Exhibit 10.1
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (the "Agreement") is made and entered into as
of July 15, 2005, by and among MedSolutions, Inc., a Texas corporation, on
behalf of itself and its subsidiaries (MedSolutions, Inc. and its Subsidiaries
are collectively referred to herein as the "Company") and Xxxx Investments, LLC,
a Wisconsin limited liability company (the "Investor").
RECITALS:
WHEREAS, the Company desires to raise capital to retire certain
existing indebtedness of the Company and its subsidiaries, and to make strategic
acquisitions;
WHEREAS, the Investor has agreed to invest up to Two Million Dollars
($2,000,000) in the Company for such purposes through both debt and equity
investments on the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this Agreement, the Company and the Investor agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Capitalized terms used in this Agreement
which are not otherwise defined herein shall have the following meanings:
(a) "Accounts" shall mean all of the Company's and its
Subsidiaries' rights to payment for goods (including freight and taxes)
sold or leased or services performed thereby, whether now in existence
or arising from time to time hereafter, including without limitation,
rights evidenced by an account, note, contract, security agreement,
chattel paper, or other evidence of indebtedness or security, together
with (i) all security pledged, assigned, hypothecated or granted to or
held by the Company or any of its Subsidiaries to secure the foregoing,
(ii) all of the Company's and each of its Subsidiaries' right, title
and interest in and to any goods, the sale of which gave rise thereto,
(iii) all guarantees, endorsements and indemnifications on, or of, any
of the foregoing, (iv) all powers of attorney for the execution of any
evidence of indebtedness or security or other writing in connection
therewith, (v) all books, records, ledger cards, and invoices relating
thereto, (vi) all evidences of the filing of financing statements and
other statements and the registration of other instruments in
connection therewith and amendments thereto, notices to other creditors
or secured parties, and certificates from filing or other registration
officers, (vii) all credit information, reports and memoranda relating
thereto, and (viii) all other writings related in any way to the
foregoing.
(b) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Section
3.2(i)(ii)(C)(V) hereof) after the Issue Date, other than: (i) Common
Stock issued pursuant to a transaction described in Section
3.2(i)(ii)(D) hereof, (ii) shares issued or to be issued pursuant to
the Investment Agreement; (iii) Common Stock issued in connection with
the acquisition by the Company or any of its Subsidiaries of another
entity; or (iv) up to 106,666 shares of Common Stock issuable pursuant
to stock options with exercise prices of $0.75 per share to be issued
to Xx. Xxxx Xxxxxxx and Mr. Xxxxx Xxxx as finders' fees for the
transactions contemplated by the Investment Agreement.
(c) "Advance" shall mean each sum loaned by the Investor to
the Company under the Note from time to time pursuant to a Draw Notice.
(d) "Affiliate" shall mean with respect to any Person, any
other Person directly or indirectly controlling, controlled by, or
under common control with, such first Person, except a Subsidiary of
the Company shall not be an Affiliate of the Company. A Person shall be
deemed to control a corporation or entity if such Person possesses
directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation or entity, whether
through the ownership of voting securities, by contract, or otherwise.
(e) "Articles" shall mean the Articles of Incorporation of the
Company or a Subsidiary as the same may be amended from time to time.
(f) "Bylaws" shall mean the corporate bylaws of the Company or
Subsidiary as the same may be amended from time to time.
(g) "Capital Call" shall mean each sum requested by the
Company under the Subscription Agreement from time to time pursuant to
a Capital Call Notice.
(h) "Capital Call Notice" shall mean a written notice from the
Company to the Investor that the Company is requesting that the
Investor purchase a specified number of Common Shares (as defined
below) pursuant to the Subscription Agreement. Each Capital Call Notice
shall set forth the number of Common Shares the Company is tendering
for sale, the current Purchase Price per share, the date the Company
desires to effectuate the sale, which date shall not be earlier than
fifteen (15) days after the date the Company delivers the Capital Call
Notice to the Investor, and shall contain a certification by the
Company's Chief Executive Officer that (i) the Company has complied
with all of the conditions precedent to a Capital Call set forth in
Section 4.2(d)(i) hereof, and (ii) the Company is in compliance with
all of its covenants under this Agreement.
(i) "Common Stock" shall mean and include all shares of Common
Stock of the Company, and any rights, options or warrants to purchase
Common Stock, and all other securities of the Company which may be
issued in exchange for or in respect of such shares of Common Stock
(whether by way of stock split, stock dividend, combination,
reclassification, reorganization or any other means).
(j) "Deed of Trust" shall mean that certain deed of trust from
the Company to the Investor granting the Investor a continuing second
priority security interest in the Real Property.
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(k) "Draw Notice" shall mean a written notice from the Company
to the Investor that the Company is requesting an Advance under the
Note. Each Draw Notice shall set forth the amount of the Advance
requested, the date such Advance is requested, which date shall not be
earlier than fifteen (15) days after the date the Company delivers the
Draw Notice to the Investor, and shall contain a certification by the
Company's Chief Executive Officer that (i) the Company has complied
with all of the conditions precedent to an Advance as set forth in
Sections 3.2(b) and (c), as applicable, and (ii) the Company is in
compliance with all of its covenants under this Agreement.
(l) "EBITDA" shall mean income (or loss) from operations, plus
net interest expense, income tax and depreciation, calculated in
accordance with GAAP. For purposes of this definition, income (or loss)
from operations does not include any gain from the sale of assets or
the forgiveness, extinguishment or reclassification of debt (other than
gain resulting from the agreement by a vendor who provided goods or
services to the Company in the ordinary course of business to accept
less than the face amount of an invoice previously issued by the
vendor).
(m) "Event of Default" shall have the meaning set forth in
Article IX hereof.
(n) "Initial Capital Call Notice" shall mean the Capital Call
Notice submitted to the Investor at the Closing pursuant to Section
4.2(c) hereof.
(o) "Initial Advance" shall mean the Advance made at the
Closing pursuant to the Initial Draw Notice.
(p) "Initial Capital Call" shall mean the Capital Call made in
connection with the Closing pursuant to the Initial Capital Call
Notice.
(q) "Initial Draw Notice" shall mean the Draw Notice submitted
to the Investor at the Closing pursuant to Section 3.2(b) hereof.
(r) "Interest Period" shall mean any one of consecutive
one-month periods, the first of which shall begin on the date the
initial Advance is made under the Note and end on the last day of the
month in which the initial Advance is made and the rest of which shall
each begin on the first day of each full month thereafter and end on
the last day of that month.
(s) "Issue Date" shall mean the date upon which any shares of
Common Stock were issued to the Investor pursuant to this Agreement
and/or the Subscription Agreement.
(t) "Knowledge." An individual shall be deemed to have
"Knowledge" of a particular fact or other matter if (i) such individual
is actually aware of such fact or other matter, or (ii) a person
serving in the same capacity as such individual would be expected to
discover or otherwise become aware, after due inquiry, of such fact or
other matter in the course of performing the official duties of such
individual. A corporation shall be deemed to have "Knowledge" of a
particular fact or other matter if the chief executive officer or the
chief financial officer of the corporation has Knowledge (as set forth
above) of such fact or other matter.
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(u) "Net Income" shall mean revenues minus expenses,
depreciation, interest and taxes, calculated in accordance with GAAP.
For purposes of this definition, revenues do not include any gain from
the sale of assets or the forgiveness, extinguishment or
reclassification of debt (other than gain resulting from the agreement
by a vendor who provided goods or services to the Company in the
ordinary course of business to accept less than the face amount of an
invoice previously issued by the vendor).
(v) "Note" shall mean the Company's One Million Dollar
($1,000,000) 10% Senior Convertible Note in the form attached hereto as
Exhibit B, which will be issued by the Company to the Investor at the
Closing.
(w) "Outstanding Principal" shall mean, at any time, the
aggregate sum of all Advances previously made under the Note, plus
accrued but unpaid interest, less all amounts repaid under the Note.
(x) "Projected EBITDA" shall mean, for fiscal year 2005, the
projected EBITDA for the Company and its Subsidiaries on a consolidated
basis, set forth in the Company's pro forma financial statements
attached hereto as Exhibit A and incorporated herein by reference, and
for each fiscal year thereafter, the projected EBITDA set forth in
Exhibit A shall be adjusted annually for each such fiscal year by the
mutual agreement of the Company and the Investor on or before January
31st of each such fiscal year; provided, however, that in no event
shall the projected EBITDA for any such fiscal year reflect less than
5% internal growth for such fiscal year over the immediately preceding
fiscal year. Projected EBITDA shall not include any expenses (including
without limitation, expenses incurred in connection with the
transactions contemplated hereby), which are capitalized on the
Company's year end financial statements. The Projected EBITDA shall be
further adjusted as set forth in Section 3.2(i).
(y) "Projected Net Income" shall mean, for fiscal year 2005,
the projected Net Income for the Company and its Subsidiaries on a
consolidated basis, set forth in the Company's pro forma financial
statements attached hereto as Exhibit A and incorporated herein by
reference, and for each fiscal year thereafter, the projected Net
Income set forth in Exhibit A shall be adjusted annually for each such
fiscal year by the mutual agreement of the Company and the Investor on
or before January 31st of each such fiscal year; provided, however,
that in no event shall the projected Net Income for any such fiscal
year reflect less than 5% internal growth for such fiscal year over the
immediately preceding fiscal year. The Projected Net Income shall be
further adjusted for acquisitions and dispositions, if any, as set
forth in Section 3.2(i). For purposes of this definition, projected net
income does not include any gain from the sale of assets or the
forgiveness, extinguishment or reclassification of debt (other than
gain resulting from the agreement by a vendor who provided goods or
services to the Company in the ordinary course of business to accept
less than the face amount of an invoice previously issued by the
vendor). Projected Net Income shall also not include any expense
(including, without limitation, expenses incurred in connection with
the transactions contemplated by this Agreement), which are capitalized
on the Company's year end financial statements).
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(z) "Real Property" shall mean the Company's real estate,
improvements, permits and approvals associated with the Company's
treatment/transfer facility in Garland, Texas, which is more fully
described in Exhibit C hereto.
(aa) "Related Party" shall mean (i) any officer or director of
the Company or any Subsidiary, (ii) any Person directly or indirectly
owning any shares of capital stock of the Company or any Subsidiary,
(iii) any Person who is related by blood, adoption or marriage to any
Person described in clause (i) or (ii), or (iv) any Affiliate of the
Company or any Affiliate of any Person described in clause (i), (ii) or
(iii); provided, however, that the Company and any Subsidiary of the
Company shall not be Related Parties.
(bb) "Subscription Agreement" shall mean the Subscription
Agreement in the form attached hereto as Exhibit D, to be executed and
delivered by the Investor to the Company as set forth in Article IV.
(cc) "Subsequent Advance" shall mean any Advance made
subsequent to the Initial Advance.
(dd) "Subsequent Capital Call" shall mean any Capital Call
made subsequent to the Initial Capital Call.
(ee) "Subsidiary" shall mean any corporation or other entity
of which the Company either directly or indirectly owns greater than
fifty percent (50%) of the total combined voting power of all classes
of equity securities, at the time any determination is made.
ARTICLE II
INVESTMENT
Section 2.1 Agreement to Invest. The Investor hereby agrees to invest
up to Two Million Dollars ($2,000,000) in the Company, on the terms and
conditions set forth herein. Such investment will be structured as follows: (a)
the Company will sell to the Investor, and the Investor will purchase from the
Company, the Company's Up to One Million Dollar ($1,000,000) 10% Senior
Convertible Note (the "Note"), and (b) the Investor will subscribe for up to One
Million Dollars ($1,000,000) of the Company's common stock, par value $.001 (the
"Common Stock") at a purchase price of sixty-five cents ($0.65) per share,
subject to adjustment at the time of each Capital Call as set forth herein.
Section 2.2 Closing. The closing of the transactions contemplated
herein (the "Closing") shall take place at the offices of the Investor's
counsel, Xxxxx & Xxxxxxxx, s.c., 000 X. Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxxx,
XX 00000 on July 15, 2005 at 10:00 a.m., or at such other time and place as the
Company and the Investor shall mutually agree.
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ARTICLE III
TERMS OF THE DEBT INVESTMENT
Section 3.1 Debt Investment. In consideration for the Company's
issuance to the Investor of the Note, the Investor hereby agrees to lend to the
Company up to One Million Dollars ($1,000,000) on the terms and conditions set
forth herein.
Section 3.2 Terms of the Debt Investment.
(a) The Advances. The Investor agrees to lend to the Company,
in a series of Advances, such amounts as the Company may request from
time to time in one or more Draw Notices, until the earlier of October
15, 2006, or such time as the aggregate amount of Advances made under
the Note shall equal One Million Dollars ($1,000,000).
(b) Initial Advance. At the Closing, the Company may deliver
to the Investor an Initial Draw Notice in an amount up to Three Hundred
Thousand Dollars ($300,000). The amount of the Initial Advance
requested and the amount of the initial Capital Call requested shall
not, in the aggregate, exceed Six Hundred Thousand Dollars ($600,000).
The proceeds of the Initial Advance and the Initial Capital Call shall
only be used to satisfy the Company's and its Subsidiaries liabilities
to the Internal Revenue Service for federal payroll tax arrearages in
an amount sufficient to discharge at a minimum all federal tax liens on
the assets of the Company with any shortfall representing only the
expected adjustment to penalties anticipated by the Company's tax
advisors, and with the balance being used to pay the Company's and its
Subsidiaries' scheduled trade payables detailed on Schedule 3.2
(including $37,500 for the Investor's legal fees related to the
transactions contemplated herein); provided, however, that in the event
that the Company does not receive a favorable adjustment to its federal
tax penalties as described above, the Company shall promptly pay any
outstanding federal tax obligations then due.
(c) Subsequent Advances.
(i) Subsequent Advances under the Note will be made
only upon the satisfaction of all of the following conditions:
(A) The Company shall deliver a Draw Notice
to the Company no later than fifteen (15) days prior
to the date on which the Company desires the Advance
to be made.
(B) Any Draw Notice shall be accompanied by
a Capital Call Notice in an amount equal to the
amount requested pursuant to such Draw Notice, until
such time as the aggregate amount of all Capital
Calls shall equal One Million Dollars ($1,000,000).
(C) All of the representations and
warranties made by the Company in this Agreement are
true, complete and correct in all material respects
on the date of such Draw Notice with the same effect
as though such representations and warranties had
been made on and as of the date of such Draw Notice.
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(D) On the date of such Draw Notice, the
Company shall have complied with and shall be in
compliance with all covenants of the Company in this
Agreement.
(E) There shall be no continuing Event of
Default.
(F) The Advance requested pursuant to the
Draw Notice shall be made only for the specific
purpose of making a strategic acquisition approved in
writing by the Investor, and is only in such amount
as the Company requires (in combination with any
amounts requested pursuant to the accompanying
Capital Call Notice) to effectuate such strategic
acquisition; provided however, that the Investor
shall be deemed to have approved any such strategic
acquisition if it has not provided written notice of
its disapproval and the reasons therefor to the
Company within fifteen (15) days of its receipt of
the Draw Notice.
(G) The Company shall have submitted its
acquisition plan to the Investor for review, and
shall have received the Investor's prior written
approval for such acquisition; provided, however,
that the Investor shall be deemed to have approved
any such acquisition plan if it has not provided
written notice of its disapproval and the reasons
therefor to the Company within fifteen (15) days of
its receipt of such acquisition plan.
(H) The Company and the Investor shall have
reached a written agreement with respect to the
adjustments to the Projected Net Income, Projected
EBITDA and Schedule 8.11 to reflect the impact of the
proposed acquisition.
(ii) Each Advance (including any Initial Advance made
at Closing) shall reduce the amount available for Subsequent
Advances under the Note by the amount of such Advance, such
that the aggregate amount of all Advances made under the Note
may never exceed an aggregate of One Million Dollars
($1,000,000). Amounts repaid under the Note shall not
reinstate any amount available for Draws under the Note,
except that amounts of the Initial Advance which are repaid
when due shall be reinstated and available for Draws under the
Note.
(d) Payment of Advances. Upon fulfillment of the conditions
precedent to Closing set forth in Article VII hereof with respect to
any Initial Advance, and Section 3.2(c)(i) hereof with respect to any
Subsequent Advance, the Investor shall make available to the Company,
in immediately available funds, on the date set forth in the Draw
Notice the amount of the Advance requested. The Investor shall make
such funds available to the Company by wire transfer to the account
specified in such Draw Notice or in such other manner as the Investor
and the Company shall agree.
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(e) Interest. All Outstanding Principal due and payable under
the Note shall bear interest at a rate equal to ten percent (10%) per
annum, compounded annually. Interest shall accrue on the amount of each
Advance from the time the proceeds of such Advance are made available
to the Company until such time as such amounts are repaid.
(f) Repayment. The Initial Advance will be payable in three
(3) equal monthly installments of interest only commencing thirty (30)
days from the date of the Initial Advance and twelve (12) equal monthly
installments of principal and interest commencing thereafter.
Subsequent Advances will be payable in thirty-six (36) installments as
follows: thirty-five (35) monthly payments of interest only on the
first day of each calendar month commencing with the first day of the
month (the "First Payment Date") that falls at least thirty (30) days
after the date the first Subsequent Advance is made by the Investor
under the Note, and a final installment in an amount equal to the
Outstanding Principal and any accrued but unpaid interest on the third
anniversary of the First Payment Date. Any monthly interest payments
shall be in an amount equal to interest actually accrued on the
Outstanding Principal under the Note during the immediately preceding
Interest Period. All payments by the Company to the Investor hereunder
shall be made in lawful currency of the United States of America and in
immediately available funds no later than 1:00 p.m., Milwaukee,
Wisconsin time, on the due date at the address specified by the
Investor from time to time.
(g) Prepayment. On or after the eighteen (18) month
anniversary of the Closing, the Company may prepay any or all of the
Outstanding Principal under the Note, and any accrued and unpaid
interest thereon, at any time and from time to time without the prior
written consent of the Investor and without any premium or penalty;
provided, however, that (i) the Company shall provide the Investor with
thirty (30) days' prior written notice of its intent to prepay any or
all of such Outstanding Principal, and (ii) such notice shall be
accompanied by either an irrevocable written commitment from a lender
or other financing source to provide financing for the prepayment or
evidence reasonably satisfactory to the Investor of the Company's
ability to make the proposed prepayment. The Investor may, after
receipt of such prepayment notice, elect to convert, pursuant to
Section 3.2(i) below, any or all of such Outstanding Principal proposed
to be prepaid by providing written notice to the Company of the
Investor's intent to convert prior to the effective date of such
prepayment. Notice of prepayment pursuant to this Section 3.2(g) shall
be irrevocable, and in the event the Company fails to prepay the amount
specified in the prepayment notice (or to effectuate any conversion
requested by the Investor in connection therewith) upon the expiration
of thirty (30) days from the date of the delivery of such notice, the
Outstanding Principal under the note, together with any accrued and
unpaid interest thereon, shall become immediately due and payable.
(h) Recordation of Advances and Repayments. The Investor shall
record on Schedule 1 of the Note the date and amount of each Advance
and the date and amount of each repayment of interest or Outstanding
Principal. The failure to record or any error in recording any such
Advance or repayment shall not, however, affect the obligations of the
Company hereunder or under the Note to repay the Outstanding Principal
amount of the Note together with all interest accruing thereon, nor
shall such failure or error affect any rights of the Company hereunder
or under applicable law. Schedule 1 to the Note, as maintained by the
Investor shall, absent manifest error or omission, constitute prima
facie evidence of the amounts outstanding under the Note.
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(i) Conversion.
(i) Right to Convert. The Investor, at its option,
may, from time to time or at any time, convert any or all of
the Outstanding Principal of the Note into fully-paid and
non-assessable shares of the Company's Common Stock (the
"Conversion Shares"), at an initial conversion price of
sixty-five cents ($0.65) per share (the "Conversion Price").
(ii) Adjustment of Conversion Price. The Conversion
Price shall be adjusted as follows:
(A) At the time the Company's audited
financial statements for any given fiscal year are
filed with the Securities and Exchange Commission
("SEC"), if the Company did not realize its Projected
EBITDA or Projected Net Income for such fiscal year,
the Conversion Price for Conversion Shares issued
during and subsequent to the fiscal year covered by
the audited financial statements shall be adjusted
downward by a percentage equal to the greater of (I)
the percentage difference between Projected EBITDA
and actual EBITDA for such fiscal year or (II) the
percentage difference between Projected Net Income
and actual Net Income for such fiscal year. Within
ten (10) days after the Company's audited financial
statements are filed with the SEC, the Company shall
issue a stock certificate to the Investor
representing any additional Conversion Shares
issuable as a result of the adjustment under this
Section 3.2(i)(ii).
(B) At the time the Company proposes a
strategic acquisition to the Investor, the Company
and the Investor shall mutually agree on an
appropriate adjustment to Projected EBITDA and
Projected Net Income to reflect the added value to
the Company realized by such acquisition.
(C) Upon the Issuance Of Additional Stock.
(I) If the Company shall issue,
after the Issue Date, any Additional Stock
without consideration, or for a
consideration per share less than the
Conversion Price in effect immediately prior
to the issuance of such Additional Stock,
the Conversion Price in effect immediately
prior to such issuance shall automatically
be reduced to the per share price of the
Additional Stock.
(II) No adjustment of the
Conversion Price shall be made in an amount
less than one cent ($0.01) per share,
provided that any adjustments which are not
required to be made by reason of this
sentence shall be carried forward and shall
be taken into account in any subsequent
adjustment made prior to three (3) years
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from the date giving rise to the adjustment.
Except to the limited extent provided for in
Section 3.2(i)(ii)(E) hereof no adjustment
of the Conversion Price pursuant to this
Section 3.2(i)(ii)(C) shall have the effect
of increasing the Conversion Price above the
Conversion Price in effect immediately prior
to such adjustment.
(III) In the case of the issuance
of Additional Stock for cash, the
consideration shall be deemed to be the
amount of cash paid therefor before
deducting any reasonable discounts,
commissions or other expenses allowed, paid
or incurred by the Company for any
underwriting or otherwise in connection with
the issuance and sale thereof.
(IV) In the case of the issuance of
Additional Stock for a consideration in
whole or in part other than cash, the
consideration other than cash shall be
deemed to be the fair value thereof as
determined by the Company's independent
certified public accountants.
(V) In the case of the issuance
(whether before, on or after the Issuance
Date) of options to purchase or rights to
subscribe for Common Stock, securities by
their terms convertible into or exchangeable
for Common Stock or options to purchase or
rights to subscribe for such convertible or
exchangeable securities, the following
provisions shall apply for all purposes of
this Section 3.2(i)(ii)(C):
(a) The aggregate
maximum number of shares of Common
Stock deliverable upon exercise
(assuming the satisfaction of any
conditions to exercise, including
without limitation, the passage of
time, but without taking into account
potential anti-dilution adjustments)
of such options to purchase or rights
to subscribe for Common Stock shall be
deemed to have been issued at the time
such options or rights were issued and
for a consideration equal to the
consideration (determined in the
manner provided in Section
3.2(i)(ii)(C)(III) and Section
3.2(i)(ii)(C)(IV), if any, received by
the Company upon the issuance of such
options or rights plus the minimum
exercise price provided in such
options or rights (without taking into
account potential anti-dilution
adjustments) for the Common Stock
covered thereby.
(b) The aggregate
maximum number of shares of Common
Stock deliverable upon the conversion
of or exchange (assuming the
satisfaction of any conditions to
conversion or exchange, including
without limitation, the passage of
time, but without taking into account
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potential anti-dilution adjustments)
for any such convertible or
exchangeable securities or upon the
exercise of options to purchase or
rights to subscribe for such
convertible or exchangeable securities
and the subsequent conversion or
exchange therefor shall be deemed to
have been issued at the time such
securities were issued or such options
or rights were issued and for a
consideration equal to the
consideration, if any, received by the
Company for any such securities or
related options or rights (excluding
any cash received on account of
accrued interest or accrued
dividends), plus the minimum
additional consideration, if any, to
be received by the Company (without
taking into account potential
anti-dilution adjustments) upon the
conversion or exchange of such
securities or the exercise of any
related options or rights (the
consideration in each case to be
determined in the manner provided in
Section 3.2(i)(ii)(C)(III) and Section
3.2(i)(ii)(C)(IV) hereof.
(c) In the event of any
change in the number of shares of
Common Stock deliverable or in the
consideration payable to the Company
upon exercise of such options or
rights or upon conversion of or in
exchange for such convertible or
exchangeable securities, including,
but not limited to, a change resulting
from anti-dilution adjustments, the
Conversion Price, to the extent in any
way affected by or computed using such
options, rights or securities, shall
be recomputed to reflect such change,
but no further adjustment shall be
made for the actual issuance of Common
Stock or any payment of such
consideration upon the exercise of any
such options or rights or the
conversion or exchange of such
securities.
(d) Upon the expiration
of any such options or rights, the
termination of any such rights to
convert or exchange or the expiration
of any options or rights related to
such convertible or exchangeable
securities, the Conversion Price, to
the extent in any way affected by or
computed using such options, rights or
securities or options or rights
related to such securities, shall be
recomputed to reflect the issuance of
only the number of shares of Common
Stock (and convertible or exchangeable
securities which remain in effect)
actually issued upon the exercise of
such options or rights, upon the
conversion or exchange of such
securities or upon the exercise of the
options or rights related to such
securities.
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(e) The number of shares
of Common Stock deemed issued and the
consideration deemed paid therefor
pursuant to Sections 3.2(i)(ii)(C)(V)
(a) and 3.2(i)(ii)(C)(V)(b) shall be
appropriately adjusted to reflect any
change, termination or expiration of
the type described in Section
3.2(i)(ii)(C)(V)(c) and Section
3.2(i)(ii)(C)(V)(d).
(D) Stock Splits, Subdivisions, Dividends,
Etc. In the event the Company shall at any time or
from time to time after the Issue Date fix a record
date for the effectuation of a split or subdivision
of the outstanding shares of Common Stock or the
determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in
additional shares of Common Stock or other securities
or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without the payment of
any consideration by such holder for the additional
shares of Common Stock or Common Stock Equivalents
(including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then,
as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date
is fixed), the Conversion Price shall be
appropriately decreased so that the number of shares
of Common Stock issuable upon a conversion under the
Investment Agreement and a purchase under the
Subscription Agreement shall be increased in
proportion to such increase in the aggregate number
of shares of Common Stock outstanding and those
issuable with respect to such Common Stock
Equivalents determined from time to time in the
manner provided for deemed issuances in Section
3.2(i)(ii)(C)(V) hereof.
(E) Combinations. If the number of shares of
Common Stock outstanding at any time after the Issue
Date is decreased by a combination of the outstanding
shares of Common Stock, then following the record
date of such combination, the Conversion Price shall
be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each
share of such series shall be decreased in proportion
to such decrease in outstanding shares.
(F) Other Recapitalizations. If at any time
or from time to time there shall be a
recapitalization of the Common Stock (other than a
subdivision, combination or other transaction
provided for elsewhere herein), provision shall be
made so that the Investor shall thereafter be
entitled to receive, upon a conversion hereunder, the
number of shares of stock or other securities or
property of the Company or otherwise, to which the
Investor would have been entitled on such
recapitalization, if such conversion had occurred
prior to such recapitalization. In any such case,
12
appropriate adjustment shall be made in the
application of the provisions of this Section 3.2(i)
with respect to the rights of the Investor after the
recapitalization to the end that the provisions of
hereof (including adjustment of the Conversion Price
then in effect) shall be applicable after the event
as nearly equivalent as may be practicable.
(j) Security. As collateral security for the prompt and
complete payment and performance when due of the Company's obligations
under this Agreement and the Note, the Company does hereby grant the
Investor a continuing first priority security interest in and to the
Accounts of the Company and its Subsidiaries, and a continuing mortgage
interest in and to the Real Property (collectively the "Collateral").
The Deed of Trust shall be subject and subordinate only to the first
mortgage lien of First American Bank in the principal amount not to
exceed Two Hundred Eight Thousand Dollars ($208,000) plus accrued and
unpaid interest thereon, and shall be pari passu with the second
mortgage liens of The Estate of Xxxxxx Xxxxxxx and Xxxx Xxxx and/or
Ajit and Xxxxx Xxxx in the aggregate principal amount not to exceed
$792,000 plus accrued and unpaid interest thereon. At the Closing, the
Company will deliver to the Investor the Deed of Trust, a Security
Agreement and all such other financing statements, documents,
instruments and agreements as the Investor may reasonably request to
create and perfect its security interest in the Collateral.
ARTICLE IV
TERMS OF THE EQUITY INVESTMENT
Section 4.1 Equity Investment. The Investor hereby agrees to subscribe
for and purchase an aggregate amount up to One Million Dollars ($1,000,000) of
the Company's Common Stock (the "Common Shares") on the terms and conditions set
forth herein.
Section 4.2 Terms of Equity Investment.
(a) Subscription for Common Shares. Concurrently with the
execution of this Agreement, the Investor will execute and deliver to
the Company the Subscription Agreement pursuant to which the Investor
will subscribe for and agree to purchase the Common Shares.
(b) The Capital Calls. The Investor agrees to purchase the
Common Shares in a series of transactions in such amounts as the
Company may request from time to time in one or more Capital Call
Notices, until the earlier of September 30, 2006, or such time as the
aggregate amount of Capital Calls made under the Subscription Agreement
shall equal One Million Dollars ($1,000,000.00).
(c) Initial Capital Call. At the Closing, the Company may
deliver to the Investor an Initial Capital Call Notice in an amount up
to Three Hundred Thousand Dollars ($300,000.00), provided that at the
Closing the Company must also deliver to the Investor an Initial Draw
Notice in an amount not less than Three Hundred Thousand Dollars
($300,000.00). The amount of the Initial Capital Call and the amount of
the Initial Advance shall not, in the aggregate, exceed Six Hundred
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Thousand Dollars ($600,000.00). The proceeds of the Initial Capital
Call and the Initial Advance shall only be used for the purposes
specified in Section 3.2(b) hereof.
(d) Subsequent Capital Calls.
(i) Subsequent Capital Calls under the Subscription
Agreement will be made only upon the satisfaction of all of
the following conditions:
(A) The Company shall deliver a Capital Call
Notice to the Investor no later than fifteen (15)
days prior to the date on which the Company desires
the Capital Call to be subscribed.
(B) Any Capital Call Notice shall be
accompanied by a Draw Notice in an amount equal to
the amount requested pursuant to such Capital Call
Notice, until such time as the aggregate amount of
Capital Calls shall equal One Million Dollars
($1,000,000).
(C) The conditions precedent to the
Investor's making of an Advance in Sections
3.2(c)(i)(C)-(H) shall apply to the Capital Call in
the same manner.
(ii) Each Capital Call (including any Initial Capital
Call at Closing) shall reduce the amount available for
Subsequent Capital Calls under the Subscription Agreement by
the amount of such Capital Call, such that the amount of all
Capital Calls made under the Subscription Agreement may never
exceed an aggregate of One Million Dollars ($1,000,000.00).
(e) Payment of Capital Calls. Upon the fulfillment of the
conditions precedent to Closing set forth in Article VII hereof with
respect to any Initial Capital Call and Section 4.2(d)(i) with respect
to any Subsequent Capital Call, the Investor shall, against the tender
by the Company of a stock certificate or stock certificates
representing the number of Common Shares being purchased pursuant to
such Capital Call, make available to the Company, in immediately
available funds, on the date set forth in the Capital Call Notice, the
amount of the Capital Call requested. The Investor shall make such
funds available to the Company by wire transfer to the account
specified in the Capital Call Notice or in such other manner as the
Investor and the Company shall agree.
(f) Adjustment of the Purchase Price. The Purchase Price shall
be adjusted as follows:
(i) At the time the Company's audited financial
statements for any given fiscal year are filed with the SEC,
if the Company did not realize its Projected EBITDA or
Projected Net Income for such fiscal year, the Purchase Price
for Shares issued to the Investor during, and subsequent to,
the fiscal year covered by the audited statements, shall be
adjusted downward by a percentage equal to the greater of (A)
the percentage difference between Projected EBITDA and actual
EBITDA for such fiscal year, or (B) the percentage difference
between Projected Net Income and actual Net Income for such
fiscal year. Within ten (10) days after the filing of the
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Company's audited financial statements with the SEC, the
Company shall issue a stock certificate to the Investor
representing any additional Shares issuable as a result of the
adjustment under this Section 4.2(f)(i).
(ii) At the time the Company proposes a strategic
acquisition to the Investor, the Company and the Investor
shall mutually agree on an appropriate adjustment to the
Projected EBITDA and Projected Net Income to reflect the added
value to the Company realized by such acquisition.
(iii) In the event of (A) the issuance of Additional
Stock in a transaction of the type described in Section
3.2(i)(ii)(C); (B) the issuance of Common Stock Equivalents in
a transaction described in Section 3.2(i)(ii)(D); (C) the
occurrence of a transaction described in Section
3.2(i)(ii)(E); or (D) the occurrence of a transaction
described in Section 3.2(i)(ii)(F), the Purchase Price shall
be adjusted in the same manner as and concurrently with the
corresponding adjustment of the Conversion Price pursuant to
such sections.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as follows;
provided, however, that any disclosures contained in the Company's annual report
on Form 10-KSB as filed with the SEC for the fiscal year ended December 31, 2004
and the Company's quarterly report on Form 10-QSB as filed with the SEC for the
three months ended March 31, 2005 shall be deemed incorporated herein and in the
disclosure schedules attached hereto for all purposes:
Section 5.1 Organization, Qualification and Corporate Power. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Texas and each of its Subsidiaries are
corporations duly incorporated, validly existing and in good standing under the
laws of the states of their respective incorporations. The Company and each of
its Subsidiaries are duly licensed or qualified to transact business as a
foreign corporation and are in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification, except for
jurisdictions in which failure to so qualify or to so be in good standing could
not reasonably be expected to have a material adverse effect on the Company as a
whole. The Company has the corporate power and authority to own and hold its
properties and to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform this Agreement, the Note, the
Subscription Agreement, the Investor's Rights Agreement, the Security Agreement
and the Deed of Trust with the Investor (this Agreement, the Note, the
Subscription Agreement, the Security Agreement, the Deed of Trust, the
Investor's Rights Agreement and the other agreements and documents to be
executed and delivered under this Agreement shall hereinafter be collectively
referred to as the "Transaction Documents"), and to perform its obligations
thereunder.
15
Section 5.2 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of the
Transaction Documents, and the performance by the Company of its
obligations thereunder, have been duly authorized by all requisite
corporate action and will not violate any provision of law, any order
of any court or other agency of government, the Company's Articles or
Bylaws, or any provision of any indenture, agreement or other
instrument to which the Company or any of its properties or assets is
bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition
of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any
of its Subsidiaries.
(b) The Common Shares have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable shares of the Company's Common Stock with no
personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company.
Section 5.3 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting the enforcement of creditors' rights generally and the application of
general principles of equity and judicial discretion. The other Transaction
Documents, when executed and delivered in accordance with this Agreement, will
constitute the legal, valid and binding obligations of the Company enforceable
in accordance with each of their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting the enforcement of creditors' rights generally and the application of
general principles of equity and judicial discretion.
Section 5.4 Authorized Capital Stock. The authorized capital stock of
the Company consists of (a) 100,000,000 shares of preferred stock, par value
$.001, 500,000 of which have been designated as Series A 10% Convertible
Preferred Stock (so called herein), and (b) 100,000,000 shares of Common Stock.
Immediately prior to the Closing, 283,172 shares of Series A Preferred Stock are
issued and outstanding and 18,332,948 shares of Common Stock are issued and
18,320,748 shares are outstanding, fully paid and nonassessable with no personal
liability attaching to the ownership thereof. The powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Preferred Stock
and Common Stock are set forth in the Company's Articles, Bylaws, and the
Certificate of Designation of the Series A Preferred Stock, and all such powers,
preferences, rights, qualification, limitations and restrictions are valid,
binding and enforceable in accordance with all applicable laws. Except as set
forth in the attached Schedule 5.4, (i) no person owns of record any shares of
Preferred Stock or Common Stock other than as set forth on the Company's
shareholder list, (ii) no subscription, warrant, option, convertible security,
or other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding, and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other rights or to distribute to holders of any of
16
its equity securities or any evidence of indebtedness or asset. Except as set
forth in the Company's Articles, the Company has no obligation (contingent or
otherwise) to purchase, redeem, or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof. To the Company's Knowledge, there are no voting
trusts or agreements, pledge agreements, buy-sell agreements, rights of first
refusal, preemptive rights or proxies relating to any securities of the Company
(whether or not the Company is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
Section 5.5 Financial Statements. The Company has furnished to the
Investor the audited financial statements of the Company for the fiscal year
ended December 31, 2004 and the unaudited financial statements of the Company
for the period ending March 31, 2005 (collectively, the "Financial Statements").
The Financial Statements are complete and correct in all material respects,
present fairly, in accordance with generally accepted accounting principles
consistently applied, except for customary year end adjustments that may be made
to the March 31, 2005 unaudited financial statements, the financial condition
and results of operation of the Company and the Subsidiaries for the periods
shown. Neither the Company nor any Subsidiary has any liability, contingent or
otherwise, which is not reflected in or reserved against in the Financial
Statements in accordance with GAAP that could materially and adversely affect
the financial condition of the Company or such Subsidiary. Since the date of the
most recent Financial Statement, (a) there has been no change in the assets,
liabilities or financial condition of the Company or its Subsidiaries from that
reflected in the balance sheet (except for changes in the ordinary course of
business) which in the aggregate have been materially adverse, and (b) none of
the business, prospects, financial condition, operations, property or affairs of
the Company or its Subsidiaries has been materially adversely affected by any
occurrence or development, individually or in the aggregate, whether or not
insured against.
Section 5.6 Events Subsequent to March 31, 2005. Except as set forth on
Schedule 5.6, since March 31, 2005, the Company has not: (a) issued any stock,
bond, or other corporate security; (b) borrowed any amount or incurred or become
subject to any liability (absolute, accrued or contingent), except current
liabilities incurred and liabilities under contracts entered into in the
ordinary course of business; (c) discharged or satisfied any lien or encumbrance
or incurred or paid any obligation or liability (absolute, accrued or
contingent) other than current liabilities shown on the balance sheet and
current liabilities incurred since the date of the balance sheet in the ordinary
course of business; (d) declared or made any payment or distribution to
shareholders or purchased or redeemed any shares of its capital stock or other
security; (e) mortgaged, pledged, encumbered or subjected to lien any of its
assets, tangible or intangible, other than liens of current real property taxes
not yet due and payable; (f) sold, assigned, or transferred any of its tangible
assets except in the ordinary course of business or cancelled any debt or claim;
(g) sold, assigned, transferred any or granted any exclusive license with
respect to any patent, trademark, trade name, service xxxx, copyright, trade
secret or other intangible asset; (h) suffered any loss of property or waived
any right of substantial value whether or not in the ordinary course of
business; (i) made any change in officer compensation except in the ordinary
course of business and consistent with past practice; (j) made any material
change in the manner of business or operations of the Company or any Subsidiary;
(k) entered into any transaction except in the ordinary course of business or as
otherwise contemplated hereby; or (l) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
17
Section 5.7 Litigation. Except as disclosed on Schedule 5.7, there is
no (a) action, suit, claim, proceeding or investigation pending or, to the
Company's Knowledge, threatened against or affecting the Company or any of its
Subsidiaries, at law or in equity, or before or by any federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign; (b) arbitration proceeding relating to
the Company or any of its Subsidiaries pending; (c) governmental inquiry pending
or, to the Company's Knowledge, threatened against or affecting the Company or
any of its Subsidiaries (including without limitation any inquiry as to the
qualification of the Company or any of its Subsidiaries to hold or receive any
license or permit); (d) outstanding order, judgment, writ or decree against the
Company or any of its Subsidiaries, and, to the Company's Knowledge, there is no
basis for any of the foregoing. Neither the Company nor any of its Subsidiaries
have received an opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed, from a legal standpoint, to any liability or
disadvantage which may be material to its business, prospects, financial
condition, operations, property or affairs. The Company and its Subsidiaries are
not in default with respect to any order, writ, injunction or decree known to or
served upon the Company or any of its Subsidiaries of any court or of any
federal, state, municipal or other governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign. There is no action or
suit by the Company or any of its Subsidiaries pending, or, to the Company's
Knowledge, threatened or contemplated against others.
Section 5.8 Compliance With Laws. The Company and its Subsidiaries have
complied, in all material respects, with all laws, rules, regulations and orders
applicable to their respective businesses, operations, properties, assets,
products and services. The Company and its Subsidiaries have all necessary
permits, licenses and other authorizations required to conduct their respective
businesses as conducted and as proposed to be conducted, and the Company and its
Subsidiaries have been operating their respective businesses pursuant to and in
compliance with the terms of all such permits, licenses and other
authorizations, except where such non-compliance would not have a material
adverse effect on the Company's or its Subsidiaries' respective businesses as
currently conducted. There is no existing law, rule, regulation or order, and
the Company and its Subsidiaries after due inquiry are not aware of any proposed
law, rule or regulation or order, whether federal, state, county or local, which
would prohibit or restrict the Company or any of its Subsidiaries from, or
otherwise materially adversely affect the Company or any of its Subsidiaries in,
conducting their respective businesses in any jurisdiction in which they are now
conducting business or in which they propose to conduct business.
Section 5.9 Proprietary Information of Third Parties. To the Company's
Knowledge, no third party has claimed or has reason to claim that any person
employed by or affiliated with the Company or any of its Subsidiaries has (a)
violated or may be violating any of the terms or conditions of his employment,
non-competition or non-disclosure agreement with such third party, (b) disclosed
or may be disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or (c) interfered
or may be interfering in the employment relationship between such third party
and any of its present or former employees. No third party has requested
information from the Company or any of its Subsidiaries which suggests that such
a claim might be contemplated. To the Company's actual knowledge, no person
employed by or affiliated with the Company or any of its Subsidiaries has
18
employed or proposed to employ any trade secret or any information or
documentation proprietary to any former employer, and to the Company's actual
knowledge, no person employed by or affiliated with the Company or any of its
Subsidiaries has violated any confidential relationship which such person may
have had with any third party, in connection with the development or sale of any
service or proposed service of the Company or any of its Subsidiaries, and the
Company has no reason to believe there will be any such employment or violation.
To the Company's Knowledge, neither the execution or delivery of this Agreement,
or the carrying on of the business of the Company or any of its Subsidiaries, or
the conduct or proposed conduct of the business of the Company or any of its
Subsidiaries will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
Section 5.10 Intellectual Property. Set forth in Schedule 5.10 attached
hereto is a list and brief description of all domestic and foreign patents,
patent rights, patent applications, trademarks, trademark applications, service
marks, service xxxx applications, trade names and copyrights, and all
applications for such which are in the process of being prepared, owned by or
registered in the name of the Company or any of its Subsidiaries, or of which
the Company or any of its Subsidiaries is a licensor or licensee or in which the
Company or any of its Subsidiaries has any right. The Company and its
Subsidiaries own or possess adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service marks,
service xxxx applications, trade names, copyrights, manufacturing processes,
formulae, trade secrets, customer lists and know how (collectively "Intellectual
Property") necessary or desirable to the conduct of its business as conducted
and proposed to be conducted and no claim is pending or, to the Company's
Knowledge, threatened to the effect that the operations of the Company or any of
its Subsidiaries infringe upon or conflict with the asserted rights of any other
person under any Intellectual Property, and there is no basis for any such claim
(whether or not pending or threatened). To the Company's Knowledge, no claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company or any of its Subsidiaries, or which the Company or any
of its Subsidiaries otherwise has a right to use, is invalid or unenforceable by
the Company or any of its Subsidiaries, and there is no basis for any such claim
(whether pending or threatened). All prior art known to the Company which may be
or may have been pertinent to the examination of any United States patent or
patent application listed in Schedule 5.10 has been cited to the United States
Patent and Trademark office. To the Company's Knowledge, all technical
information developed by and belonging to the Company or any of its Subsidiaries
which has not been patented has been kept confidential.
Section 5.11 Title to Properties. The Company and its Subsidiaries have
good, clear and marketable title to their respective properties and assets
reflected on the Financial Statements or acquired since the date of the
Financial Statements (other than properties and assets disposed of in the
ordinary course of business since the date of the most recent Financial
Statement), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and licenses), except as
disclosed in Schedule 5.11 hereto. To the Company's Knowledge, there are no
condemnation, environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would adversely affect the
use or operation of the Company's or its Subsidiaries' properties and assets for
their respective intended uses and purposes, or the value of such properties,
and the Company has not received notice of any special assessment proceedings
which would affect such properties and assets.
19
Section 5.12 Leasehold Interests. Each lease or agreement to which the
Company or any of its Subsidiaries is a party under which it is a lessee of any
property, real or personal, is a valid and subsisting agreement, duly authorized
and entered into by the Company or any Subsidiary, as the case may be, without
any default of the Company or any of its Subsidiaries thereunder and to the
Company's Knowledge, without any default thereunder of any other party thereto.
No event has occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by the Company or any of
its Subsidiaries under any such lease or agreement or, to the Company's
Knowledge, by any other party thereto. The Company's or its Subsidiaries'
possession of such property has not been disturbed and, to the Company's
Knowledge, no claim has been asserted against the Company or any of its
Subsidiaries adverse to its rights in such leasehold interests.
Section 5.13 Taxes. Except as otherwise disclosed in Schedule 5.13
hereto, the Company and each of its Subsidiaries has filed all tax returns,
federal, state, county and local, required to be filed by it, and the Company
and each of its Subsidiaries has paid all taxes shown to be due by such returns
as well as all other taxes, assessments and governmental charges which have
become due or payable, including without limitation all taxes which the Company
and each of its Subsidiaries is obligated to withhold from amounts owing to
employees, creditors and third parties. The Company and each of its Subsidiaries
has established adequate reserves for all taxes accrued but not yet payable. To
the Company's Knowledge, the federal income tax returns of the Company and each
of its Subsidiaries have never been audited by the Internal Revenue Service. No
deficiency assessment with respect to or proposed adjustment of the Company's or
any of its Subsidiaries federal, state, county or local taxes is pending or, to
the Company's Knowledge, threatened. Except as otherwise disclosed in Schedule
5.13, there is no tax lien (other than for current taxes not yet due and
payable), whether imposed by any federal, state, county, or local taxing
authority, outstanding against the assets, properties or business of the
Company.
Section 5.14 Accounts.
(a) Accuracy of Records. So long as this Agreement is in
effect and until all of its obligations hereunder and under the Note
shall have been fully discharged, all records, papers and documents
relating to the Accounts are genuine and in all respects what they
purport to be, and all papers and documents relating thereto (i) will
represent the genuine, legal, valid and binding obligation (subject as
to enforcement to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors' rights and
to general equity principles) of the account debtor evidencing
indebtedness unpaid and owed by such account debtor arising out of the
performance of labor or services or the sale or lease and delivery of
the merchandise listed therein, or both, (ii) will be the only original
writings evidencing and embodying such obligation of the account debtor
named therein (other than copies created for purposes other than
general accounting purposes), (iii) will evidence true and valid
obligations, enforceable in accordance with their respective terms
(subject as to enforcement to bankruptcy, insolvency, reorganization
and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles), and (iv) will be
in compliance with and will conform in all material respects with all
applicable federal, state and local laws and applicable laws of any
relevant foreign jurisdiction.
20
(b) Maintenance of Records. The Company will keep and maintain
at its own cost and expense satisfactory and complete records of the
Accounts, including, but not limited to, records of all payments
received, all credits granted thereon, all merchandise returned and all
other dealings therewith, and the Company will make the same available
to the Investor for inspection at the principal executive offices of
the Company, at the Company's own cost and expense, during regular
business hours upon demand. Upon the Investor's request, the Company
shall, at its own cost and expense, deliver all tangible evidence of
the Accounts (including, without limitation, all documents evidencing
the Accounts) to the Investor or to its representatives (copies of
which evidence may be retained by the Company) at any time upon its
demand.
(c) Assignment of Payments. Upon the occurrence of an Event of
Default hereunder, and if the Investor so directs, the Company agrees
to cause all payments on the Accounts to be made directly to the
Investor.
(d) Modification of Terms. The Company shall not rescind,
subject to Section 5.14(e) or cancel any indebtedness evidenced by any
Account or modify any term thereof or make any adjustment with respect
thereto, or extend or renew the same, or compromise or settle any
dispute, claim, suit or legal proceeding relating thereto, or sell any
Account or interest therein, without the prior written consent of the
Investor. The Company will duly fulfill all obligations on its part to
be fulfilled under or in connection with the Accounts and will do
nothing to impair the rights of the Investor in the Accounts.
(e) Collection. The Company shall endeavor to cause to be
collected from the account debtor named in each of the Company's
Accounts, as and when due (including, without limitation, Accounts
which are delinquent, such Accounts to be collected in accordance with
generally accepted lawful collection procedures) any and all amounts
owing under or on account of such Accounts, and apply forthwith upon
receipt thereof all such amounts as are so collected to the outstanding
balance of such Accounts, except that, prior to the occurrence of an
Event of Default, the Company may allow in the ordinary course of
business as adjustments to amounts owing under its Accounts, an
extension or renewal of the time or times of payment, or settlement for
less than the total unpaid balance, which the Company finds appropriate
in accordance with sound business judgment.
Section 5.15 Loans and Advances. Except as set forth in Schedule 5.15,
neither the Company nor any of its Subsidiaries have any outstanding loans or
advances to any person and are not obligated to make any such loans or advances.
Section 5.16 Assumptions, Guaranties, Etc. Neither the Company, nor any
of its Subsidiaries have assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(excluding the Subsidiaries in the case of the Company) (including without
limitation, liability by way of any agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or otherwise invest
in the debtor, or otherwise to assure the creditor against loss), except for
guaranties by endorsement or negotiable instruments for deposit or collection in
the ordinary course of business.
21
Section 5.17 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Investor set forth in Article VI, no
registration or filing with, or consent or approval of or other action by, any
federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
the Transaction Documents, other than filings pursuant to federal and state
securities laws (all of which filings have been made by the Company, other than
those which are required to be made after the Closing and which will be duly
made on a timely basis) in connection with the transactions contemplated hereby.
Section 5.18 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Investor and its
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or its Subsidiaries.
Section 5.19 Transactions with Affiliates. Except as disclosed in
Schedule 5.19 hereto, no director, officer, employee or shareholder of the
Company or any of its Subsidiaries, or member of the family of any such person,
or any corporation, partnership, trust or other entity in which any such person,
or any member of the family of any such person, has a substantial interest or is
an officer, director, trustee, partner or holder of more than five (5%) of the
outstanding capital stock thereof, is a party to any transaction with the
Company or any of its Subsidiaries, including any contract, agreement or other
arrangement providing for the employment of, furnishing of services by, rental
of real or personal property from or otherwise requiring payments to any such
person or firm, other than employment-at-will arrangements in the ordinary
course of business.
Section 5.20 Offering of the Common Shares. Except as set forth on
Schedule 5.20, neither the Company nor any person authorized or employed by the
Company as agent, broker, dealer or otherwise in connection with the offering or
sale of the Common Shares or any security of the Company convertible into the
Common Shares has offered the Common Shares or any such similar security for
sale to, or solicited any offer to buy the Common Shares or any such similar
security from, or otherwise approached or negotiated with respect thereto with,
any person or persons, and neither the Company nor any person acting on its
behalf has taken or will take any other action (including, without limitation,
any offer, issuance or sale of any security of the Company under circumstances
which might require the integration of such security with the Common Shares
under the Securities Act or the rules and regulations promulgated thereunder),
in either case so as to subject the offering, the issuance, or sale of the
Common Shares to the registration requirements of the Securities Act.
Section 5.21 Foreign Corrupt Practices Act. The Company has not taken
any action which would cause it to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any rules and regulations thereunder. To
22
the Company's Knowledge after due inquiry, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in the Company
by, any governmental or political official in any country in the world.
Section 5.22 Federal Reserve Regulations. The Company is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin securities (within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System), and no part of the proceeds of the Common Shares
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company that:
Section 6.1 Organization, Qualification and Corporate Power. The
Investor is a limited liability company duly organized and validly existing
under the laws of the State of Wisconsin. The Investor is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification. The Investor has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and as
proposed to be conducted, to execute, deliver and perform the Transaction
Documents, and to perform its obligations thereunder.
Section 6.2 Authorization of Agreements, Etc. The execution and
delivery by the Investor of the Transaction Documents, and the performance by
the Investor of its obligations thereunder, have been duly authorized by all
requisite limited liability company action and will not violate any provision of
law, any order of any court or other agency of government, the Investor's
Articles of Organization, or any provision of any indenture, agreement or other
instrument to which the Investor or any of its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument,
or result in the creation or imposition of any lien, charge, restriction, claim
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Investor.
Section 6.3 Validity. This Agreement has been duly executed and
delivered by the Investor and constitutes the legal, valid and binding
obligation of the Investor, enforceable in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws affecting the enforcement of creditors' rights generally and the
application of general principles of equity and judicial discretion. The other
Transaction Documents, when executed and delivered in accordance with this
Agreement, will constitute the legal, valid and binding obligations of the
Investor enforceable in accordance with each of their respective terms, except
23
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
similar laws affecting the enforcement of creditors' rights generally and the
application of general principles of equity and judicial discretion.
Section 6.4 Financial Sophistication; Accredited Investor. The Investor
has sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the merits and risks of an investment in
the Company, it is financially able to bear the risks thereof. The Investor is
an "accredited investor" within the meaning of Regulation D promulgated under
the Securities Act.
Section 6.5 Opportunity to Ask Questions. The Investor has had an
opportunity to discuss the Company's business, management and financial affairs
with the Company's management, to ask questions relating to the Company's
business, management and financial affairs, and to conduct all due diligence
deemed necessary before making an investment in the Company.
Section 6.6 Investment Intent. The Common Shares, the Note being
purchased by the Investor, and the Conversion Shares (the Common Shares, the
Note and the Conversion Shares are collectively referred to herein as the
"Offered Securities") are being acquired for its own account for the purpose of
investment, not as a nominee or agent, and not with a view to or for sale in
connection with any distribution thereof, and that the Investor has no present
intention of selling, granting any participation in or otherwise distributing
the same. The Investor further represents that the Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person with
respect to any of such Offered Securities.
Section 6.7 No Registration. The Investor understands that (i) the
Offered Securities have not been registered under the Securities Act by reason
of their issuance in a transaction exempt from the registration requirements of
the Securities Act; (ii) the Offered Securities must be held indefinitely unless
a subsequent disposition of the Offered Securities is registered under the
Securities Act and applicable state securities laws or is exempt from such
registration; (iii) the certificates representing the Common Shares will bear a
legend to such effect; and (iv) the Company will make a notation on its transfer
books to such effect.
Section 6.8 Brokers. The Investor has not employed any broker, agent,
or finder in connection with any transaction contemplated by this Agreement for
which the Company may be liable or responsible to pay.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTOR
The obligation of the Investor to consummate the transactions
contemplated hereby on the Closing date is, at the option of the Investor,
subject to the satisfaction, on or before the Closing date, of all of the
following conditions, unless otherwise waived by the Investor:
Section 7.1 Due Diligence. The Investor shall have completed all such
due diligence and investigation of the Company and its Subsidiaries, and each of
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their properties, assets and operations as the Investor shall have deemed
necessary and relevant to its determination of whether or not to make the
investment in the Company contemplated hereby.
Section 7.2 Representations and Warranties to be True and Correct. The
representations and warranties contained in Article V shall be true, complete
and correct in all material respects, on and as of the Closing date with the
same effect as though such representations and warranties had been made on and
as of such date.
Section 7.3 Performance. The Company shall have performed and complied
with all agreements contained herein required to be performed or complied with
by it prior to or at the Closing date.
Section 7.4 All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be in satisfactory
form and substance to the Investor, and the Investor shall have received all
such counterpart originals or certified copies of such documents as it may
reasonably request.
Section 7.5 No Material Adverse Change. The business, properties,
assets or condition (financial or otherwise) of the Company and its Subsidiaries
shall not have been materially adversely affected since the date of this
Agreement, whether by fire, casualty, act of God or otherwise, and there shall
have been no other changes in the business, properties, assets, condition
(financial or otherwise), management or prospects of the Company or any of its
Subsidiaries that would have a material adverse effect on their respective
businesses or assets.
Section 7.6 Shareholder Debt Interest Rate Reduction. All indebtedness
of the Company or any of its Subsidiaries to the Company's existing shareholders
which is subject to the accrual of interest at a rate greater than ten percent
(10%) per annum shall have been renegotiated so that all such indebtedness shall
be subject to the accrual of interest at rate no greater than ten percent (10%)
per annum, and the Company shall have provided the Investor with all such
reasonable documentation of such reduction in interest rates as the Investor may
require.
Section 7.7 Conversion of Employee and Shareholder Debt. The Company
shall have converted into the Company's Common Stock or option therefor, at a
conversion price (or exercise price as the case may be) not less than
seventy-five cents ($0.75) per share, an aggregate amount of at least One
Million One Hundred Eighty Thousand Dollars ($1,180,000) of outstanding
principal and interest of notes issued to the Company's shareholders and of the
Company's indebtedness to certain of its employees for accrued wages and
commissions recorded on the Company's March 31, 2005 Financial Statements, and
shall have provided the Investor with all such reasonable documentation of such
conversions as the Investor may require.
Section 7.8 Reduction of Med-Con Note. The Company shall have
negotiated and completed the reduction of the principal amount of its
outstanding note obligation to Med-Con Waste Solutions, Inc. to an amount not to
exceed Five Hundred One Thousand Two Hundred Twenty Dollars ($501,220) and shall
have provided the Investor with all such reasonable documentation of such debt
reduction as the Investor may require.
25
Section 7.9 Xxxxxxxx-Xxxxx Act Compliance. The Company shall be in full
compliance with all federal securities laws, rules, regulations, and reporting
requirements, including but not limited to the provisions of and the rules and
regulations promulgated under the Xxxxxxxx-Xxxxx Act of 2002, or at the option
of the Investor, shall have submitted to the Investor a schedule and plan to
bring the Company into compliance therewith within a reasonable time after the
date hereof.
Section 7.10 Statement of Accounts. The Company shall have delivered to
the Investor a statement reflecting all Accounts current as of twenty-four (24)
hours prior to the Closing.
Section 7.11 Investors Rights Agreement. The Company shall have
executed and delivered to the Investor the Investor's Rights Agreement, in a
form acceptable to the Investor which shall pertain to the Common Shares and to
any Conversion Shares (as defined in Section 3.2(i) above) and which is attached
hereto as Exhibit E.
Section 7.12 Subscription Agreement. The Company shall have executed
and delivered the Subscription Agreement to the Investor in a form acceptable to
the Investor.
Section 7.13 Deed of Trust.
(a) The Deed of Trust shall have been executed and delivered
to the Investor and shall be in full force and effect.
(b) The Company shall have provided to the Investor evidence
acceptable to the Investor that the Deed of Trust interests of each of
Xxx XxXxxx and Xxxxxxx Xxxxx shall have been released.
Section 7.14 Financing Statements. The Company shall have executed and
delivered to the Investor the Security Agreement and all such financing
statements or other documents or instruments as may be required to perfect the
Investor's security interest in the Collateral.
Section 7.15 Intercreditor Agreement. The Company shall have executed
and delivered to the Investor the Intercreditor Agreement in the form attached
hereto as Exhibit F.
Section 7.16 Certificates. The Company shall have delivered to the
Investor (a) a certificate of the secretary of the Company dated as of the date
hereof, in form and substance satisfactory to the Investor, as to the incumbency
and signature of the officers of the Company executing this Agreement or any of
the Transaction Documents and any certificate or other document or instrument or
resolution to be delivered pursuant hereto or thereto by or on behalf of the
Company, together with evidence of the incumbency of such secretary; and (b)
such other certificates, opinions, or documents as are otherwise reasonably
required by the Investor.
Section 7.17 Resolutions. The Investor shall have received a copy of
all of the resolutions (in form and substance satisfactory to the Investor)
adopted by the Board of Directors of the Company authorizing or relating to (a)
the execution, delivery and performance of this Agreement and the Transaction
Documents and the other documents and instruments provided for herein and
therein to which it is a party or is bound thereby, and (b) the granting of the
security interests, all certified by the secretary of the Company. Such
26
certificates shall be dated the date of the Closing and shall state that the
resolutions set forth therein have not been amended, modified, revoked or
rescinded as of such date and are at such date in full force and effect.
Section 7.18 Corporate Documents. The Investor shall have received
currently certified copies of the Company's and the Subsidiaries' Articles,
Bylaws and current good standing certificates in each state any of them is
incorporated and in all foreign states in which any of them is required to be
authorized to do business, except for jurisdictions in which failure to so
qualify could not reasonably be expected to have a material adverse effect on
the Company as a whole.
Section 7.19 Title Insurance. The Company shall have delivered to the
Investor, not less than ten (10) days prior to Closing, a commitment to issue to
Investor, a Lender's Policy of title insurance covering the Real Property in the
amount of One Million Dollars ($1,000,000) on a current ALTA form issued by an
insurer acceptable to Investor. At Closing, the Company shall, at Company's
expense, cause all standard general exceptions to the title commitment to be
deleted and shall cause the title company to issue a Zoning Endorsement, a
Survey Endorsement, an Access Endorsement, a Comprehensive Endorsement and "Gap"
Endorsement. At Closing the Company shall pay all premiums and fees for the
Lender's Policy and endorsements.
Section 7.20 Survey. The Investor shall have been provided, at the
Company's expense, not less than ten (10) days prior to Closing, an original
survey of the Real Property with a then current date, certified to the Investor,
and to the title company, prepared by a registered land surveyor satisfactory to
the Investor, which survey shall locate and describe the Real Property, all
improvements thereon, all boundary lines thereof, zoning setback dimensions in
relation to the improvements, all wetlands, shorelands, and environmental
corridors affecting the Property, all adjacent roadways and other means of
access and limitations thereon, all utilities thereon or adjacent to the
property, locating the well and septic systems for the property, if possible,
all apparent and recorded easements and rights-of-way affecting the property,
the area of the property (to the nearest 1/1000 of an acre, net of roadways),
all encroachments affecting the property, whether fixed to the ground or not,
overlaps, and shall otherwise satisfy all ALTA or Chapter 1071 of the Texas
Occupations Code survey standards so as to eliminate any standard or specific
survey exception to the Lender's Policy of title insurance or commitment.
Section 7.21 Legal Fees. The Company shall have reimbursed Investor for
the reasonable costs and expenses incurred by Investor in connection with the
investigation, preparation, execution and delivery of this Agreement (and due
diligence related thereto) and the other instruments and documents to be
delivered hereunder and the transactions contemplated thereby, including the
reasonable fees and disbursements of Xxxxx & Xxxxxxxx, S.C., special counsel to
the Investor; provided, however, that such reimbursement shall not exceed
Thirty-Seven Thousand Five Hundred Dollars ($37,500) and the Company shall not
pay its own counsel more than Thirty Thousand Dollars ($30,000) at the Closing.
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ARTICLE VIII
COVENANTS OF THE COMPANY
Section 8.1 Corporate Existence. The Company shall, until the later of
the date the Company shall have satisfied all of its obligations under the Note
or the date the Common Stock owned by the Investor is registered with the SEC,
maintain and cause each of its Subsidiaries to maintain their respective
corporate existence, rights and franchises in full force and effect.
Section 8.2 Maintenance of Properties. The Company shall, until the
later of the date the Company shall have satisfied all of its obligations under
the Note or the date the Common Stock owned by the Investor is registered with
the SEC, maintain and cause each of its Subsidiaries to maintain and keep their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the businesses carried on in connection
therewith may be properly conducted at all times.
Section 8.3 Financial Statements. The Company covenants that for so
long as the Company shall have outstanding obligations under the Note, that it
will deliver to the Investor:
(a) as soon as practicable and in any event within forty-five
(45) days after the end of each fiscal quarter in each fiscal year,
consolidated statements of income, stockholder's equity and cash flows
of the Company and its Subsidiaries for the period from the beginning
of the current fiscal year to the end of such fiscal quarter, and a
consolidated balance sheet of the Company and its Subsidiaries as of
the end of such fiscal quarter, setting forth in each case in
comparative form figures for the corresponding fiscal quarter in the
previous fiscal year, all in reasonable detail, prepared in accordance
with generally accepted accounting principles applicable to interim
financial statements and certified by the Company's Chief Executive
Officer and Chief Financial Officer.
(b) as soon as practicable and in any event within ninety (90)
days after each fiscal year, consolidated statements of income,
stockholder's equity and cash flows of the Company and its Subsidiaries
for such fiscal year and a consolidated balance sheet of the Company
and its Subsidiaries as of the end of such fiscal year, setting forth
in each case in comparative form corresponding consolidated figures
from the previous annual audit, all in reasonable detail, prepared in
accordance with generally accepted accounting principles and certified
by the Company's independent auditors, Chief Executive Officer and
Chief Financial Officer.
(c) no less than monthly, a current statement of all Accounts.
Section 8.4 Collateral Administration. So long as the Company shall
have outstanding obligations under the Note:
(a) The Company will, and will cause its Subsidiaries to, pay
and discharge all taxes, assessments and governmental charges or levies
imposed upon the Company or any of its Subsidiaries or any of the
property or assets of the Company or any of its Subsidiaries, prior to
28
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon the Collateral, except to the extent
that the imposition of any such tax, assessment, charge or levy or the validity
of any such claim is being contested in good faith by appropriate proceedings
and the Company has set aside adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested; and
(b) The Company will, and will cause its Subsidiaries to,
allow any representative of the Investor to visit and inspect any of
the Company's or its Subsidiaries' properties, to examine the Company's
or its Subsidiaries' books of record and account and to discuss the
Company's or its Subsidiaries' affairs, finances and accounts with the
Company's or its Subsidiaries' officers, all at such reasonable time
and as often as the Investor may reasonably request;
(c) The Company will not, and will not permit its Subsidiaries
to, do anything to impair the rights of the Investor in the Collateral.
Section 8.5 Insurance. The Company covenants that, until the later of
the date the Company shall have satisfied all of its obligations under the Note
or the date the Common Stock owned by the Investor is registered with the SEC,
it will, and will cause each of its Subsidiaries to maintain, with financially
sound and reputable insurers, insurance with respect to their respective
properties and businesses against such casualties and contingencies, of such
types, and on such terms and in such amounts as is customary in the case of
entities of established reputations engaged in the same or similar business and
similarly situated.
Section 8.6 Compliance with Laws. The Company shall, until the later of
the date the Company shall have satisfied all of its obligations under the Note
or the date the Common Stock owned by the Investor is registered with the SEC,
comply, and cause each Subsidiary to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise.
Section 8.7 Reserve for Conversion Shares. The Company shall, for so
long as the Company shall have outstanding obligations under the Note, at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the conversion of any Outstanding
Principal under the Note and otherwise complying with the terms of this
Agreement, such number of its duly authorized shares of Common Stock as shall be
sufficient to effect the conversion of any Outstanding Principal under the Note
from time to time or otherwise to comply with the terms of this Agreement. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of any Outstanding Principal under the
Note or otherwise to comply with the terms of this Agreement, the Company will
forthwith take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purposes. The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
administrative body that may be required under applicable federal and state
securities laws in connection with the issuance of shares of Common Stock upon
conversion of any Outstanding Principal under the Note.
29
Section 8.8 Change in the Nature of Business. The Company shall, until
the later of the date the Company shall have satisfied all of its obligations
under the Note or the date the Common Stock owned by the Investor is registered
with the SEC, not make, or permit any Subsidiary to make, any material change in
the nature of its business as now conducted and proposed to be conducted.
Section 8.9 Dividends and Distributions. Until the later of the date
the Company shall have satisfied all of its obligations under the Note or the
date the Common Stock owned by the Investor is registered with the SEC, the
Company shall not pay any dividend on any of the Company's equity securities or
make any distribution to any of the Company's shareholders, whether in cash or
in-kind. Notwithstanding the foregoing, this prohibition on dividends and
distributions shall not apply to the ten percent (10%) dividend payable on the
Company's Series A Preferred Stock.
Section 8.10 Prohibition on New Indebtedness. Until the later of the
date the Company shall have satisfied all of its obligations under the Note or
the date the Common Stock owned by the Investor is registered with the SEC,
neither the Company nor any of its Subsidiaries shall incur any further
indebtedness of any kind other than purchase money indebtedness incurred in the
ordinary course of business and operating debt if (a) the consolidated net worth
of the Company at the end of the then immediately preceding calendar quarter is
less than the amount set forth on Schedule 8.11 at the respective date set forth
on Schedule 8.11; or (b) the incurrence of such debt shall cause the
consolidated net worth of the Company to fall below the amount set forth on
Schedule 8.11 for the end of the then-current calendar quarter. In the event
either or of the conditions set forth in the preceding clauses (a) or (b) shall
exist, the Investor shall not unreasonably withhold its waiver of this
prohibition on the incurrence of new indebtedness by the Company or any of its
Subsidiaries in connection with the financing of an acquisition by or other
legitimate business purpose of the Company. The "reasonableness" of the
Investor's decision with respect to the consent required pursuant to this
Section 8.10 shall be determined based on the following factors: (x) the value
to the Investor created by the use of proceeds of the proposed indebtedness; (y)
the impact of the additional indebtedness on the credit worthiness of the
Company; and (z) the impact of the proposed indebtedness on the value of the
collateral securing the obligations of the Company to the Investor.
Section 8.11 Financial Covenants. The Company covenants that, for as
long as the Company shall have outstanding obligations under the Note, it will
not permit its consolidated net worth at any calendar quarter end to be less
than the amounts set forth on Schedule 8.11, at the respective date set forth on
Schedule 8.11. The obligation of the Investor to fund any Capital Call or
Advance shall be subject to the adjustment of Schedule 8.11, to the satisfaction
of Investor, to reflect the impact on the projected results of operations as a
result of any proposed acquisition.
Section 8.12 Liens. The Company covenants that it will not, for so long
as the Company shall have outstanding obligations under the Note, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
lien upon any property of the Company or any of its Subsidiaries except:
30
(a) liens for taxes, assessments, or government charges which
are not yet due or delinquent or which are being contested in good
faith by appropriate proceedings and provided that adequate reserves
with respect thereto are maintained on the books of the Company in
accordance with generally accepted accounting principles;
(b) carriers', warehousemen's, mechanics' material men's,
repairmen's' or other liens arising by operation of law in the ordinary
course of business;
(c) pledges or deposits made in connection with workers'
compensation laws, unemployment insurance laws, social security laws or
other similar laws;
(d) liens existing as of the date hereof; and
(e) liens granted in connection with additional indebtedness
incurred in compliance with Section 8.10 hereof.
Section 8.13 Related Party Transactions. The Company covenants that it
will not, and will not permit any of its Subsidiaries to, until the later of the
date the Company shall have satisfied all of its obligations under the Note or
the date the Common Stock owned by the Investor is registered with the SEC,
enter into, directly or indirectly, any transaction, (including without
limitation, the purchase, lease, sale or exchange or properties of any kind or
rendering of any service) with a Related Party, except pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and on
fair and reasonable terms no less favorable to the Company or such Subsidiary
than would be obtainable in a comparable arms' length transaction with a person
or entity not a Related Party of the Company.
Section 8.14 Executive Compensation. The Company shall not, until the
later of the date the Company shall have satisfied all of its obligations under
the Note or the date the Common Stock owned by the Investor is registered with
the SEC, increase the base compensation of any of the executive officers of the
Company or any of its Subsidiaries more than five percent (5%) annually without
the prior consent of the Investor.
Section 8.15 Restrictive Agreements Prohibited. Until the later of the
date the Company shall have satisfied all of its obligations under the Note or
the date the Common Stock owned by the Investor is registered with the SEC,
neither the Company nor any of its Subsidiaries shall become a party to any
agreement which by its terms restricts the Company's performance of this
Agreement or any of the Transaction Documents.
Section 8.16 Sale; Merger. Until the later of the date the Company
shall have satisfied all of its obligations under the Note or the date the
Common Stock owned by the Investor is registered with the SEC, the Company shall
not sell all or a substantial portion of its or its Subsidiaries' assets or
merge or enter into any combination or consolidation with another person or
entity, in which the Company is not the surviving entity.
Section 8.17 Board Meetings. The Company shall, at all times prior to
the registration of the Common Stock owned by the Investor with the SEC,
schedule and hold regular meetings of its Board of Directors not less frequently
than once every ninety (90) days. The Company shall reimburse the Investor's
31
designees for direct out-of-pocket expenses incurred in attending such meetings
and shall compensate such designees according to the Company's Director
compensation policies then in effect.
Section 8.18 Board Composition.
(a) The Company shall not, prior to the registration of the
Common Stock owned by the Investor with the SEC, increase the size of
its Board of Directors to more than five (5) members unless Xx. Xxxxxx
Xxxx decides to become a director in addition to the Investor's
director nominee as described below, in which event the Board of
Directors shall have no more than seven (7) members. The Board of
Directors shall nominate one designee selected by the Investor for
election to the Board of Directors at each annual meeting of the
Company's shareholders, and shall recommend the election of such
designee to the Company's shareholders; provided, however, that in the
event that Xx. Xxxxxx Xxxx is designated by the Investor in addition to
its first nominee for nomination by the Board of Directors for election
to the Board of Directors, then the Board of Directors shall nominate
two designees (one of which shall be Xx. Xxxxxx Xxxx) selected by the
Investor for election to the Board of Directors at each annual meeting
of the Company's shareholders, and shall recommend the election of such
designees to the Company's shareholders; provided further, however,
that the Investor's designee(s) must be qualified to serve as a
director of an issuer subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended.
(b) The Investor's right to nominate designees to the
Company's Board of Directors pursuant to this Section 8.18 shall
continue until such time as:
(i) the Investor effectuates, in one or a series of
transactions, a transfer of Common Stock owned by the Investor
whereby the number of shares of Common Stock owned by the
Investor after such transfer is less than seventy-five percent
(75%) of the number of shares of Common Stock owned by the
Investor before the transfer, at which time the Investor's
right to nominate designees to the Company's Board of
Directors will be reduced to the right to nominate one (1)
designee; or
(ii) the Investor effectuates, in one or a series of
transactions, a transfer of shares of Common Stock whereby the
number of shares of Common Stock owned by the Investor after
the transfer is less than fifty percent (50%) of the number of
shares of Common Stock owned by the Investor before the
transfer, at which such time the Investor's right to nominate
designees to the Company's Board of Directors will be
eliminated; or
(iii) the Common Stock owned by the Investor shall
have been registered with the SEC.
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ARTICLE IX
EVENTS OF DEFAULT
Section 9.1 Events of Default. The occurrence of any of the following
shall constitute an Event of Default (so called herein) hereunder:
(a) The Company defaults in any payment due under the Note if
and when due;
(b) Any representation or warranty made by the Company herein
shall be false in any material respect on the date as of which made;
(c) The Company fails to materially perform or observe any
agreement, covenant, term or condition herein or in any of the
Transaction Documents; or
(d) The Company shall declare bankruptcy, become insolvent,
make an assignment for the benefit of creditors, or petitions any
tribunal or consents to the appointment of, or taking of possession by,
a trustee, receiver, custodian, liquidator or other similar official of
the Company or any Subsidiary.
Section 9.2 Upon the occurrence of an Event of Default, the Investor
may, at its option:
(a) Declare all outstanding sums under the Note to be, and
such sums shall thereupon be and become, immediately due and payable;
(b) Cancel the Subscription Agreement with no further
obligation to the Investor; and/or
(c) Proceed to protest and enforce its rights under this
Agreement, the Note and the Transaction Documents by exercising all
such remedies available to the Investor in respect thereof under
applicable law.
No remedy conferred in this Agreement upon the Investor is
intended to be exclusive of any other remedy, and each and every such
remedy shall be cumulative and in addition to every other remedy
conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
ARTICLE X
MISCELLANEOUS
Section 10.1 Expenses. Except as set forth in Section 7.19, each party
will pay its own expenses in connection with the transactions contemplated
hereby.
33
Section 10.2 Survival of Agreements. All covenants agreements,
representations and warranties made herein or in any of the Transaction
Documents or any certificate or instrument delivered to the Investor pursuant to
or in connection with this Agreement or any of the Transaction Documents shall
survive the execution and delivery of all of the Transaction Documents, the
issuance, sale and delivery of the Note and the Common Shares, and all
statements contained in any certificate herewith or therewith shall be deemed to
constitute representations and warranties made by the Company.
Section 10.3 Parties in Interest; Assignment. All representations,
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. This
Agreement may not be assigned by either party hereto without the prior written
consent of the other party hereto.
Section 10.4 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
facsimile, addressed as follows:
(a) if to the Company: MedSolutions, Inc. 00000
Xxxxx Xxxxx Xxxx Xxxxxxx
XXX, Xxxxx 000 Xxxxxx, XX
00000 Attn: President
Facsimile: (000) 000-0000
With a copy to: Fish & Xxxxxxxxxx P.C.
5000 Bank One Center
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Block
Facsimile: (000) 000-0000
(b) if to the Investor: Xxxx Investments, LLC 0000 X.
Xxxx Xxxxx Xxxxxxxxx, XX
00000 Attn: Xxxxxx X. Xxxx
Facsimile: (000) 000-0000
With a copy to: Xxxxx & Xxxxxxxx, S.C.
000 X. Xxxxxxxxx Xx., Xxxxx 000
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxx
Facsimile: (000) 000-0000
Section 10.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Wisconsin without regard
to principles of conflicts of laws.
34
Section 10.6 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
Section 10.7 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.8 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived without the written consent of the
Company and the Investor.
Section 10.9 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision of the entire Agreement shall not be affected
thereby.
Section 10.10 Headings. The headings and titles used in this Agreement
are for convenience only and are not to be considered in construing or
interpreting any term or provision of this Agreement.
Section 10.11 Termination. Notwithstanding any other provision of this
Agreement to the contrary, if the Closing has not occurred on or before July 11,
2005, this Agreement shall immediately terminate effective as of such date.
IN WITNESS WHEREOF, the Company and the Investor have executed this
Investment Agreement as of the day and year first written above.
THE COMPANY: THE INVESTOR:
MedSolutions, Inc. Xxxx Investments, LLC
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxx X. Xxxx
----------------------------- ---------------------------
Xxxxxxx X. Xxxxxxx, President Xxxxxx X. Xxxx, Sole Member
35
EXHIBIT A
Consolidated Pro-forma Financial Statements
of
MedSolutions, Inc.
2005 Projected EBITDA: $1,804,083
2005 Projected Net Income: $759,232
EXHIBIT B
Form of Up to One Million Dollars ($1,000,000.00) 10% Senior Convertible Note
10% SENIOR CONVERTIBLE PROMISSORY NOTE
$1,000,000 July _____, 2005
FOR VALUE RECEIVED, MEDSOLUTIONS, INC., a Texas corporation (the
"Borrower"), agrees and promises to pay to XXXX INVESTMENTS, LLC, a Wisconsin
limited liability company (the "Lender") at its principal place of business at
0000 Xxxxx Xxxx Xxxxx, Xxxxxxxxx, Xxxxxxxxx 00000, or at such other place or
places as the Holder may designate in writing, the principal amount of One
Million Dollars ($1,000,000.00) or so much thereof as may have been advanced by
the Holder hereunder with interest as provided herein, in legal tender of the
United States of America, in immediately available funds, as set forth herein:
1. Advances. The Lender shall advance any sum that the Borrower may
request from time to time prior to October 15, 2006 so long as: (a) the Borrower
shall have satisfied all conditions precedent to such advance set forth in that
certain Investment Agreement of even date herewith executed between the Borrower
and the Lender (the "Investment Agreement"), (b) the sum requested by the
Borrower shall not cause the aggregate amount of all advances made under this
Note to exceed One Million Dollars ($1,000,000), and (c) no Event of Default (as
defined in the Investment Agreement) shall have occurred. A schedule of all
advances and repayments is set forth on Schedule 1 hereto. As of the date
hereof, the Lender has made an "Initial Advance" to the Borrower in the amount
of $300,000.00.
2. Interest. The unpaid principal amount from time to time outstanding
shall bear interest from the date of this Note until paid at a rate equal to ten
percent (10%) per year. Interest shall be computed for the actual number of days
elapsed on the basis of a year of 360 days. From and after an Event of Default
(as defined in the Investment Agreement), and for so long as such Event of
Default shall continue, the unpaid principal balance of this Note shall bear
interest at an annual rate equal to the prime rate as published in the Wall
Street Journal from time to time, plus eight percent (8%).
3. Repayment.
(a) The Initial Advance set forth on Schedule 1 hereto shall
be repaid in three (3) equal monthly installments of interest only
commencing thirty (30) days from the date hereof and twelve (12) equal
monthly installments of principal and interest commencing thereafter.
(b) Subsequent advances hereunder shall be repaid in
thirty-six (36) installments as follows: thirty-five (35) monthly
payments of interest only on the first day of each calendar month
commencing with the first day of the month that is at least thirty (30)
days after the date of the first subsequent advance hereunder, and a
final installment in an amount equal to the outstanding principal and
any accrued but unpaid interest on the third anniversary of the date of
the first subsequent advance hereunder.
(c) Amounts due and payable hereunder may be prepaid only in
the manner set forth in the Investment Agreement.
4. Investment Agreement. This Note was issued pursuant to the
Investment Agreement. Reference is made to the Investment Agreement for a
description of the agreement between the parties pertaining to the payment of
and possible conversion of this Note. The parties shall be bound by the terms of
the Investment Agreement. All capitalized terms which are not defined in this
Note shall have the meanings prescribed to such terms in the Investment
Agreement.
5. Security. This Note is being executed and delivered in conjunction
with, and the principal, interest and all other sums due hereunder are secured
by a security interest pursuant to that certain Security Agreement and Deed of
Trust of even date herewith executed by and between the Borrower, on behalf of
itself and its subsidiaries, and the Lender pursuant to the Investment
Agreement.
6. Events of Default; Consequences. In the event of the occurrence of
an Event of Default by the Borrower (as defined in the Investment Agreement) the
Lender may:
(a) declare the entire unpaid principal amount of this Note,
together with interest accrued, immediately due and payable at the
place of payment, without presentment, protest, notice or demand, all
of which are expressly waived;
(b) proceed to protest and enforce its rights hereunder, and
under the Security Agreement, the Deed of Trust and/or the Investment
Agreement.
7. Conversion. This Note shall be convertible into shares of Common
Stock of the Borrower as provided in the Investment Agreement.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THE INVESTMENT AGREEMENT
EXECUTED BETWEEN THE BORROWER HEREOF AND THE LENDER.
MEDSOLUTIONS, INC.
By:
-----------------------------
Xxxxxxx X. Xxxxxxx, President
Schedule 1
Advances and Repayments
Date Amount Advance (A) Outstanding Principal
---- ------ ----------- ---------------------
or Repayment (R) Balance
---------------- -------
July 15, 2005 $300,000.00 Advance $300,000.00
EXHIBIT C
Description of Real Property
BEING all of Xxx 0, Xxxxx X, xx XXXXXXXX XXXX PROPERTIES INDUSTRIAL DISTRICT, an
addition to the City of Xxxxxxx, Xxxxxx County, Texas, recorded in Volume 49,
Page 41, of the Map Records of DALLAS County, Texas, said lot being more
particularly described as follows;
BEGINNING at a nail set in the west R.O.W. line of Industrial Lane (a 60'
R.O.W.) and at the common southeast corner of said Lot 3 and the northeast
corner of Lot 2 of said addition, said point being the N 00(degree) 10' 02" E,
793.71 feet from the present intersection of the west line of Industrial Lane
with the north R.O.W. line of Xxxxxxxx Road (a variable width R.O.W.);
THENCE N 89(degree) 49' 58" W, 328.64 feet along the common line of said Lots 2
and 3 to a 1/2" iron rod set in the east line of a 50' wide railroad spur;
THENCE N 00(degree) 34' 00" E, 400.01 feet along the east line of said railroad
spur to a cross cut at the common northwest corner of said Lot 3 and the
southwest corner of Lot 4 of said addition;
THENCE S 89(degree) 49' 58" E, 325.85 feet along the common line of said Lots 3
and 4 to a 1/2" iron rod set in the west line of Industrial Lane;
THENCE S 00(degree) 10' 02" W, 400.00 feet along the west line of Industrial
Lane to the point of beginning and containing 130,897.14 square feet or 3.0050
acres of land, more or less.
EXHIBIT D
Subscription Agreement
SUBSCRIPTION AGREEMENT
This SUBSCRIPTION AGREEMENT (the "Agreement") is made and entered into
as of July ___, 2005, by and among MEDSOLUTIONS, INC., a Texas corporation (the
"Company"), and XXXX INVESTMENTS, LLC, (the "Purchaser").
RECITALS:
WHEREAS, the Company and the Purchaser have entered into that certain
Investment Agreement, dated as of even date herewith (the "Investment
Agreement"), pursuant to which the Company agrees to sell to the Purchaser, and
the Purchaser agrees to purchase from the Company, in a series of transactions,
up to One Million Dollars ($1,000,000) of the Company's Common Stock upon the
terms and conditions set forth herein and in the Investment Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained in this Agreement, the Company and the Purchaser agree as follows:
ARTICLE I
SUBSCRIPTION FOR COMMON STOCK
1.1 Delivery of Subscription Agreement. This Agreement is being
delivered pursuant to and as a condition to the closing of the transactions
contemplated in the Investment Agreement, attached hereto as Exhibit A, the
terms of which are incorporated herein by reference.
1.2 Subscription for Common Shares. The Purchaser hereby subscribes for
an aggregate amount of up to One Million Dollars ($1,000,000) of the Company's
Common Stock (the "Common Shares"). The Purchaser's purchase of the Common
Shares hereunder shall occur in a series of transactions (each a "Capital
Call"), in such amounts as the Company may request, at a purchase price (the
"Purchase Price") of sixty-five cents ($0.65) per share, subject to adjustment
as set forth in the Investment Agreement.
1.3 Termination of Purchaser's Subscription. The Purchaser's obligation
to purchase the Common Shares pursuant to this Agreement will automatically
terminate upon the earlier of (a) such time as the aggregate amount of all
Capital Calls made by the Company pursuant hereto shall equal One Million
Dollars ($1,000,000) or (b) October 15, 2006, and the Purchaser shall have no
further liability to the Company hereunder.
1.4 Purchase Price. The Purchase Price for the Common Shares, with
respect to any Initial Capital Call hereunder shall be sixty-five cents ($0.65)
per share. The Purchase Price for the Common Shares with respect to any
subsequent Capital Call hereunder shall be the Purchase Price, as adjusted,
pursuant to Section 4.2(f) of the Investment Agreement, in effect on the date of
the issuance of the Common Shares.
1.5 Initial Capital Call. Pursuant to Section 4.2(c) of the Investment
Agreement, and subject to the satisfaction by the Company of the conditions
precedent to Closing set forth in the Investment Agreement, the Company may
deliver to the Purchaser an Initial Capital Call at the Closing (as defined in
the Investment Agreement). Upon satisfaction of the aforementioned conditions,
and the delivery to the Purchaser by the Company of the Initial Capital Call
Notice, the Purchaser shall deliver to the Company the amount requested in the
Initial Capital Call Notice, and the Company shall deliver to the Purchaser a
certificate or certificates representing the number of Common Shares purchased
by the Purchaser, which number of shares shall be determined by dividing the
amount requested in the Initial Capital Call Notice by the Purchase Price.
1.6 Subsequent Capital Calls. Pursuant to Section 4.2(d) of the
Investment Agreement, the Company may, at any time and from time to time prior
to the termination of the Purchaser's obligation to purchase the Common Shares
as set forth in Section 1.3 hereof, make a Capital Call on the Purchaser by
delivering a Capital Call Notice to the Purchaser in the manner set forth in
Section 4.2(d) of the Investment Agreement. Upon the satisfaction by the Company
of the conditions for subsequent Capital Calls set forth in the Investment
Agreement, the Purchaser shall, on the date set forth in the Capital Call
Notice, deliver to the Company the amount requested in such Capital Call Notice
and the Company shall deliver to the Purchaser a certificate or certificates
representing the number of Common Shares purchased by the Purchaser, which
number of shares shall be determined by dividing the amount requested in such
Capital Call Notice by the then applicable Purchase Price.
1.7 Reduction of Subscription Amount. Each Capital Call hereunder
(including any Initial Capital Call) shall reduce the amount available for
subsequent Capital Calls hereunder by the amount of such Capital Call such that
the amount of all Capital Calls made hereunder may never exceed an aggregate
amount of One Million Dollars ($1,000,000).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Purchaser hereby acknowledges, represents, certifies, warrants and
agrees as follows:
2.1 Accredited Investor. The Purchaser is an "accredited investor"
within the meaning of Rule 501 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act").
2.2 Financial Sophistication. The Purchaser has sufficient knowledge
and experience in investing in companies similar to the Company so as to be able
to evaluate the merits and risks of an investment in the Company, and is
financially able to bear the risks thereof. The Purchaser has participated in
other privately placed investments and/or has the capacity to protect his
interest in his investment in the Common Shares. The Purchaser's financial
condition is such that it has no need for liquidity with respect to the Common
Shares and is able to bear the economic risk of the investment in the Common
Shares for an indefinite period of time, including the risk of losing all of its
investment.
2.3 Opportunity to Ask Questions. The Purchaser has had an opportunity
to discuss the Company's business, management and financial affairs with the
Company's management, to ask questions relating to the Company's business,
management and financial affairs, and to conduct all due diligence deemed
necessary by the Purchaser and its advisors before acquiring the Common Shares.
2.4 Investment Intent. The Common Shares being purchased are being
acquired for the Purchaser's own account for the purpose of investment and are
not being purchased for subdivision, fractionalization, resale or distribution;
the Purchaser has no contract, undertaking, agreement or arrangement with any
person to sell, transfer or pledge all or any part of the Common Shares, and has
no plan or intent to enter into any such contract, undertaking or arrangement.
2.5 No Registration. The Purchaser acknowledges and understands that
(a) the Common Shares have not been and will not be registered under the
Securities Act or any applicable state securities laws by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and Rule 506 of Regulation D
promulgated thereunder and similar state law exemptions; (b) the Common Shares
must be held indefinitely unless a subsequent disposition of the Common Shares
is registered under the Securities Act and applicable state securities laws or
is exempt from such registration and the Purchaser may not transfer the Common
Shares, or any interest therein, unless and until the Company shall have
consented thereto, provided further that the Purchaser shall provide, if the
Company so requires, an opinion of counsel satisfactory to the Company and its
counsel, that the intended disposition will not violate the Securities Act or
any applicable state securities laws or the rules and regulations of the
Securities and Exchange Commission or of any state securities commission; (c)
the certificates representing the Common Shares will bear a legend to such
effect; and (d) the Company will make a notation on its transfer books to such
effect.
2.6 Tax Matters. The Purchaser has either secured independent tax
advice with respect to an investment in the Common Shares or is sufficiently
familiar with the income taxation of corporations that it deemed such
independent tax advice unnecessary.
2.7 No General Solicitation. The Purchaser was not induced to invest in
the Company by any form of general solicitation or general advertising
including, but not limited to: (a) any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over the television or radio; or (b) any seminar or meeting whose attendees had
been invited by any general solicitation or general advertising.
2.8 High Risk. The Purchaser is aware of the fact that an investment in
the Common Shares is very speculative and involves a high degree of risk of loss
of the entire economic investment in the Common Shares.
2.9 No Review. The Purchaser acknowledges no federal or state agency
has (a) reviewed or passed upon the adequacy of the offering of the Common
Shares, (b) made any finding or determination as to the fairness of the terms of
an investment in the Common Shares, or (c) made any recommendation or
endorsement of the Common Shares as an investment.
2.10 No Brokers. All of the negotiations concerning this transaction
have been carried on solely by the parties hereto and their respective
employees, counsel (if any) and financial advisors. The Purchaser has not dealt
with any broker or other person who could claim a broker's fee or other
remuneration with regard to any purchase of the Common Shares, nor is the
Purchaser aware of any commission or other remuneration being paid or given or
to be paid or given directly or indirectly with regard to such purchase. The
Purchaser has relied upon his own legal counsel as to all legal matters and
questions presented with reference to the offering of the Common Shares and has
relied upon the Purchaser's accountants or other financial advisors and/or the
Purchaser's financial experience as to all financial matters and questions
presented with respect to the transaction contemplated hereby.
2.11 Compliance with Applicable Law. The Purchaser recognizes that the
securities laws and regulations of certain states, including the states of the
Purchaser's principal place of business and incorporation, may impose additional
requirements relating to the offer and purchase of the Common Shares. The
Purchaser hereby agrees to execute, deliver and comply with the terms of any
additions, supplements or amendments to this Agreement that are required by the
Company in connection therewith.
ARTICLE III
MISCELLANEOUS
3.1 Survival of Agreements. All covenants, agreements, representations
and warranties made in this Agreement or any certificate or instrument delivered
to the Purchaser or the Company pursuant to or in connection with this Agreement
shall survive the execution and delivery of this Agreement, and the issuance,
sale and delivery of the Common Shares.
3.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin without regard to principles
of conflicts of laws.
3.3 Entire Agreement. This Agreement, including the Schedules and
Exhibits hereto (including, without limitation, the Investment Agreement, and
the Schedules and Exhibits thereto), constitutes the sole and entire agreement
of the parties with respect to the subject matter hereof. All Schedules and
Exhibits hereto are hereby incorporated herein by reference.
3.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.5 Amendments. This Agreement may not be amended or modified, and no
provisions hereof may be waived without the written consent of the Company and
the Purchaser.
3.6 Severability. If any provision of this Agreement shall be declared
void or unenforceable by any judicial or administrative authority, the validity
of any other provision of the entire Agreement shall not be affected thereby.
3.7 Headings. The headings and titles used in this Agreement are for
convenience only and are not to be considered in construing or interpreting any
term or provision of this Agreement.
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Subscription Agreement as of the day and year first written above.
COMPANY: PURCHASER:
MEDSOLUTIONS, INC. XXXX INVESTMENTS, LLC
By:
----------------------------- ---------------------------
Xxxxxxx X. Xxxxxxx, President Xxxxxx X. Xxxx, Sole Member
EXHIBIT E
Form of Investor's Rights Agreement
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of this
15th day of July, 2005, by and among MEDSOLUTIONS, INC., a Texas corporation
(the "Company"), and XXXX INVESTMENTS, LLC, a Wisconsin limited liability
company (the "Shareholder").
WHEREAS, the Shareholder is acquiring up to Two Million Dollars
($2,000,000) of the Company's Common Stock pursuant to the terms of an
Investment Agreement of even date herewith between the Company and the
Shareholder (the "Investment Agreement");
WHEREAS, a condition to the obligations of the Shareholder and the
Company under the Investment Agreement is that the Shareholder and the Company
enter into this Agreement for the purpose of defining certain rights pertaining
to the Common Stock to be acquired by the Shareholder pursuant to the Investment
Agreement and other corporate matters, all as hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements
set forth below, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, capitalized terms
not otherwise defined herein shall have the following respective meanings:
(a) "Common Shares" shall mean and include all shares of
Common Stock now owned by the Shareholder or hereafter issued to the
Shareholder by the Company pursuant to the Subscription Agreement
and/or the Investment Agreement, and any other shares of Common Stock
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of,
the Common Shares.
(b) "Common Stock" shall mean and include all shares of Common
Stock of the Company, and any rights, options, or warrants to purchase
Common Stock, and all other securities of the Company which may be
issued in exchange for or in respect of such shares of Common Stock
(whether by way of stock split, stock dividend, combination,
reclassification, reorganization or any other means).
(c) "Conversion Shares" shall mean and include all shares of
Common Stock issued to the Shareholder by the Company as a result of
one or more conversions of Outstanding Principal under the Note
pursuant to the Investment Agreement, and any other shares of Common
Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in
replacement of, the Conversion Shares.
(d) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) "Issue Date" shall mean the date upon which any Common
Shares or Conversion Shares were first issued.
(f) "Note" shall mean that certain Up to One Million Dollars
($1,000,000) 10% Senior Convertible Note of even date herewith issued
to the Shareholder pursuant to the Investment Agreement.
(g) "Outstanding Principal" shall have the meaning set forth
in the Investment Agreement.
(h) "Principal Stockholders" shall mean those persons listed
on Schedule 1 hereto.
(i) "Register," "Registered," or "Registration" shall refer to
a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act,
and the declaration or ordering of effectiveness of such registration
statement or document.
(j) "Registrable Securities" shall mean the Common Shares and
the Conversion Shares. Notwithstanding the foregoing, the Common Shares
and the Conversion Shares shall only be treated as Registrable
Securities if and so long as they have not been (i) sold to or through
a broker-dealer or underwriter in a public distribution or public
securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act
under Section 4(1) thereof so that all transfer restrictions with
respect thereto, if any, are removed upon the consummation of such
sale.
(k) "SEC" shall mean the Untied States Securities and Exchange
Commission.
(l) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(m) "Subscription Agreement" shall mean that certain
Subscription Agreement of even date herewith executed between the
Shareholder and the Company whereby the Shareholder subscribed for up
to One Million Dollars ($1,000,000) of the Company's Common Stock.
2. Registration Rights.
(a) Request for Registration.
(i) If the Company shall receive, at any time after
December 31, 2006, a written request from the Shareholder that
the Company file a registration statement under the Securities
Act with respect to any or all of the Registrable Securities
then owned by the Shareholder, then the Company shall, use its
best efforts to effect as soon as practicable, and in any
event within ninety (90) days of such request, the
Registration under the Securities Act of the Registrable
Securities requested to be Registered.
(ii) If the Shareholder intends to distribute the
Registrable Securities covered by its request for Registration
pursuant to Section 2(a)(i) hereof by means of an
underwriting, the Shareholder shall so advise the Company in
such request. The underwriter will be selected by the
Shareholder and shall be reasonably acceptable to the Company.
The Shareholder shall (together with the Company as provided
in Section 2(d)(v) hereof) enter into an underwriting
agreement in customary form with the underwriter or
underwriters selected for such underwriting. Notwithstanding
any other provision of this Section 2(a), if the underwriter
advises the Company in writing that the marketing factors
require a limitation on the number of shares to be
underwritten, then the Company shall notify the Shareholder,
and the number of Shares of Registrable Securities that may be
included in the underwriting shall be reduced by such number
as the underwriter may require; provided, however, that the
number of shares of Registrable Securities to be included in
such underwriting shall not be reduced unless all other
securities are first entirely excluded from the offering.
(iii) Notwithstanding the foregoing, if the Company
shall furnish the Shareholder a certificate signed by the
President of the Company stating that in the good faith
judgment of the Company's Board of Directors, it would be
seriously detrimental to the Company and its stockholders for
such registration statement to be filed and it is therefore
essential to defer such filing, the Company shall have the
right to defer such filing for a period of not more than
ninety (90) days after receipt of the Shareholder's request
for Registration; provided, however, that the Company shall
not use this right more than once in any twenty-four (24)
month period.
(iv) In addition, the Company shall not be obligated
to effect, or to take any action to effect, any Registration
pursuant to this Section 2(a):
(A) After the Company has effected one (1)
Registration pursuant to Section 2(a), and such
Registrations have been declared or ordered
effective; or
(B) During the period starting with the date
sixty (60) days prior to the Company's good faith
estimate of the date of filing of, and ending on a
date one hundred eighty (180) days after the
effective date of, a Registration subject to Section
2(b) hereof; provided that the Company is actively
employing in good faith all reasonable efforts to
cause such registration statement to become
effective.
(b) Company Registration. If (but without any obligation to do
so) the Company proposes to Register (including for this purpose a
Registration effected by the Company for stockholders other than the
Shareholder) any of its Common Stock under the Securities Act in
connection with a public offering of securities solely for cash (other
than a Registration relating solely to the sale of securities to
participants in a Company stock plan or a transaction covered by Rule
145 under the Securities Act, or any Registration on any form which
does not include substantially the same information as would be
required to be included in a registration statement covering the sale
of the Registrable Securities), the Company shall, at such time,
promptly give the Shareholder written notice of such Registration. Upon
the written request of the Shareholder given within twenty (20) days
after mailing of such notice by the Company in accordance with Section
11 hereof, the Company shall, subject to the provisions of Section 2(g)
hereof, cause to be Registered under the Securities Act all of the
Registrable Securities that the Shareholder has requested to be
Registered.
(c) Company's Right to Register Shareholder's Common Stock.
The Company may, at any time after December 31, 2006, file a
registration statement under the Securities Act with respect to all of
the Registrable Securities then owned by the Shareholder.
(d) Obligations of the Company. Whenever required under this
Section 2 to effect the Registration of any Registrable Securities (or
when the Company elects to effect the Registration of Registrable
Securities under Section 2(c) of this Agreement), the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities as to
which Registration under this Section 2 shall be required, and
use its best efforts to cause such registration statement to
become effective, and, upon the request of the Shareholder,
keep such registration statement effective for up to ninety
(90) days. The Company shall not be required to file, cause to
become effective or maintain the effectiveness of any
registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all
securities covered by such registration statement for up to
ninety (90) days.
(iii) Furnish to the Shareholder such number of
copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and
such other documents as the Shareholder may reasonably request
in order to facilitate the disposition of the Registrable
Securities.
(iv) Use its best efforts to Register and qualify the
securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as
shall be reasonably requested by the Shareholder, provided,
however, that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business
in such jurisdictions.
(v) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter of such offering. The Shareholder shall also enter
into and perform its obligations under such underwriting
agreement.
(vi) Notify the Shareholder at any time when a
prospectus relating to the Registrable Securities so
registered is required to be delivered under the Securities
Act or the happening of any event as a result of which the
prospectus included in such 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
light of the circumstances then existing, such obligation to
continue for ninety (90) days.
(vii) Cause all such Registrable Securities
registered pursuant hereto to be listed on each securities
exchange on which similar securities issued by the Company are
then listed.
(viii) Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereto and a CUSIP
number for all such securities, in each case not later than
the effective date of such Registration.
(ix) Use its best efforts to furnish, at the request
of the Shareholder, on the date the Registrable Securities
registered pursuant hereto are delivered to the underwriters
for sale in connection with a Registration pursuant to this
Section 2, if such securities are being sold through
underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration
statement with respect to such securities becomes effective,
(A) an opinion, dated such date, of the counsel representing
the Company for the purposes of such Registration, in form and
substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters,
if any, and to the Shareholder, and (B) a letter dated such
date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters,
if any, and to the Shareholder.
(e) Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this
Section 2 with respect to the Registrable Securities that the
Shareholder shall furnish to the Company such information regarding
itself, the Registrable Securities, and the intended method of
disposition of such securities as shall be required to effect the
Registration of the Registrable Securities. In the event the Company
elects to effect a registration of the Registrable Securities under
Section 2(c), it shall be an affirmative obligation of the Shareholder
to furnish the information described in this Section 2(e).
(f) Expenses of Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
Registrations, filings or qualifications pursuant to this Section 2
including (without limitation) all Registration, filing and
qualification fees, printer's and accounting fees, fees and
disbursements of counsel for the Company, shall be borne by the
Company.
(g) Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 2(b) hereof to include any
of the Registrable Securities in such underwriting unless the
Shareholder accepts the terms of the underwriting as agreed upon by the
Company and the underwriters selected by it (or by other persons
entitled to select the underwriters), and then only in such quantity as
the underwriters determine in their sole discretion will not jeopardize
the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders
to be included in the offering exceeds the amount of securities to be
sold (other than by the Company) that the underwriters determine in
their sole discretion is compatible with the success of the offering,
then the Company shall be required to include in such offering only
that number of securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned
pro rata among all of the selling stockholders (including the
Shareholder) according to the total amount of securities entitled to be
included therein owned by each selling stockholder (including the
Shareholder) but in no event shall the amount of Registrable Securities
included in the offering be reduced below fifteen percent (15%) of the
total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in
which case, the Registrable Securities may be excluded if the
underwriters make the determination above and no other stockholder's
securities are included in such offering.
(h) Indemnification. In the event any Registrable Securities
are included in a registration statement pursuant to this Section 2:
(i) To the extent permitted by law, the Company will
indemnify and hold harmless the Shareholder, any underwriter
(as defined in the Securities Act) for such Shareholder, and
each person if any, who controls the Shareholder or
underwriter within the meaning of the Securities Act or the
Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (A) any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein
or in any supplements or amendments thereto, (B) the omission
or alleged omission therein of a material fact required to be
stated therein, or necessary to make the statements therein
not misleading, or (C) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state
securities laws or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities
law; and the Company will pay the Shareholder, underwriter or
controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement
contained in this Section 2(h)(i) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to the Shareholder,
underwriter or controlling person for any such loss, claim,
damage, liability or action to the extent it arises out of or
is based on a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for
use in such Registration by the Shareholder, the underwriter
or controlling person.
(ii) To the extent permitted by law, the Shareholder
will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the
registration statement, each person if any, who controls the
Company within the meaning of the Securities Act or the
Exchange Act, any underwriter, any other stockholder selling
securities in such registration statement and any controlling
person of any such underwriter or other stockholder, against
any losses, claims, damages, or liabilities, (joint or
several) to which any of the foregoing persons may become
subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by
the Shareholder expressly for use in connection with such
Registration, and the Shareholder shall pay, as incurred, any
legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this Section 2(h)(ii),
in connection with investigating or defending any such loss,
claim, damage, liability or action, provided, however, that
the indemnity agreement contained in this Section 2(h)(ii)
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Shareholder (which consent
shall not be unreasonably withheld), provided, that in no
event shall any indemnity under this Section 2(h)(ii) exceed
the net proceeds from the offering received by the
Shareholder, except in the case of willful fraud by the
Shareholder.
(iii) Promptly after receipt by an indemnified party
under this Section 2(h) of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 2(h),
deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the
right to participate in, and to the extent the indemnifying
party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that
an indemnified party (together with all other indemnified
parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel,
with the reasonable fees and expenses to be paid by the
indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any action, if
prejudicial to its ability to defend such action, shall
relieve the indemnifying party of any liability to the
indemnified party under this Section 2(h), but the omission so
to deliver written notice to the indemnifying party will not
relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2(h).
(iv) If the indemnification provided for in this
Section 2(h) is held by a court of competent jurisdiction to
be unavailable to an indemnified party with respect to any
loss, liability, claim, damage or expense referred to herein,
then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such
loss, liability, claim, damage, or expense in such proportion
as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party
on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable
considerations; provided, that in no event shall any
contribution by the Shareholder under this Section 2(h) exceed
the net proceeds from the offering received by the
Shareholder, except in the case of willful fraud by the
Shareholder. The relative fault of the indemnifying party and
of the indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a
material fact relates to information supplied by the
indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(v) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained
in the underwriting agreement entered into in connection with
the underwritten public offering are in conflict with the
foregoing provision, the provisions in the underwriting
agreement shall control.
(vi) The obligations of the Company and the
Shareholder under this Section 2(h) shall survive the
completion of any offering of Registrable Securities in a
registration statement under Section 2, and otherwise.
3. Co-Sale Rights.
(a) Co-Sale Right. If one or more of the Principal
Stockholders (the "Selling Stockholders"), in one transaction or a
series of related transactions desire to enter into an agreement to
transfer more than twenty percent (20%) in the aggregate, of the
Company's then issued and outstanding Common Stock to a third party
(the "Buyer"), such Principal Stockholder(s) shall provide the
Shareholder with written notice of the proposed transaction (which
notice shall specify the terms and conditions of such proposed
transaction) and the Shareholder shall have the right, but not the
obligation, exercisable for a period of ten (10) days, to sell to the
Buyer, upon the same terms and conditions contained in the notice of
the proposed transaction, its "Co-Sale Pro Rata Share" of the equity
securities proposed to be sold. For purposes hereof, the Shareholder's
"Co-Sale Pro Rata Share" shall be determined by multiplying the number
of shares of the Company's Common Stock to be sold in the proposed
transaction by a fraction, the numerator of which is the number of
shares of Common Stock in the Company owned by the Shareholder and the
denominator of which is the sum of the number of shares of the
Company's Common Stock held by the Selling Stockholder(s) and the
Shareholder. In the event the Shareholder exercises its right to
participate in any transaction pursuant to this Section 3, the
Shareholder shall be required to bear its proportionate share of the
expenses of the transaction, including without limitation, legal and
accounting fees and expenses. To the extent the Shareholder exercises
its right of participation in accordance with the terms and conditions
set forth herein, the number of shares of the Company's Common Stock
which the Selling Stockholder(s) may sell in the proposed sale shall be
correspondingly reduced. If the Shareholder fails to notify the Company
and Selling Stockholder(s) of its election to participate in the
proposed sale within ten (10) days after notice is given pursuant
hereto, the Shareholder shall be deemed to have waived its rights under
this Section 3.
(b) Agreement to be Bound by this Section 3. The Principal
Stockholders have executed Addendum A to this Agreement whereby the
Principal Stockholders have agreed that the provisions of this Section
3 shall be binding upon each of them with respect to any Common Stock
now owned or hereafter acquired by each of them.
4. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Registrable Securities to the public without Registration, at all times
after ninety (90) days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall become
effective, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the
Exchange Act; and
(c) Furnish the Shareholder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports or documents so filed by the Company as
the Shareholder may reasonably request in availing itself of any rule
or regulation of the SEC allowing the Shareholder to sell the
Registrable Securities without Registration.
5. Board Representation.
(a) The Company shall not, prior to the registration of the
Common Stock owned by the Shareholder with the SEC, increase the size
of its Board of Directors to more than five (5) members unless Xx.
Xxxxxx Xxxx decides to become a director in addition to the
Shareholders' director nominee as described below, in which event the
Board of Directors shall have no more than seven (7) members. The Board
of Directors of the Company shall nominate one (1) designee selected by
the Shareholder for election to the Board of Directors at each annual
meeting of the Company's shareholders, and shall recommend the election
of such designee to the Company's shareholders, and the Principal
Shareholders shall vote their shares of Common Stock in favor of the
election of such designee; provided, however, that in the event that
Xx. Xxxxxx Xxxx is designated by the Shareholder, in addition to its
first nominee for nomination by the Board of Directors for election to
the Board of Directors, then the Board of Directors shall nominate two
(2) designees (one of which shall be Xx. Xxxxxx Xxxx) selected by the
Shareholder for election to the Board of Directors at each annual
meeting of the Company's shareholders, and shall recommend the election
of such designees to the Company's shareholders, and the Principal
Shareholders shall vote their shares of Common Stock in favor of the
election of such designees; provided further, however, that the
Shareholder's designee(s) must be qualified to serve as a director of
an issuer subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended.
(b) Agreement to be Bound by this Section 5. The Principal
Stockholders have executed Addendum A to this Agreement whereby the
Principal Stockholders have agreed that the provisions of this Section
5 shall be binding upon each of them with respect to any Common Stock
now owned or hereafter acquired by each of them.
(c) Termination of Representation Rights. The Shareholder's
right to nominate designees to the Company's Board of Directors
pursuant to Section 5(a) hereof shall continue until such time as: (i)
the Shareholder effectuates, in one or a series of transactions, a
transfer of shares of Common Stock whereby the number of shares of
Common Stock owned by the Shareholder after such transfer is less than
seventy-five percent (75%) of the number of shares of Common Stock
owned by the Shareholder before the transfer, at which such time the
Shareholder's right to nominate designees to the Company's Board of
Directors will be reduced to the right to designate one (1) nominee to
the Company's Board of Directors; or (ii) the Shareholder effectuates,
in one or a series of transactions, a transfer of shares of Common
Stock whereby the number of shares of Common Stock owned by the
Shareholder after the transfer is less than fifty percent (50%) of the
number of shares of Common Stock owned by the Shareholder prior to the
transfer, at which such time the Shareholder's right to designate
nominees to the Company's Board of Directors will be eliminated; or
(iii) the Common Stock owned by the Shareholder shall have been
registered with the United States Securities and Exchange Commission.
6. No Impairment. The Company will not, by amendment of its Articles of
Incorporation or Bylaws or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
provisions of this Agreement and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Shareholder
hereunder against impairment.
7. Term. This Agreement shall continue in full force and effect until
(a) terminated by the unanimous consent of the Shareholder and the Company; or
(b) the Shareholder no longer holds any shares of Common Stock in the Company.
8. This Agreement Governs. In the event of any inconsistency between
this Agreement and any of the Bylaws or resolutions of the Board of Directors or
the stockholders of the Company whether now existing or hereafter adopted, this
Agreement shall prevail and govern in the matter.
9. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the respective parties hereto, and to the extent
permitted hereby, their respective successors and assigns.
10. Headings. All section headings and paragraph titles or captions
contained in this Agreement are for convenience of reference only and shall not
be deemed to modify, describe, limit, extend or define the terms hereof, or the
scope of this Agreement, nor are they relevant to the intent of any provision
hereof.
11. Notice. All notices, requests, demands, consents or other
communications required or permitted to be given pursuant to this Agreement
shall be in writing and delivered by hand, by overnight courier delivery service
or by certified mail, return receipt requested, postage prepaid addressed as
follows:
if to the Company: MedSolutions, Inc.
Attn: President
00000 Xxxxx Xxxxx
Xxxx Xxxxxxx XXX, Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
with a copy to: Fish & Xxxxxxxxxx, P.C.
Attn: Xxxxxx X. Xxxxx
0000 Xxxx One Center
0000 Xxxx Xxxxxx
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
if to the Shareholder: Xxxx Investments, LLC
Attn: Xxxxxx X. Xxxx
0000 Xxxxx Xxxx Xxxxx
Xxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
with a copy to: Xxxxx & Xxxxxxxx, s.c.
Attn: Xxxxx X. Xxxx
000 X. Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Notices shall be deemed given when actually received, which shall be deemed to
be not later that the next business day if sent by overnight courier or after
five (5) business days if sent by mail.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. Validity. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable in any respect, such invalid, illegal or
unenforceable provision shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
14. Entire Agreement and Amendments. It is mutually understood and
agreed that this Agreement sets forth the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and that
this Agreement supercedes all prior agreements and understandings among the
parties hereto and shall not be supplemented, modified or amended except by a
written instrument dated subsequent to the date hereof, signed by (a) a duly
authorized officer of the Company, and (b) a duly authorized officer of the
Shareholder.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Wisconsin without regard to
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused this Agreement to be executed as of the day and year first written above.
MEDSOLUTIONS, INC. XXXX INVESTMENTS, LLC
By: By:
----------------------------- ---------------------------
Xxxxxxx X. Xxxxxxx, President Xxxxxx X. Xxxx, Sole Member
Schedule 1
----------
Principal Stockholders
Xxxx Xxxxxxx, M.D.
Xxxx X. Xxxx
Xxxxxxx Xxxxxxx
Xxxxxxx X. Xxxxxxx
Xxxxxxx X. Xxxxx
Addendum A
----------
The undersigned, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby unconditionally agree that
the terms and provisions of Sections 3 and 6 of the Investor's Rights Agreement
(the "Agreement") dated July 15, 2005, by and between MedSolutions, Inc. and
Xxxx Investments, LLC, and to which this Addendum is attached and incorporated
into by reference, shall apply to and be binding upon each of the undersigned
and any and all Common Stock (as defined in the Agreement) now owned or
hereafter acquired by any of the undersigned.
IN WITNESS WHEREOF, the undersigned have executed this Addendum A to
the Agreement as of the 15th day of July, 2005.
---------------------------- ----------------------------
Xxxxxx X. Xxxxxxx Xxxx X. Xxxx
---------------------------- ----------------------------
Xxxxxxx Xxxxxxx Xxxxxxx X. Xxxxx
----------------------------
Xxxx Xxxxxxx, M.D.
EXHIBIT F
Form of Intercreditor Agreement
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT (hereinafter "Agreement") is entered into
as of July __, 2005, among ______________, The Executor/Personal Representative
of The Estate of XXXXXX X. XXXXXXX, and XXXX X. XXXX, (collectively, the
"Existing Lien Holders"), and XXXX INVESTMENTS, LLC, a Wisconsin limited
liability company ("Xxxx") (Xxxx and the Existing Lien Holders are individually
referred to as a "Creditor" and collectively referred to as the "Creditors").
RECITALS
WHEREAS, Xxxx has provided and may from time to time continue to
provide credit to MedSolutions, Inc. a Texas corporation, and its subsidiaries
(including, without limitation, Enviroclean Management Services, Inc.)
("Enviroclean") (MedSolutions, Inc. and its subsidiaries are collectively
referred to as the "Borrower");
WHEREAS, Xxxx has been granted a lien and security interest against the
real estate and improvements owned by Enviroclean described on Exhibit A
attached hereto and incorporated herein by reference, together with all
fixtures, proceeds, products and supporting obligations therefore (the
"Collateral");
WHEREAS, Borrower is indebted to the Existing Lien Holders, and the
indebtedness of Borrower to the Existing Lien Holders is also secured by the
Collateral; and
WHEREAS, the Creditors desire to enter into this Agreement to establish
the priority of their liens and security interests in the Collateral.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by each of the parties hereto, the parties hereto agree as follows:
1. Collateral Priority. The Creditors agree that no Creditor's lien and
security interest in the Collateral shall be prior to or subordinate to any
other Creditor's lien and security interest in the Collateral, and that the lien
and security interest of each Creditor in the Collateral shall be treated for
all purposes as equal in priority to the lien and security interest of each
other Creditor. In the event of default by the Borrower in its obligations to
any party to this Agreement which are secured by the Collateral, all proceeds of
sale of the Collateral, after the payment of the cost of sale and reasonable
attorneys' fees, shall be shared by the Creditors in proportion to the
outstanding balance of the principal and interest on their respective
obligations secured by the Collateral as of the date of sale.
2. Liquidation or Bankruptcy of the Borrower. In the event of any
insolvency proceeding involving the Borrower then, and in any such event, any
payment, application or distribution of any kind or character, either in cash,
securities or other property which shall be payable or deliverable to the
parties upon or with respect to the sale or disposition of the Collateral shall
be shared by the Creditors in proportion to the outstanding balance of the
principal and interest on their respective obligations secured by the Collateral
as of the date of such distribution.
3. Extent of Agreement. The lien priorities specified herein are
applicable irrespective of the time, manner or order of attachment or perfection
of any security interests, liens or claims, or the time or order of filing or
any financing statements or Deeds of Trust, or the giving or failure to give
notice of the acquisition or expected acquisition of any purchase money security
interests or other security interests.
4. Continuing Agreement. This Agreement shall constitute a continuing
agreement of lien and security interest priority and each party may, without
notice to any other party, lend money, extend credit and provide other financial
services to or on behalf of Borrower on the basis of this Agreement. This
Agreement shall constitute the entire agreement between the parties with respect
to the subject matter hereof and shall not be amended except with the written
consent of all parties hereto. The lien and security interest priorities
specified herein shall remain in full force and effect, regardless or whether
either party rescinds, amends, waives any provision or, terminates or reforms,
by litigation or otherwise, its respective financing agreement or agreements or
any other agreement with Borrower.
5. Notice of Default, Acceleration, Etc. Each Creditor agrees to give
notice to one another upon the default in the payment or performance, or the
acceleration, of any of the indebtedness of the Borrower to them and upon their
taking any action to enforce any of their remedies against any of the Collateral
(a "Default Notice"). Each Creditor agrees to hold any proceeds of the sale or
disposition of any Collateral which is received by the Creditor in trust and to
immediately deliver to each other Creditor the other Creditors' respective
proportionate share as set forth in this Agreement.
6. Delivery of Payment. Should any payment on an obligation secured by
the Collateral, or the proceeds of the sale or disposition of any Collateral, be
received by any Creditor which is inconsistent with the terms of this Agreement,
the Creditor receiving such payment, Collateral or proceeds shall hold such
amount in trust and immediately deliver to each other Creditor the other
Creditors' respective proportionate share as set forth in this Agreement.
7. Waivers. No delay on the part of any party in exercising any right,
power or privilege granted hereunder shall operate as a waiver thereof, and no
purported waiver of any default, breach or violation of any term or provision
contained herein shall be deemed to be a waiver of such term or provision unless
the waiver is in writing and signed by the waiving party. No such waiver shall
in any event be deemed a waiver of any subsequent or other default, breach or
violation. The rights or remedies herein expressly specified are cumulative and
not exclusive of any other rights and remedies which the parties would otherwise
have.
8. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of each of the parties hereto and their respective
successors and assigns. References herein to each party shall be deemed to refer
to such party and its successors and assigns. No other person shall have or
obtain any right benefit, priority or interest under this Agreement. Any
assignment by any party of any security interest, lien or claim in any
Collateral or any financing statement covering the same shall be subject to this
Agreement.
9. Attorneys' Fees and Costs. In the event of any dispute between the
parties arising in relation to this Agreement, each party shall pay its own
attorneys' fees and costs.
10. Counterparts. This Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original, but
all of such counterparts taken together, shall constitute one and the same
agreement.
11. Notice. Any notices and demands under or related to this document
shall be in writing and delivered to the intended party at its address stated
herein, by one of the following means: (a) by hand, (b) by a nationally
recognized overnight courier service, or (c) by certified mail, postage
prepared, with return receipt requested. Notice shall be deemed given: (a) upon
receipt if delivered by hand, (b) on the Delivery Day after the day of deposit
with a nationally recognized courier service, or (c) on the third Delivery Day
after the notice is deposited in the mail. "Delivery Day" means a day other than
a Saturday, a Sunday, or any other day on which national banking associations
are authorized to be closed. Any party may change its address for purposes of
the receipt of notices and demands by giving notice of such change in the manner
provided in this provision.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto.
XXXX INVESTMENTS, LLC
Dated:___________________ By:____________________________
Xxxxxx X. Xxxx, Sole Member
Address: 0000 X. Xxxx Xxxxx
Xxxxxxxxx, XX 00000
STATE OF__________________ )
) ss.
COUNTY OF_________________ )
This instrument was acknowledged before me on _______________, 2005, by
Xxxxxx X. Xxxx, as the sole member of Xxxx Investments, LLC, a Wisconsin limited
liability company, on behalf of said limited liability company.
____________________________
____________________________ (print name)
Notary Public, State of _________________
My Commission:___________________________
Estate of Xxxxxx X. Xxxxxxx
Dated:___________________ By:______________________________________
___________________, Executor/Personal
Representative
Address: ________________________________
________________________________
STATE OF__________________ )
) ss.
COUNTY OF_________________ )
This instrument was acknowledged before me on __________, 2005, by
______________________, to me known to be the Executor/Personal Representative
of the Estate of Xxxxxx X. Xxxxxxx..
____________________________
____________________________ (print name)
Notary Public, State of _________________
My Commission:___________________________
Dated:___________________ _________________________________________
Xxxx X. Xxxx
Address: ________________________________
________________________________
STATE OF__________________ )
) ss.
COUNTY OF_________________ )
This instrument was acknowledged before me on ___________, 2005 by Xxxx X. Xxxx.
____________________________
____________________________ (print name)
Notary Public, State of _________________
My Commission:___________________________
Acknowledged and consented to by:
MedSolutions, Inc. Enviroclean Management Services, Inc.
By: _____________________________ By: _________________________________
Xxxxxxx X. Xxxxxxx, President Xxxxxxx X. Xxxxxxx, President
Date: ____________, 2005 Date: _____________, 2005
EXHIBIT A
To
INTERCREDITOR AGREEMENT
Xxx 0, Xxxxx X, xx XXXXXXXX XXXX PROPERTIES INDUSTRIAL DISTRICT, an Addition to
the City of Xxxxxxx, Xxxxxx County, Texas, according to the Map thereof recorded
in Volume 49, Page 41, of the Map Records of Dallas County, Texas.
AFTER RECORDING RETURN TO:
Xxxxx X. Xxxx
Xxxxx & Xxxxxxxx, S.C.
000 X. Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
SCHEDULE 8.11
Consolidated Net Worth Improvement
Date Minimum Net Worth
---- -----------------
September 30, 2005 $ 653,136
December 31, 2005 $ 771,948
March 31, 2006 $ 892,383
June 30, 2006 $1,014,460
September 30, 2006 $1,138,201
December 31, 2006 $1,263,627
March 31, 2007 $1,390,757
June 30, 2007 $1,519,614
September 30, 2007 $1,650,218
December 31, 2007 $1,782,593
March 31, 2008 $1,916,760
June 30, 2008 $2,052,742
