (and
payment made after such time on the due date to be deemed to have been made on
the next succeeding Business Day). All payments received by Lender shall be
distributed by Lender in accordance with Section 4.5 hereof.
4.2. Repayment of Revolver Loans.
4.2.1. Payment of Principal. The outstanding principal amounts
with respect to the Revolver Loans shall be due and payable by Borrower to
Lender immediately upon (a) each receipt by Lender or Borrower of any proceeds
of any of the Collateral, to the extent of such proceeds; and (b) the Commitment
Termination Date.
4.2.2. Payment of Interest. Interest accrued on each Revolver
Loan shall be due and payable on the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month. Accrued interest shall also be paid by Borrower on the
Commitment Termination Date.
7
4.3. Payment of Other Obligations. The balance of the Obligations
requiring the payment of money, including the Extraordinary Expenses incurred by
Lender, shall be repaid by Borrower to Lender, as and when provided in the
Financing Documents, or, if no date of payment is otherwise specified in the
Financing Documents, on demand.
4.4. Marshaling; Payments Set Aside. Lender shall not be under any
obligation to marshal any assets in favor of any Obligor or against or in
payment of any or all of the Obligations. To the extent that Borrower makes a
payment or payments to Lender or Lender receives payment from the proceeds of
any Collateral or exercises its right of setoff, and such payment or payments or
the proceeds of Collateral or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party, then to the extent of such
recovery, the Obligations or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred. The provisions of the immediately preceding sentence
of this Section 4.4 shall survive any termination of the Facility and Full
Payment of the Obligations.
4.5. Application of Payments and Collections. All Payment Items
received by Lender by 12:00 noon, Miami, Florida time, on any Business Day shall
be deemed received on that Business Day. All Payment Items received by Lender
after 12:00 noon, Miami, Florida time, on any Business Day shall be deemed
received on the following Business Day. Except to the extent that the manner of
application to the Obligations of payments or proceeds of Collateral is
expressly governed by other provisions of this Agreement, Borrower irrevocably
waives the right to direct the application of any and all payments and
Collateral proceeds at any time or times received by Lender from or on behalf of
Borrower, and Borrower does hereby irrevocably agree that Lender shall have the
continuing exclusive right to apply and reapply any and all such payments and
Collateral proceeds received at any time or times hereafter by Lender or its
agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. Without
limiting the generality of the foregoing, Borrower acknowledges and agrees that
Lender may apply all payments and Collateral proceeds to all of the Obligations
prior to application of the same to the Term Loan. If as the result of Lender's
collection of proceeds of Accounts and other Collateral as authorized by Section
7.2.5 a credit balance exists, such credit balance shall not accrue interest in
favor of Borrower, but shall be available to Borrower at any time or times for
so long as no Default or Event of Default exists. Lender may, at its option,
offset such credit balance against any of the Obligations upon and after the
occurrence of an Event of Default.
4.6. Loan Account. Lender shall establish an account on its books (the
"Loan Account") and shall enter all Loans as debits to the Loan Account and
shall also record in the Loan Account all payments made by Borrower on any
Obligations and all proceeds of Collateral which are finally paid to Lender, and
may record therein, in accordance with customary accounting practice, other
debits and credits, including interest and all charges and expenses properly
chargeable to Borrower.
8
4.7. Gross Up for Taxes. If Borrower shall be required by Applicable
Law to withhold or deduct any Taxes from or in respect of any sum payable under
this Agreement or any of the other Financing Documents, (a) the sum payable to
Lender shall be increased as may be necessary so that, after making all required
withholding or deductions, Lender receives an amount equal to the sum it would
have received had no such withholding or deductions been made, (b) Borrower
shall make such withholding or deductions, and (c) Borrower shall pay the full
amount withheld or deducted to the relevant taxation authority or other
authority in accordance with Applicable Law.
SECTION 5. TERM AND TERMINATION OF THE FACILITY
5.1. Term. Subject to Lender's right to cease making Loans to Borrower
when any Default or any Event of Default exists or upon the Commitment
Termination Date, the Facility shall be in effect for the Term. The Term may be
extended by written agreement between Borrower and Lender.
5.2. Termination of Facility.
5.2.1. Termination by Lender. Lender may terminate the
Facility at any time, without notice to Borrower, upon or after the occurrence
of an Event of Default.
5.2.2. Effect of Termination. On the Commitment Termination
Date, all of the Obligations (including Contingent Obligations owing to Lender)
shall be immediately due and payable, and Lender shall have no further
obligation to make any Loans. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Financing Documents
shall survive any such termination and Lender shall retain its Liens in the
Collateral and all of its rights and remedies under the Financing Documents
notwithstanding such termination until Full Payment of the Obligations. With
respect to any Obligations that are Contingent Obligations on the Commitment
Termination Date, Borrower shall, on the Commitment Termination Date, either
deposit with Lender cash or procure and deliver to Lender a direct pay letter of
credit naming Lender as beneficiary (to be in form and substance, and from an
issuing bank, satisfactory to Lender), in each case in an amount not less than
105% of the aggregate amount of all such Contingent Obligations to Lender.
Notwithstanding Full Payment of the Obligations, Lender shall not be required to
terminate its security interests in any of the Collateral unless, with respect
to any loss or damage Lender may incur as a result of the dishonor or return of
any Payment Items applied to the Obligations, Lender shall have received either
(i) a written agreement, executed by Borrower and any Person whose loans or
other advances to Borrower are used in whole or in part to satisfy the
Obligations, indemnifying Lender from any such loss or damage; or (ii) such
monetary reserves and Liens on the Collateral for such period of time as Lender,
in its reasonable discretion, may deem necessary to protect Lender from any such
loss or damage. The provisions of Sections 2.4, 4.4, 4.7 and this Section 5.2.2
and all obligations of Borrower to indemnify Lender pursuant to this Agreement
shall in all events survive any termination of the Facility.
9
SECTION 6. COLLATERAL SECURITY
6.1. Grant of Security Interest in Collateral. To secure the prompt and
Full Payment and performance of all of the Obligations, Borrower hereby grants
to Lender a continuing security interest in and Lien upon all of the assets of
Borrower, whether now owned or existing or hereafter created, acquired or
arising (irrespective of whether the same existed on or was created or acquired
after the Effective Date), including the following Property and interests in
Property of Borrower:
(i) all Accounts;
(ii) all Inventory;
(iii) all Equipment;
(iv) all General Intangibles;
(v) all Instruments;
(vi) all Chattel Paper;
(vii) all Documents;
(viii) all Investment Property;
(ix) all Supporting Obligations;
(x) all Letter-of-Credit Rights;
(xi) all Deposit Accounts;
(xii) all monies and other Property of any kind, now
or at any time or times hereafter in the possession or under the
control of Lender or a bailee or Affiliate of Lender, including any
Cash Collateral in the Cash Collateral Account;
(xiii) all cash and non-cash proceeds of (i) through
(xii) above, including proceeds of and unearned premiums with respect
to insurance policies insuring any of the Collateral; and
(xiv) all books and records (including customer lists,
files, correspondence tapes, computer programs, print-outs, and other
computer materials and records) of Borrower pertaining to any of (i)
through (xiii) above.
10
6.2. Other Collateral. In addition to the items of Property referred to
in Section 6.1 above, the Obligations shall also be secured by the Cash
Collateral to the extent provided herein and all of the other items of Property
from time to time described in any of the Security Documents as security for any
of the Obligations.
6.3. Lien on Deposit Accounts. As additional security for the Full
Payment and performance of the Obligations, Borrower hereby grants to Lender a
continuing security interest in and Lien upon, and hereby collaterally assigns
to Lender, all of Borrower's right, title and interest in and to each Deposit
Account and all deposits or other sums at any time credited to each such Deposit
Account, including any sums in any blocked account or any special lockbox
account and in the accounts in which sums are deposited from such blocked
accounts and special lockbox accounts. In connection with the foregoing,
Borrower hereby authorizes and directs each such bank or other depository to pay
or deliver to Lender upon its written demand therefor made at any time upon the
occurrence and during the continuation of an Event of Default and without
further notice to Borrower (such notice being hereby expressly waived), all
balances in each Deposit Account maintained by Borrower with such depository for
application to the Obligations then outstanding, and the rights given Lender in
this Section shall be cumulative with and in addition to Lender's other rights
and remedies in regard to the foregoing Property as proceeds of Collateral.
Borrower hereby irrevocably appoints Lender as Borrower's attorney-in-fact to
collect any and all such balances to the extent any such payment is not made to
Lender by such bank or other depository after demand thereon is made by Lender
pursuant hereto.
6.4. Lien Perfection; Further Assurances. Promptly after Lender's
request therefor, Borrower shall execute or cause to be executed and delivered
to Lender (and consent to Lender's filing without Borrower's signature where
permitted by Applicable Law) such instruments, assignments, title certificates
or other documents as are necessary under the UCC or other Applicable Law
(including any motor vehicle certificates of title act) to perfect (or continue
the perfection of) Lender's Lien upon the Collateral, and shall take such other
action as may be requested by Lender to give effect to or carry out the intent
and purposes of this Agreement. Unless prohibited by Applicable Law, Borrower
hereby authorizes Lender to execute and file any such financing statement on
Borrower's behalf. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof.
6.5. Lien Priority. The Liens and security interests granted to Lender
pursuant to the provisions of this Section 6 and pursuant to any of the
Financing Documents shall be first priority Liens and security interests in the
Collateral.
11
SECTION 7. COLLATERAL ADMINISTRATION
7.1. General Provisions.
7.1.1. Locations of Collateral. All tangible items of
Collateral, other than Inventory in transit, shall at all times be kept by
Borrower at one or more of the business locations of Borrower previously
disclosed to Lender and shall not be moved therefrom, without the prior written
approval of Lender, except that prior to an Event of Default and acceleration of
the maturity of the Obligations in consequence thereof, Borrower may (i) make
sales or other dispositions of any Collateral to the extent such sales or other
dispositions are not prohibited by Section 9.2.4 hereof and (ii) may move
Inventory or any record relating to any Collateral to a location in the United
States other than those previously disclosed to Lender, so long as Borrower has
given Lender at least 30 days prior written notice of such new location and
prior to moving any Inventory to such location there shall have been filed all
UCC-1 financing statements and any other appropriate documentation necessary to
perfect or continue the perfection of Lender's Liens with respect to such
Inventory and all proceeds thereof.
7.1.2. Insurance of Collateral; Condemnation Proceeds.
Borrower shall maintain and pay for insurance upon all Collateral, wherever
located, covering casualty, hazard, public liability, theft, malicious mischief,
and such other risks in such amounts and with such insurance companies as are
reasonably satisfactory to Lender. All proceeds payable under each such policy
shall be payable to Lender for application to the Obligations. Borrower shall
deliver the originals or certified copies of such policies to Lender with
lender's loss payable endorsements reasonably satisfactory to Lender, naming
Lender as sole loss payee, assignee or additional insured, as appropriate. Each
policy of insurance or endorsement shall contain a clause requiring the insurer
to give not less than 30 days prior written notice to Lender in the event of
cancellation of the policy for any reason whatsoever and a clause specifying
that the interest of Lender shall not be impaired or invalidated by any act or
neglect of Borrower or the owner of the Property or by the occupation of the
premises for purposes more hazardous than are permitted by said policy. If
Borrower fails to provide and pay for such insurance, Lender may, at its option,
but shall not be required to, procure the same and charge Borrower therefor.
Borrower agrees to deliver to Lender, promptly as rendered, true copies of all
reports made in any reporting forms to insurance companies. For so long as no
Event of Default exists, Borrower shall have the right to settle, adjust and
compromise any claim with respect to any insurance maintained by Borrower
provided that all proceeds thereof are applied in the manner specified in this
Agreement, and Lender agrees promptly to provide any necessary endorsement to
any checks or drafts issued in payment of any such claim. At any time that an
Event of Default exists, only Lender shall be authorized to settle, adjust and
compromise such claims. Lender shall have all rights and remedies with respect
to such policies of insurance as are provided for in this Agreement and the
other Financing Documents.
12
7.1.3. Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining and shipping any
Collateral, all Taxes imposed under any Applicable Law on any of the Collateral
or in respect of the sale thereof, and all other payments required to be made by
Lender to any Person to realize upon any Collateral shall be borne and paid by
Borrower. If Borrower fails to pay promptly any portion thereof when due, Lender
may, at its option, but shall not be required to, pay the same and charge
Borrower therefor. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Lender's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Borrower's sole risk.
7.1.4. Defense of Title to Collateral. Borrower shall at all
times defend its title to the Collateral and Lender's Liens therein against all
Persons and all claims and demands whatsoever.
7.2. Administration of Accounts.
7.2.1. Records and Schedules of Accounts. Borrower shall keep
accurate and complete records of its Accounts and all payments and collections
thereon and shall submit to Lender on a daily basis or such other periodic basis
as Lender shall request a sales and collections report for the preceding period,
in form satisfactory to Lender. On or before the 15th day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding month, specifying the names, addresses, face value, dates
of invoices and due dates for each Account Debtor obligated on an Account so
listed ("Schedule of Accounts"), and, upon Lender's request therefor, copies of
proof of delivery and a copy of all documents, including repayment histories and
present status reports relating to the Accounts so scheduled and such other
matters and information relating to the status of then existing Accounts as
Lender shall reasonably request. At the request of Lender made at any time,
Borrower shall deliver to Lender copies of invoices or invoice registers related
to all of its Accounts.
7.2.2. Discounts, Disputes and Returns. If Borrower grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances or
credits, as the case may be to Lender as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $10,000 are in dispute
between Borrower and any Account Debtor, or if any returns are made in excess of
$10,000 with respect to any Accounts owing from an Account Debtor, Borrower
shall provide Lender with written notice thereof at the time of submission of
the next Schedule of Accounts, explaining in detail the reason for the dispute
or return, all claims related thereto and the amount in controversy. Upon and
after the occurrence of an Event of Default, Lender shall have the right to
settle or adjust all disputes and claims directly with the Account Debtor and to
compromise the amount or extend the time for payment of any Accounts comprising
a part of the Collateral upon such terms and conditions as Lender may deem
advisable, and to charge the deficiencies, costs and expenses thereof, including
attorneys' fees, to Borrower.
7.2.3. Taxes. If an Account of Borrower includes a charge for
any Taxes payable to any governmental taxing authority, Lender is authorized, in
its sole discretion, to pay the amount thereof to the proper taxing authority
for the account of Borrower and to charge Borrower therefor; provided, however,
that Lender shall not be liable for any Taxes that may be due by Borrower.
13
7.2.4. Account Verification. Whether or not a Default or an
Event of Default exists, Lender shall have the right at any time, in the name of
Lender, any designee of Lender or Borrower to verify the validity, amount or any
other matter relating to any Accounts of Borrower by mail, telephone, telegraph
or otherwise. Borrower shall cooperate fully with Lender in an effort to
facilitate and promptly conclude any such verification process.
7.2.5. Collection of Accounts and Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of Borrower's Accounts for Lender. All Payment Items received by
Borrower in respect of its Accounts, together with the proceeds of any other
Collateral, shall be held by Borrower as trustee of an express trust for
Lender's benefit and Borrower shall immediately deposit same in kind in the
Dominion Account. Lender retains the right at all times after the occurrence of
a Default or an Event of Default to notify Account Debtors of Borrower that
Accounts have been assigned to Lender and to collect Accounts directly in its
own name and to charge to Borrower the collection costs and expenses, incurred
by Lender, including reasonable attorneys' fees.
7.3. Administration of Equipment.
7.3.1. Records and Schedules of Equipment. Borrower shall keep
accurate records itemizing and describing the kind, type, quality, quantity and
cost of its Equipment and all dispositions made in accordance with Section 7.3.2
hereof, and shall furnish Lender with a current schedule containing the
foregoing information on at least an annual basis and more often if requested by
Lender. Promptly after request therefor by Lender, Borrower shall deliver to
Lender any and all evidence of ownership, if any, of any of the Equipment.
7.3.2. Dispositions of Equipment. Borrower will not sell,
lease or otherwise dispose of or transfer any of the Equipment or any part
thereof without the prior written consent of Lender; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive 12-month period, has a fair market value or book value,
whichever is more, of $10,000 or less, provided that all Net Proceeds thereof
are remitted to Lender for application to the Obligations in such order of
application as Lender shall elect, or (ii) replacements of Equipment that is
substantially worn, damaged or obsolete with Equipment of like kind, function
and value, provided that the replacement Equipment shall be acquired prior to or
concurrently with any disposition of the Equipment that is to be replaced, the
replacement Equipment shall be free and clear of Liens other than Permitted
Liens that are not Purchase Money Liens, and Borrower shall have given Lender at
least 10 days prior written notice of such disposition. Nothing herein shall be
construed to authorize Borrower to sell any Equipment subject to a lease between
Lender and Borrower without Lender's prior written consent.
14
7.3.3. Condition of Equipment. The Equipment is in good
operating condition and repair, and all necessary replacements of and repairs
thereto shall be made so that the value and operating efficiency of the
Equipment shall be maintained and preserved, reasonable wear and tear excepted.
Borrower will not permit any of the Equipment to become affixed to any real
Property leased to Borrower so that an interest arises therein under the real
estate laws of the applicable jurisdiction unless the landlord of such real
Property has executed a landlord waiver or leasehold mortgage in favor of and in
form acceptable to Lender, and Borrower will not permit any of the Equipment to
become an accession to any personal Property that is subject to a Lien unless
the Lien is a Permitted Lien.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Lender to enter
into this Agreement and to establish the Facility, Borrower warrants and
represents to Lender that:
8.1.1. Organization and Qualification. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization, has the power to own Properties and to
transact the business in which it is presently engaged or proposed to be engaged
and is duly qualified and in good standing in each jurisdiction in which it
presently is, or proposes to be, engaged in business.
8.1.2. Power and Authority. The execution, delivery and
performance by Borrower of the Financing Documents are within Borrower's
corporate power, has been duly authorized by all necessary or proper corporate
action and, on the date of initial funding of Loans hereunder; are not in
contravention of any provision of its own Organizational Documents; will not
violate any Applicable Law; will not conflict with any Material Contract of
Borrower; and does not require the consent or approval of any Governmental
Authority or any other Person.
8.1.3. Enforceable Agreements. Each of the Financing Documents
has been duly executed and delivered by Borrower and constitutes a legal, valid
and binding obligation of Borrower, enforceable against each Borrower in
accordance with its terms.
8.1.4. Priority of Liens. The security interests granted
pursuant to the Financing Documents constitute valid, enforceable, perfected and
first priority Liens on the Collateral.
8.1.5. Places of Business. Borrower has no office or place of
business, nor does Borrower store any Collateral, at any location other than
those previously disclosed to the Lender.
8.1.6. Compliance With Laws. All of Borrower's business,
operations and Properties are conducted, maintained and owned in accordance with
Applicable Law, including all Environmental Laws, except to the extent that any
such noncompliance could not reasonably be expected to have a Material Adverse
Effect and except as heretofore described by Borrower in filings with the SEC.
15
8.1.7. Governmental Approvals. Borrower has obtained and holds
in full force and effect all Governmental Approvals necessary for the operation
of its business as presently and proposed to be constructed to the extent that
the failure to obtain same could not reasonably be expected to have a Material
Adverse Effect.
8.1.8. No Adverse Changes. Since the Effective Date, no event
has occurred that has or could reasonably be expected to have a Material Adverse
Effect.
8.1.9. Taxes. The FEIN of Borrower is _______________, and
Borrower has filed all federal, state and local tax returns and other reports
that it is required by Applicable Law to file and has paid, or made for
provision of the payment of, all Taxes upon it, its income and properties as and
when such Taxes are due and payable, except to the extent being Properly
Contested.
8.1.10. Brokers. There are no claims for brokerage
commissions, finders' fees or investment banking fees in connection with the
transactions contemplated by this Agreement or any of the other Financing
Documents.
8.1.11. No Default. No Default or Event of Default exists at
the time, or would result from the funding, of any Loan or other extension of
credit hereunder;
8.1.12. Accounts. Except as set forth on Schedule 8.1.12
hereto, with respect to each Account of Borrower, such Account is genuine and in
all respects what it purports to be and is not evidenced by a judgment; arises
out of a completed sale and delivery of goods or rendition of services by
Borrower in the Ordinary Course of Business and substantially in accordance with
the terms and conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between Borrower and the
Account Debtor; is for a sum certain maturing, as stated in the duplicate
invoice covering such sale, a copy of which is available to Lender upon request;
such Account is absolutely owing to such Borrower and is not contingent in any
respect or for any reason, and the Account is not subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other adverse condition, except
for disputes resulting in returned goods where the amount in controversy is
deemed by Lender to be immaterial; the contract under which such Account arose
does not condition or restrict Borrower's right to assign to Lender the right to
payment thereunder; Borrower has not made any agreement with any Account Debtor
thereunder for any extension, compromise, settlement or modification of any such
Account or any deduction therefrom, other than deductions, discounts and
allowances that are granted in the Ordinary Course of Business for prompt
payment and are reflected in the calculation of the net amount of each
respective invoice related thereto and reflected in the Schedule of Accounts
submitted to Lender pursuant to this Agreement; and to the best of Borrower's
knowledge, there are no facts, events or occurrences that are reasonably likely
to impair the validity or enforceability of any such Accounts or reduce the
amount payable thereunder from the face amount of the invoice with respect
thereto.
16
8.1.13. Intellectual Property. Borrower and its Subsidiaries
each owns or has the lawful right to use all Intellectual Property necessary for
the present and planned future conduct of its business without any conflict with
the rights of others; there is no objection to, or pending (or, to Borrower's
knowledge, threatened) Intellectual Property Claim with respect to, Borrower's
or any Subsidiary's right to use any such Intellectual Property and Borrower is
not aware of any grounds for challenge or objection thereto; and neither
Borrower nor any Subsidiary pays any royalty or other compensation to any Person
for the right to use any Intellectual Property. All such Intellectual Property
and other similar rights have been previously described to the Lender, to the
extent they are registered under any Applicable Law or are otherwise material to
Borrower's or any Subsidiary's business.
8.1.14. Burdensome Contracts. Neither Borrower nor any of the
Subsidiaries is a party or subject to any contract, agreement, or charter or
other corporate restriction, which has or could be reasonably expected to have a
Material Adverse Effect. Neither Borrower nor any of the Subsidiaries is a party
or subject to any Restrictive Agreements.
8.1.15. ERISA. Neither Borrower nor any of the Subsidiaries
has any Plan on the date hereof. Borrower and each of its Subsidiaries is in
full compliance with the requirements of ERISA and the regulations promulgated
thereunder with respect to each Plan. No fact or situation that is reasonably
likely to result in a material adverse change in the financial condition of
Borrower or any of the Subsidiaries exists in connection with any Plan. Neither
Borrower nor any of its Subsidiaries has any withdrawal liability in connection
with a Multiemployer Plan.
8.1.16. Labor Matters. Neither Borrower nor any of the
Subsidiaries is a party to any collective bargaining agreement on the date
hereof. On the date hereof, there are no material grievances, disputes or
controversies with any union or any other organization of Borrower's or any
Subsidiary's employees, or, to Borrower's knowledge, any threats of strikes,
work stoppages or any asserted pending demands for collective bargaining by any
union or organization.
8.1.17. Not a Regulated Entity. No Obligor is (i) an
"investment company" or a "person directly or indirectly controlled by or acting
on behalf of an investment company" within the meaning of the Investment Company
Act of 1940; (ii) a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935; or (iii) subject to regulation under the Federal Power Act, the
Interstate Commerce Act, any public utilities code or any other Applicable Law
regarding its authority to incur Debt.
8.1.18. Margin Stock. Neither Borrower nor any of the
Subsidiaries is engaged, principally or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying any
Margin Stock.
17
8.1.19. Customer and Trade Relations. Except as set forth on
Schedule 8.1.19 hereto, there exists no actual or threatened termination,
cancellation or limitation of, or any materially adverse modification or change
in, the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier or group of suppliers, and
there exists no condition or state of facts or circumstances which is reasonably
likely to have a Material Adverse Effect or prevent Borrower from conducting
such business after the consummation of the transactions contemplated by this
Agreement in substantially the same manner in which it conducted its business on
the Effective Date.
8.1.20. Budget. Borrower has furnished to Lender a copy of the
Budget. The Budget has been prepared by Borrower in light of the past operations
of the business of Borrower and its Subsidiaries and represents as of the
respective dates thereof the good faith opinion of Borrower and its senior
management concerning the likely course of business of Borrower and its
Subsidiaries.
8.2. Reaffirmation of Representations and Warranties. All of the
foregoing representations and warranties made by Borrower in this Agreement or
in any of the other Financing Documents shall survive the execution and delivery
of this Agreement and such other Financing Documents, and shall be deemed to
have been remade and reaffirmed on each day that any Obligations are outstanding
or that Borrower requests or is deemed to have requested the funding of a Loan
under the Facility, except for changes that may occur after the date hereof in
the Ordinary Course of Business as long as Lender has consented to such changes
or such changes are not violative of any provision of this Agreement.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants. During the Term and thereafter until Full
Payment of the Obligations, Borrower covenants that it shall and shall cause
each of its Subsidiaries to:
9.1.1. Business and Existence. Preserve and maintain its
separate corporate existence and all rights, privileges, and franchises in
connection therewith, and maintain its qualification and good standing in all
states in which such qualification is necessary to the ownership of its
Properties or the conduct of its businesses.
9.1.2. Business Records. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all of its financial transactions.
9.1.3. Visits and Inspections. Permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the Properties of Borrower,
inspect and make extracts from Borrower's books and records, and discuss with
Borrower's officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations.
9.1.4. Further Assurances. At Lender's request, promptly
execute or cause to be executed and deliver to Lender any and all documents,
instruments and agreements deemed necessary by Lender to give effect to or carry
out the terms or intent of this Agreement or any of the other Financing
Documents.
18
9.1.5. Financial Reporting. Cause to be prepared and to be
furnished to Lender the following (which, in the case of financial reporting,
shall be prepared in accordance with GAAP applied on a consistent basis, unless
Borrower's certified public accountants concur in any change therein, such
change is disclosed to Lender and is consistent with GAAP):
(i) as soon as available, and in any event within 90
days after the close of each Fiscal Year, consolidated balance sheets
of Guarantor as of the end of such Fiscal Year and related statements
of income, shareholders' equity and cash flow, and setting forth in
each case in comparative form the corresponding figures for the
preceding Fiscal Year;
(ii) as soon as available, and in any event within 45
days after the end of each calendar quarter hereafter (but within 90
days after the last calendar quarter in a Fiscal Year), reviewed
consolidated interim financial statements of Guarantor as of the end of
such quarter and the related reviewed consolidated statements of income
and cash flow for such quarter and for the portion of Guarantor's
Fiscal Year then elapsed, certified by the principal financial officer
of Guarantor as prepared in accordance with GAAP and fairly presenting
the consolidated financial position and consolidated results of
operations of Guarantor for such quarter and period subject only to
changes from audit and year-end adjustments and except that such
statements need not contain notes;
(iii) promptly after the filing thereof, copies of
any annual report to be filed in accordance with ERISA in connection
with each Plan;
(iv) such other data and information (financial or
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral or Borrower's financial
condition or results of operations; and
9.1.6. Notices. Notify Lender in writing, promptly after
Borrower's obtaining knowledge thereof, of the termination or breach of any
Material Contract; the occurrence of any Default or Event of Default; Borrower's
violation (or asserted violation) of any Applicable Law (including any
Environmental Law); any claim that Borrower may make under any policy of
insurance with respect to the Collateral; and any proposed sale of any of the
Collateral (including with such notice copies of drafts of all instruments and
agreements applicable to any such sale), which shall specify the identity of the
proposed purchaser, the terms of the proposed sale and the expected date of
closing.
9.1.7. Insurance. In addition to the insurance required herein
with respect to the Collateral, maintain with financially sound and reputable
insurers, insurance with respect to its Properties and business against such
casualties and contingencies of such type (including product liability, business
interruption, larceny, embezzlement or other criminal misappropriation
insurance) and in such amounts as is customary in the business of Borrower.
19
9.1.8. Compliance With Laws. Comply with all Applicable Law,
including ERISA, FLSA, OSHA, all Environmental Laws, the Bankruptcy Code and all
laws, statutes, regulations and ordinances regarding the collection, payment and
deposit of Taxes, and obtain and keep in force any and all Governmental
Approvals necessary to the ownership of its Properties or to the conduct of its
business, to the extent that any such failure to comply, obtain or keep in force
could be reasonably expected to have a Material Adverse Effect. Without limiting
the generality of the foregoing, if any Environmental Release shall occur at or
on any of the Properties of Borrower or any Subsidiary, Borrower shall, or shall
cause the applicable Subsidiary to, act immediately to investigate and report to
Lender and all appropriate Governmental Authorities the extent of, and to make
appropriate remedial action to eliminate, such Environmental Release, whether or
not ordered or otherwise directed to do so by any Governmental Authority.
9.1.9. Taxes. Pay and discharge all Taxes (other than Taxes
that accrued or arose prior to the Petition and that are not secured by a Lien
senior to the Liens in favor of Lender) prior to the date on which such Taxes
become delinquent or penalties attach thereto, except and to the extent only
that such Taxes are being Properly Contested.
9.1.10. Turn Over of Collateral Proceeds. Promptly turn over
to Lender all proceeds received from any sale or other disposition of any
Collateral (such proceeds to be applied to the Obligations). After Full Payment
of all of the Obligations that are not Contingent Obligations, Lender shall be
authorized to retain and apply any remaining proceeds for the purposes set forth
in Section 5.2.2.
9.2 Negative Covenants. During the Term and thereafter until
Full Payment of the Obligations, Borrower covenants that it shall not and
shall not permit any Subsidiary to:
9.2.1. Fundamental Changes. Merge, reorganize, consolidate or
amalgamate with any Person, or liquidate, wind up its affairs or dissolve
itself, except for mergers or consolidations of any Subsidiary with another
Subsidiary; change Borrower's name or conduct business under any new fictitious
name; or change Borrower's FEIN.
9.2.2. Loans. Make any loans or other advances of money (other
than for salary, travel advances, advances against commissions and other similar
advances in the Ordinary Course of Business) to any Person.
20
9.2.3. Limitation on Liens. Create or suffer to exist any Lien
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except: (i) Liens at any time granted in favor of Lender and other
Liens in existence on the Effective Date; (ii) post-Effective Date Liens for
Taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA)
not yet due or being Properly Contested; (iii) post-Effective Date statutory
Liens (excluding Liens imposed pursuant to any of the provisions of ERISA)
securing the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons for labor, materials, supplies or
rentals incurred in the Ordinary Course of Business, but only if the payment
thereof is not at the time required or the Debt secured by such Lien is being
Properly Contested; (iv) post-Effective Date Liens resulting from deposits made
in the Ordinary Course of Business in connection with workmen's compensation,
unemployment insurance, social security and other like laws; (v) reservations,
exceptions, easements, rights-of-way, and other similar encumbrances affecting
real Property of Borrower that were in existence on the Effective Date; (vi)
Purchase Money Liens securing Permitted Purchase Money Debt; and (vii) such
other Liens as Lender may consent to in writing from time to time, in its sole
and absolute discretion.
9.2.4. Disposition of Assets. Sell, lease or otherwise dispose
of any of the Collateral, including any disposition of the Collateral as part of
a sale and leaseback transaction, to or in favor of any Person, except (i) sales
of Inventory in the Ordinary Course of Business for so long as no Event of
Default exists hereunder, (ii) dispositions of Equipment as authorized by
Section 7.3 hereof, (iii) dispositions of Property that is not Collateral or
that is consented to in writing by Lender, (iv) dispositions in connection with
which Full Payment is made of all of the Obligations (and all Contingent
Obligations of Borrower as provided for in Section 5.2.2 hereof), and (v) other
sales, leases or dispositions that are consented to by Lender.
9.2.5. Compromise of Accounts. Compromise or settle, or extend
the time of payment of, any Account without Lender's prior written consent.
9.2.6. Payment of Claims. Other than any Claims assumed by the
Borrower, with the prior written consent of the Lender, make any payment of
principal or interest on account of any Claim against Borrower that arose prior
to the Effective Date, other than Claims for property taxes assessed against any
of the Collateral and Claims that may be paid from the proceeds of Loans
pursuant to Section 1.1.2.
9.2.7. Restricted Investments. Make or have any Restricted
Investment.
9.2.8. Distributions. Make any Distribution.
9.2.9. Permitted Debt. Incur or suffer to exist any Debt other
than Claims in existence on the Effective Date; the Obligations; Capitalized
Lease Obligations and Permitted Purchase Money Debt to the extent expenditures
in connection therewith are not in violation of Section 9.3 hereof; Debt (other
than Debt for Money Borrowed, Capitalized Lease Obligations and Permitted
Purchase Money Debt) incurred in the Ordinary Course of Business of Borrower, so
long as such Debts are not past due and payable and are not secured by any Lien
that is not a Permitted Lien; and Permitted Contingent Obligations.
9.2.10. Conduct of Business. Engage in any business other than
the business engaged in by it on the Effective Date and any business or
activities that are substantially similar, related or incidental thereto.
9.2.11. Use of Proceeds. Use any proceeds of Loans for a
purpose that is not expressly permitted by Section 1.1.2.
21
9.2.12. Tax Consolidation. File or consent to the filing of
any consolidated income tax return with any Person other than a Subsidiary.
9.2.13. Accounting Changes. Make any significant change in
accounting treatment or reporting practices, except as may be required by GAAP,
or establish a fiscal year different from the Fiscal Year.
9.2.14. Organization Documents. Amend, modify or otherwise
change any of the terms or provisions in any of its Organization Documents as in
effect on the date hereof, except for changes that do not affect in any way
Borrower's or such Subsidiary's rights and obligations to enter into and perform
the Financing Documents to which it is a party and to pay all of the Obligations
and that do not otherwise have a Material Adverse Effect.
9.2.15. Restrictive Agreements. Enter into or become party to
any Restrictive Agreement.
9.3 Financial Covenants. During the Term and thereafter until Full
Payment of the Obligations, Borrower covenants that, unless otherwise consented
to by Lender in writing, it shall not make or commit or agree to make, or permit
any of its Subsidiaries to make or commit or agree to make, any Capital
Expenditures in excess of $150,000.
SECTION 10. CONDITIONS PRECEDENT
10.1. Conditions Precedent to Initial Credit Extensions.
Notwithstanding any other provision of this Agreement or any of the other
Financing Documents, and without affecting in any manner the rights of Lender
under other sections of this Agreement, Lender shall not be required to fund any
Loan requested by Borrower, unless each of the following conditions has been and
continues thereafter to be satisfied:
10.1.1. All of the Financing Documents shall have been
executed in form and substance satisfactory to Lender by each of the signatories
thereto and accepted by Lender, and each Obligor shall be in compliance with all
of the terms thereof, and all representations and warranties contained therein
shall be true and correct in all material respects.
10.1.2. No Default or Event of Default shall exist at the time
of, and would not result from the funding of, any requested Loan, and no event
shall have occurred and no condition shall exist since the Effective Date that
has had or could reasonably be expected to have a Material Adverse Effect.
22
10.1.3. All fees and expenses required to be paid by Borrower
hereunder on the Closing Date shall have been paid in full.
10.1.4. Lender shall have received satisfactory proof of
insurance by Borrower, in accordance with the terms of this Agreement, together
with loss payable endorsements on Lender's standard form of loss payable
endorsement, naming Lender as loss payee with respect to each policy and
certified copies of Borrower's liability insurance policies, together with
endorsements naming Lender as an additional insured.
10.1.5. Lender shall have received, reviewed and found
satisfactory a copy of the Budget.
10.2. Conditions Precedent to All Credit Extensions. Notwithstanding
any other provision of this Agreement or any of the other Financing Documents,
and without affecting in any manner the rights of Lender under other sections of
this Agreement, Lender shall not be required to fund any Loans, unless and until
each of the following conditions has been and continues to be satisfied:
10.2.1. No Default or Event of Default exists at the time, or
would result from the funding, of any Loan or other extension of credit.
10.2.2. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court
or Governmental Authority to enjoin, restrain or prohibit, or to obtain damages
in respect of, or which is related to or arises out of, any of the Financing
Documents or the consummation of any of the transactions contemplated thereby.
10.2.3. No event shall have occurred and no condition shall
exist that could reasonably be expected to have a Material Adverse Effect.
10.3. Limited Waiver of Conditions Precedent. If Lender shall make any
Loan or otherwise extend any credit to Borrower under this Agreement at a time
when any of the foregoing conditions precedent are not satisfied (regardless of
whether the failure of satisfaction of any of such conditions precedent is known
or unknown to Lender), the funding of such Loans shall not operate as a waiver
of the right of Lender to insist upon the satisfaction of all conditions
precedent with respect to each subsequent Borrowing requested by Borrower or a
waiver of any Default or Event of Default as a consequence of the failure of any
such conditions to be satisfied.
23
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. Events of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
11.1.1. Payment of Obligations. Borrower shall fail to pay (a)
the principal of or accrued interest with respect to any Loan Outstanding on the
due date thereof (whether due at stated maturity, on demand, upon acceleration
or otherwise) or (b) any of the other Obligations on the due date thereof
(whether due at stated maturity, on demand, upon acceleration or otherwise).
11.1.2. Misrepresentations. Any warranty, representation, or
other statement made or furnished to Lender by or on behalf of Borrower or
Guarantor or in any instrument, certificate or financial statement furnished in
compliance with or in reference to this Agreement or any of the Financing
Documents proves to have been false or misleading in any material respect when
made or furnished.
11.1.3. Breach of Specific Covenants. Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 1.1.2,
6.4, 7.1.1, 7.1.2, 7.2, 7.3.2., 9.1.1, 9.1.3, 9.1.4, 9.1.5, 9.1.6, 9.1.7, 9.1.8,
9.1.9, 9.1.10, 9.2 or 9.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
11.1.4. Breach of Other Covenants. Borrower or Guarantor shall
fail or neglect to perform, keep or observe any covenant contained in this
Agreement (other than a covenant which is dealt with specifically elsewhere in
this Section 11.1) or the Guarantee and the breach of such other covenant is not
cured to Lender's satisfaction within 10 days after the sooner to occur of any
Senior Officer's receipt of notice of such breach from Lender or the date on
which such failure or neglect first becomes known to any Senior Officer;
provided, however, that such notice and opportunity to cure shall not apply in
the case of any failure to perform, keep or observe any covenant which is not
capable of being cured at all or within such 10-day period or which is a willful
and knowing breach by Borrower or Guarantor or which was the subject of a breach
during the prior 60-day period.
11.1.5. Default Under Other Financing Documents. Any event of
default shall occur under, or Borrower or Guarantor shall default in the
performance or observance of any term, covenant, condition or agreement
contained in, any of the other Financing Documents and such default shall
continue beyond any applicable period of grace.
11.1.6. Cross-Defaults. There shall occur any default or event
of default on the part of Borrower or Guarantor under any agreement, document or
instrument, which is entered into after the Effective Date and which relates to
any Debt for Money Borrowed, if, as a consequence of such default or event of
default, the holder of such Debt shall be authorized to accelerate the maturity
or demand payment thereof.
24
11.1.7. Uninsured Losses; Unauthorized Dispositions. There
shall occur any material loss, theft, damage or destruction not fully covered by
insurance (as required by this Agreement and subject to such deductibles as
Lender shall have agreed to in writing), or any sale, lease or encumbrance of
any of the Collateral or the making of any levy, seizure, or attachment thereof
or thereon, except as may be specifically permitted by other provisions of this
Agreement.
11.8. Change of Control. Any of the following shall have
occurred: (i) any Person or group of Persons shall acquire for the first time
direct or indirect ownership or the power to vote more than 50% of the issued
and outstanding capital stock of Borrower or Guarantor; (ii) a change in the
composition of the board of directors of Borrower or Guarantor, the result of
which is fewer than a majority of the directors are directors of the Borrower or
Guarantor as of the date hereof; or (iii) a change in the management of the
Borrower or Guarantor, the result of which is the principal executive officers
of the Borrower or Guarantor as of the date hereof resign or are otherwise
removed from such positions.
11.9. Judgments. One or more judgments or orders for the
payment of money in an amount that exceeds, individually or in the aggregate,
$25,000 shall be rendered against Borrower or Guarantor and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there should be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
11.10. Failure of Financing Documents. Any covenant, agreement
or obligation of Borrower or Guarantor contained in or evidenced by any of the
Financing Documents shall cease to be enforceable or shall be determined to be
unenforceable in accordance with its terms; Borrower or Guarantor shall deny or
disaffirm its obligations under any of the Financing Documents or Liens granted
in connection therewith; or the Liens granted in any of the Collateral shall be
determined to be voidable, invalid or subordinated or shall be determined, with
respect to any material part of the Collateral, to be unperfected or not to have
the priority contemplated by this Agreement.
11.11. Material Adverse Effect. Any event shall occur or any
condition shall exist that could reasonably be expected to have a Material
Adverse Effect.
11.12. Criminal Forfeiture. Any Obligor shall be convicted
under any criminal law that could lead to a forfeiture of any Property of such
Obligor.
11.13. Event of Bankruptcy. In addition, the Borrower
covenants and agrees that in the event the Borrower or Guarantor shall: (i) file
any petition with any Bankruptcy Court or be the subject of any petition under
the Bankruptcy Code; (ii) file or be the subject of any petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future federal or state act
or law relating to bankruptcy, insolvency or other relief for the Borrower or
Guarantor; (iii) have sought or consented to or acquiesce in the appointment of
25
any Trustee, Receiver, Conservator or Liquidator; or, (iv) be the subject of any
order, judgment or decree entered by any court of competent jurisdiction
approving a petition filed against such party for any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future federal or state act or law relating to
bankruptcy, insolvency or relief for the Borrower or Guarantor, the Lender shall
thereupon be entitled, and the Borrower irrevocably consents, to the entry of an
order by a bankruptcy court granting to the Lender, relief from any automatic
stay imposed by Section 362 of the Bankruptcy Code, or otherwise, on or against
the exercise of the rights and remedies otherwise available to the Lender the
Financing Documents or as otherwise provided by law or in equity, and the
Borrower or Guarantor irrevocably waives its right to object to, attempt to
enjoin or otherwise interfere with such relief and the exercise and enforcement
by the Lender of its rights and remedies following entry of such order. Without
limiting the generality of the immediately preceding sentence, the Borrower
agrees that the Lender will be entitled to immediate relief from the automatic
stay imposed by the Bankruptcy Code to allow the Lender to take any and all
actions necessary, desirable or appropriate to enforce any rights the Lender may
have under the Financing Documents, including but not limited to, the right to
possession of the Collateral, the right to prohibit the use of proceeds from the
sale of Collateral and/or the commencement or continuation of an action to
foreclose liens granted hereunder. The Borrower further agrees that the filing
of any petition for relief under the Bankruptcy Code which postpones, prevents,
delays or otherwise hinders the Lender's efforts to collect the amounts due
under the Financing Documents or to liquidate any of the Collateral shall be
deemed to have been filed in bad faith and, therefore, shall be subject to
prompt dismissal or conversion to a liquidation case under the Bankruptcy Code
upon motion therefore by the Lender. Further, the Borrower agrees it will not
seek, apply for or cause the entry of any order enjoining, staying or otherwise
prohibiting or interfering with the Lender's obtaining an order granting relief
from the automatic stay and enforcement of any rights which the Lender may have
under the Financing Documents, including but not limited to, the Lender's right
to possession of the Collateral.
11.2 Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with this Agreement, upon or at any time after the
occurrence of an Event of Default as above provided, Lender may, in its
discretion (i) declare the principal of and any accrued interest on the Loans
and all other Obligations owing under any of the Financing Documents to be,
whereupon the same shall become, without further notice or demand (all of which
notice and demand Borrower expressly waives), forthwith due and payable and
Borrower shall forthwith pay to Lender the entire principal of and accrued and
unpaid interest on the Loans and other Obligations plus reasonable attorneys'
fees and expenses if such principal and interest are collected by or through an
attorney-at-law; and (ii) terminate the Facility.
11.3 Remedies. Upon or at any time after the occurrence of an Event of
Default, Lender may, in its discretion, exercise from time to time all rights
and remedies available to Lender including, without limitation, the following
rights and remedies to enforce collection of the Obligations:
26
11.3.1. All of the rights and remedies of a secured party
under the UCC or under other Applicable Law, and all other legal and equitable
rights to which Lender may be entitled under any of the Financing Documents, all
of which rights and remedies shall be cumulative and shall be in addition to any
other rights and remedies contained in this Agreement or any of the other
Financing Documents, and none of which shall be exclusive.
11.3.2. The right to collect Accounts, Chattel Paper,
Instruments and General Intangibles and all other rights of Borrower to the
payment of money from any Person obligated therefor.
11.3.3. The right to take immediate possession of all tangible
items of the Collateral and (i) to require Borrower to assemble such Collateral,
at Borrower's expense, and make it available to Lender at a place designated by
Lender that is reasonably convenient to both parties and (ii) to enter any of
the premises of Borrower or wherever any of the Collateral shall be located, and
to keep and store the same on said premises until sold (and if said premises be
the Property of Borrower, Borrower agrees not to charge Lender for storage
thereof).
11.3.4. The right to sell or otherwise dispose of all or any
Inventory in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of such
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with Applicable Law;
Lender may sell, lease or otherwise dispose of such Collateral, or any part
thereof, for cash, credit or any combination thereof, and Lender may purchase
all or any part of such Collateral at public or, if permitted by Applicable Law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against the Obligations.
Lender is hereby irrevocably granted a license or other right to use throughout
the world, without royalty, fee or other charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, tradenames, trademarks and
advertising matter, or any Property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit. Any proceeds realized from the sale or other disposition of any
Collateral may be applied to the Obligations, after allowing 2 Business Days for
collection, to principal, interest, fees and expenses (including Extraordinary
Expenses) in such order and manner as Lender, in its sole discretion, may
determine.
11.4. Setoff. In addition to any Liens granted under any of the
Financing Documents and any rights now or hereafter available under Applicable
Law, Lender (and each of its Affiliates) is hereby authorized by Borrower at any
time that an Event of Default exists, without notice to Borrower or any other
Person (any such notice being hereby expressly waived) to set off and to
appropriate and to apply any and all deposits, general or special (including
Debt evidenced by certificates of deposit whether matured or unmatured (but not
27
including trust accounts)) and any other Debt at any time held or owing by
Lender or any of its Affiliates to or for the credit or the account of Borrower
against and on account of the Obligations of Borrower arising under the
Financing Documents to Lender or any of its Affiliates, including all Loans
Outstanding and all claims of any nature or description arising out of or in
connection with this Agreement, irrespective of whether or not (i) Lender shall
have made any demand hereunder, (ii) Lender shall have declared the principal of
and interest on the Loans and other amounts due hereunder to be due and payable
as permitted by this Agreement and even though such Obligations may be
contingent or unmatured or (iii) the Collateral for the Obligations is adequate.
11.5 Remedies Cumulative; No Waiver.
11.5.1. All covenants, conditions, provisions, warranties,
guaranties, indemnities, and other undertakings of Borrower contained in this
Agreement and the other Financing Documents, or in any document referred to
herein or contained in any agreement supplementary hereto or in any schedule or
in any Guaranty given to Lender or contained in any other agreement between
Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall
be deemed cumulative to and not in derogation or substitution of any of the
terms, covenants, conditions, or agreements of Borrower herein contained. The
rights and remedies of Lender under this Agreement and the other Loan Documents
shall be cumulative and not exclusive of any rights or remedies that Lender
would otherwise have.
11.5.2. The failure or delay of Lender to require strict
performance by Borrower or Guarantor of any provision of any of the Financing
Documents or to exercise or enforce any rights, Liens, powers or remedies under
any of the Financing Documents or with respect to any Collateral shall not
operate as a waiver of such performance, Liens, rights, powers and remedies, but
all such requirements, Liens, rights, powers, and remedies shall continue in
full force and effect until all Loans and all other Obligations owing or to
become owing from Borrower to Lender shall have been fully satisfied. None of
the undertakings, agreements, warranties, covenants and representations of
Borrower contained in this Agreement or any of the other Loan Documents and no
Event of Default by Borrower under this Agreement or any other Financing
Documents shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Lender
and directed to Borrower.
11.5.3. If Lender shall accept performance by Borrower, in
whole or in part, of any obligation that Borrower is required by any of the
Financing Documents to perform only when a Default or Event of Default exists,
or if Lender shall exercise any right or remedy under any of the Financing
Documents that may not be exercised other than when a Default or Event of
Default exists, Lender's acceptance of such performance by Borrower or Lender's
exercise of any such right or remedy shall not operate to waive any such Event
of Default or to preclude the exercise by Lender of any other right or remedy,
unless otherwise expressly agreed in writing by Lender, as the case may be.
28
SECTION 12. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
12.1. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns, except that Borrower shall not have the right to assign its rights or
delegate performance of any of its obligations under any of the Financing
Documents. Borrower hereby consents to Lender's participation, sale, assignment,
transfer or other disposition, at any time or times hereafter, of all of any
part of the Obligations, this Agreement and any of the other Financing
Documents, or of any portion hereof or thereof, including Lender's rights,
title, interests, remedies, powers, and duties hereunder or thereunder. In the
case of an assignment, the assignee shall have, to the extent of such
assignment, the same rights, benefits and obligations as it would if it were
"Lender" hereunder, and Lender shall be relieved of all obligations hereunder
upon any such assignment. Borrower further agrees that Lender may disclose
credit information regarding Borrower to any potential participant or assignee.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Lender may, in the
ordinary course of its business and in accordance with Applicable Law, at any
time sell to one or more banks or other financial institutions (each a
"Participant") a participating interest in any of the Obligations owing to
Lender or any other interest of Lender under any of the Financing Documents. In
the event of any such sale by Lender of participating interests to a
Participant, Lender's obligations under the Loan Documents shall remain
unchanged, Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations, Lender shall remain the holder of any
Note for all purposes under the Financing Documents, all amounts payable by
Borrower under this Agreement and any of the Notes shall be determined as if
Lender had not sold such participating interests, and Borrower shall continue to
deal solely and directly with Lender in connection with Lender's rights and
obligations under the Financing Documents. If Lender sells a participation to a
Person other than an Affiliate of Lender, then Lender shall give prompt written
notice thereof to Borrower.
12.2.2. Voting Rights. Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Financing Documents other than in the case of any
Participant, an amendment, modification or waiver with respect to any Loans in
which such Participant has an interest which forgives principal, interest or
fees or reduces the stated interest rate or the stated rates at which fees are
payable with respect to any such Loan, postpones the Commitment Termination
Date, or any date fixed for any regularly scheduled payment of interest or fees
on such Loan, or releases from liability Borrower or releases any substantial
portion of any of the Collateral.
12.2.3. Benefit of Set-Off. Borrower agrees that each
Participant shall be deemed to have the right of set-off provided in Section
11.4 hereof in respect of its participating interest in amounts owing under the
Financing Documents to the same extent and subject to the same requirements
under this Agreement as if the amount of its participating interest were owing
directly to it as a Lender under the Financing Documents, provided that Lender
shall retain the right of set-off provided in Section 11.4 hereof with respect
to the amount of participating interests sold to each Participant. Lender agrees
to share with each Participant, and each Participant by exercising the right of
set-off provided in Section 11.4 agrees to share with Lender, any amount
received pursuant to the exercise of its right of set-off.
29
12.2.4. Notices. Lender shall be solely responsible for
notifying its Participants of any matters relating to the Financing Documents to
the extent that any such notice may be required.
SECTION 13. MISCELLANEOUS
13.1. Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
designee, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
13.1.1. At such time or times as Lender or said designee, in
its sole discretion, may determine, endorse Borrower's name on any Payment Item
or proceeds of the Collateral which come into the possession of Lender or under
Lender's control.
13.1.2. At any time that an Event of Default exists: (i)
demand payment of the Accounts from the Account Debtors, enforce payment of the
Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of Lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
account of the Obligations; (viii) endorse the name of Borrower upon any Chattel
Paper, Document, Instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to any Accounts or Inventory of any Obligor and
any other Collateral; (ix) use Borrower's stationery and sign the name of
Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts, Inventory
and any other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement.
30
13.2. General Indemnity. Borrower hereby agrees to indemnify and defend
the Lender Indemnitees and to hold the Lender Indemnitees harmless from and
against any Claim ever suffered or incurred by any of the Lender Indemnitees
arising out of or related to this Agreement or any of the other Financing
Documents, the performance by Lender of its duties or the exercise of any of its
rights or remedies hereunder, or the result of Borrower's failure to observe,
perform or discharge any of Borrower's duties hereunder. Borrower shall also
indemnify and defend the Lender Indemnitees against and save the Lender
Indemnitees harmless from all Claims of any Person arising out of, related to,
or with respect to any transactions entered into pursuant to this Agreement or
Lender's Lien upon the Collateral. Without limiting the generality of the
foregoing, these indemnities shall extend to any Claims asserted against any of
the Lender Indemnitees by any Person under any Environmental Laws or similar
laws by reason of Borrower's or any other Person's failure to comply with laws
applicable to solid or hazardous waste materials or other toxic substances.
Additionally, if any Taxes (excluding Taxes imposed upon or measured solely by
the net income of Lender, but including, any intangibles tax, stamp tax,
recording tax or franchise tax) shall be payable by Lender or any Obligor on
account of the execution or delivery of this Agreement, or the execution,
delivery, issuance or recording of any of the other Financing Documents, or the
creation or repayment of any of the Obligations hereunder, by reason of any
Applicable Law now or hereafter in effect, Borrower shall pay (or will promptly
reimburse Lender for the payment of) all such Taxes, including any interest and
penalties thereon, and will indemnify and hold Lender Indemnitees harmless from
and against liability in connection therewith. The foregoing indemnities shall
not apply to protect any of the Lender Indemnitees for the consequences of their
own gross negligence or willful misconduct.
13.3. Survival of All Indemnities. Notwithstanding anything to the
contrary in this Agreement or any of the other Financing Documents, the
obligations of Borrower and Lender with respect to each indemnity given by it in
this Agreement, whether given by Borrower to Lender Indemnitees, shall survive
the Full Payment of the Obligations and the termination of the Facility.
13.4. Indulgences Not Waivers. Lender's failure at any time or times
hereafter, to require strict performance by Borrower of any provision of this
Agreement shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith.
13.5. Modification of Agreement. This Agreement may not be modified,
altered or amended, except by an agreement in writing signed by Borrower and
Lender.
13.6. Severability. Wherever 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 shall be prohibited by or
invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
31
13.7. Cumulative Effect; Conflict of Terms. To the fullest extent
permitted by Applicable Law, the provisions of the Other Agreements and the
Security Documents are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in any of the other Financing Documents
by specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Financing Documents, the
provision contained in this Agreement shall govern and control.
13.8. Execution in Counterparts. This Agreement and any amendments
hereto may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
13.9. Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement or any of the other Financing Documents as a
condition to any action, inaction, condition or event, Lender shall be
authorized to give or withhold its consent in its sole and absolute discretion
and to condition its consent upon the giving of additional collateral security
for the Obligations, the payment of money or any other matter.
13.10. Notices. All notices, requests and demands to or upon a party
hereto shall be in writing and shall be sent by certified or registered mail,
return receipt requested, personal delivery against receipt or by telecopier or
other facsimile transmission and shall be deemed to have been validly served,
given or delivered when delivered against receipt or 3 Business Days after
deposit in the U.S. mail, certified mail postage prepaid, or, in the case of
facsimile transmission, when received (if on a Business Day and, if not received
on a Business Day, then on the next Business Day after receipt) at the office
where the noticed party's telecopier is located, in each case addressed to the
noticed party at the address shown for such party on the signature page hereof.
Notwithstanding the foregoing, no notice to or upon Lender pursuant to Sections
3.1 or 5.2.2 shall be effective until after actually received by the individual
to whose attention at Lender such notice is required to be sent. Any written
notice or demand that is not sent in conformity with the provisions hereof shall
nevertheless be effective on the date that such notice is actually received by
the noticed party.
13.11. Performance of Borrower's Obligations. If Borrower shall fail to
discharge any covenant, duty or obligation hereunder or under any of the other
Financing Documents, Lender may, in its sole discretion at any time or from time
to time, for Borrower's account and at Borrower's expense, pay any amount or do
any act required of Borrower hereunder or under any of the Financing Documents
or otherwise lawfully requested by Lender to enforce any of the Financing
Documents or Obligations, preserve, protect, insure or maintain any of the
Collateral, or preserve, defend, protect or maintain the validity or priority of
Lender's Liens in any of the Collateral, including the payment of any judgment
against Borrower, any insurance premium, any warehouse charge, any finishing or
processing charge, any landlord claim, any other Lien upon or with respect to
any of the Collateral. All payments that Lender may make under this Section and
all out-of-pocket costs and expenses (including Extraordinary Expenses) that
Lender pays or incurs in connection with any action taken by it hereunder shall
be reimbursed to Lender by Borrower on demand with interest from the date such
payment is made or such costs or expenses are incurred to the date of payment
thereof at the Default Rate. Any payment made or other action taken by Lender
under this Section shall be without prejudice to any right to assert, and
without waiver of, an Event of Default hereunder and to proceed thereafter as
provided herein or in any of the other Loan Documents.
32
13.12. Time of Essence. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
13.13. Entire Agreement; Appendix A and Exhibits. This Agreement and
the other Financing Documents, together with all other instruments, agreements
and certificates executed by the parties in connection therewith or with
reference thereto, embody the entire understanding and agreement between the
parties hereto and thereto with respect to the subject matter hereof and thereof
and supersede all prior agreements, understandings and inducements, whether
express or implied, oral or written. Appendix A and each of the Exhibits
attached hereto are incorporated into this Agreement and by this reference made
a part hereof.
13.14. Interpretation. No provision of this Agreement or any of the
other Financing Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having, or being deemed to have, structured,
drafted or dictated such provision.
13.15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
13.16. Waivers by Borrower. To the fullest extent permitted by
Applicable Law, Borrower waives (i) the right to trial by jury (which Lender
hereby also waives) in any action, suit, proceeding or counterclaim of any kind
arising out of or related to any of the Financing Documents, the Obligations or
the Collateral; (ii) presentment, demand and protest and notice of presentment,
protest, default, non payment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (iii) notice prior to taking possession
or control of the Collateral or any bond or security which might be required by
any court prior to allowing Lender to exercise any of Lender's remedies; (iv)
the benefit of all valuation, appraisement and exemption laws; and (v) notice of
acceptance hereof. Borrower acknowledges that the foregoing waivers are a
material inducement to Lender's entering into this Agreement and that Lender is
relying upon the foregoing waivers in its future dealings with Borrower.
Borrower warrants and represents that it has reviewed the foregoing waivers with
its legal counsel and has knowingly and voluntarily waived its jury trial rights
following consultation with legal counsel. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court in which
such litigation is brought.
[SIGNATURES ON FOLLOWING PAGE]
33
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.
BORROWER:
HEALTHCARE QUALITY SOLUTIONS, INC.
By:
----------------------------
B.M. Milvain, President
405 North Reo Street, Suite 300
Tampa, Florida 33609
Telephone No.: (813) 282-3303
Telecopier No.: (813) 282-8907
LENDER:
STANFORD VENTURE CAPITAL
HOLDINGS, INC.
By:
----------------------------
James M. Davis, President
6075 Poplar Avenue
Suite 202
Memphis, Tennessee
Attention: James M. Davis
Telecopier No.: (901) 680-5265
34
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated July 6, 2004 (as at
any time amended, the "Agreement"), by and between HEALTHCARE QUALITY SOLUTIONS,
INC., a Florida corporation (collectively, the "Borrower"), and STANFORD VENTURE
CAPITAL HOLDINGS, INC., a Delaware corporation, (together with its successors
and assigns, the "Lender"), the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
Account - shall have the meaning ascribed to "account" in the
UCC and shall include a right to payment for goods sold or leased or
for services rendered that is not evidenced by an Instrument or Chattel
Paper, whether or not any such right to payment has been earned by
performance.
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, another Person; (ii)
which beneficially owns or holds 10% or more of any class of the Equity
Interests of another Person; or (iii) 10% or more of the Equity
Interests of which is beneficially owned or held by another Person or a
Subsidiary of another Person.
Agreement - the Loan and Security Agreement referred to in the
first sentence of this Appendix A, all Exhibits thereto and this
Appendix A.
Applicable Law - all laws, rules and regulations applicable to
the Person, conduct, transaction, covenant or Financing Documents in
question, including all applicable common law and equitable principles;
all provisions of all applicable state and federal constitutions,
statutes, rules, regulations and orders of governmental bodies; and
orders, judgments and decrees of all courts and arbitrators.
Availability - on any date, an amount equal to the difference
derived when the sum of the principal amount of Revolver Loans then
outstanding (including any amounts that Lender may have paid for the
account of Borrower pursuant to any of the Financing Documents and that
have not been reimbursed by Borrower) is subtracted from the Gross
Availability on such date; provided that in no event shall the
Availability be deemed to exceed the following amounts on the following
dates, in each case in addition to up to $400,000 as and when needed to
satisfy an up to $400,000 payment to the Internal Revenue Service
assumed in connection with the purchase of assets from the Assignee of
Provider Solutions corporation:
35
July 6, 2004 $300,000
July 31, 2004 $550,000
August 15, 2004 $850,000
October 15, 2004 $1,050,000
November 15, 2004 $1,200,000
Provided, further that the increase of the Availability on
August 15, 2004 and October 15, 2004 is subject to the timely filing by
the Guarantor of a Form 10-QSB for the quarter ended June 30, 2004 that
sets forth a consolidated EBITDA of ($50,000) or better; and provided
further the increase of the Availability on November 15, 2004 is
subject to the timely filing by the Guarantor of a Form 10-QSB for the
quarter ended September 30, 2004 that sets forth a consolidated EBITDA
of $50,000 or better. If the amount outstanding is equal to or greater
than the Gross Availability, Availability is 0.
Availability Reserve - on any date of determination thereof,
an amount equal to the sum of the following (without duplication): (i)
a reserve for general Inventory shrinkage that is determined by Lender
from time to time in its reasonable credit judgment based upon
Borrower's historical losses due to such shrinkage; (ii) any amount
that Borrower is obligated to pay pursuant to the provisions of any of
the Financing Documents that Lender elects to pay for the account of
Borrower in accordance with authority contained in any of the Financing
Documents; (iii) all amounts of rent or other charges that accrue after
the Effective Date and are past due and payable and owing at such time
by Borrower to any landlord of any premises where any of the Collateral
is located plus, commencing on the 30th day prior to the date on which
Borrower shall be obligated to assume or reject any lease of a premises
where any of the Collateral is located, the amount of any rent or other
charges that accrued prior to the Effective Date and that remain unpaid
under such lease; (iv) such additional reserves as Lender may, in its
sole credit judgment, determine to be appropriate from time to time to
protect Lender against any changes in the composition, amount, quality,
nature or value of any Collateral or the priority of Lender's Liens
upon the Collateral.
Bankruptcy Code - title 11 of the United States Code.
Board of Governors - the Board of Governors of the Federal
Reserve Board.
Borrowing - a borrowing consisting of Loans made on the same
day by Lender.
Business Day - any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of Florida or is a
day on which banking institutions located in such state are closed.
Capital Expenditures - expenditures made for the acquisition
of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year,
including the total principal portion of Capitalized Lease Obligations.
36
Capitalized Lease Obligation - any Debt represented by
obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
Cash Collateral - cash or Cash Equivalents, and any interest
earned thereon, that is deposited with Lender in accordance with the
Agreement as security for the Obligations to the extent provided in the
Agreement.
Cash Collateral Account - a demand deposit, money market or
other account established by Lender at such financial institution as
Lender may select in its discretion, which account shall be in Lender's
name and subject to Lender's Liens.
Cash Equivalents - (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed
by the full faith and credit of the United States government having
maturities of not more than 12 months from the date of acquisition;
(ii) domestic certificates of deposit and time deposits having
maturities of not more than 12 months from the date of acquisition,
bankers' acceptances having maturities of not more than 12 months from
the date of acquisition and overnight bank deposits, in each case
issued by any commercial bank organized under the laws of the United
States, any state thereof or the District of Columbia, which at the
time of acquisition are rated A-1 (or better) by S&P or P-1 (or better)
by Moody's, and (unless issued by Lender) not subject to offset rights
in favor of such bank arising from any banking relationship with such
bank; (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clauses (i) and
(ii) entered into with any financial institution meeting the
qualifications specified in clause (ii) above; and (iv) commercial
paper having at the time of investment therein or a contractual
commitment to invest therein a rating of A-1 (or better) by S&P or P-1
(or better) by Moody's, and having a maturity within 9 months after the
date of acquisition thereof.
CERCLA - the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing
regulations.
Chattel Paper - shall have the meaning ascribed to the term
"chattel paper" in the UCC.
Claims - any and all claims, demands, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
awards, remedial response costs, expenses or disbursements of any kind
or nature whatsoever (including reasonable attorneys', accountants',
consultants' or paralegals' fees and expenses), whether arising under
or in connection with the Financing Documents, any Applicable Law
(including any Environmental Laws) or otherwise, that may be suffered
or incurred by a Person prior to, on or after the Effective Date and
whether suffered or incurred in or as a result of any investigation,
litigation, arbitration or other judicial or non-judicial proceeding or
any appeals related thereto.
37
Closing Date - the date on which all of the conditions
precedent in Section 10.1 of the Agreement are satisfied and the
initial Loans are made under the Agreement.
Collateral - all of the Property and interests in Property of
Borrower that are described in Section 6 of the Agreement, and all
other Property and interests in Property that now or hereafter secure
the payment and performance of any of the Obligations, whether or not
such Property or interest in Property was in existence on or acquired
by Borrower after the Effective Date.
Commercial Tort Claim - shall have the meaning ascribed to
"commercial tort claim" in the UCC.
Commitment Termination Date - the date that is the soonest to
occur of: (i) the last day of the Term, (ii) the effective date of any
sale of all or a substantial part of the Collateral, or (iii) the date
on which Lender terminates the Facility pursuant to Section 5.2.1 of
the Agreement.
Compliance Certificate - a Compliance Certificate to be
provided by Borrower to Lender in accordance with, and in the form
annexed as Exhibit C to, the Agreement, and the supporting schedules to
be annexed thereto.
Contingent Obligation - with respect to any Person, any
obligation of such Person arising from any guaranty, indemnity, or
other assurance of payment or performance of any Debt, lease, dividend
or other obligation ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly,
including (i) the direct or indirect guaranty endorsement (other than
for collection or deposit in the Ordinary Course of Business),
co-making, discounting with recourse or sale with recourse by such
Person of the obligation of a primary obligor, (ii) the obligation to
make take-or-pay or similar payments, if required, regardless of
non-performance by any other party or parties to an agreement, (iii)
any obligation of such Person, whether or not contingent, (A) to
purchase any such primary obligation or any Property constituting
direct or indirect security therefor, (B) to advance or supply funds
(1) for the purchase or payment of any such primary obligations or (2)
to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor,
(C) to purchase Property, Securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary
obligation or (D) otherwise to assure or hold harmless the holder of
such primary obligation against loss in respect thereof; provided,
however, that the term "Contingent Obligation" shall not include any
product warranties extended in the Ordinary Course of Business. The
amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation
with respect to which such Contingent Obligation is made (or, if less,
the maximum amount of such primary obligation for which such Person may
be liable pursuant to the terms of the instrument evidencing such
Contingent Obligation) or, if not stated or determinable, the maximum
reasonably anticipated liability with respect thereto (assuming such
Person is required to perform thereunder), as determined by such Person
in good faith.
38
Current Assets - at any date, the amount at which all of the
current assets of a Person would be properly classified as current
assets shown on a balance sheet at such date, in accordance with GAAP,
except that amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
Debt - as applied to a Person means, without duplication: (i)
all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a
balance sheet of such Person on the date as of which Debt is to be
determined, including Capitalized Lease Obligations; (ii) all
obligations of other Persons which such Person has guaranteed; (iii)
all reimbursement obligations in connection with letters of credit or
letter of credit guaranties issued for the account of such Person; and
(iv) in the case of Borrower (without duplication), the Obligations.
Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.
Default Rate - on any date, a rate per annum that is equal to
15%.
Deposit Account - shall have the meaning ascribed to "deposit
account" in the UCC and shall include any demand, time, savings,
passbook, money market or other depository account, or a certificate of
deposit, maintained by Borrower with any bank, savings and loan
association, credit union or other depository institution.
Disbursements - the total of "advance requests" as shown on
the Budget.
Distribution - in respect of any entity, (i) any payment of
any dividends or other distributions on Equity Interests of the entity
(except distributions in such Equity Interests) and (ii) any purchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the entity or any Affiliate of the entity unless made
contemporaneously from the net proceeds of the sale of Equity
Interests.
Document - shall have the meaning ascribed to the term
"document" in the UCC.
Dollars and the sign $ - lawful money of the United States of
America.
39
Dominion Account - a special account of Lender established by
Borrower at a bank selected by Borrower, but acceptable to Lender in
its discretion, and over which Lender shall have sole and exclusive
access and control for withdrawal purposes.
EBITDA - shall mean consolidated earnings of the Guarantor
before interest, taxes, depreciation and amortization, all in
accordance with GAAP.
Effective Date - July 6, 2004.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance documents
promulgated by regulatory agencies, orders and consent decrees relating
to human health and safety or the protection or pollution of the
environment, including CERCLA.
Environmental Release - a release as defined in CERCLA or
under any applicable Environmental Laws.
Equipment - shall have the meaning ascribed to the term
"equipment" in the UCC.
Equity Interest - the interest of a shareholder in a
corporation, a partner (whether general or limited) in a partnership
(whether general, limited or limited liability), a member in a limited
liability company, or any other Person having any other form of equity
security.
ERISA - the Employee Retirement Income Security Act of 1974
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 11 of the Agreement.
Extraordinary Expenses - all reasonable costs, expenses, fees
(including fees incurred to Lender Professionals) or advances that
Lender may suffer or incur, whether prior to or after the occurrence of
an Event of Default, on account of or in connection with (i) the audit,
inspection, repossession, storage, repair, appraisal, insuring,
completion of the manufacture of, preparing for sale, advertising for
sale, selling, collecting or otherwise preserving or realizing upon any
Collateral; (ii) the defense of Lender's Lien upon any Collateral or
the priority thereof or any adverse claim with respect to the Loans,
the Financing Documents or the Collateral asserted by any Obligor, any
receiver or trustee for any Obligor or any creditor or representative
of creditors of any Obligor; (iii) the settlement or satisfaction of
any Liens upon any Collateral (whether or not such Liens are Permitted
Liens); (iv) the collection or enforcement of any of the Obligations;
(v) the negotiation, documentation, and closing of any restructuring or
forbearance agreement with respect to the Financing Documents or
Obligations; (vi) amounts advanced by Lender pursuant to Section 7.1.3
of the Agreement; (vii) the enforcement of any of the provisions of any
of the Financing Documents; or (viii) any payment under indemnity or
other payment agreement provided by Lender to any financial institution
in connection with any Dominion Account or any lockbox arrangement.
Such costs, expenses and advances may include transfer fees, taxes,
storage fees, insurance costs, permit fees, utility reservation and
standby fees, legal fees, appraisal fees, brokers' fees and
commissions, auctioneers' fees and commissions, consultants' fees,
accountants' fees, environmental study fees, wages and salaries paid to
40
employees of Borrower or independent contractors in liquidating any
Collateral, travel expenses, all other fees and expenses payable or
reimbursable by Borrower or any other Obligor under any of the
Financing Documents, and all other fees and expenses associated with
the enforcement of rights or remedies under any of the Financing
Documents, but excluding compensation paid to employees (including
inside legal counsel who are employees) of Lender.
FEIN - with respect to any Person, the Federal Employer
Identification Number of such Person.
Facility - the $1,600,000.00 credit facility established by
Lender in favor of Borrower under Section 1 of the Agreement consisting
of the Revolver Commitment.
Financing Documents - the Agreement, the Other Agreements and
the Security Documents and any and all other agreements, instruments
and documents now or hereafter executed by Borrower in favor of Lender
with respect to any of the transactions contemplated by the Agreement.
Fiscal Year - the fiscal year of Borrower and its Subsidiaries
for accounting and tax purposes, which ends on the last Friday of each
year.
FLSA - the Fair Labor Standards Act of 1938.
Full Payment - with respect to any Debt (including the
Obligations), full, final and indefeasible payment of such Debt in cash
or immediately available funds and, in the case of any Contingent
Obligations, Lender's receipt of either cash or a direct pay letter of
credit naming Lender as beneficiary and in form and substance, and from
an issuing bank, acceptable to Lender, in each case in an amount not
less than 105% of the aggregate amount of all such contingent Debt.
GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.
General Intangible - shall have the meaning ascribed to the
term "general intangible" in the UCC and shall include all interests in
Intellectual Property.
Governmental Approvals - all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with,
and reports to, all Governmental Authorities.
41
Governmental Authority - any federal, state, municipal,
national or other governmental department, commission, board, bureau,
court, agency or instrumentality or political subdivision thereof or
any entity or officer exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to any
government or any court, in each case whether associated with a state
of the United States, the District of Columbia or a foreign entity or
government.
Gross Availability - The amount set forth in the Budget as the
maximum amount to be drawn hereunder as of the end of the month
immediately prior to the date in question, up to the amount of the
Facility.
Guarantor - Health Systems Solutions, Inc., a Nevada corporation.
Indemnified Amount - the amount of any loss, cost, expenses or
damages suffered or incurred by Lender Indemnitees and against which
Lender and/or Borrower have agreed to indemnify such Lender Indemnitees
pursuant to the terms of the Agreement or any of the other Financing
Documents.
Insolvency Proceeding - any action, case or proceeding
commenced by or against a Person, or any agreement of such Person, for
(a) the entry of an order for relief under any chapter of the
Bankruptcy Code or other insolvency or debt adjustment law (whether
state, federal or foreign), (b) the appointment of a receiver, trustee,
liquidator or other custodian for such Person or any part of its
Property, (c) an assignment or trust mortgage for the benefit of
creditors of such Person, or (d) the liquidation, dissolution or
winding up of the affairs of such Person.
Instrument - shall have the meaning ascribed to the term
"instrument" in the UCC.
Intellectual Property - Property constituting under any
Applicable Law a patent, patent application, copyright, trademark,
service mark, tradename, mask work, trade secret or license or other
right to use any of the foregoing.
Intellectual Property Claim - the assertion by any Person of a
claim (whether asserted in writing, by action, suit or proceeding or
otherwise) that Borrower's ownership, use, marketing, sale or
distribution of any Inventory, Equipment, Intellectual Property or
other Property is violative of any ownership of or right to use any
Intellectual Property of such Person.
Inventory - shall have the meaning ascribed to "inventory" in
the UCC and shall include, in the case of Borrower, all goods intended
for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of
every nature and description used or which might be used in connection
with the manufacture, printing, packing, shipping, advertising,
selling, leasing or furnishing of such goods or otherwise used or
consumed in Borrower's business; and all Documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned
or hereafter acquired by Borrower.
42
Investment Property - shall have the meaning ascribed to
"investment property" in the UCC.
Lender Indemnities - Lender and all of its present and future
officers, directors and agents.
Lender Professionals - attorneys, accountants, appraisers,
business valuation experts, environmental engineers or consultants,
turnaround consultants and other professionals or experts retained by
Lender.
Letter-of-Credit Right - shall have the meaning ascribed to
the term "letter-of-credit right" in the UCC.
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on common law, statute or contract. The
term "Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting Property. For the
purpose of the Agreement, Borrower shall be deemed to be the owner of
any Property which it has acquired or holds subject to a conditional
sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for
security purposes.
Loan - a Revolver Loan.
Loan Account - the loan account established by Lender on its
books pursuant to Section 4.6 of the Agreement.
Material Adverse Effect - the effect of any event, condition,
act, omission or circumstance, which, alone or when taken together with
other events, conditions, acts, omissions or circumstances occurring or
existing concurrently therewith, (i) has a material adverse effect upon
the business, operations, Properties or condition (financial or
otherwise) of any Obligor; (ii) has or may be reasonably expected to
have any material adverse effect whatsoever upon the validity or
enforceability of the Agreement or any of the other Financing
Documents; (iii) has any material adverse effect upon the value of the
whole or any material part of the Collateral, the Liens of Lender with
respect to the Collateral or the priority of any such Liens; (iv)
materially impairs the ability of any Obligor to perform its
obligations under the Agreement or any of the other Financing
Documents, including repayment of any of the Obligations when due; or
(v) materially impairs the ability of Lender to enforce or collect the
Obligations or realize upon any of the Collateral in accordance with
the Financing Documents and Applicable Law.
43
Material Contract - any agreement between Borrower and one or
more other Persons, the termination of which could reasonably be
expected to have a Material Adverse Effect.
Maximum Rate - the maximum non-usurious rate of interest
permitted by Applicable Law that at any time, or from time to time, may
be contracted for, taken, reserved, charged or received on the Debt in
question or, to the extent that at any time Applicable Law may
thereafter permit a higher maximum non-usurious rate of interest, then
such higher rate. Notwithstanding any other provision hereof, the
Maximum Rate shall be calculated on a daily basis (computed on the
actual number of days elapsed over a year of 365 or 366 days, as the
case may be).
Money Borrowed - as applied to any Person, (i) Debt arising
from the lending of money by any other Person to such Person; (ii)
Debt, whether or not in any such case arising from the lending of money
by another Person to such Person, (A) which is represented by notes
payable or drafts accepted that evidence extensions of credit, (B)
which constitutes obligations evidenced by bonds, debentures, notes or
similar instruments, or (C) upon which interest charges are customarily
paid (other than accounts payable) or that was issued or assumed as
full or partial payment for Property; (iii) Debt that constitutes a
Capitalized Lease Obligation; (iv) reimbursement obligations with
respect to letters of credit or guaranties of letters of credit and (v)
Debt of such Person under any guaranty of obligations that would
constitute Debt for Money Borrowed under clauses (i) through (iii)
hereof, if owed directly by such Person.
Moody's - Moody's Investors Services, Inc.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
Net Proceeds - proceeds (including cash receivable (when
received) by way of deferred payment) received by Borrower from the
sale, lease, transfer or other disposition of any Property, including
insurance proceeds and awards of compensation received with respect to
the destruction or condemnation of all or part of such Property, net
of: (i) the reasonable and customary costs of such sale, lease,
transfer or other disposition; and (ii) amounts applied to repayment of
Debt (other than the Obligations) that is secured by a Permitted Lien
on the Property disposed of that is senior to Lender's Liens.
Notes - the Revolver Note and any other promissory note
hereafter executed by Borrower at Lender's request to evidence any of
the Obligations.
Notice of Borrowing - as defined in Section 3.1.1(i) of the
Agreement.
44
Obligations - in each case, whether now in existence or
hereafter arising, (i) the principal of, and interest and premium, if
any, on, the Loans; and (ii) all other Debts, covenants, duties and
obligations (including Contingent Obligations) now or at any time or
times hereafter owing by any Obligor to Lender under or pursuant to the
Agreement or any of the other DIP Financing Documents, whether
evidenced by any note or other writing, whether arising from any
extension of credit, opening of a letter of credit, acceptance, loan,
guaranty, indemnification or otherwise and whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary, or
joint or several, including all interest, charges, expenses, fees or
other sums (including Extraordinary Expenses) chargeable to any or all
Obligors hereunder or under any of the other Financing Documents.
Obligor - Borrower and any other Person that is at any time
liable for the payment of the whole or any part of the Obligations or
that has granted in favor of Lender a Lien upon any of any of such
Person's assets to secure payment of any of the Obligations.
Ordinary Course of Business - with respect to any Person, the
ordinary course of such Person's business, as conducted by such Person
in accordance with past practices and undertaken by such Person in good
faith and not for the purpose of evading any covenant or restriction in
any Loan Document.
Organization Documents - with respect to any Person, its
charter, certificate or articles of incorporation, bylaws, articles of
organization, operating agreement, members agreement, partnership
agreement, voting trust, or similar agreement or instrument governing
the formation or operation of such Person.
OSHA - the Occupational Safety and Hazard Act of 1970.
Other Agreements - the Notes and any and all agreements,
instruments and documents (other than the Agreement and the Security
Documents), heretofore, now or hereafter executed by Borrower, any
Obligor or any other Person and delivered to Lender in respect of the
transactions contemplated by the Agreement.
Participant - as defined in Section 12.2.1 of the Agreement.
Payment Account - an account maintained by Lender (currently
at Bank) to which all monies from time to time deposited to a Dominion
Account shall be transferred and all other payments shall be sent in
immediately available federal funds.
Payment Intangible - shall have the meaning ascribed to the
term "payment intangible" in the UCC.
Payment Items - all checks, drafts, or other items of payment
payable to Borrower, including proceeds of any of the Collateral.
Pending Revolver Loans - at any date, the aggregate principal
amount of all Revolver Loans which have been requested in any Notice of
Borrowing received by Lender but which have not theretofore been
advanced by Lender.
45
Permitted Contingent Obligations - Contingent Obligations
arising from endorsements for collection or deposit in the Ordinary
Course of Business; Contingent Obligations arising from entered into in
the Ordinary Course of Business pursuant to the Agreement or with
Lender's prior written consent; Contingent Obligations of Borrower and
its Subsidiaries existing as of the Closing Date, including extensions
and renewals thereof that do not increase the amount of such Contingent
Obligations as of the date of such extension or renewal; Contingent
Obligations incurred in the Ordinary Course of Business with respect to
surety bonds, appeal bonds, performance bonds and other similar
obligations; and other Contingent Obligations not to exceed $25,000 in
the aggregate at any time.
Permitted Liens - any Lien of a kind specified in Section
9.2.3 of the Agreement.
Permitted Purchase Money Debt - Purchase Money Debt of
Borrower and its Subsidiaries which is incurred after the date of the
Agreement and which is secured by no Lien or only by a Purchase Money
Lien, provided that the aggregate amount of Purchase Money Debt
outstanding at any time does not exceed $25,000 and the incurrence of
such Purchase Money Debt does not violate any limitation in the
Financing Documents regarding Capital Expenditures. For the purposes of
this definition, the principal amount of any Purchase Money Debt
consisting of capitalized leases shall be computed as a Capitalized
Lease Obligation.
Person - an individual, partnership, corporation, limited
liability company, limited liability partnership, joint stock company,
land trust, business trust, or unincorporated organization, or a
Governmental Authority.
Plan - an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of
ERISA.
Properly Contested - in the case of any Debt of an Obligor
(including any Taxes) that is not paid as and when due or payable by
reason of such Obligor's bona fide dispute concerning its liability to
pay same or concerning the amount thereof, (i) such Debt is being
properly contested in good faith by appropriate proceedings promptly
instituted and diligently conducted; (ii) such Obligor has established
appropriate reserves as shall be required in conformity with GAAP;
(iii) the non-payment of such Debt will not have a Material Adverse
Effect and will not result in a forfeiture of any assets of such
Obligor; (iv) no Lien is imposed upon any of such Obligor's assets with
respect to such Debt unless such Lien is at all times junior and
subordinate in priority to the Liens in favor of Lender (except only
with respect to property taxes that have priority as a matter of
applicable state law) and enforcement of such Lien is stayed during the
period prior to the final resolution or disposition of such dispute;
(v) if the Debt results from, or is determined by the entry, rendition
or issuance against an Obligor or any of its assets of a judgment,
writ, order or decree, enforcement of such judgment, writ, order or
decree is stayed pending a timely appeal or other judicial review; and
(vi) if such contest is abandoned, settled or determined adversely (in
whole or in part) to such Obligor, such Obligor forthwith pays such
Debt and all penalties, interest and other amounts due in connection
therewith.
46
Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
Purchase Money Debt - means and includes (i) Debt (other than
the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Debt (other than the Obligations)
incurred at the time of or within 10 days prior to or after the
acquisition of any fixed assets for the purpose of financing all or any
part of the purchase price thereof, and (iii) any renewals, extensions
or refinancings thereof, but not any increases in the principal amounts
thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures
Purchase Money Debt, but only if such Lien shall at all times be
confined solely to the fixed assets acquired through the incurrence of
the Purchase Money Debt secured by such Lien and such Lien constitutes
a purchase money security interest under the UCC.
Receipts - the total "collections" as shown on the Budget.
Rentals - rent owing by Borrower in respect of a lease of
Property that is owned by the lessor.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
Restricted Investment - any acquisition of Property by
Borrower or any of its Subsidiaries in exchange for cash or other
Property, whether in the form of an acquisition of Equity Interests or
indebtedness or obligations, or the purchase or acquisition by Borrower
or any of its Subsidiaries of any other Property, or a loan, advance,
capital contribution or subscription, except acquisitions of the
following: (a) fixed assets to be used in the business of Borrower or
any of its Subsidiaries so long as the acquisition costs thereof
constitute Capital Expenditures permitted hereunder; (b) goods held for
sale or lease or to be used in the manufacture of goods or the
provision of services by Borrower or any of its Subsidiaries in the
ordinary course of business; (c) Current Assets arising from the sale
or lease of goods or the rendition of services in the ordinary course
of business of Borrower or any of its Subsidiaries; (d) investments in
Subsidiaries of Borrower to the extent existing on the Closing Date;
and (e) Cash Equivalents.
47
Restrictive Agreement - an agreement (other than any of the
Financing Documents) that, if and for so long as an Obligor or any
Subsidiary of such Obligor is a party thereto, would prohibit,
condition or restrict such Obligor's or Subsidiary's right to incur or
repay Debt for Money Borrowed (including any of the Obligations); grant
Liens upon any of such Obligor's or Subsidiary's assets (including
Liens granted in favor of Lender pursuant to the Financing Documents);
declare or make Distributions; amend, modify, extend or renew any
agreement evidencing Debt for Money Borrowed (including any of the
Financing Documents); or repay any Debt owed to any Obligor.
Revenue - the total of "sales" as shown on the Budget.
Revolver Commitment - the obligation of Lender to make
Revolver Loans pursuant to the terms and conditions of the Agreement,
which shall not exceed on any date $1,600,000.00.
Revolver Loan - a Loan made by Lender as provided in Section
1.1 of the Agreement.
Revolver Note - a Revolver Note to be executed by Borrower in
favor of Lender in the form of Exhibit A attached hereto, which shall
be in the face amount of the Facility and which shall evidence all
Revolver Loans made by Lender to Borrower pursuant to the Agreement.
S&P - Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc.
Schedule of Accounts - as defined in Section 7.2.1 of the
Agreement.
SEC - the Securities Exchange Commission.
Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933.
Security Documents - any and all other instruments and
agreements now or at any time hereafter securing the whole or any part
of the Obligations.
Senior Officer - the chairman of the board of directors, the
president or the chief financial officer of, or in-house legal counsel
to, such Person.
Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Debts (including Contingent Obligations), (ii) is
able to pay all of its Debts as such Debts mature, (iii) has capital
sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage; and (iv) is not
"insolvent" within the meaning of Section 101(32) of the Bankruptcy
Code.
48
Subsidiary - any Person a majority of the Equity Interests of
which is at the time owned, directly or indirectly, by another Person
or by one or more other Subsidiaries or by such other Person and one or
more other Subsidiaries.
Supporting Obligation - shall have the meaning ascribed to the
term "supporting obligation" in the UCC.
Taxes - any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of
whatever nature, including income, receipts, excise, property, sales,
use, transfer, license, payroll, withholding, social security and
franchise taxes now or hereafter imposed or levied by the United
States, or any state, local or foreign government or by any department,
agency or other political subdivision or taxing authority thereof or
therein and all interest, penalties, additions to tax and similar
liabilities with respect thereto, but excluding, in the case of Lender,
taxes imposed on or measured by the net income or overall gross
receipts of Lender.
Term - a period commencing on the Effective Date and ending 36
months later.
UCC - the Uniform Commercial Code (or any successor statute)
as adopted and in force in the State of Florida from time to time or,
when the laws of any other state govern the method or manner of the
creation or perfection of any security interest in any of the
Collateral, the Uniform Commercial Code (or any successor statute) of
such state.
Value - with reference to the value of Inventory, value
determined on the basis of the lower of cost or market of such
Inventory, with the cost thereof calculated on a first-in, first-out
basis.
Accounting Terms. Unless otherwise specified herein, all terms
of an accounting character used in the Agreement shall be interpreted, all
accounting determinations under the Agreement shall be made, and all financial
statements required to be delivered under the Agreement shall be prepared in
accordance with GAAP, applied on a basis consistent with the most recent audited
consolidated financial statement of Borrower and its Subsidiaries heretofore
delivered to Lender and using the same method for inventory valuation as used in
such audited financial statements, except for any change in which Borrower's
independent public accountants concur or as required by GAAP unless (i) Borrower
shall have objected to determining such compliance on such basis at the time of
delivery of such financial statements or (ii) Lender shall so object in writing
within 30 days after the delivery of such financial statements, in either of
which events such calculations shall be made on a basis consistent with those
used in the preparation of the latest financial statements as to which such
objection shall not have been made. In the event of any change in GAAP that
occurs after the date of the Agreement and that is material to Borrower, Lender
shall have the right to require either that conforming adjustments be made to
any financial covenants set forth in the Agreement, or the components thereof,
that are affected by such change or that Borrower reports its financial
condition based on GAAP as in effect immediately prior to the occurrence of such
change.
49
Other Terms. All other terms contained in the Agreement shall
have, when the context so indicates, the meanings provided for by the UCC to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein," "hereof"
and "hereunder" and other words of similar import refer to the Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. In the computation of periods of time
from a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." The
section titles, table of contents and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation of the Agreement. All
references to statutes (including the UCC) and related regulations shall include
any amendments of same after the date hereof and any successor statutes and
regulations; to any of the Financing Documents shall include any and all
amendments or modifications thereto and any and all restatements, extensions or
renewals thereof; to any Person shall mean and include the successors and
permitted assigns of such Person; to "including" and "include" shall be
understood to mean "including, without limitation" and "include, without
limitation;" to the time of day shall mean the time of day on the day in
question in Miami, Florida, unless otherwise expressly provided in the
Agreement; and to any Property of Borrower shall mean and include all Property
of the Estate. A Default or an Event of Default shall be deemed to exist at all
times during the period commencing on the date that such Default or Event of
Default occurs to the date on which such Default or Event of Default is waived
in writing pursuant to this Agreement or, in the case of a Default, is cured
within any period of cure expressly provided in this Agreement; and an Event of
Default shall "continue" or be "continuing" until such Event of Default has been
waived in writing by Lender. Whenever the phrase "to the best of Borrower's
knowledge" or words of similar import relating to the knowledge or the awareness
of Borrower are used herein, such phrase shall mean and refer to (i) the actual
knowledge of a Senior Officer of Borrower or (ii) the knowledge that a Senior
Officer would have obtained if they had engaged in good faith and the diligent
performance of their duties, including the making of such reasonable specific
inquiries as may be necessary of the officers, employees or agents of Borrower
and a good faith attempt to ascertain the existence or accuracy of the matter to
which such phrase relates.
IN WITNESS WHEREOF, this Appendix has been duly executed on July 6,
2004.
BORROWER:
HEALTHCARE QUALITY SOLUTIONS, INC.
By:
------------------------
B.M. Milvain, President
50
LENDER:
STANFORD VENTURE CAPITAL
HOLDINGS, INC.
By:
-------------------------
James M. Davis, President
51
EXHIBIT A
FORM OF REVOLVER NOTE
U.S. $1,600,000.00
July 6, 2004
FOR VALUE RECEIVED, the undersigned, HEALTHCARE QUALITY SOLUTIONS, INC.
a Florida corporation (the "Borrower"), promises to pay to the order of STANFORD
VENTURE CAPITAL HOLDINGS, INC. (herein, together with any subsequent holder
hereof, called the "Lender") the principal sum of ONE MILLION SIX HUNDRED
THOUSAND AND 00/100 DOLLARS ($1,600,000.00) or such lesser sum as may be the
outstanding principal amount of all Revolver Loans pursuant to the terms of the
Loan Agreement referred to below on the date on which such outstanding principal
amounts become due and payable pursuant to Section 4.2 of the Loan Agreement (as
defined below), in strict accordance with the terms thereof. Borrower, each
jointly and severally, likewise unconditionally promises to pay to Lender
interest from and after the date hereof on the outstanding principal amount of
Revolver Loans at the interest rate, payable at such times, and computed in such
manner as is specified in Section 2.1 of the Loan Agreement, in strict
accordance with the terms thereof.
This Revolver Note ("Note") is issued pursuant to, and is the "Revolver
Note" referred to in, the Loan and Security Agreement dated July 6, 2004 (as the
same may be amended from time to time, the "Loan Agreement"), between Borrower
and Lender, and Lender is and shall be entitled to all benefits thereof and of
all Financing Documents executed and delivered in connection therewith. The
provisions of the Loan Agreement are incorporated herein by this reference. All
capitalized terms used herein, unless otherwise defined herein, shall have the
meanings ascribed to such terms in the Loan Agreement.
The repayment of the principal balance of this Note is subject to the
provisions of Section 4.2 of the Loan Agreement. The entire unpaid principal
balance and all accrued interest on this Note shall be due and payable on the
Commitment Termination Date.
All payments of principal and interest shall be made in Dollars in
immediately available funds as specified in the Loan Agreement.
Upon or after the occurrence of an Event of Default and for so long as
such Event of Default exists, the principal balance and all accrued interest of
this Note may be declared due and payable in the manner and with the effect
provided in the Loan Agreement, and the unpaid principal balance hereof shall
bear interest at the Default Rate as and when provided in Section 2.1.2 of the
Loan Agreement. Borrower agrees to pay, and save Lender harmless against, any
liability for the payment of, all costs and expenses, including, but not limited
to, reasonable attorneys' fees, arising in connection with the enforcement by
Lender of any of its rights under this Note, the Loan Agreement or any of the
other Financing Documents.
All principal amounts of Revolver Loans made by Lender to Borrower
pursuant to the Loan Agreement, and all accrued and unpaid interest thereon,
shall be deemed outstanding under this Note and shall continue to be owing by
Borrower in accordance with the terms of this Note and the Loan Agreement.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid
to Lender for the use, forbearance or detention of money advanced hereunder
exceed the highest lawful rate permissible under any law which a court of
competent jurisdiction may deem applicable hereto; and, in the event of any such
payment inadvertently paid by Borrower or inadvertently received by Lender, such
excess sum shall be, at Borrower's option, returned to Borrower forthwith or
credited as a payment of principal, but shall not be applied to the payment of
interest. It is the intent hereof that Borrower not pay or contract to pay, and
that Lender not receive or contract to receive, directly or indirectly in any
manner whatsoever, interest in excess of that which may be paid by Borrower
under Applicable Law.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited or invalid under Applicable Law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Lender
of any right or remedy preclude any other right or remedy. Lender, at its
option, may enforce its rights against any Collateral securing this Note without
enforcing its rights against Borrower, any guarantor of the indebtedness
evidenced hereby or any other property or indebtedness due or to become due to
Borrower. Borrower agrees that, without releasing or impairing Borrower's
liability hereunder, Lender may at any time release, surrender, substitute or
exchange any Collateral securing this Note and may at any time release any party
primarily or secondarily liable for the indebtedness evidenced by this Note.
The rights and obligations of Lender and Borrower hereunder shall be
construed in accordance with and governed by the laws (without giving effect to
the conflict of law principles thereof) of the State of Florida. This Note is
intended to take effect as an instrument under seal under Florida law.
IN WITNESS WHEREOF, Borrower has caused this Note to be executed and
delivered by its duly authorized officer on the date first above written.
HEALTHCARE QUALITY SOLUTIONS INC.
By:
------------------------
B.M. Milvain, President
EXHIBIT B
Form of Notice of Borrowing
Date ______________, 20___
Stanford Venture Capital Holdings, Inc.
6075 Poplar Avenue
Suite 202
Memphis, Tennessee
Re: Loan and Security Agreement dated April ____, 2004, by and between
healthcare Quality Solutions Inc. and Stanford Venture Capital
Holdings, Inc. (as at any time amended, the "Loan Agreement")
Ladies and Gentlemen:
This Notice of Borrowing is delivered to you pursuant to Section
3.1.1 of the Loan Agreement. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings attributable thereto in the Loan
Agreement. Borrower hereby requests a Revolver Loan in the aggregate principal
amount of $______________ to be made on _____________, 20___.
Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Financing Documents and hereby certifies that no Default
or Event of Default exists on the date hereof. In addition, Borrower confirms
that it is in compliance with the Availability requirements set forth in the
Loan Agreement.
Borrower has caused this Notice of Borrowing to be executed and
delivered by its duly authorized representative, this ______ day of
_____________, 20___.
BORROWER:
HEALTHCARE QUALITY SOLUTIONS INC.
By:
------------------------------
B.M. Milvain, President
EXHIBIT C
COMPLIANCE CERTIFICATE
[Letterhead of Borrower]
__________________, 20__
Stanford Venture Capital Holdings, Inc.
6075 Poplar Avenue
Suite 202
Memphis, Tennessee
The undersigned, the chief financial officer of Healthcare
Quality Solutions Inc., a Florida corporation ("Borrower"), gives this
certificate to Stanford Venture Capital Holdings, Inc. ("Lender") in accordance
with the requirements of Section 9.1.5 of that certain Loan and Security
Agreement dated July 6, 2004, between Borrower and Lender ("Loan Agreement").
Capitalized terms used in this Certificate, unless otherwise defined herein,
shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and
statements of income of Borrower and its
Subsidiaries for the [Fiscal Year] [quarterly period] ending __________________,
20__, copies of which are attached hereto, I hereby certify that:
(a) Consolidated EBITDA of the Guarantor for the fiscal quarter ended
__________________ as set forth in the Guarantor's Form 10-QSB for such period
duly and timely filed with the Securities & Exchange Commission was
$----------------.
2. No Default exists on the date hereof, other than:
_________________________________________ [if none, so state]; and
3. No Event of Default exists on the date hereof, other
than _____________________________________________ [if none, so state].
4. As of the date hereof, Borrower is current in its
payment of all accrued rent and other charges to
Persons who own or lease any premises where any of the Collateral is located,
and there are no pending disputes or claims regarding Borrower's failure to pay
or delay in payment of any such rent or other charges.
Very truly yours,
---------------------------
Chief Financial Officer
HEALTH SYSTEMS SOLUTIONS, INC.
A Nevada Corporation
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT, dated as of July 6, 2004 (the
"Agreement"), is entered into by and between Health Systems Solutions, Inc.,
a Nevada corporation (the "Company") and Stanford Venture Capital
Holdings, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, Health Quality Solutions, Inc., a Florida corporation
("HQS") is a wholly-owned subsidiary of the Company;
WHEREAS, the Purchaser and HQS entered into a Loan and Security
Agreement of even date herewith pursuant to which, among other things, HQS
borrowed from the Purchaser up to an aggregate of $1,600,000 (the "Loan
Agreement"); and
WHEREAS, as partial consideration for the Purchaser entering into the
Loan Agreement and upon the terms and conditions of this Agreement, the
Purchaser has agreed to purchase, and the Company wishes to issue and sell,
warrants to purchase up to an aggregate of 720,000 of the Company's common stock
$0.001 par value per share (the "Common Stock"), at an exercise price of $0.001
per share (the "Warrants"), which Warrants will be in the form attached hereto
as Exhibit A; and
WHEREAS, the Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
(a) Capitalized terms used herein not otherwise defined herein shall have the
same meaning ascribed to such terms as in the Loan Agreement.
(b) Subject to the terms and conditions in this Agreement, the Purchaser hereby
agrees to purchase from the Company, and the Company hereby agrees to issue
and sell to the Purchaser, the Warrants as additional consideration for the
funding of the Loan in the aggregate principal amount of $1,600,000, on the
date hereof.
1
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION
The Purchaser represents and warrants to, and covenants and agrees
with, the Company as follows:
(a) Qualified Investor. The Purchaser is (i) experienced in making investments
of the kind described in this Agreement and the related documents, (ii) able
to afford the entire loss of its investment in the Warrants, and (iii) an
"Accredited Investor" as defined in Rule 501(a) of Regulation D and knows of
no reason to anticipate any material change in its financial condition for
the foreseeable future.
(b) Restricted Securities. The Warrants are "restricted Securities" as defined
in Rule 144 promulgated under the Securities Act. All subsequent offers and
sales by the Purchaser of the Warrants and the Common Stock issuable upon
exercise of the Warrants shall be made pursuant to an effective registration
statement under the Securities Act or pursuant to an applicable exemption
from such registration.
(c) Reliance on Representations. The Purchaser understands that the Warrants are
being offered and sold to it in reliance upon exemptions from the
registration requirements of the United States federal Securities laws, and
that the Company is relying upon the truthfulness and accuracy of the
Purchaser's representations and warranties, and the Purchaser's compliance
with its covenants and agreements, each as set forth herein, in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Warrants.
(d) Legality. The Purchaser has the requisite corporate power and authority to
enter into this Agreement.
(e) Authorization. This Agreement and any related agreements, and the
transactions contemplated hereby and thereby, have been duly and validly
authorized by the Purchaser, and such agreements, when executed and delivered
by each of the Purchaser and the Company will each be a valid and binding
agreement of the Purchaser, enforceable in accordance with their respective
terms, except to the extent that enforcement of each such agreement may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors rights generally and to general principles of equity.
(f) Broker's Fees and Commissions. Neither the Purchaser nor any of its
officers, partners, employees or agents has employed any investment banker,
broker, or finder in connection with the transactions contemplated by the
Primary Documents (as defined below).
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to, and covenants and agrees with,
the Purchaser that:
2
(a) Organization. The Company is a corporation duly organized and validly
existing and in good standing under the laws of the State of Nevada and has
all requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted after the consummation of the
transactions contemplated by this Agreement. The Company is duly qualified as
a foreign corporation and in good standing in all jurisdictions in which
either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification. The
minute books and stock record books and other similar records of the Company
have been provided or made available to the Purchaser or its counsel prior to
the execution of this Agreement, are complete and correct in all material
respects and have been maintained in accordance with sound business
practices. Such minute books contain true and complete records of all actions
taken at all meetings and by all written consents in lieu of meetings of the
directors, stockholders and committees of the board of directors of the
Company from the date of organization through the date hereof. The Company
has, prior to the execution of this Agreement, delivered to the Purchaser
true and complete copies of the Company's Articles of Incorporation, and
Bylaws, each as amended through the date hereof. The Company is not in
violation of any provisions of its Articles of Incorporation or Bylaws.
(b) Capitalization. On the date hereof, the authorized capital of the Company
consists of:
(i) Common Stock; $.001 par value; 150,000,000 shares authorized; 5,523,199
shares issued and outstanding.
(ii) Preferred Stock; 15,000,000 authorized:
a. Series A $1.17 Convertible; 1,880,341 shares authorized issued and
outstanding.
b. Series B $.80 Convertible; 2,500,000 shares authorized issued and
outstanding.
The Company has no authorized or outstanding options or warrants issued and
outstanding except for the Warrants to purchase 720,000 shares of Common Stock
to be issued to the Purchaser hereunder, there are no outstanding rights,
agreements, arrangements or understandings to which the Company is a party
(written or oral) which would obligate the Company to issue any equity interest,
option, warrant, convertible note, or other types of Warrants or to register any
shares in a registration statement filed with the Commission. There is no
agreement, arrangement or understanding between or among any entities or
individuals which affects, restricts or relates to voting, giving of written
consents, dividend rights or transferability of shares with respect to any
voting shares of the Company, including without limitation any voting trust
agreement or proxy. There are no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire for value any outstanding shares of
capital stock or other ownership interests of the Company or to provide funds to
or make any investment (in the form of a loan, capital contribution or
otherwise) in any other entity. There are no anti-dilution or price adjustment
provisions regarding any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance of
the Warrants.
3
(c) Concerning the Warrants. The Common Stock issuable upon exercise of the
Warrants shall be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such a holder.
(d) Authorized Shares. The Company has available and has reserved a sufficient
number of authorized and unissued shares of Common Stock as may be necessary
to effect exercise of the Warrants. The Company understands and acknowledges
the potentially dilutive effect to the Common Stock of the issuance of shares
of Common Stock upon the exercise of the Warrants. The Company further
acknowledges that its obligation to issue shares of Common Stock upon
exercise of the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of
other stockholders of the Company.
(e) Legality. The Company has the requisite corporate power and authority to
enter into this Agreement, and to issue and deliver the Common Stock issuable
upon exercise of the Warrants.
(f) Transaction Agreements. This Agreement, the Warrants, and the Registration
Rights Agreement of even date herewith among the Company and the Purchaser
(the "Registration Rights Agreement") (collectively, the "Primary
Documents"), and the transactions contemplated hereby and thereby, have been
duly and validly authorized by the Company; this Agreement has been duly
executed and delivered by the Company and this Agreement is, and the other
Primary Documents, when executed and delivered by the Company, will each be,
a valid and binding agreement of the Company, enforceable in accordance with
their respective terms, except to the extent that enforcement of each of the
Primary Documents may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general principles of
equity.
(g) Financial Statements. The financial statements and related notes thereto
contained in the Company's filings with the Commission (the "Company
Financials") are correct and complete in all material respects, comply in all
material respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission promulgated
thereunder and have been prepared in accordance with United States generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated and consistent with each other. The Company Financials
present fairly and accurately the financial condition and operating results
of the Company in all material respects as of the dates and during the
periods indicated therein and are consistent with the books and records of
the Company. Except as set forth in the Company Financials, the Company has
no material liabilities, contingent or otherwise, other than liabilities
disclosed on the balance sheet as of March 31, 2004. Since January 1, 2004,
there has been no change in any accounting policies, principles, methods or
practices, including any change with respect to reserves (whether for bad
debts, contingent liabilities or otherwise), of the Company.
4
(h) Commission Filings. The Company has made all filings with the Commission
that it has been required to make under the Securities Act and the Exchange
Act and has furnished or made available to the Purchaser true and complete
copies of all the documents it has filed with the Commission since its
inception, all in the forms so filed. As of their respective filing dates,
such filings already filed by the Company or to be filed by the Company after
the date hereof complied or, if filed after the date hereof, will comply in
all material respects with the requirements of the Securities Act and the
Exchange Act, and the rules and regulations of the Commission promulgated
thereunder, as the case may be, and none of the filings with the Commission
contained or will contain any untrue statement of a material fact or omitted
or will omit any material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent such filings have been all
prior to the date of this Agreement corrected, updated or superseded by a
document subsequently filed with Commission.
(i) Non-Contravention. The execution and delivery of this Agreement and each of
the other Primary Documents, and the consummation by the Company of the
transactions contemplated by this Agreement and each of the other Primary
Documents, do not and will not conflict with, or result in a breach by the
Company of, or give any third party any right of termination, cancellation,
acceleration or modification in or with respect to, any of the terms or
provisions of, or constitute a default under, (A) its Articles of
Incorporation or Bylaws, as amended through the date hereof, (B) any material
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which the Company is a party or by which it or any of its properties or
assets are bound, or (C) any existing applicable law, rule, or regulation or
any applicable decree, judgment or order of any court or federal, state,
securities industry or foreign regulatory body, administrative agency, or any
other governmental body having jurisdiction over the Company or any of their
properties or assets (collectively, "Legal Requirements"), other than those
which have been waived or satisfied on or prior to the date hereof.
(j) Approvals and Filings. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of this
Agreement and the other Primary Documents.
(k) Compliance With Legal Requirements. The Company has not violated in any
material respect, and is not currently in material default under, any Legal
Requirement applicable to the Company, or any of the assets or properties of
the Company, where such violation could reasonably be expected to have
material adverse effect on the business or financial condition of the
Company.
(l) Absence of Certain Changes. There has been no material adverse change nor
any material adverse development in the business, properties, operations,
financial condition, prospects, outstanding securities or results of
operations of the Company, and no event has occurred or circumstance exists
that may result in such a material adverse change.
(m) Indebtedness to Officers, Directors and Stockholders. Except as set
disclosed in the Company Financials, the Company is not indebted to any of
the Company's stockholders, officers or directors or their Affiliates in any
amount whatsoever (including, without limitation, any deferred compensation,
salaries or rent payable).
5
(n) Relationships With Related Persons. Except as set forth in the SEC filings
of the Company, no officer, director, or principal stockholder of the Company
nor any Related Person (as defined below) of any of the foregoing has had any
interest in any property (whether real, personal, or mixed and whether
tangible or intangible) used in or pertaining to the business of the Company.
No officer, director, or principal stockholder of the Company nor any Related
Person of the any of the foregoing is or has owned an equity interest or any
other financial or profit interest in, a Person (as defined below) that has
(i) had business dealings or a material financial interest in any transaction
with the Company, or (ii) engaged in competition with the Company with
respect to any line of the merchandise or services of such company (a
"Competing Business") in any market presently served by such company except
for ownership of less than one percent of the outstanding capital stock of
any Competing Business that is publicly traded on any recognized exchange or
in the over-the-counter market. No director, officer, or principal
stockholder of the Company nor any Related Person of any of the foregoing is
a party to any Contract with, or has claim or right against, the Company. As
used in this Agreement, "Person" means any individual, corporation (including
any non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
labor union, or other entity or any governmental body; "Related Person"
means, (X) with respect to a particular individual, (a) each other member of
such individual's Family (as defined below); (b) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of
such individual's Family hold (individually or in the aggregate) a Material
Interest (as defined below); and (d) any Person with respect to which such
individual or one or more members of such individual's Family serves as a
director, officer, partner, executor, or trustee (or in a similar capacity);
(Y) with respect to a specified Person other than an individual, (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; (e) any Person with respect to which such specified Person serves
as a general partner or a trustee (or in a similar capacity); and (f) any
Related Person of any individual described in clause (b) or (c). For purposes
of the foregoing definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any
other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who
resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership of voting Warrants or other voting interests
representing at least 1% of the outstanding voting power of a Person or
equity Warrants or other equity interests representing at least 1% of the
outstanding equity Warrants or equity Warrants in a Person.
6
(o) Title to Properties; Liens and Encumbrances. Except as set forth in the SEC
filings of the Company, the Company has good and marketable title to all of
its material properties and assets, both real and personal, and has good
title to all its leasehold interests. All material properties and assets
reflected in the Company Financials are free and clear of all Encumbrances
(as defined below) except liens for current Taxes not yet due and except as
disclosed in the Company Financials. As used in this Agreement, "Encumbrance"
means any charge, claim, community property interest, condition, equitable
interest, lien, pledge, security interest, right of first refusal, or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.
(p) Permits. The Company has all permits, licenses and any similar authority
necessary for the conduct of its business as now conducted, the lack of which
would materially and adversely affect the business or financial condition of
such company. The Company is not in default in any respect under any of such
permits, licenses or similar authority.
(q) Absence of Litigation. Except as set forth in the Company SEC Filings, there
is no action, suit, proceeding, inquiry or investigation before or by any
court, public board or body, or arbitration tribunal pending or, to the
Knowledge of the Company, threatened against or affecting the Company, in
which an unfavorable decision, ruling or finding would have a material
adverse effect on the properties, business, condition (financial or other) or
results of operations of the Company, taken as a whole, or the transactions
contemplated by the Primary Documents, or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, the Primary Documents. All references to the
"Knowledge of the Company" in this Agreement shall mean the actual knowledge
of the Company or any of its officers or the knowledge that the Company or
any of its officers could reasonably be expected to have, after reasonable
investigation and due diligence.
(r) No Default. The Company is not in default in the performance or observance
of any obligation, covenant or condition contained in any indenture,
mortgage, deed of trust or other instrument or agreement to which it is a
party or by which it or its property may be bound.
(s) Taxes.
(i) All Tax Returns (as defined below) required to have been filed by or with
respect to the Company (including any extensions) have been filed. All such
Tax Returns are true, complete and correct in all material respects. All
Taxes (as defined below) due and payable by the Company, whether or not shown
on any Tax Return, or claimed to be due by any Taxing Authority (as defined
below), have been paid.
(ii) The Company does not have any material liability for Taxes outstanding.
(iii) The Company is not a party to any agreement extending the time within
which to file any Tax Return. No claim has ever been made by a Taxing
Authority of any jurisdiction in which the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
7
(iv) The Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, creditor
or independent contractor.
(v) There has been no action by any Taxing Authority in connection with
assessing additional Taxes against, or in respect of, the Company for any
past period. There is no dispute or claim concerning any Tax liability of the
Company either (i) claimed, raised or, to the Knowledge of the Company,
threatened by any Taxing Authority or (ii) of which the Company is otherwise
aware. There are no liens for Taxes upon the assets and properties of the
Company other than liens for Taxes not yet due.
(vi) There are no outstanding agreements or waivers extending the statutory
period of limitation applicable to any Tax Returns required to be filed by,
or which include or are treated as including, the Company or with respect to
any Tax assessment or deficiency affecting the Company.
(vii) The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to Taxes.
(viii) The Company does not have any liability for the Taxes of any person or
entity other than the Company (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign Legal
Requirements), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise, except for assumed liabilities of the assignee of Provider
Solutions Corp. in an amount not to exceed $400,000.
(ix) The Company (i) has not agreed to make nor is required to make any
adjustment under Section 481 of the Internal Revenue Code by reason of a
change in accounting method and (ii) is not a "consenting corporation" within
the meaning of Section 341(f)(1) of the Internal Revenue Code.
(x) The Company is not a party to or bound by any obligations under any tax
sharing, tax allocation, tax indemnity or similar agreement or arrangement.
(xi) The Company is not involved in, subject to, or a party to any joint
venture, partnership, contract or other arrangement that is treated as a
partnership for federal, state, local or foreign Tax purposes.
(xii) The Company was not included nor is includible, in the Tax Return of any
other entity.
As used in this Agreement, a "Tax Return" means any return, report, information
return, schedule, certificate, statement or other document (including any
related or supporting information) filed or required to be filed with, or, where
none is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax; "Tax" means
any and all taxes, charges, fees, levies or other assessments, including,
without limitation, income, gross, receipts, excise, real or personal property,
sales, withholding, social security, retirement, unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, transfer and
recording taxes, fees and charges, imposed by Taxing Authority, whether computed
8
on a separate, consolidated, unitary, combined or any other basis; and such term
includes any interest whether paid or received, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments; and "Taxing Authority" means any
governmental agency, board, bureau, body, department or authority of any United
States federal, state or local jurisdiction or any foreign jurisdiction, having
or purporting to exercise jurisdiction with respect to any Tax.
(t) Certain Prohibited Activities. Neither the Company nor any of its directors,
officers or other employees has (i) used any Company funds for any unlawful
contribution, endorsement, gift, entertainment or other unlawful expense
relating to any political activity, (ii) made any direct or indirect unlawful
payment of Company funds to any foreign or domestic government official or
employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person.
(u) Contracts. As used in this Agreement, "Contract" means any agreement,
contract, obligation, promise, or undertaking (whether written or oral and
whether express or implied) that is legally binding; or any Contract (a)
under which the Company has or may acquire any rights, (b) under which the
Company has or may become subject to any obligation or liability, or (c) by
which the Company or any of the assets owned or used by it is or may become
bound.
With respect to each Contract (i) the Company is, and has been, in material
compliance with all applicable terms and requirements of each Contract under
which the Company has or had any obligation or liability or by which the Company
or any of the assets owned or used by it is or was bound; (ii) each other person
or entity that has or had any obligation or liability under any Contract under
which the Company has or had any rights is, and has been, in material compliance
with all applicable terms and requirements of such Contract; (iii) no event has
occurred or circumstance exists that (with or without notice or lapse of time)
may contravene, conflict with, or result in a material violation or breach of,
or give the Company or other person or entity the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract; and (iv) the Company has not
given to or received from any other person or entity any notice or other
communication (whether oral or written) regarding any actual, alleged, possible,
or potential violation or breach of, or default under, any Contract.
Each Contract is valid, in full force, and binding on and enforceable against
the other party or parties to such contract in accordance with its terms and
provisions.
There have been no renegotiation of, attempts to renegotiate, or outstanding
rights to renegotiate any material amounts paid or payable to the Company under
current or completed Contracts with any person or entity and no such person or
entity has made written demand for such renegotiation.
(v) Agent Fees. The Company has not incurred any liability for any finder's or
brokerage fees or agent's commissions in connection with the transactions
contemplated by this Agreement.
9
(w) Employees. The Company has no accrued vacation or sick pay due any
employees, except as set forth in the Financial Statements.
(x) Employee Benefits.
(i) The Company does not have, and has not at any time had, any Plans (as
defined below).
As used in this Agreement, "Plan" means (i) each of the "employee benefit plans"
(as such term is defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA")), of which any of the Company or any member of
the same controlled group of businesses as the Company within the meaning of
Section 4001(a)(14) of ERISA (an "ERISA Affiliate") is or ever was a sponsor or
participating employer or as to which the Company or any of its ERISA Affiliates
makes contributions or is required to make contributions, and (ii) any similar
employment, severance or other arrangement or policy of any of the Company or
any of its ERISA Affiliates (whether written or oral) providing for health,
life, vision or dental insurance coverage (including self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits or retirement benefits, fringe benefits, or for profit
sharing, deferred compensation, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits.
(y) Private Offering. Subject to the accuracy of the Purchaser's representations
and warranties set forth in Section 2 hereof, (i) the offer, sale and
issuance of the Warrants, and (ii) the issuance of Common Stock pursuant to
the exercise of the Warrants as contemplated by the Primary Documents, are
exempt from the registration requirements of the Securities Act. The Company
agrees that neither the Company nor anyone acting on its behalf will offer
any of the Warrants or any similar Warrants for issuance or sale, or solicit
any offer to acquire any of the same from anyone so as to render the issuance
and sale of such Warrants subject to the registration requirements of the
Securities Act
(z) Mergers, Acquisitions and Divestitures. Except as set forth in the SEC
filings of the Company, the Company has never acquired any equity interest in
or any major assets of any other Person, or sold the equity interest or any
major asset owned by it in a transaction the terms of which were not based on
arms' length negotiations. None of the officers and directors of the Company
has received any benefit in connection with any of the foregoing transactions
or is under any agreement or understanding with any Person (including
agreements or understandings among themselves) with respect to the receipt of
or entitlement to any such benefit.
(aa) Full Disclosure. There is no fact known to the Company (other than general
economic conditions known to the public generally) that has not been
disclosed to the Purchaser that could (i) reasonably be expected to have a
material adverse effect upon the condition (financial or otherwise) or the
earnings, business affairs, properties or assets of the Company or (ii)
reasonably be expected to materially and adversely affect the ability of the
Company to perform the obligations set forth in the Primary Documents. The
representations and warranties of the Company set forth in this Agreement do
not contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained herein, in light of the
circumstances under which they were made, not misleading.
10
4. CERTAIN COVENANTS, ACKNOWLEDGMENTS AND RESTRICTIONS
(a) Transfer Restrictions. The Purchaser acknowledges that (i) neither the
Warrants nor the Common Stock issuable upon exercise of the Warrants have
been registered under the Securities Act, and such Warrants may not be
transferred unless (A) subsequently registered thereunder or (B) they are
transferred pursuant to an exemption from such registration, and (ii) any
sale of the Warrants or the Common Stock issuable upon exercise or exchange
thereof (collectively, the "Covered Warrants") made in reliance upon Rule 144
under the Securities Act ("Rule 144") may be made only in accordance with the
terms of said Rule 144. The provisions of Section 4(a) and 4(b) hereof,
together with the rights of the Purchaser under this Agreement and the other
Primary Documents, shall be binding upon any subsequent transferee of the
Common Stock.
(b) Restrictive Legend. The Purchaser acknowledges and agrees that, until such
time as the Covered Warrants shall have been registered under the Securities
Act or the Purchaser demonstrates to the reasonable satisfaction of the
Company and its counsel that such registration shall no longer be required,
such Covered Warrants may be subject to a stop-transfer order placed against
the transfer of such Covered Warrants, and such Covered Warrants shall bear a
restrictive legend in substantially the following form:
THESE WARRANTS (INCLUDING ANY UNDERLYING CAPITAL STOCK) HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO
THE WARRANTS UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION SHALL NO
LONGER BE REQUIRED.
(c) Filings. The Company undertakes and agrees that it will make all required
filings in connection with the sale of the Securities to the Purchaser as
required by federal and state laws and regulations, or by any domestic
securities exchange or trading market, and if applicable, the filing of a
notice on Form D (at such time and in such manner as required by the rules
and regulations of the Commission), and to provide copies thereof to the
Purchaser promptly after such filing or filings. With a view to making
available to the holders of the Securities the benefits of Rule 144 and any
other rule or regulation of the Commission that may at any time permit such
holder to sell securities of the Company to the public without registration
or pursuant to a registration on Form S-3 or Form SB-2, the Company shall (a)
at all times make and keep public information available, as those terms are
understood and defined in Rule 144, (b) file on a timely basis with the
Commission all information that the Commission may require under either of
Section 13 or Section 15(d) of the Exchange Act and, so long as it is
required to file such information, take all actions that may be required as a
condition to the availability of Rule 144 (or any successor exemptive rule
hereafter in effect) with respect to the Common Stock; and (d) furnish to any
holder of the Securities forthwith upon request (i) a written statement by
the Company as to its compliance with the reporting requirements of Rule 144,
(ii) a copy of the most recent annual or quarterly report of the Company as
filed with the Commission, and (iii) any other reports and documents that a
holder of the Securities may reasonably request in order to avail itself of
any rule or regulation of the Commission allowing such holder to sell any
such Securities without registration.
11
(d) Reservation of Common Stock. The Company will at all times have authorized
and reserved for the purpose of issuance a sufficient number of shares of
Common Stock to provide for the conversion of the exercise of the Warrants.
(e) Return of Certificates on Conversion. Upon any exercise by any holder of the
Warrants of less than all of the shares of Common Stock into which such
Warrants are exercisable, the Company shall issue and deliver to the holder
thereof, within seven business days of the date of exercise, a new Warrant
exercisable for the total number of shares of Common Stock which the holder
has not yet elected to exercise.
(f) Replacement Certificates. The Warrants will be exchangeable, at the option
of the Purchaser, at any time and from time to time at the office of the
Company, for other Warrants of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Common
Stock as are purchasable under such Warrants. No service charge will be made
for such transfer or exchange.
(g) Financial Statements. At the expense of the Company, the Company's
accountant shall annually prepare for each calendar year, a report of the
Company, including a balance sheet, annual profit and loss statement, and
annual cash flow statement to be furnished to the Purchaser within one
hundred twenty (120) days after the end of each calendar year. In addition
the Company shall cause to be prepared and distributed to the Purchaser for
each calendar quarter during the term of this Agreement a report of the
Company, including a balance sheet, quarterly profit and loss statement, and
quarterly cash flow statement for such calendar quarter to be furnished to
the Purchaser within forty-five (45) days after the end of each calendar
quarter. The Company shall also cause to be prepared and filed all Federal,
state and local income tax returns and information returns, if any, which the
Company is required to file.
5. FEES AND EXPENSES
The Company shall bear its own costs, including attorney's fees,
incurred in the negotiation of this Agreement and consummating of the
transactions contemplated herein and in the corporate proceedings of the Company
in contemplation hereof and thereof. At the date of execution and delivery
hereof, the Company shall reimburse the Purchaser for all of the Purchaser's
reasonable out-of-pocket expenses incurred in connection with the negotiation or
performance of this Agreement, including without limitation, reasonable fees and
disbursements of counsel to the Purchaser.
12
6. SURVIVAL
The agreements, covenants, representations and warranties of the
Company and the Purchaser shall survive the execution and delivery of this
Agreement and the delivery of the Warrants hereunder for a period of two years
from the date hereof, except that:
(a) the Company's representations and warranties regarding Taxes contained in
Section 3(s) of this Agreement shall survive as long as the Company remains
statutorily liable for any obligation referenced in Section 3(s), and
(b) the Company's representations and warranties contained in Section 3(b) shall
survive until the Purchaser and any of its affiliates are no longer holders
of any of the Warrants purchased hereunder.
7. INDEMNIFICATION
(a) The Company, on the one side, and the Purchaser (each in such capacity under
this section, the "Indemnifying Party") agrees to indemnify the other party
and each officer, director, employee, agent, partner, stockholder, member and
affiliate of such other party (collectively, the "Indemnified Parties") for,
and hold each Indemnified Party harmless from and against: (i) any and all
damages, losses, claims, diminution in value and other liabilities of any and
every kind, including, without limitation, judgments and costs of settlement,
and (ii) any and all reasonable out-of-pocket costs and expenses of any and
every kind, including, without limitation, reasonable fees and disbursements
of counsel for such Indemnified Parties (all of which expenses periodically
shall be reimbursed as incurred), in each case, arising out of or suffered or
incurred in connection with any of the following, whether or not involving a
third party claim: (a) any misrepresentation or any breach of any warranty
made by the Indemnifying Party herein or in any of the other Primary
Documents, (b) any breach or non-fulfillment of any covenant or agreement
made by the Indemnifying Party herein or in any of the other Primary
Documents, or (c) any claim relating to or arising out of a violation of
applicable federal or state Warrants laws by the Indemnifying Party in
connection with the sale or issuance of the Warrants by the Indemnifying
Party to the Indemnified Party (collectively, the "Indemnified Liabilities").
To the extent that the foregoing undertaking by the Indemnifying Party may be
unenforceable for any reason, the Indemnifying Party shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
8. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or three business days following deposit of such
notice with an internationally recognized courier service, with postage prepaid
and addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
13
Company: Health Systems Solutions, Inc.
405 North Reo Street, Suite 300
Tampa, Florida 33609
Attention: B. M. Milvain, President
Telephone: 813-282-3303
Facsimile: 813-282-8907
with a copy to: Stanford Financial Group
5050 Westheimer
Houston, TX 77056
Attention: Mauricio Alvarado, Esq.
Telephone: (713) 964-5145
Facsimile: (713) 964-5245
Purchaser: Stanford Venture Capital Holdings, Inc.
6075 Poplar Avenue
Memphis, TN 38119
Attention: James M. Davis, President
Telephone: (901) 680-5260
Facsimile: (901) 680-5265
with a copy to: Stanford Financial Group
5050 Westheimer
Houston, TX 77056
Attention: Mauricio Alvarado, Esq.
Telephone: (713) 964-5145
Facsimile: (713) 964-5245
9. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Florida, without regard to its principles of conflict
of laws. Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any party in
the federal courts of Florida or the state courts of the State of Florida,
Miami-Dade County and each of the parties consents to the jurisdiction of such
courts and hereby waives, to the maximum extent permitted by law, any objection,
including any objections based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
14
10. MISCELLANEOUS
(a) Entire Agreement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement, together with the other Primary Documents, including
any certificate, schedule, exhibit or other document delivered pursuant to
their terms, constitutes the entire agreement among the parties hereto with
respect to the subject matters hereof and thereof, and supersedes all prior
agreements and understandings, whether written or oral, among the parties
with respect to such subject matters.
(b) Amendments. This Agreement may not be amended except by an instrument in
writing signed by the party to be charged with enforcement.
(c) Waiver. No waiver of any provision of this Agreement shall be deemed a
waiver of any other provisions or shall a waiver of the performance of a
provision in one or more instances be deemed a waiver of future performance
thereof.
(d) Construction. This Agreement and each of the Primary Documents have been
entered into freely by each of the parties, following consultation with their
respective counsel, and shall be interpreted fairly in accordance with its
respective terms, without any construction in favor of or against either
party.
(e) Binding Effect of Agreement. This Agreement shall inure to the benefit of,
and be binding upon the successors and assigns of each of the parties hereto,
including any transferees of the Warrants.
(f) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement
or the validity or unenforceability of this Agreement in any other
jurisdiction.
(g) Attorneys' Fees. If any action should arise between the parties hereto to
enforce or interpret the provisions of this Agreement, the prevailing party
in such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
(h) Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of this
Agreement.
(i) Counterparts. This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together,
will be deemed to constitute one and the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
15
IN WITNESS WHEREOF, this Agreement has been duly executed by each of
the undersigned as of the date first written above.
HEALTH SYSTEMS SOLUTIONS, INC.
By:
------------------------------------
Name:
---------------------------------
Title:
--------------------------------
STANFORD VENTURE CAPITAL HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
16
EXHIBIT INDEX
EXHIBIT A WARRANT
EXHIBIT B HSS CLOSING CERTIFICATE
EXHIBIT C SVCH CLOSING CERTIFICATE
EXHIBIT B
HEALTH SYSTEMS SOLUTIONS, INC.
A Nevada Corporation
CLOSING CERTIFICATE
The undersigned, B.M. Milvain, hereby certifies to Stanford Venture
Capital Holdings, Inc., a Delaware Corporation ("SVCH"), that he is the duly
elected and acting President of Health Systems Solutions, Inc., a
Nevada corporation (the "Company"), and hereby further certifies to SVCH as
follows:
All capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms as in the Warrant Purchase Agreement dated
as of July 6, 2004 and entered into by and among the Company and SVCH (the
"Warrant Purchase Agreement"):
1. Representations and Warranties. The representations and warranties
made by the Company in the Warrant Purchase Agreement are true and
correct in all respects on and as of the date hereof, as though
made on and as of such date, except to the extent that any such
representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and
correct in all respects on and as of such earlier date.
2. Covenants and Agreements. The Company has performed all covenants
and agreements required to be performed pursuant to the Warrant
Purchase Agreement in all respects on and as of the date hereof.
3. Recent Events. Except as disclosed in the Warrant Purchase
Agreement, there has not been any: (a) material adverse change or
any material adverse development in the business, properties,
operations, financial condition, prospects, outstanding securities
or results or operations of the Company and no event has occurred
or no circumstances exist that may result in such material adverse
change; (b) no incurrence of any liability, fixed or contingent by
the Company. The Company has not engaged in any practice, taken
any action, or entered into any transaction, except as
contemplated by the Warrant Purchase Agreement.
IN WITNESS WHEREOF, the undersigned has executed this Officers'
Certificate this ___ day of July 2004.
___________________
B.M. Milvain
President
EXHIBIT C
STANFORD VENTURE CAPITAL HOLDINGS, INC.
A Delaware Corporation
CLOSING CERTIFICATE
The undersigned, ______________, hereby certifies to Health Systems
Solutions, Inc., a Nevada corporation ("HSS"), that he is the duly elected and
acting President of Stanford Venture Capital Holdings, Inc., a Delaware
Corporation (the "Company"), and hereby further certifies to HSS as follows:
All capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms as in the Warrant Purchase Agreement dated
as of July 6, 2004 and entered into by and among the Company and HSS (the
"Warrant Purchase Agreement"):
1. Representations and Warranties. The representations and warranties
made by the Company in the Warrant Purchase Agreement are true and
correct in all respects on and as of the date hereof, as though
made on and as of such date, except to the extent that any such
representation or warranty expressly relates solely to an earlier
date, in which case such representation or warranty is true and
correct in all respects on and as of such earlier date.
2. Covenants and Agreements. The Company has performed all covenants
and agreements required to be performed pursuant to the Warrant
Purchase Agreement in all respects on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Officers'
Certificate this ___ day of July 2004.
_________________
B.M. Milvain
President
WARRANT ASSIGNMENT
THIS WARRANT ASSIGNMENT AGREEMENT, dated as of July 6, 2004 (the
"Agreement"), is entered into by and among Stanford Venture Capital Holdings,
Inc., a Delaware corporation ("Stanford"), Daniel T. Bogar ("Bogar"), Ronald M.
Stein ("Stein"), William M. Fusselmann ("Fusselmann") and Osvaldo Pi ("Pi" and
together with Bogar, Stein and Fusselmann each an "Assignee" and collectively
the "Assignees").
W I T N E S S E T H:
WHEREAS, effective as of the date hereof, Health Systems Solutions,
Inc., a Nevada corporation ("HSS") entered into a certain Warrant Purchase
Agreement by and among HSS and Stanford (the "Securities Purchase Agreement");
WHEREAS, pursuant to, and in accordance with, the Securities Purchase
Agreement, Stanford purchased and HSS sold and issued warrants to purchase up to
an aggregate of 720,000 shares of HSS common stock (the "HSS Warrants");
WHEREAS, for value received, Stanford agreed to assign and transfer
unto each Assignee HSS Warrants exercisable for 90,000 HSS Warrant Shares (as
hereinafter defined) (the "HSS Assigned Warrants") with each share of common
stock represented by the HSS Warrants ("HSS Warrant Shares") exercisable at an
exercise price per HSS Warrant Share of $0.001;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
A. Stanford hereby assigns and transfers unto each Assignee, 90,000 HSS
Warrant Shares exercisable at an exercise price per HSS Warrant Share
of $0.001.
B. The parties hereto hereby covenant and agree to take all such action as
may be necessary or appropriate in order to carry out the actions set
forth herein.
C. This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Florida, without regard to its principles of
conflict of laws.
D. This Agreement supersedes all prior agreements and understandings among
the parties hereto with respect to the subject matter hereof. This
Agreement, constitutes the entire agreement among the parties hereto
with respect to the subject matters hereof and thereof, and supersedes
all prior agreements and understandings, whether written or oral, among
the parties with respect to such subject matters.
E. This Agreement shall inure to the benefit of, and be binding upon the
successors and assigns of each of the parties hereto, including any
transferees of the Warrants.
F. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original and all of which, when taken together, will
be deemed to constitute one and the same agreement.
*Signatures on Following Page*
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Stanford Venture Capital Holdings, Inc. "Assignees"
---------------------------- ---------------------------
By: William R. Fusselmann
Title: 141 Crandon Blvd., #437
Key Biscayne, Florida 33149
---------------------------
Daniel T. Bogar
1016 Sanibel Drive
---------------------------
Ronald M. Stein
6520 Allison Road
Miami Beach, Florida 33141
---------------------------
Osvaldo Pi
6405 SW 104th Street
Pinecrest, Florida 33156
HEALTH SYSTEMS SOLUTIONS, INC.
A Nevada Corporation
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 6, 2004 (the
"Agreement"), is entered into by and among Health Systems Solutions, Inc., a
Nevada corporation (the "Company"), and the holders (the "Investors") of the
Company's capital stock and Warrants set forth on the signature page hereof.
Capitalized terms not defined herein shall have the meanings ascribed to them in
the Warrant Purchase Agreement (as hereinafter defined).
WHEREAS, Health Quality Solutions, Inc., a Florida corporation ("HQS")
is a wholly-owned subsidiary of the Company;
---
WHEREAS, Stanford Venture Capital Holdings, Inc. ("SVCH" and an
Investor as defined herein) and HQS entered into a Loan and Security Agreement
of even date herewith pursuant to which, among other things, HQS borrowed from
SVCH up to an aggregate of $1,600,000 (the "Loan Agreement"); and
WHEREAS, as partial consideration for SVCH entering into the Loan
Agreement and upon the terms and conditions of this Agreement, the Purchaser has
agreed to purchase, and the Company wishes to issue and sell to the Purchaser
and/or its assigns, warrants to purchase up to an aggregate of 720,000 of the
Company's common stock $0.001 par value per share (the "Common Stock"), at an
exercise price of $0.001 per share; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, SVCH has agreed to purchase the Warrants from the Company pursuant to
the Warrant Purchase Agreement of even date herewith by and between the Company
and SVCH (the "Warrant Purchase Agreement"); and
WHEREAS, the Company desires to grant to the Investors the registration
rights set forth herein with respect to the shares of Common Stock issuable upon
exercise of the Warrants (the "Warrant Shares") and the shares of Common Stock
issuable upon the exercise of the warrants in the event of a registration
default pursuant to Section 4(e) (the "Default Warrant Shares").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. CERTAIN DEFINITIONS
As used herein the term "Registrable Security" means the Warrant Shares
until (i) the Registration Statement (as defined below) has been declared
effective by the Securities and Exchange Commission (the "Commission"), and all
Securities have been disposed of pursuant to the Registration Statement, (ii)
all Securities have been sold under circumstances under which all of the
applicable conditions of Rule 144 ("Rule 144") (or any similar provision then in
force) under the Securities Act of 1933, as amended (the "Securities Act") are
met, or (iii) such time as, in the opinion of counsel to the Company reasonably
1
satisfactory to the Investors and upon delivery to the Investors of such
executed opinion, all Securities may be sold without any time, volume or manner
limitations pursuant to Rule 144 (or any similar provision then in effect). In
the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be deemed to be made in the definition of "Registrable Security" as is
appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Agreement. As used herein the term "Holder" means any
Person owning or having the right to acquire Registrable Securities or any
assignee thereof in accordance with Section 10 hereof. As used herein "Trading
Day" shall mean any business day on which the market on which the Common Stock
trades is open for business.
2. RESTRICTIONS ON TRANSFER
Each of the Investors acknowledges and understands that prior to the
registration of the Securities as provided herein, the Securities are
"restricted securities" as defined in Rule 144. Each of the Investors
understands that no disposition or transfer of the Securities may be made by any
of the Investors in the absence of (i) an opinion of counsel to such Investor,
in form and substance reasonably satisfactory to the Company, that such transfer
may be made without registration under the Securities Act or (ii) such
registration.
3. COMPLIANCE WITH REPORTING REQUIREMENTS
With a view to making available to the Investors the benefits of Rule
144 or any other similar rule or regulation of the Commission that may at any
time permit the holders of the Securities to sell securities of the Company to
the public pursuant to Rule 144, the Company agrees to:
(a) comply with the provisions of paragraph (c)(1) of Rule 144;
(b) file with the Commission in a timely manner all reports and other documents
required to be filed with the Commission pursuant to Section 13 or 15(d) under
the Securities Exchange Act of 1934 (the "Exchange Act") by companies subject to
either of such sections, irrespective of whether the Company is then subject to
such reporting requirements; and
(c) Upon request by any Holder or the Company's transfer agent, the Company
shall provide an opinion of counsel, which opinion shall be reasonably
acceptable to the Holder and/or the Company's transfer agent, that the such
Holder has complied with the applicable conditions of Rule 144 (or any similar
provision then in force).
4. REGISTRATION RIGHTS WITH RESPECT TO THE REGISTRABLE SECURITIES
(a) The Company agrees that it will prepare and file with the Commission, (i) by
December 31, 2004, a registration statement (on Form S-1 or SB-2, or other
appropriate registration statement form) under the Securities Act (the
"Registration Statement"), and (ii) if at least 20% of the Registrable
Securities covered under the Registration Statement filed under (i) remain
unsold during the effective period of such Registration Statement, then within
20 days following receipt of a written notice from the holders representing a
majority of such unsold Registrable Securities, another Registration Statement
so as to permit a resale of the Securities under the Securities Act by the
Holders as selling stockholders and not as underwriters.
2
The Company shall use diligent best efforts to cause the Registration
Statement to become effective as soon as practical following the filing of the
Registration Statement. The number of shares designated in the Registration
Statement to be registered shall include 150% of the Warrant Shares and 150% of
the Default Warrant Shares, if any, and shall include appropriate language
regarding reliance upon Rule 416 to the extent permitted by the Commission. The
Company will notify the Holders and its transfer agent of the effectiveness of
the Registration Statement within one Trading Day of such event.
(b) The Company will maintain the Registration Statement or post-effective
amendment filed under this Section 4 effective under the Securities Act until
the earlier of (i) the date that none of the Registrable Securities covered by
such Registration Statement are or may become issued and outstanding, (ii) the
date that all of the Registrable Securities have been sold pursuant to such
Registration Statement, (iii) the date all the Holders receive an opinion of
counsel to the Company, which counsel shall be reasonably acceptable to the
Holders, that the Registrable Securities may be sold under the provisions of
Rule 144 without limitation as to volume, (iv) all Registrable Securities have
been otherwise transferred to persons who may trade such shares without
restriction under the Securities Act, and the Company has delivered a new
certificate or other evidence of ownership for such securities not bearing a
restrictive legend, or (v) two years from the Effective Date.
(c) All fees, disbursements and out-of-pocket expenses and costs incurred by the
Company in connection with the preparation and filing of the Registration
Statement under this Section 4 and in complying with applicable securities and
blue sky laws (including, without limitation, all attorneys' fees of the
Company) shall be borne by the Company. The Company shall also reimburse the
fees and expenses of counsel to the Holders incurred in connection with such
counsel's review of the Registration Statement and advice concerning the
Registration Statement and its filing subject to a cap of $15,000. The Holders
shall bear the cost of underwriting and/or brokerage discounts, fees and
commissions, if any, applicable to the Registrable Securities being registered.
The Holders and their counsel shall have a reasonable period, not to exceed 15
Trading Days, to review the proposed Registration Statement or any amendment
thereto, prior to filing with the Commission, and the Company shall provide the
Holders with copies of any comment letters received from the Commission with
respect thereto within two Trading Days of receipt thereof. The Company shall
qualify any of the Registrable Securities for sale in such states as the Holders
reasonably designate and shall furnish indemnification in the manner provided in
Section 7 hereof. However, the Company shall not be required to qualify in any
state which will require an escrow or other restriction relating to the Company
and/or the Holders, or which will require the Company to qualify to do business
in such state or require the Company to file therein any general consent to
service of process. The Company at its expense will supply each of the Investors
with copies of the applicable Registration Statement and the prospectus included
therein and other related documents in such quantities as may be reasonably
requested by any of the Investors.
3
(d) The Company shall not be required by this Section 4 to include the
Registrable Securities in any Registration Statement which is to be filed if, in
the opinion of counsel for both the Holders and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for the Holders and the Company) the proposed offering or
other transfer as to which such registration is requested is exempt from
applicable federal and state securities laws and would result in all purchasers
or transferees obtaining securities which are not "restricted securities," as
defined in Rule 144.
(e) In the event that (i) the Registration Statement is not filed by the Company
in a timely manner as set forth in Section 4(a); or (ii) such Registration
Statement is not maintained as effective by the Company for the period set forth
in Section 4(b) above (each a "Registration Default"), then the Company will
issue to each of the Holders as of the first day of such Registration Default
and for every consecutive month in which such Registration Default is occurring,
as liquidated damages, and not as a penalty, warrants to purchase one (1) share
of the Common Stock ("Default Warrants") for each ten Warrants issued to the
Holders pursuant to the Warrant Purchase Agreement until such corresponding
Registration Default no longer exists ("Liquidated Damages"); provided, however,
that the issuance of such Default Warrants shall not relieve the Company from
its obligations to register the Registrable Securities pursuant to this Section.
If the Company does not issue the Default Warrants to the Holders as
set forth above, the Company will pay any Holder's reasonable costs of any
action in a court of law to cause compliance with this Section 4(e), including
reasonable attorneys' fees, in addition to the Default Warrants. The
registration of the Registrable Securities pursuant to this Section shall not
affect or limit a Holder's other rights or remedies as set forth in this
Agreement.
(f) The Company shall be precluded from including in any Registration Statement
which it is required to file pursuant to this Section 4 any other securities
apart from the Registrable Securities, without the prior written consent of the
Holders.
(g) If, at any time any Registrable Securities are not at the time covered by
any effective Registration Statement, the Company shall determine to register
under the Securities Act (including pursuant to a demand of any stockholder of
the Company exercising registration rights) any of its shares of the Common
Stock (other than in connection with a merger or other business combination
transaction that has been consented to in writing by holders of the Warrants, or
pursuant to Form S-8 when such filing has been consented to in writing by
holders of the Series A Preferred Stock), it shall send to each Holder written
notice of such determination and, if within 20 days after receipt of such
notice, such Holder shall so request in writing, the Company shall its best
efforts to include in such registration statement all or any part of the
Registrable Securities that such Holder requests to be registered.
Notwithstanding the foregoing, if, in connection with any offering involving an
underwriting of the Common Stock to by issued by the Company, the managing
underwriter shall impose a limitation on the number of shares of the Common
Stock included in any such registration statement because, in such underwriter's
judgment, such limitation is necessary based on market conditions: (a) if the
registration statement is for a public offering of common stock on a "firm
commitment" basis with gross proceeds to the Company of at least $15,000,000 (a
"Qualified Public Offering"), the Company may exclude, to the extent so advised
4
by the underwriters, the Registrable Securities from the underwriting; provided,
however, that if the underwriters do not entirely exclude the Registrable
Securities from such Qualified Public Offering, the Company shall be obligated
to include in such registration statement, with respect to the requesting
Holder, only an amount of Registrable Securities equal to the product of (i) the
number of Registrable Securities that remain available for registration after
the underwriter's cutback and (ii) such Holder's percentage of ownership of all
the Registrable Securities then outstanding (on an as-converted basis) (the
"Registrable Percentage"); and (b) if the registration statement is not for a
Qualified Public Offering, the Company shall be obligated to include in such
registration statement, with respect to the requesting Holder, only an amount of
Registrable Securities equal to the product of (i) the number of Registrable
Securities that remain available for registration after the underwriter's
cutback and (ii) such Holder's Registrable Percentage; provided, however, that
the aggregate value of the Registrable Securities to be included in such
registration may not be so reduced to less than 30% of the total value of all
securities included in such registration. If any Holder disapproves of the terms
of any underwriting referred to in this paragraph, it may elect to withdraw
therefrom by written notice to the Company and the underwriter. No incidental
right under this paragraph shall be construed to limit any registration required
under the other provisions of this Agreement.
5. COOPERATION WITH COMPANY
Each Holder will cooperate with the Company in all respects in
connection with this Agreement, including timely supplying all information
reasonably requested by the Company (which shall include all information
regarding such Holder and proposed manner of sale of the Registrable Securities
required to be disclosed in any Registration Statement) and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities and entering into and performing its
obligations under any underwriting agreement, if the offering is an underwritten
offering, in usual and customary form, with the managing underwriter or
underwriters of such underwritten offering. Nothing in this Agreement shall
obligate any Holder to consent to be named as an underwriter in any Registration
Statement. The obligation of the Company to register the Registrable Securities
shall be absolute and unconditional as to those Registrable Securities which the
Commission will permit to be registered without naming any Holder as
underwriters. Any delay or delays caused by a Holder by failure to cooperate as
required hereunder shall not constitute a Registration Default as to such
Holder.
6. REGISTRATION PROCEDURES
If and whenever the Company is required by any of the provisions of
this Agreement to effect the registration of any of the Registrable Securities
under the Securities Act, the Company shall (except as otherwise provided in
this Agreement), as expeditiously as possible, subject to the Holders'
assistance and cooperation as reasonably required with respect to each
Registration Statement:
(a) (i) prepare and file with the Commission such amendments and supplements to
the 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 Registrable Securities covered by such Registration Statement
whenever any of the Holder shall desire to sell or otherwise dispose of the same
5
(including prospectus supplements with respect to the sales of Registrable
Securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Securities Act) and (ii) take all
lawful action such that each of (A) the Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (B) the prospectus forming part of the
Registration Statement, and any amendment or supplement thereto, does not at any
time during the Registration Period include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading;
(b) (i) prior to the filing with the Commission of any Registration Statement
(including any amendments thereto) and the distribution or delivery of any
prospectus (including any supplements thereto), provide draft copies thereof to
the Holders as required by Section 4(c) and reflect in such documents all such
comments as the Holders (and their counsel) reasonably may propose; (ii) furnish
to each of the Holders such numbers of copies of a prospectus including a
preliminary prospectus or any amendment or supplement to any prospectus, as
applicable, in conformity with the requirements of the Securities Act, and such
other documents, as any of the Holders may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
owned by such Holder; and (iii) provide to the Holders copies of any comments
and communications from the Commission relating to the Registration Statement,
if lawful to do so;
(c) register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or blue sky laws of such jurisdictions as
any of the Holders shall reasonably request (subject to the limitations set
forth in Section 4(c) above), and do any and all other acts and things which may
be necessary or advisable to enable such Holder to consummate the public sale or
other disposition in such jurisdiction of the Registrable Securities owned by
such Holder;
(d) list such Registrable Securities on the markets where the Common Stock of
the Company is listed as of the effective date of the Registration Statement, if
the listing of such Registrable Securities is then permitted under the rules of
such markets;
(e) notify the Holders at any time when a prospectus relating thereto covered by
the Registration Statement is required to be delivered under the Securities Act,
of the happening of any event of which it has knowledge as a result of which the
prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and the Company
shall prepare and file a curative amendment under Section 6(a) as quickly as
reasonably possible and during such period, the Holders shall not make any sales
of Registrable Securities pursuant to the Registration Statement;
6
(f) after becoming aware of such event, notify each of the Holders who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance by the Commission of any stop order
or other suspension of the effectiveness of the Registration Statement at the
earliest possible time and take all lawful action to effect the withdrawal,
rescission or removal of such stop order or other suspension;
(g) cooperate with the Holders to facilitate the timely preparation and delivery
of certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as any of
the Holders reasonably may request and registered in such names as any of the
Holders may request; and, within three Trading Days after a Registration
Statement which includes Registrable Securities is declared effective by the
Commission, deliver and cause legal counsel selected by the Company to deliver
to the transfer agent for the Registrable Securities (with copies to the
Holders) an appropriate instruction and, to the extent necessary, an opinion of
such counsel;
(h) take all such other lawful actions reasonably necessary to expedite and
facilitate the disposition by the Holders of their Registrable Securities in
accordance with the intended methods therefor provided in the prospectus which
are customary for issuers to perform under the circumstances;
(i) in the event of an underwritten offering, promptly include or incorporate in
a prospectus supplement or post-effective amendment to the Registration
Statement such information as the managers reasonably agree should be included
therein and to which the Company does not reasonably object and make all
required filings of such prospectus supplement or post-effective amendment as
soon as practicable after it is notified of the matters to be included or
incorporated in such prospectus supplement or post-effective amendment; and
(j) maintain a transfer agent and registrar for the Common Stock.
7. INDEMNIFICATION
(a) To the maximum extent permitted by law, the Company agrees to indemnify and
hold harmless each of the Holders, each person, if any, who controls any of the
Holders within the meaning of the Securities Act, and each director, officer,
shareholder, employee, agent, representative, accountant or attorney of the
foregoing (each of such indemnified parties, a "Distributing Investor") against
any losses, claims, damages or liabilities, joint or several (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees and
expenses), to which the Distributing Investor may become subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, or any related final prospectus or amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
the Company will not be liable in any such case to the extent, and only to the
extent, that any such loss, claim, damage or liability arises out of or is based
7
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such Registration Statement, preliminary prospectus, final
prospectus or amendment or supplement thereto in reliance upon, and in
conformity with, written information furnished to the Company by the
Distributing Investor, its counsel, or affiliates, specifically for use in the
preparation thereof or (ii) by such Distributing Investor's failure to deliver
to the purchaser a copy of the most recent prospectus (including any amendments
or supplements thereto). This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) To the maximum extent permitted by law, each Distributing Investor agrees
that it will indemnify and hold harmless the Company, and each officer and
director of the Company or person, if any, who controls the Company within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but not
be limited to, all reasonable costs of defense and investigation and all
reasonable attorneys' fees and expenses) to which the Company or any such
officer, director or controlling person may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement, or any related final prospectus or amendment or supplement thereto,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but in each case only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in such Registration Statement, final prospectus or amendment or supplement
thereto in reliance upon, and in conformity with, written information furnished
to the Company by such Distributing Investor, its counsel or affiliates,
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Distributing Investor may otherwise
have under this Agreement. Notwithstanding anything to the contrary herein, the
Distributing Investor shall be liable under this Section 7(b) for only that
amount as does not exceed the net proceeds to such Distributing Investor as a
result of the sale of Registrable Securities pursuant to the Registration
Statement.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action against such indemnified party, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party except to the extent the failure of
the indemnified party to provide such written notification actually prejudices
the ability of the indemnifying party to defend such action. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified parties shall have
the right to employ one or more 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 indemnifying party if the indemnifying party
8
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party unless (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any interpleaded parties) include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by its counsel that there may be one or more legal defenses
available to the indemnifying party different from or in conflict with any legal
defenses which may be available to the indemnified party or any other
indemnified party (in which case the indemnifying party shall not have the right
to assume the defense of such action on behalf of such indemnified party, it
being understood, however, that the indemnifying party shall, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable only for the reasonable fees and expenses of one
separate firm of attorneys for the indemnified party, which firm shall be
designated in writing by the indemnified party). No settlement of any action
against an indemnified party shall be made without the prior written consent of
the indemnified party, which consent shall not be unreasonably withheld so long
as such settlement includes a full release of claims against the indemnified
party.
All fees and expenses of the indemnified party (including reasonable
costs of defense and investigation in a manner not inconsistent with this
Section and all reasonable attorneys' fees and expenses) shall be paid to the
indemnified party, as incurred, within 10 Trading Days of written notice thereof
to the indemnifying party; provided, that the indemnifying party may require
such indemnified party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such indemnified party is
not entitled to indemnification hereunder.
8. CONTRIBUTION
In order to provide for just and equitable contribution under the
Securities Act in any case in which (i) the indemnified party makes a claim for
indemnification pursuant to Section 7 hereof but is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 7 hereof provide for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of any indemnified party, then the Company and the applicable Distributing
Investor shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees and expenses), in either such
case (after contribution from others) on the basis of relative fault as well as
any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Investor on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Investor
agree that it would not be just and equitable if contribution pursuant to this
Section 8 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
9
to in this Section 8. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 8 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
Notwithstanding any other provision of this Section 8, in no event
shall (i) any of the Distributing Investors be required to undertake liability
to any person under this Section 8 for any amounts in excess of the dollar
amount of the proceeds received by such Distributing Investor from the sale of
such Distributing Investor's Registrable Securities (after deducting any fees,
discounts and commissions applicable thereto) pursuant to any Registration
Statement under which such Registrable Securities are registered under the
Securities Act and (ii) any underwriter be required to undertake liability to
any person hereunder for any amounts in excess of the aggregate discount,
commission or other compensation payable to such underwriter with respect to the
Registrable Securities underwritten by it and distributed pursuant to such
Registration Statement.
9. NOTICES
Any notice required or permitted hereunder shall be given in writing
(unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free transmission
and mailing a copy of such confirmation, postage prepaid by certified mail,
return receipt requested) or two business days following deposit of such notice
with an internationally recognized courier service, with postage prepaid and
addressed to each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by five days
advance written notice to each of the other parties hereto.
Company: Health Systems Solutions, Inc.
405 North Reo Street, Suite 300
Tampa, Florida 33609
Attention: B. M. Milvain, President
Telephone: 813-282-3303
Facsimile: 813-282-8907
with a copy to: Stanford Financial Group
5050 Westheimer
Houston, TX 77056
Attention: Mauricio Alvarado, Esq.
Telephone: (713) 964-5145
Facsimile: (713) 964-5245
Investors: At the address and facsimile set
forth on the signature page hereof
10
10. ASSIGNMENT
The registration rights granted to any Holder under this Agreement may
be transferred or assigned provided the transferee is bound by the terms of this
Agreement and the Company is given written notice of such transfer or
assignment.
11. ADDITIONAL COVENANTS OF THE COMPANY
For so long as it shall be required to maintain the effectiveness of
the Registration Statement, it shall file all reports and information required
to be filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of the applicable form.
12. CONFLICTING AGREEMENTS
The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise prevents the Company from complying with all of its
obligations hereunder.
13. GOVERNING LAW; JURISDICTION
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of Florida, without regard to its principles of conflict
of laws. Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any party in
the federal courts of Florida or the state courts of the State of Florida, and
each of the parties consents to the jurisdiction of such courts and hereby
waives, to the maximum extent permitted by law, any objection, including any
objections based on forum non conveniens, to the bringing of any such proceeding
in such jurisdictions.
14. MISCELLANEOUS
(a) Entire Agreement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof. This Agreement, together with the other Primary Documents, including any
certificate, schedule, exhibit or other document delivered pursuant to their
terms, constitutes the entire agreement among the parties hereto with respect to
the subject matters hereof and thereof, and supersedes all prior agreements and
understandings, whether written or oral, among the parties with respect to such
subject matters.
(b) Amendments. This Agreement may not be amended except by an instrument in
writing signed by the party to be charged with enforcement.
(c) Waiver. No waiver of any provision of this Agreement shall be deemed a
waiver of any other provisions or shall a waiver of the performance of a
provision in one or more instances be deemed a waiver of future performance
thereof.
(d) Construction. This Agreement and each of the Primary Documents have been
entered into freely by each of the parties, following consultation with their
respective counsel, and shall be interpreted fairly in accordance with its
respective terms, without any construction in favor of or against either party.
11
(e) Binding Effect of Agreement. This Agreement shall inure to the benefit of,
and be binding upon the successors and assigns of each of the parties hereto,
including any transferees of the Securities.
(f) Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or unenforceability of this Agreement in any other jurisdiction.
(g) Attorneys' Fees. If any action should arise between the parties hereto to
enforce or interpret the provisions of this Agreement, the prevailing party in
such action shall be reimbursed for all reasonable expenses incurred in
connection with such action, including reasonable attorneys' fees.
(h) Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of this Agreement.
(i) Counterparts. This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original and all of which, when taken together, will
be deemed to constitute one and the same agreement.
[SIGNATURES ON FOLLOWING PAGE]
12
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed, on this _____ day of July, 2004.
HEALTH SYSTEMS SOLUTIONS, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
INVESTORS:
STANFORD VENTURE CAPITAL
HOLDINGS, INC.
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
-----------------------------
DANIEL BOGAR
1016 Sanibel Drive
Hollywood, Florida 33019
Telephone: 305-960-8530
Facsimile: 305-960-8535
-----------------------------
RONALD STEIN
6520 Allison Road
Miami Beach, Florida 33141
Telephone: 305-960-8530
Facsimile: 305-960-8535
-----------------------------
OSVALDO PI
6405 SW 104 Street
Pinecrest, Florida 33156
Telephone: 305-960-8530
Facsimile: 305-960-8535
-----------------------------
WILLIAM FUSSELMANN
141 Crandon Boulevard, #437
Key Biscayne, Florida 33149
Telephone: 305-960-8530
Facsimile: 305-960-8535
13