EXHIBIT 4
LOAN AGREEMENT
This Loan Agreement (this "Agreement"), is dated as of January 30, 1997,
between WORK RECOVERY, INC., a Delaware corporation ("Borrower"), and ALLSUP
INC., an Illinois corporation ("Allsup"), and QUEST TRADING, INC., a California
corporation ("Quest") ("Lenders").
Background Information
Work Recovery, Inc., a Colorado corporation ("WRIC") filed for
relief pursuant to Chapter 11 of Title 11 of the United States Code, Case No.
96-1640 TUC-LO, in the United States Bankruptcy Court for the District of
Arizona (the "Case").
WRIC confirmed a Restated Amended Joint Plan of Reorganization dated
November 26, 1996 (the "Plan") pursuant to the bankruptcy court's order filed
December 4, 1996. The "Effective Date" of the Plan, as defined therein, is
scheduled to be February 1, 1997. Borrower is the "Reorganized Debtor" under the
Plan.
Borrower is in immediate need of a loan for working capital
purposes, and will require financing in order to make the payments required
under the Plan.
Lenders have agreed to provide financing in an amount not to exceed
$2,000,000 on the terms and conditions hereinafter set forth.
Agreements
NOW, THEREFORE, in consideration of the premises, the mutual covenants of
the parties hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. LOAN; BORROWING PROCEDURES.
1.1 Loan. Subject to the terms and conditions of this Agreement, Lenders
agree to make such advances to the Borrower as the Borrower may from time to
time request up to, but not including, December 31, 1997 (the "Maturity Date"),
in a total amount not to exceed $2,000,000 (the "Loan"). Lenders shall make the
initial advance on the first business day after the conditions specified in
Section 4.1 have been satisfied, and subsequent advances on the conditions set
forth in Section 4.2. Advances shall be in the minimum amount of $100,000.
1.2 Maximum Amount of Loan. The aggregate principal amount of the Loan
shall not exceed $2,000,000.
1.3 Loan Borrowing Procedures. Borrower shall give Lenders irrevocable
telephone notice of each borrowing of each requested advance no later than 11:00
a.m., Arizona time, on the same business day as the proposed date of borrowing.
Each such notice shall be effective upon receipt by Lenders and shall specify
the date and the amount of the borrowing, and, subject to the terms and
conditions hereof, Lenders shall make an advance to the Borrower in such amount
on the date specified in such notice. Borrower agrees that Lenders may rely on
any notice referred to in this Section that Lenders reasonably believes to be
made by a person authorized to request an advance, without the necessity of
independent investigation. Borrower shall confirm in writing by facsimile the
same business day any telephonic notice of borrowing. Each request for an
advance shall automatically constitute a representation and warranty by the
Borrower that, as of the date of such requested advance, all conditions
precedent to the making of such advance set forth herein shall be satisfied.
Each advance shall be funded on a business day. Communications with Lenders with
respect to matters described in this Section 1.3 shall be made to:
Quest Trading, Inc.
Attention: Xxxxxxx Xxxxxxx
c/o Sage Clearing, L.P.
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 00000000
Allsup, Inc.
Attention: Xx. Xxxxx Xxxxxxxxxxxx
Chief Operating Officer
000 Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Telephone: 618/000-0000
Facsimile: 618/236-5778
1.4 Pro-Rata Advances. Each Lender's portion of each advance shall be
pro-rata as determined by their Intercreditor Agreement.
2. NOTE; INTEREST; PAYMENTS.
2.1 Note; Loan Balances. The Loan shall be evidenced by one Promissory Note
in the form attached hereto as Exhibit "A" (the "Note"). The date and amount of
each individual advance hereunder and of each repayment of principal shall be
recorded by Lenders in their records. The outstanding principal balance of the
Loan reflected in Lenders' records from time to time shall be rebuttable
presumptive evidence of such outstanding principal balances as of such time. The
failure so to record such amount or any error in so recording any such amount
shall not limit or otherwise affect Borrower's obligations hereunder or under
the Note to repay the principal amount of the Loan, together with all interest
accruing thereon.
2.2 Interest Rate on Loan. Interest shall accrue at a rate equal to ten
percent (10%) per annum on the principal amount of the Loan outstanding from
time
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to time pursuant hereto from the date of advance until repaid or converted
(pursuant to Section 2.9 below).
2.3 Computation of Interest. Interest on the Loan shall be computed for the
actual number of days elapsed on the basis of a 365 or 366-day year, as the case
may be.
2.4 Maturity. The Loan, together with all accrued interest thereon, unless
converted pursuant to Section 2.9 below, shall be due and payable in full on the
Maturity Date, or upon notice from Lenders upon an Event of Default.
2.5 Prepayments. Borrower may from time to time prepay the Loan in whole or
in part without notice and without penalty.
2.6 Warrants Proceeds. Borrower shall use 50% of the proceeds of the sale
of Borrower's warrants pursuant to the Plan to pay the Loan. Borrower shall, not
later than the last business day of each month, apply 50% of all proceeds
received during that month from warrant sales with the exception of those
exercised by the Lenders, to the outstanding Note balance. Payment application
shall be as set forth in Section 2.8 below.
2.7 Interest on Principal Prepaid. Any prepayment of the Loan shall include
accrued and unpaid interest to the date of prepayment on the principal amount
being prepaid.
2.8 Making of Payments. All payments of principal or interest on the Note
shall be made to Lenders at the addresses set forth in Section 1.2 above or such
other address as Lenders shall designate in writing. Any payments, fees,
warrants or other distributions to Lenders shall be made pro-rata as provided in
the Intercreditor Agreement.
2.9 Conversion Option. The indebtedness evidenced by the Note (outstanding
principal and interest) shall, at each Lender's option, within 30 days after the
Maturity Date, be convertible into common stock of Borrower in an amount equal
to the outstanding Note balance plus unpaid interest and attorneys= fees
incurred in connection with the Loan described in this Agreement using as the
conversion rate the lesser of:
(a) the average of the daily closing prices of Borrower's common stock
for the 5 business days prior to each advance on the Loan; or
(b) the average of the daily closing prices of Borrower's common stock
for the 5 business days after the Maturity Date.
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3. COMMITMENT FEES. Borrower shall pay the following commitment fees:
3.1 Initial Options. Upon execution of the documentation for the Loan,
Borrower shall issue to Lenders options to purchase, in the aggregate, 100,000
shares of Borrower common stock at a price equal to 60% of the average daily
closing prices for Borrower's shares for the first 5 business days beginning
February 3, 1997.
3.2 Additional Options. Lenders shall be issued options to acquire 75,000
shares of Borrower's common stock the first time that the average outstanding
principal balance of the Loan equals or exceeds $500,000; $1,000,000;
$1,500,000; and $2,000,000 during any calendar month (as a result, the maximum
number of shares of Borrower's common stock subject to such options is 300,000).
The exercise price for the options granted pursuant to this Section 3.2 shall be
equal to 60% of the average closing prices for every trading day of the calendar
month in which the average outstanding principal balance of the Loan equals or
exceeds $500,000, $1,000,000, $1,500,000 or $2,000,000, as the case may be.
3.3 Term of Options. Each option issued pursuant to this paragraph 3, if
not exercised, shall expire 12 months from the date such option is delivered to
Lenders.
4. CONDITIONS PRECEDENT TO LOAN.
Each and every advance hereunder shall be subject to Lenders' agreement, in
the exercise of their reasonable discretion, in good faith, to make such
advance. For this purpose, "good faith" means honesty in fact.
4.1 Initial Advance. Lenders' obligation to make the initial advance of the
Loan shall be subject to the satisfaction or waiver by Lenders of the following
conditions precedent:
(a) The Note. Lenders shall have received the Note, executed and
delivered by Borrower.
(b) The Security Agreement. Lenders shall have received the Security
Agreement in the form attached hereto as Exhibit "B" (the "Security Agreement"),
executed and delivered by Borrower, granting Lenders a senior security interest
in all assets of Borrower to secure repayment of the Loan at any time that the
balance of the Note exceeds $500,000.
(c) Perfection of Security Interests. Lenders shall have received
originals, each duly executed by Borrower, of all financing statements under the
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Uniform Commercial Code reasonably required by Lenders to be filed in connection
with the Security Agreement.
(d) Fees. Borrower shall have paid the Commitment Fees provided in
Section 3.
(e) Board Approval. Borrower's Board of Directors shall have
authorized the execution, delivery and performance of this Agreement, the Note
and the Security Agreement.
(f) The Effective Date. The conditions precedent to the consummation
of WRIC's Plan and the Effective Date shall have occurred.
(g) Opinions. Borrower shall have delivered to Lenders such opinions
of counsel as Lenders may reasonably require assuring Lenders that Borrower is a
valid entity, that its actions hereunder are valid, binding and enforceable
according to their terms, and that approval of the Bankruptcy Court in WRIC's
bankruptcy case is not required.
(h) Intercreditor Agreement. Lenders shall have executed an
Intercreditor Agreement in form acceptable to Allsup and Quest.
4.2 Conditions Precedent to Subsequent Advances. The obligations of Lenders
to make any advance of the Loan is subject to the satisfaction of the following
additional conditions at the time of making such advance:
(a) All representations and warranties of Borrower contained in this
Agreement shall be true and correct as of the date of the advance;
(b) Borrower shall not be in default under the terms of this
Agreement; and
(c) Borrower shall have complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the date of
such advance.
4.3 Excess Advances. Lenders shall have no obligation to fund advances in
excess of $2,000,000, however, disbursement of such additional advances shall be
subject to such additional conditions precedent as Lenders in their sole and
absolute discretion shall require.
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5. STOCK RESTRICTION. All stock issued to Lenders pursuant to this Agreement
shall be held for 2 years before any resale. The stock certificates issued to
Lenders shall contain a legend evidencing such restriction.
6. REPRESENTATIONS AND WARRANTIES OF BORROWER.
As a material inducement to Lenders to enter into this Agreement, Borrower
hereby represents and warrants that as of the date of this Agreement:
6.1 Organization, Corporate Powers, Etc. Borrower is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is duly qualified to transact business in all places where
such qualification is necessary (excluding places where the failure to so
qualify would not materially adversely affect the business of Borrower) and has
all requisite authority and legal right to incur the obligations provided for
under, to execute and deliver, and to perform and observe and provisions of,
this Agreement and the Note.
6.2 Authorization. The making and performance by Borrower of this
Agreement, the Note and the Security Agreement have been duly authorized by all
necessary corporate action.
6.3 Enforceability. This Agreement, the Note and the Security
Agreement shall constitute legal and binding obligations of Borrower,
enforceable against Borrower in accordance with their terms.
6.4 Subsidiaries. None of Borrower's subsidiaries own property of any
significant value; provided, that if it is determined that a subsidiary of
Borrower does own property of significant value, the foregoing representation
and warranty shall not give rise to an Event of Default hereunder if Borrower
shall cause such subsidiary to grant Lenders a first lien security interest in
any such property of significant value to further secure the Note.
7. COVENANTS.
So long as all or any portion of the Note remains outstanding, Borrower
hereby agrees as follows:
7.1 Compliance with Laws. Borrower shall comply in all material
respects with all applicable laws, rules, regulations and orders of, and
restrictions imposed by, governmental authorities, the violation of which could
reasonably by expected to materially adversely effect the financial condition,
results, assets or operations of Borrower.
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7.2 Inspection. Borrower shall allow representatives of Lenders, upon
reasonable prior notice to Borrower, to inspect, copy and make extracts of all
applicable records, and all properties, of Borrower at any reasonable time for
any reasonable purpose.
7.3 Litigation. Borrower shall promptly notify Lenders of any
litigation instituted, or to Borrower's knowledge, threatened against Borrower,
that is instituted or threatened after the date of this Agreement.
7.4 Further Borrowing. In the event that, prior to the Maturity Date,
Borrower seeks to borrow any monies other than under this Agreement, Borrower
shall offer Lenders a right of first refusal, on a pro rata basis, to provide
such financing. Borrower shall not borrow any sums before expiration of a 10 day
notice of such right of first refusal.
8. EVENTS OF DEFAULT; REMEDIES.
8.1 Event of Default. An Event of Default shall be deemed to have
occurred upon the occurrence and during the continuance of any of the following
events:
(a) Payment. Any amount payable on the Loan shall not be paid
when due;
(b) Covenants. A breach or failure of performance by Borrower of
any covenant, condition or agreement on its part to be observed or performed
pursuant to this Agreement, the Note or the Security Agreement which shall not
have been cured within 30 days after receipt by Borrower of notice thereof given
on behalf of Lenders or of any other agreement between Borrower and Lenders,
whether jointly or severally;
(c) Management. Xxxxxx Xxxxx resigns and no longer has a
management role with Borrower;
(d) Hiring of Key Personnel. Failure of Borrower to hire key
personnel acceptable to Lenders, including a Chief Operating Officer/ Chief
Financial Officer and Sales Manager;
(e) Misrepresentation. Any material representation or warranty
made by Borrower herein or in the Security Agreement shall provide to have been
false or in breach in any material respect on and as of the date on which made;
or
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(f) Bankruptcy. Borrower shall file a voluntary bankruptcy
petition or shall be subject to an order for relief in an involuntary bankruptcy
case or in an equivalent state case or proceeding, or a trustee or receiver
shall be appointed for Borrower's business.
8.2 Consequences of an Event of Default.
(a) Acceleration. If an Event of Default shall have occurred and
be continuing, Lenders may (by written notice delivered to Borrower) declare all
or any portion of the Loan immediately due and payable.
(b) Other Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default:
(i) Lenders' commitment to make further advances shall, at
Lenders' option, terminate, and Lenders shall have no further obligation to make
advances hereunder;
(ii) Lenders shall also be entitled to exercise all their
rights and remedies as may exist at law or as set forth in the Security
Agreement or the Note.
9. MISCELLANEOUS.
9.1 Successors and Assigns. All covenants and agreements in this Agreement
by or on behalf of either party shall bind and inure to the benefit of their
respective successors and assigns, including any subsequent holder of the Note.
9.2 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under applicable law, then such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement.
9.3 No Waiver. No delay, extension of time, renewal, compromise or other
indulgence which may occur or be granted by a party shall impair that party's
rights or powers hereunder. No party shall be deemed to have waived any of its
rights hereunder, unless the party or its authorized agent shall have signed
such waiver in writing. No such waiver, unless expressly as stated therein,
shall be effective as to any transaction which occurs after the date of such
waiver, nor as to any continuance of a breach after such waiver.
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9.4 Counterparts. This Agreement may be executed in separate counterparts,
each of which is deemed to be an original hereof, and all of which taken
together shall constitute one and the same agreement.
9.5 Descriptive Headings; Interpretation. Descriptive headings in this
Agreement are inserted for convenience of reference only and are not intended to
be part of or affect the meaning or interpretation of this Agreement.
9.6 Governing Law. THIS AGREEMENT SHALL BE ENFORCED IN ACCORDANCE WITH, AND
ALL QUESTIONS REGARDING THE CONSTRUCTION, VALIDITY, INTERPRETATION AND PURPOSE
OF THIS AGREEMENT SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF
ARIZONA, WITHOUT GIVING EFFECT TO PROVISIONS THEREOF REGARDING CONFLICT OF LAWS.
9.7 Notices. Any notice provided or in this Agreement must be in writing
and must be either (a) hand delivered, (b) mailed by registered or certified
first class mail, postage prepaid with return receipt requested, (c) sent by
reputable overnight courier serve for next business morning delivery, or (d)
sent by facsimile to the recipient at the address/telecopy number below
indicated:
If to Lenders:
Allsup, Inc. Xxx Xxxxxxx
Attention: Xx. Xxxxx Xxxxxxxxxxxx Xxxxx and Xxxx LLP
Chief Operating Officer Xxx Xxxxx Xxxxxx Xxx., Xxxxx 000
300 Xxxxxx Place Tucson, Arizona 85701-1620
Xxxxxxxxxx, Xxxxxxxx 00000-0000 Telephone: (000) 000-0000
Telephone: 618/000-0000 Facsimile: (000) 000-0000
Facsimile: 618/236-5778
Quest Trading, Inc. Xxxxxx X. Xxxxxxxxxx, Esq.
Attention: Xxxxxxx Xxxxxxx Xxxxxxx XxXxxxx, Esq.
c/o Sage Clearing, X.X. Xxxxx, Xxxxx & Xxxxxxxxxx, P.C.
000 Xxxx Xxxxxx, Xxxxx 000 000 X. Xxxxx Xxx.
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000 Xxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 00000000 Facsimile: (000) 000-0000
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If to Borrower:
Work Recovery, Inc. X. Xxxxxx Xxxxxxxx
Attention: Xx. Xxxxxx Xxxxxx Xxxxxx Xxxxxxx, P.A.
Chief Financial Officer, Acting 0000 X. Xxxxxxx Xxx., Xxxxx 0000
0000 X. Xxxxxxx, Xxxxx 00 P.O. Box 36379
Xxxxxx, Xxxxxxx 00000 Xxxxxxx, Xxxxxxx 00000-0000
Telephone: (000) 000-0000 Telephone: (000) 000-0000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
or such other address/telecopy number or to the attention of such other person
as the recipient party shall have specified by prior written notice to the
sending party. Any notice under this Agreement shall be deemed to have been
given (i) on the date such notice is hand delivered, (ii) 3 days after the date
of mailing if mailed by certified or registered mail, (iii) on the business day
next following the day notice is sent via overnight courier service, or (iv) as
of the beginning of the next day if such notice is sent by telecopy.
9.8 Entire Agreement. This Agreement, the Note and the Security Agreement
embody the complete agreement and understanding among the parties with respect
to the subject matter hereof and thereof and supersede and preempt any prior
understandings, agreements and/or representations by or among the parties,
written or oral, related to the subject matter hereof in any way.
9.9 Attorneys' Fees. In the event Lenders are required to employ counsel to
enforce Lenders' rights under this Agreement, the Note or the Loan Agreement,
including any proceeding in the Bankruptcy Court, Borrower shall pay Lenders'
actual attorneys' fees and expenses incurred therein.
9.10 Dispute Resolution. Any dispute arising out of or relating to this
Agreement shall be resolved through arbitration in Tucson, Arizona, which shall
be the exclusive means of resolving such disputes except as provided below. The
parties waive any right to a jury trial, to a trial by the court, or to appeal
the arbitrator's decision of any dispute. Arbitration will be governed by the
provisions of the Arizona Arbitration Act, A.R.S. Section 12-1501, et seq. (the
"Act").
Arbitration may be initiated by either party by making a written demand for
arbitration on the other party. The demand shall contain a statement setting
forth the nature of the dispute, the amount of damages involved, if any, and the
remedy sought. Within ten business days of receipt of that demand, the parties
shall select one arbitrator, having at least 10 years experience in commercial
arbitration. If for any reason the parties are unable to agree upon the
selection of an arbitrator within 10 calendar days after a demand for
arbitration (or any extension of time agreed upon by the parties), then they
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will request a list of six names of experienced commercial arbitrators from the
American Arbitration Association (the "AAA"), and each party may strike up to
two names from the list. The AAA will choose the arbitrator from the remaining
names. If for any reason this process does not result in selection of a
qualified arbitrator, the arbitrator shall be selected in the manner provided
for by the Act.
The arbitrator shall schedule a hearing promptly. The arbitrator shall
render a decision no more than sixty days after such arbitrator's selection.
Subject to the terms of the Act, any decision and award of the arbitrator shall
be final, binding and conclusive upon the parties. Costs of the arbitration and
the prevailing party's attorneys' fees and expenses shall be assessed against
the non-prevailing party by the arbitrator. All other aspects of this binding
arbitration shall be governed by the Act and, to the extent consistent with such
Act, the Commercial Rules of the AAA unless the parties agree otherwise at the
time.
Except as otherwise provided in this Agreement, if a party wishes to seek
interim relief, whether affirmative or prohibitive, in the form of a temporary
restraining order or a preliminary injunction or other interim equitable relief
concerning the dispute either before beginning or at any point in the
arbitration proceedings concerning such dispute, such party may initiate the
appropriate litigation to obtain such relief, which shall be subject to and
controlled by the ultimate decision in the arbitration proceedings.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ALLSUP INC., an Illinois corporation
By /s/ Xxxxx X. Xxxxxx
--------------------------------------
Its President and CEO
WORK RECOVERY, INC., a
Delaware corporation
By /s/ Xxxxxx X. Xxxxx
--------------------------------------
Its President and CEO, Acting
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QUEST TRADING, INC., a
California corporation
By /s/ Xxxxxxx Xxxxxxx
--------------------------------------
Its Secretary
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