Exhibit 10.34
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 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.
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 closing price on the last 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 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.
5. STOCK RESTRICTION. All stock issued to Lenders pursuant to this Agreement
shall be held for 2 years before any resale,to the extent required by applicable
securities laws. 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.
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
(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.
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.
Attention: Xx. Xxxxx Xxxxxxxxxxxx
Chief Operating Officer
000 Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxx 00000-0000
Telephone: 618/000-0000
Facsimile: 618/236-5778
Rob Xxxxxxx
Xxxxx and Xxxx LLP
Xxx Xxxxx Xxxxxx Xxx., Xxxxx 000
Xxxxxx, Xxxxxxx 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Quest Trading, Inc.
Attention: Xxxxxxx Xxxxxxx
c/o Sage Clearing, L.P.
000 Xxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 00000000
Xxxxxx X. Xxxxxxxxxx, Esq.
Xxxxxxx XxXxxxx, Esq.
Xxxxx, Xxxxx & Xxxxxxxxxx, P.C.
000 X. Xxxxx Xxx.
Xxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to Borrower:
Work Recovery, Inc.
Attention: Xx. Xxxxxx Xxxxxx
Chief Financial Officer, Acting
0000 X. Xxxxxxx, Xxxxx 00
Xxxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
X. Xxxxxx Xxxxxxxx
Xxxxxx Xxxxxxx, P.A.
0000 X. Xxxxxxx Xxx., Xxxxx 0000
X.X. Xxx 00000
Xxxxxxx, Xxxxxxx 00000-0000
Telephone: (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 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
Its
WORK RECOVERY, INC., a
Delaware corporation
By
Its
QUEST TRADING, INC., a
California corporation
By
Its
