EXHIBIT 10.2
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 11, 2003, by and
between Health Grades, Inc. (the "Borrower" and sometime referred to as "Health
Grades") and Silicon Valley Bank ("Bank").
1. DESCRIPTION OF EXISTING OBLIGATIONS: Among other Obligations which may
be owing by Borrower to Bank, Borrower, Healthcare Ratings, Inc. ("Healthcare")
and ▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. ("ProviderWeb") are indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement, dated May 10, 2002, as may
be amended from time to time (the "Loan Agreement"). The Loan Agreement provides
for, among other things, a Committed Revolving Line in the original principal
amount of One Million Dollars ($1,000,000). Defined terms used but not otherwise
defined herein shall have the same meanings as set forth in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower, Healthcare Ratings, Inc., and
▇▇▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. to Bank shall be referred to as the "Obligations."
2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by
the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Obligations shall be referred
to as the "Security Documents". Hereinafter, the Security Documents, together
with all other documents evidencing or securing the Obligations shall be
referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Loan Agreement.
1. The following Section is hereby incorporated into the
Loan Agreement:
2.1.3 Term Loan.
(a) Bank will make a Term Loan available to
Borrower.
(b) Borrower will pay 24 equal installments of
principal and interest (the "Term Loan Payment").
Each Term Loan Payment is payable on the 1st of each
month during the term of the loan, beginning April 1,
2003. Borrower's final Term Loan Payment, due on,
March 1, 2005 (the "Term Loan Maturity Date")
includes all outstanding Term Loan principal and
accrued interest.
Borrower shall have the option to prepay all, but not
less than all, of the Term Loan, provided Borrower
(i) provides written notice to Bank of its election
to prepay the Term Loan at least thirty (30) days
prior to such prepayment, and (ii) pays, on the date
of the prepayment (A) all unpaid principal, (B) all
unpaid accrued interest to the date of the
prepayment; (C) a prepayment fee of $2,500 if the
Term Loan is prepaid prior to August 21, 2003; and
(D) all other sums, if any, that shall have become
due and payable hereunder with respect to this
Agreement.
2. Paragraph "(a)" of Section 2.3 entitled "Interest
Rate, Payments" is hereby amended to read as follows:
(a) Interest Rate. Advances accrue interest on the
outstanding principal balance at a per annum rate of
0.75 of 1 percentage point above the Prime Rate. The
Term Loan accrues interest on the outstanding
principal balance at a per annum
rate equal to 425 basis points above the U.S.
Treasury note yield to maturity for a 24 month term
as quoted in The Wall Street Journal, fixed at the
time of the Term Loan Credit Extension. Upon the
occurrence and continuation of an Event of Default,
Obligations accrue interest at 5 percent above the
rate effective immediately before the Event of
Default. The interest rate related to the Committed
Revolving Line increases or decreases when the Prime
Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
3. Section 6.7 entitled "Financial Covenants" is hereby
amended to read as follows:
Borrower will maintain as of the last day of each
month:
(i) QUICK RATIO (ADJUSTED). A ratio of Borrower's
cash maintained with Bank plus Eligible Accounts to
Current Liabilities minus Deferred License and
Maintenance Revenue related to licenses and Physician
Practice Management, of at least 1.50 to 1.00.
(ii) TANGIBLE NET WORTH. A book net worth, less
intangibles, plus non-offsetable Deferred License and
Maintenance Revenue of at least the sum of $1,500,000
plus 25% of new equity or fiscal quarter
Profitability. For calculation purposes,
"Profitability" is defined as pre-tax earnings.
(iii) MINIMUM LIQUIDITY. A ratio of unrestricted cash
held with Bank plus Eligible Accounts, divided by
outstanding Obligations of at least 2.50 to 1.00.
4. Notwithstanding the terms and conditions stated in
Section 7.6 entitled "Distributions; Investments",
Borrower may repurchase up to $500,000 in Borrower's
stock and warrants from Chancellor V on or before
March 14, 2003.
5. Section 10 entitled "Notices and Waivers" is hereby
amended to read as follows:
All notices or demands by any party about this
Agreement or any other related agreement must be in
writing and be personally delivered or sent by an
overnight delivery service, by certified mail,
postage prepaid, return receipt requested, or by
telefacsimile to the following addresses:
If to Borrower: Health Grades, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ______________________
Fax: _______________________
If to Bank Silicon Valley Bank
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
A party may change its notice address by giving the
other party written notice.
6. The following terms are hereby amended in, or
incorporated into, Section 13.1 entitled
"Definitions":
"Revolving Maturity Date" is February 20, 2004.
"Term Loan" is a Credit Extension equal to the lesser
of either (a) 500,000 or (b) 100% of the net book
value of Borrower's long term assets according to
financial statements provided to Bank on or prior to
the funding of the Term Loan Credit Extension.
"Term Loan Maturity Date" is March 1, 2005.
B. Release of Healthcare's and ProviderWeb's Obligations.
1. Borrower has notified Bank that Healthcare and
ProviderWeb have both ceased to exist, and any and
all assets of both Healthcare and ProviderWeb have
become assets of Borrower (the "Transaction").
Borrower has requested that Bank consent to the
Transaction, the consummation of which constitutes a
default under Section 7 of the Loan Agreement. Bank
hereby consents to the Transaction. Bank's consent to
the Transaction (1) in no way shall be deemed an
agreement by the Bank to waive the above-described
covenants other than the defaults that may occur by
virtue of the Transaction, (2) shall not limit or
impair the Bank's right to demand strict performance
of the covenants set forth in the Loan Agreement
following consummation of the Transaction and (3)
shall not limit or impair the Bank's right to demand
strict performance of all other covenants set forth
in the Loan Agreement, at all times.
All parties to this Loan Modification Agreement
acknowledge and agree that Bank's consent to the
Transaction in no way shall limit or impair Bank's
rights against Health Grades, or against any security
pledged by Health Grades. Specifically, and without
limiting the generality of the foregoing, as a result
of Bank's consent to the Transaction, Health Grades
understands that Bank my proceed against Health
Grades for all Obligations. Accordingly, any and all
references to Borrower in the Existing Loan Documents
shall mean Health Grades.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of the date hereof, it has no defenses against
paying any of the Obligations.
6. PAYMENT OF LOAN FEE. Borrower shall pay Bank a fee in the amount of
Three Thousand Five Hundred Dollars ($3,500) ("Revolving Loan Fee") plus all
out-of-pocket expenses.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Obligations pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Obligations.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Obligations. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. Unless expressly released herein, no
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification agreements.
8. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Revolving Loan Fee.
This Loan Modification Agreement is executed as of the date first
written above.
BORROWER: BANK:
HEALTH GRADES, INC. SILICON VALLEY BANK
By: By:
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Name: Name:
-------------------------- ------------------------------
Title: Title:
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(SILICON VALLEY BANK LOGO)
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: HEALTH GRADES, INC.
LOAN OFFICER: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
DATE: MARCH 11, 2003
REVOLVING LOAN FEE $3,500.00
DOCUMENTATION FEE 250.00
TOTAL FEE DUE $3,750.00
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PLEASE INDICATE THE METHOD OF PAYMENT:
{ } A CHECK FOR THE TOTAL AMOUNT IS ATTACHED.
{ } DEBIT DDA # __________________ FOR THE TOTAL AMOUNT.
{ } LOAN PROCEEDS
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BORROWER (DATE)
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SILICON VALLEY BANK (DATE)
ACCOUNT OFFICER'S SIGNATURE
ADDENDUM TO INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Addendum to Intellectual Property Security Agreement is executed
pursuant to, and is an addendum to, an Intellectual Property Security Agreement,
dated May 10, 2002, by and between Health Grades, Inc. ("Grantor") with its
principal office at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, and
Silicon Valley Bank ("Bank") with its principal office at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇. This Addendum to Intellectual Property Security Agreement
is presented for recordation as constructive notice that Grantor, the owner of
the intellectual property identified in the exhibit(s) attached hereto, has
granted to Bank a security interest in the intellectual property described on
exhibits(s) attached hereto, and the exclusive rights comprised in the
intellectual property, to secure payment of a debt.
IN WITNESS WHEREOF, Grantor has executed this Addendum to Intellectual Property
Security Agreement as of March 11, 2003.
GRANTOR:
HEALTH GRADES, INC.
By:
--------------------------------
Name:
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Title:
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Exhibit "A" attached to that certain Addendum to Intellectual Property Security
Agreement.
EXHIBIT "A"
COPYRIGHTS
SCHEDULE A - ISSUED COPYRIGHTS
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COPYRIGHT REGISTRATION DATE OF
DESCRIPTION NUMBER ISSUANCE
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SCHEDULE B - PENDING COPYRIGHT APPLICATIONS
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FIRST DATE
COPYRIGHT APPLICATION DATE OF DATE OF OF PUBLIC
DESCRIPTION NUMBER FILING CREATION DISTRIBUTION
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SCHEDULE C - UNREGISTERED COPYRIGHTS (Where No Copyright Application is Pending)
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DESCRIPTION CREATION DISTRIBUTION FROM ASSIGNOR ASSIGNOR
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Exhibit "B" attached to that certain Addendum to Intellectual Property Security
Agreement.
EXHIBIT "B"
PATENTS
Exhibit "C" attached to that certain Addendum to Intellectual Property Security
Agreement.
EXHIBIT "C"
TRADEMARKS
TRADEMARK
DESCRIPTION COUNTRY SERIAL NO. REG. NO STATUS
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