Exhibit 10.3
SUBORDINATED SECURITY AGREEMENT
-------------------------------
FOR VALUE RECEIVED, HEARTGEN CENTERS, INC., an Indiana corporation
("Debtor"), hereby grants to VASOMEDICAL, INC., ("Secured Party"), a security
interest in all Debtor's (i) Accounts, excluding, all Excluded Accounts, (ii)
Deposit Accounts; (iii) all books and records (including, without limitation,
credit files, computer programs, printouts and other computer materials and
records) of Debtor pertaining to (i) and (ii) above; (iv) all additions,
accessions, accessories, and replacements of (i) and (ii) above; and (v) all
products and Proceeds of (i) and (ii) above, now owned and existing or hereafter
acquired or arising (all of the above-described property is referred to herein
collectively as the "Collateral").
As used herein, the term: (a) "Accounts" means "accounts" (as defined in
the UCC); (b) "Credit Agreement" means the Credit Agreement, dated as of January
11, 2002, as amended by the First Amendment to Credit Agreement dated as of
February __, 2002, and by the Loan Modification Agreement dated as of March 4,
2002, among RLA 1993 Trust, Xxxxxxx Xxxxxxxx, Secured Party and Debtor, as the
same may be amended, modified, supplemented, and/or restated from time to time;
(c) "Deposit Accounts" means the deposit accounts listed on Schedule I attached
hereto and all other "deposit accounts" (as defined in the UCC) now or hereafter
owned by Debtor; (d) "Proceeds" means all "proceeds" (as defined in the UCC) of
the Accounts and Deposit Accounts; (e) "Restricted Account" means any Account
that consists of a claim for payment or the right to receive payment under
Medicare, Medicaid, or any similar government program which prohibits a provider
of services from assigning or causing payments due to such provider to be made
to any other Person, or restricts the provider's ability to do so; (f) "UCC"
means the Uniform Commercial Code as adopted and in effect in Indiana on the
date hereof and as the same may be amended from time to time and at any time;
and (g) "Warrant" means the Warrant to Purchase Shares of Common Stock of
HeartGen Centers, Inc. issued to the Secured Party on the date hereof.
Capitalized terms used in this Security Agreement and not otherwise defined
herein shall have the meanings ascribed to them in the Credit Agreement.
The security interest hereby granted to Secured Party is given to secure
the performance and payment when due of the Obligations. As used herein, the
term "Obligations" shall mean the Debtor's obligations to repurchase the Warrant
pursuant to the terms of Section 8 thereof; provided that the Obligations
secured hereby shall not in any event exceed the sum of $249,945.00.
Debtor represents and warrants to and agrees with Secured Party as follows:
1. The Collateral.
(a) Title. Debtor has or will acquire, and will maintain full and absolute
title in Debtor to the Collateral, free of all security interests, liens and
encumbrances other than (i) the security interests herein granted to Secured
Party, (ii) the security interest created by the Primary Security Agreement (as
hereinafter defined) which security interest is senior to the security interest
granted herein, and (iii) liens, security interests and other encumbrances that
are enumerated in Section 5.02(a)(1) through (6) of the Credit Agreement
(collectively, the "Permitted Liens"). Debtor has good right to subject the
Collateral to the security interests granted by this Security Agreement. Except
with respect to Permitted Liens and the security interests granted by this
Security Agreement, no financing statement, mortgage, security agreement or
similar or equivalent document or instrument covering all or any part of the
Collateral is on file or of record in any jurisdiction in which such filing or
recording would be effective to perfect a lien or security interest on such
Collateral.
(b) Location. Debtor shall keep full and accurate books and records
relating to the Collateral in accordance with generally accepted accounting
principles. Unless Secured Party otherwise consents, all business records
constituting, relating to or evidencing any of the Collateral shall be located
at Debtor's chief executive office and principal place of business located at
00000 Xxxxx Xxxxxx Xxxx, Xxxxx 0, Xxxxxxxxxx, Xxxxxxx 00000 ("Debtor's Chief
Executive Office"), except as permitted in subparagraph (g) below.
(c) Taxes and Assessments. Debtor shall promptly pay, as they become due
and payable, all taxes and assessments imposed upon the Collateral or upon this
Security Agreement.
(d) Protection of Collateral. Debtor shall not, without the prior written
consent of Secured Party, sell, assign, transfer, or otherwise dispose of any of
the Collateral or any of Debtor's right, title or interest therein (except for
the creation or existence of Permitted Liens), and shall not otherwise do or
permit anything to be done or to occur that may impair the Collateral as
security hereunder.
(e) Accounts. Each Account subject to the security interest of Secured
Party: (i) is not and will not be subject to any agreement wherein an Account
debtor on any Account may claim a deduction or discount except as reflected on
the document evidencing the Account; and (ii) is and will be owned by Debtor and
Debtor shall have the right to subject such Account to the security interest of
Secured Party. Debtor has taken all actions necessary under the UCC to perfect
its interest in any Accounts purchased or otherwise acquired by it, as against
its assignors and creditors of its assignors.
(f) Deposit Accounts. Schedule I attached hereto is a complete and accurate
list of all deposit accounts currently owned by Debtor. Debtor shall notify
Secured Party of each new Deposit Account established by Debtor pursuant to
Sections 6 and 7 of the Security Agreement between Debtor and Secured Party,
dated as of January 11, 2002 (the "Primary Security Agreement"). Debtor will not
establish any Deposit Account except pursuant to Sections 6 and 7 of the Primary
Security Agreement. Debtor will direct all account debtors who are third party
payors to make payments on Accounts directly to the appropriate Deposit
Accounts, and will deposit all payments of the Accounts that are received by
Debtor into the appropriate Deposit Accounts.
(g) Name/Location. Debtor has not, during the six (6) years preceding the
date of this Security Agreement, been known as or used any corporate,
fictitious, or assumed name other than the name by which it is identified in
this Security Agreement, "Anicore International, Inc." and "HeartGen Centers" or
acquired any operating business divisions or entities. Debtor's federal tax
2
identification number is 00-0000000. Debtor will not change (i) the location of
Debtor's Chief Executive Office; (ii) the location of any Collateral if such
change would cause the lien and security interest of Secured Party in such
Collateral to lapse or cease to be perfected either immediately upon the
movement thereof or after the passage of time; or (iii) its name, identity or
corporate structure in any manner; and will not reorganize under the laws of any
jurisdiction, either as a corporation or different type of entity, unless it
shall have given Secured Party not fewer than thirty (30) days' prior written
notice thereof.
2. Financing Statements, Certificates, Etc. Debtor will, from time to time,
at its expense, execute, deliver, file and record any statement, assignment,
instrument, document, agreement or other paper and take any other action,
(including, without limitation, any filings of financing or continuation
statements under the UCC) that from time to time may be necessary, or that
Secured Party may reasonably request, in order to create, preserve, perfect,
confirm, validate, or protect the security interests granted or created pursuant
to this Security Agreement or to enable Secured Party to obtain the full
benefits of this Security Agreement, or to enable Secured Party to exercise and
enforce any of its rights, powers and remedies hereunder with respect to any of
the Collateral. To the extent permitted by law, Debtor hereby authorizes Secured
Party to execute and file financing statements and continuation statements
without Debtor's signature appearing thereon. Debtor agrees that a carbon,
photographic, photostatic or other reproduction of this Security Agreement or of
a financing statement is sufficient as a financing statement. Secured Party
agrees to provide Debtor with a carbon, photographic or photostatic copy of any
financing or continuation statement or other document concerning the Collateral
filed by Secured Party without Debtor's signature or signed by Secured Party
pursuant to the power of attorney granted herein. Debtor shall pay the
reasonable costs, fees, and expenses of, or incidental to, the perfection,
protection and preservation of Secured Party's lien and security interest in the
Collateral, including without limitation any recording or filing fees, recording
taxes and stamp taxes incurred in connection with the filing or recording of all
financing and continuation statements and other documents concerning the
Collateral.
3. General Covenants.
(a) Debtor agrees to pay promptly when due all taxes, assessments and
governmental charges upon or against the Collateral, or Debtor, or for the
property or operations of Debtor, in each case before the same become delinquent
and before penalties accrue thereon, unless and to the extent that the same are
being contested in good faith by appropriate proceedings and for which Debtor
has established adequate reserves. Debtor shall give written notice to Secured
Party of all happenings and events having a material adverse effect on the
Collateral or the value or amount thereof; including, without limitation, the
creation or assertion of any lien or security interest against any of the
Collateral that is not a Permitted Lien.
(b) In the event Debtor fails to pay taxes, assessments, costs and expenses
which Debtor is required to pay or in the event Debtor fails to keep the
Collateral free from other security interests, liens or encumbrances not
permitted under the terms of this Security Agreement, Secured Party may make
expenditures for any and all such purposes. All costs and expenses of Secured
3
Party in retaking, holding, preparing for sale and selling or otherwise
realizing upon any Collateral or enforcing any provisions hereof, including
reasonable attorneys' fees, shall constitute part of the Obligations, and shall
bear interest from the date incurred at the rate of eighteen percent (18%) per
annum.
4. Processing, Sale and Collections. Debtor:
(a) will use its best efforts to xxxx or make claim for payment for
services within three (3) business days of the date such services are performed;
(b) will, at its own expense, endeavor to collect, as and when due, all
amounts due with respect to any Account, including the taking of such action
with respect to such collection as Secured Party may reasonably request or, in
the absence of such request, as Debtor may deem advisable; and
(c) may grant, in the ordinary course of business, to any Account debtor,
any rebate, refund or adjustment to which such Account debtor may be lawfully
entitled, and may accept, in connection therewith, the return of goods, the sale
or lease of which shall have given rise to the obligation of the Account debtor.
If requested by Secured Party, Debtor will note the security interest of
Secured Party on all records relative to the Collateral, including without
limitation (but only after the occurrence of an Event of Default which is
continuing) Debtor's copy of any invoice that evidences an Account.
5. Performance by Secured Party of Debtor's Agreements. Secured Party may,
but shall have no duty to, perform any agreement of Debtor hereunder which
Debtor shall have failed to perform, and Debtor will forthwith reimburse Secured
Party for any payment made or any expense incurred by Secured Party in
connection with such performance. Such payments and expenses shall constitute a
part of the Obligations and shall bear interest at the rate of eighteen percent
(18%) annum from the date incurred by Secured Party.
6. Subordination of Liens. This Security Agreement and any and all other
right, title, liens and security interests which the Secured Party may acquire
from Debtor in the Collateral whether now owned or hereafter created or acquired
and wherever located as security for the Obligations, shall be junior in right
of priority to and subordinate to any and all liens and security interests
granted pursuant to the Primary Security Agreement.
7. Control Agreements. Pursuant to the Primary Security Agreement, Debtor
and the Initial Lender have entered and will enter into certain control
agreements with the financial institutions holding the Deposit Accounts in order
to perfect the security interests in the Deposit Accounts created under the
Primary Security Agreement. Upon satisfaction and payment in full of the
obligations and indebtedness secured by the Primary Security Agreement, and
provided that the Obligations under this Security Agreement remain outstanding,
Debtor, Secured Party (or a collateral agent acting for the benefit of Secured
Party and all other secured parties holding security interests that are of equal
rank and priority with the security interest granted hereunder; herein, a
"Collateral Agent") and the appropriate financial institution(s) shall enter
4
into control agreements (a) substantially in the form of Exhibit A attached to
the Primary Security Agreement with respect to each Deposit Account that is
intended to receive deposits of payments of Restricted Accounts; and (b)
substantially in the same forms as those entered into pursuant to the Primary
Security Agreement, with respect to each Deposit Account that is intended to
receive deposits of payments of Accounts other than Restricted Accounts. Secured
Party agrees that Secured Party will not give (and will not direct any
Collateral Agent to give) Account Directions (as defined in such control
agreements) except after giving a Notice of Exclusive Control pursuant to
Section 10 of this Security Agreement. Secured Party agrees that if at the time
the Obligations are fully paid and satisfied, the Collateral Agent is acting
only as agent for Secured Party, Secured Party will direct the Collateral Agent
to terminate the control agreements.
8. Events of Default. The occurrence of each of the following events shall
constitute an Event of Default by Debtor under this Security Agreement (referred
to herein as an "Event of Default"):
(a) Any breach by Debtor of any term, covenant or provision of this
Security Agreement.
(b) Any breach by Debtor in the performance of its obligations under
Section 8 of the Warrant.
9. General Authority. Debtor hereby irrevocably appoints the Secured Party
its true and lawful attorney, with full power of substitution, in the name of
Debtor or Secured Party for the sole use and benefit of the Secured Party, but
at Debtor's expense, to the extent permitted by law to exercise, at any time and
from time to time while an Event of Default has occurred and is continuing, all
or any of the following powers with respect to all or any of the Collateral,
other than Restricted Accounts and the proceeds thereof:
(a) to demand, xxx for, collect, receive and give acquittance for any and
all monies due or to become due thereon or by virtue thereof;
(b) to settle, compromise, compound, prosecute or defend any action or
proceeding with respect thereto;
(c) to sell, transfer, assign or otherwise deal in or with the same or the
proceeds or avails thereof, as fully and effectually as if Secured Party were
the absolute owner thereof;
(d) to extend the time of payment of any or all thereof and to make any
allowance and other adjustments with reference thereto; and
(e) to make all necessary or appropriate transfers of all or any part of
the Collateral in connection with any sale, lease or other disposition thereof
pursuant to this Security Agreement, and execute and deliver any documents
necessary or appropriate to effect, evidence or facilitate such sale, lease or
other disposition.
5
10. Remedies Upon Default. Upon the occurrence of any Event of Default by
Debtor under this Security Agreement and at any time thereafter (such Event of
Default not previously having been cured or waived), Secured Party shall be
entitled, by written or telegraphic notice to Debtor, to declare all of the
Obligations to be immediately due and payable, whereupon the same shall become
immediately due and payable, without presentation, demand, protest, notice of
protest, or other notice of dishonor of any kind, all of which are hereby
expressly waived. In addition, upon the occurrence of any Event of Default and
at any time thereafter (such Event of Default having not previously been cured),
Secured Party shall have all the remedies of a secured party under the UCC and
as otherwise provided by applicable law, and shall have the right to give (or to
direct its Collateral Agent to give ) to the Account Holder (as defined in
Exhibits A and B attached to the Primary Security Agreement) a Notice of
Exclusive Control (as such term is used in the Primary Security Agreement).
Secured Party may proceed by a suit or suits at law or in equity to foreclose
its security interests and sell the Collateral, or any portion thereof, under a
judgment or decree of a court or courts of competent jurisdiction. The expenses
of retaking, holding, preparing for sale, selling and the like, and reasonable
attorneys' fees and expenses incurred by Secured Party, may be paid from the
proceeds of the disposition. Secured Party may receive, open and dispose of mail
addressed to Debtor and endorse notes, checks, drafts, money orders, documents
of title or other evidences of payment, shipment or storage or any form of
Collateral on behalf of and in the name of Debtor, as its attorney-in-fact.
Secured Party may cause Debtor to notify each Account debtor in respect of any
Account that any payments due or to become due in respect of such Collateral are
to be made to Secured Party, or may notify each Account debtor to make payment
directly to Secured Party (in which case Debtor shall provide Secured Party
access to Debtor's books and records regarding the Accounts in order to verify
Account debtor names and addresses), provided that the remedies provided in this
sentence shall not be available to Secured Party in respect of any Restricted
Account or the proceeds thereof, except as may be authorized by subsequent court
order. All remedies of Secured Party shall be cumulative to the full extent
provided by law. Pursuit by Secured Party of certain judicial or other remedies
shall not xxxxx nor bar resort to other remedies with respect to the Collateral,
and pursuit of certain remedies with respect to all or some of the Collateral
shall not bar other remedies with respect to the Obligations or to other
portions of the Collateral. Secured Party may exercise its rights to the
Collateral without resorting or regard to other collateral or sources of
security or reimbursement for the Obligations. Secured Party shall have no duty
to marshal Collateral.
11. Expenses, Proceeds of Collateral. Debtor shall pay to Secured Party on
demand any and all reasonable expenses, including reasonable attorneys' fees,
incurred or paid by Secured Party in perfecting, protecting or enforcing its
rights upon or under Obligations or Collateral. After deducting all of said
expenses the residue of any proceeds of collection or sale of Collateral shall
be applied to the payment of the Obligations as Secured Party may determine, and
Debtor shall remain fully liable for any deficiency.
12. Construction. Should applicable law confer any rights or impose any
duties inconsistent with or in addition to any of the provisions of this
Security Agreement, the affected provisions of this Security Agreement shall be
considered amended to conform to such law, but all other provisions hereof shall
remain in full force and effect without modification.
6
13. Successors in Interest. This Security Agreement shall be binding upon
and inure to the benefit of Debtor, Secured Party and their respective
successors, assigns and legal representatives.
14. Governing Law - Jurisdiction. The validity, interpretation and
enforcement of this Security Agreement shall be governed by the internal laws of
the State of Indiana without regard to its choice or conflicts of laws
provisions.
Executed and delivered as of the 4th day of March, 2002.
HEARTGEN CENTERS, INC.
By:____________________________
Printed:_______________________
Title:_________________________
Schedule I
----------
Deposit Accounts
Xxxxxxx Bank
0000 X. Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Acc. # 0000000000 checking
Acc. # 3052925068 money market
Acc. #6207024090
Union Federal Bank
XX Xxx 0000
Xxxxxxxxxxxx, XX 00000-0000
Acc. # 590160168 deposit
Acc. # 590178997 xxxxx cash
Community Bank of Nevada
0000 X. Xxxxxxx
Xxx Xxxxx, XX 00000
Acc. # 0102024464 deposit
Acc. # 0102024456 xxxxx cash
First Union National Bank
---------------------
Atlanta, Georgia ________
Acc. #2000010495852 deposit
Acc. #2000010495865 xxxxx cash
First Union National Bank
---------------------
Tampa, Florida ________
Acc. #2000011016023 deposit
Acc. #2000011016036 xxxxx cash
Xxxxxx Bank Elk Grove NA
000 X. Xxxxx Xxxxxx
Xxx Xxxxx Xxxxxxx, XX 00000
Acc. # 0600136530 deposit
Acc. # 0600136522 xxxxx cash
