<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1996
REGISTRATION NO. 333-5779
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HEALTHCOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 8090 75-2294072
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or
organization) Classification Code Number) Identification No.)
</TABLE>
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5720 LBJ FREEWAY, SUITE 550
DALLAS, TEXAS 75240
(214) 233-7744
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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S. WAYNE BAZZLE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
HEALTHCOR HOLDINGS, INC.
5720 LBJ FREEWAY, SUITE 550
DALLAS, TEXAS 75240
(214) 233-7744
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
<TABLE>
<S> <C>
JIM A. WATSON TERRY M. SCHPOK, P.C.
VINSON & ELKINS L.L.P. J. KENNETH MENGES, JR., P.C.
3700 TRAMMELL CROW CENTER AKIN, GUMP, STRAUSS, HAUER AND FELD, L.L.P.
2001 ROSS AVENUE 1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
(214) 220-7700 (214) 969-2800
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------------
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
AUGUST 6, 1996
3,250,000 SHARES
LOGO
HEALTHCOR HOLDINGS, INC.
COMMON STOCK
---------------------
Of the 3,250,000 shares of Common Stock offered hereby, 3,000,000 are being
sold by HealthCor Holdings, Inc. ("HealthCor" or the "Company") and 250,000 are
being sold by certain stockholders of the Company (the "Selling Stockholders").
See "Principal and Selling Stockholders." Robert B. Crates, a director of the
Company, is also a limited partner of LKCM Venture Partners I, Ltd., one of the
Selling Stockholders. The Company will not receive any of the proceeds from the
sale of shares of Common Stock by the Selling Stockholders. Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$12.50 and $14.50 per share. See "Underwriting" for the factors to be considered
in determining the initial offering price.
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS," PAGE 6.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
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Total(2).......................... $ $ $ $
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</TABLE>
(1) Before deducting expenses of the offering estimated at $700,000.
(2) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an aggregate of 487,500 additional shares of
Common Stock solely to cover over-allotments, if any. Of the 487,500
additional shares, 300,000 will be sold by the Company and 187,500 will be
sold by certain Selling Stockholders. Michael J. Foster, a director of the
Company, is also a general partner of RFE Associates IV, L.P., an affiliate
of RFE Investment Partners IV, L.P., one of the Selling Stockholders of a
portion of the additional shares. To the extent that the option is
exercised, the Underwriters will offer the additional shares at the Price to
Public shown above. If the option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $
and $ , respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about ,
1996.
ALEX. BROWN & SONS BEAR, STEARNS & CO. INC.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
[HEALTHCOR COMPANY LOGO AND MAP]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
THE COMPANY
HealthCor is a leading provider of comprehensive home health care services
in the southwestern and central United States. The Company provides
fully-integrated home health care services, including nursing, respiratory
therapy/medical equipment and infusion therapy. Since incorporation in 1989, the
Company has expanded from 12 offices in three states to 75 offices in eight
states at May 31, 1996. The Company has successfully diversified its business
mix from approximately 98% nursing in 1989 to 58% nursing on a pro forma basis
as of March 31, 1996, reflecting the Company's evolution to a fully-integrated
home health care provider.
Home health care is among the fastest growing segments of the health care
industry with estimated annual expenditures of $36.1 billion in 1995, up from
$12.9 billion in 1990, representing a compounded annual growth rate of
approximately 23%. The underlying growth factors in the home health care
industry include: (i) the cost-effective nature of home care; (ii) an increasing
number of patients due to growth in the aging population; (iii) technological
advances that expand the range of home care procedures; and (iv) patient
preference for treatment in the home. In addition, the home health care industry
is highly fragmented with over 17,000 providers delivering home care services in
the United States.
Managed care organizations and cost containment initiatives by payors have
driven the growth of home health care by emphasizing lower cost alternatives to
hospitals and skilled nursing facilities. These organizations and payors seek
coordinated, consistent quality home health care across broad geographic areas
in order to serve their patients more effectively. The Company believes its
ability to offer comprehensive home health care services is a significant
differentiating factor in its markets and affords it the ability to attract
contracts with payors. In addition, the Company seeks to enhance its market
position by making strategic acquisitions of high-quality companies that
complement and expand its operations.
The Company's business objective is to enhance its position as one of the
leading providers of comprehensive home health care services in the southwestern
and central United States. The Company's strategy is to: (i) provide one-stop
shop home health care to enhance its appeal to referral sources and payors; (ii)
acquire companies to enter new markets and further penetrate existing markets;
(iii) accelerate internal growth by expanding its scope of services; and (iv)
enhance its competitive position through the use of clinically-based management
information technology.
In December 1994, the Company, with the assistance of Rockwell
International Corporation ("Rockwell") and others, began developing a
custom-designed, clinically-based management information system to reduce costs,
improve productivity, produce and analyze clinical outcomes data and manage
growth more effectively. To date, the Company has implemented several phases of
this system, including the nursing component. Productivity analyses conducted in
various offices of the Company have demonstrated increased individual nurse
productivity in certain instances ranging up to 40%. The Company believes that
this system will enable it to compete more effectively in an increasingly
competitive managed care environment and under new government reimbursement
models, such as prospective pay. See "Business -- Information System."
HealthCor's predecessor was incorporated in 1984. In 1989, the Company
reorganized under HealthCor Holdings, Inc. The Company's executive offices are
located at 5720 LBJ Freeway, Suite 550, Dallas, Texas 75240, and its telephone
number is (214) 233-7744.
3
<PAGE> 5
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
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<S> <C>
Common Stock offered by the Company.................... 3,000,000 shares
Common Stock offered by the Selling Stockholders....... 250,000 shares
Common Stock to be outstanding after the offering...... 9,554,600 shares(1)
Use of proceeds to the Company......................... Repay outstanding indebtedness under its
existing bank credit facilities, fund
potential acquisitions and for general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol................. HCOR
</TABLE>
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(1) Excludes 350,878 shares of Common Stock issuable upon exercise of stock
options granted under the Company's 1989 Stock Option Plan (the "1989 Stock
Option Plan") outstanding at May 31, 1996 at a weighted average exercise
price of $4.68 per share. Also excludes: (i) 237,500 shares of Common Stock
reserved for issuance under the HealthCor Holdings, Inc. 1996 Long-Term
Incentive Plan (the "1996 Incentive Plan"); (ii) 36,622 shares of Common
Stock reserved for issuance under the 1989 Stock Option Plan; and (iii)
25,000 shares of Common Stock issuable upon the exercise of Warrants
outstanding as of May 31, 1996, at a purchase price of $4.00 per share. See
"Management -- Stock Option Plans."
Except as otherwise specified, all information in this Prospectus: (i)
assumes no exercise of the Underwriters' over-allotment option; (ii) reflects a
five-for-two stock split to be effected in the form of a stock dividend upon the
closing of this offering; and (iii) reflects, at the closing of this offering,
the exercise of outstanding warrants to purchase 150,000 shares of Common Stock
and the automatic conversion of all outstanding shares of the Company's Series A
and Series B Convertible Preferred Stock into an aggregate of 3,339,297 shares
of Common Stock (the "Offering Related Transactions"). See "Description of
Capital Stock -- Offering Related Transactions" and "Underwriting."
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
-----------------------------
THREE MONTHS THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED ENDED
------------------------------- ------------------- DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996 1995(1)(2) 1996(2)(3)
------- ------- ------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues.................... $60,097 $57,151 $81,557 $17,553 $24,255 $ 94,258 $ 27,959
Operating expenses:
Compensation and related
benefits.................... 41,531 38,894 49,724 11,368 13,372 57,130 15,359
General and administrative.... 12,978 12,072 21,272 4,110 7,349 24,165 8,641
Depreciation and amortization
expense..................... 1,181 1,440 2,299 473 894 2,771 986
Provision for doubtful
accounts.................... 1,318 1,115 1,489 342 506 1,664 506
------ ------ ------ ------ ------ ------ ------
Total operating expenses.... 57,008 53,521 74,784 16,293 22,121 85,730 25,492
Income from operations.......... 3,089 3,630 6,773 1,260 2,134 8,528 2,467
Interest, net................... 427 244 987 119 486 122 239
Income before income taxes...... 2,662 3,386 5,786 1,141 1,648 8,406 2,228
Provision for income taxes...... 1,129 1,359 2,202 438 677 3,251 909
Net income...................... $ 1,533 $ 2,027 $ 3,584 $ 703 $ 971 $ 5,155 $ 1,319
Net income per common share..... $ .24 $ .31 $ .55 $ .11 $ .15 $ .54 $ .14
Weighted average common shares
outstanding................... 6,403 6,490 6,546 6,489 6,543 9,546 9,543
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(2)(4)
------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ -- $ -- $ 7,549
Working capital....................................................... (2,750) 2,623 14,579
Total assets.......................................................... 57,193 71,365 78,914
Total debt, including capital leases.................................. 20,078 33,905 7,509
Redeemable convertible preferred stock................................ 5,340 -- --
Stockholders' equity.................................................. 13,033 18,673 55,638
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
YEARS ENDED DECEMBER THREE MONTHS PRO FORMA THREE MONTHS
31, ENDED YEAR ENDED ENDED
----------------------- MARCH 31, DECEMBER 31, MARCH 31,
1993 1994 1995 1996 1995(1) 1996(3)
----- ----- ----- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA:
Home health care offices (at period end)........ 41 50 67 67 67 75
States of operation (at period end)............. 5 6 8 8 8 8
Number of acquisitions.......................... 0 3 12 0 12 2
Sources of net revenues:
Nursing....................................... 83.0% 79.2% 74.2% 66.8% 68.1% 58.0%
Respiratory therapy/medical equipment(5)...... 12.5 16.5 19.8 25.3 24.1 25.3
Infusion therapy.............................. 4.5 4.3 6.0 7.9 7.8 16.7
----- ----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
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(1) Gives effect to the acquisitions completed during the period indicated as if
such acquisitions were effective at the beginning of such period. See
"Unaudited Pro Forma Condensed Consolidated Financial Data."
(2) Adjusted to give effect to the estimated net proceeds of this offering based
on an assumed offering price of $13.50 per share. See "Use of Proceeds."
(3) Gives effect to the acquisition of All Medical, Inc. and I Care of Arkansas,
Inc., I Care Home I.V. Affiliates, Inc. and I Care, Inc. (collectively, the
"I Care Group") as if those acquisitions were effective on January 1, 1996.
(4) Gives effect to the acquisition of All Medical, Inc. and the I Care Group as
of March 31, 1996, the conversion of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock into 3,339,297 shares of
Common Stock and the exercise of outstanding warrants to purchase 150,000
shares of Common Stock. See "Description of Capital Stock -- Offering
Related Transactions."
(5) Includes the sale of medical equipment which comprises .6%, 1.2%, 3.8% and
6.0% of net revenues for the years ended December 31, 1993, 1994, 1995, and
the three months ended March 31, 1996, respectively.
5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered by this Prospectus.
Dependence on Reimbursement by Third-Party Payors. In 1995, the percentages
of the Company's net revenues derived from Medicare, Medicaid and other
third-party payors were 81.0%, 1.3% and 17.7%, respectively. The net revenues
and profitability of the Company are affected by the continuing efforts of all
payors to contain or reduce the costs of health care by reducing reimbursement
rates, narrowing the scope of covered services, increasing case management
review of services and negotiating reduced contract pricing. Any changes in
reimbursement levels under Medicare, Medicaid or third-party payor programs and
any changes in applicable government regulations could have a material adverse
effect on the Company's business, financial condition, cash flows or results of
operations. Changes in the mix of the Company's patients among Medicare,
Medicaid and third-party payor categories, and among different types of private
pay sources, including managed care, could have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.
There can be no assurance that the Company will be able to maintain its current
payor or revenue mix. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Regulation."
Medicare Reimbursement. The Federal Government is considering significant
reductions in planned Medicare spending. The Senate and the House of
Representatives have passed budget resolutions calling for reductions of $158
billion in forecasted Medicare program expenditures over the next seven years.
While the resolutions do not provide for specific means of achieving these
reductions, actions under discussion include the addition of a 20% copayment for
Medicare beneficiaries for home health care services. Such a copayment could
have the effect of reducing demand for Medicare home health services. Another
proposal would change Medicare reimbursement for skilled nursing facilities,
rehabilitation services and the first 60 days of home health care services by
"bundling" payments for these services into a single prospective payment to
hospitals to cover "post-acute" care for beneficiaries who are discharged from a
hospital. Other proposals under consideration would restrict Medicare coverage
of nebulizers and aerosol medications and reduce oxygen reimbursement rates. The
adoption of any of such proposals could have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.
The Department of Health and Human Services ("DHHS") currently is examining the
feasibility of changing the Medicare reimbursement system for home nursing from
the existing lower of allowable reimbursable cost or actual charges incurred to
a prospective payment system. The impact of such a change, if implemented, on
the Company's results of operations cannot be predicted at this time and would
depend, to a large extent, on the reimbursement rates for home nursing
established under a prospective pay system. There can be no assurance that the
reimbursement rates under a prospective payment system, if enacted, would cover
the costs incurred by the Company to provide home nursing. Changes in the
Medicare reimbursement system for home nursing could have a material adverse
effect on the Company's business, financial condition, cash flows or results of
operations. In addition to being subject to frequent changes in federal and
state laws governing Medicare coverage and reimbursement policies, the Company
is subject to audit of the reimbursements it receives under the Medicare
program. Any significant audit adjustment could have a material adverse effect
on the Company's business, financial condition, cash flows or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Regulation."
Effect of Government Regulations. The Company's business is subject to
extensive and increasing regulation by federal, state and local government,
including the Department of Health and Human Services, the Health Care Financing
Administration, the Office of the Inspector General, the Food and Drug
Administration, the Drug Enforcement Agency and the Occupational Safety and
Health Administration, as well as state departments of Health and other local
regulatory agencies. Federal laws governing the Company's activities include
regulations concerning the repackaging and dispensing of drugs, Medicare
certification of home health agencies, coverage and reimbursement and payment of
remuneration in exchange for patient referrals. The facilities operated by the
Company must comply with all applicable laws, regulations and licensing
standards. In addition, many of the Company's employees must maintain certain
licenses in order to provide some of the services offered by the Company. There
can be no assurance that federal, state or local
6
<PAGE> 8
governments will not change existing standards or impose additional standards or
that the Company will meet, or continue to meet, existing or future standards
relating to all or a portion of the Company's activities. Additionally, there
can be no assurance that acquired companies would be in compliance with all
applicable laws, regulations and licenses when acquired. Changes in existing
standards, the imposition of additional standards or the inability of the
Company to meet such standards could have a material adverse effect on the
Company's business, financial condition, cash flows or results of operations.
See "Business -- Regulation."
Operation Restore Trust. In May 1995, the Clinton Administration instituted
Operation Restore Trust, a health care fraud and abuse initiative focusing on
nursing homes, home health care agencies and durable medical equipment companies
located in the five states with the largest Medicare populations. Texas, the
Company's corporate base, is one of the targeted states. The purpose of this
initiative is to inquire into fraudulent and abusive practices such as billing
for services not provided, providing unnecessary services and making prohibited
referral payments to health care professionals. As of May 13, 1996, Operation
Restore Trust has been responsible for over $24.5 million in criminal
restitutions, fines and recovery of overpayments; over $14.1 million in civil
judgments, settlements and civil monetary penalties; 35 criminal convictions and
18 civil judgments; and 93 exclusions of individuals and corporations from the
Medicare program. Operation Restore Trust has also been expanded to cover six
states, and the Clinton Administration has called for an expansion of this
initiative to all fifty states in fiscal year 1997. The Company cannot predict
the effect of Operation Restore Trust on the Company or its results of
operations. See "Business -- Regulations".
Subpoenas of Records. In May 1993, the Company learned that a complaint
against the Company was filed with the Federal Government and that such
complaint was being reviewed. Shortly thereafter at a meeting requested by the
Company, the FBI agent assigned to the matter would not disclose the nature of
such complaint. The Company subsequently learned that at least one of its former
employees had been interviewed by the government in connection with the
complaint. On April 17, 1995, the U.S. Attorney for the Northern District of
Texas served the Company with grand jury subpoenas duces tecum (the
"Subpoenas"). The Subpoenas sought production of personnel and payroll records
for the period January 1, 1991 to April 17, 1995 concerning 155 of the Company's
current and former employees and certain other payroll tax information, as well
as invoices from the Company's independent auditing firm. The Company tendered
documents responsive to the Subpoenas on May 31, 1995. Since the production of
such documents, no request for additional information has been made by the U.S.
Attorney and on June 27, 1996, the FBI agent in charge of the matter called
counsel for the Company and informed him that the subpoenaed records would be
returned to the Company. No further action has been taken by the government in
connection with this matter, however, there can be no assurance that the U.S.
Attorney or any other government agency will not request further information or
pursue a civil or criminal investigation or proceeding against the Company or
its management. Such investigation or proceeding, if commenced, could result in
one or more of the following: no action, fines, civil monetary penalties,
criminal indictments, recovery of overpayments, criminal restitution,
settlements, civil judgments and exclusion of the Company or individuals from
the Medicare program.
Impact of Health Care Reform. The Company is subject to changes in federal,
state and local regulations which can have a dramatic effect on operating
methods, costs and reimbursement amounts provided by governmental and other
third-party payors. Government officials can be expected to continue to review
and assess alternative health care delivery systems and payment methodologies.
Changes in the law or new interpretations of existing laws may have a dramatic
effect on the definition of permissible or impermissible activities, the
relative costs of doing business and the methods and amounts of payment for
medical care by both governmental and other payors. In addition, the health care
industry is currently experiencing market-driven reforms from forces within the
industry that are exerting pressure on health care companies to reduce health
care costs. Specifically, Medicare, Medicaid and other payors, such as health
maintenance organizations, preferred provider organizations, traditional
indemnity insurers and third-party administrators, are increasing pressure on
health care providers to control health care costs and are limiting increases
in, and in some cases decreasing, reimbursement rates for medical services. Such
reforms could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. See "Business --
Regulation."
7
<PAGE> 9
Dependence on Referral Sources. The growth and profitability of the Company
depend on its ability to establish and maintain close working relationships with
referral sources, including payors, hospitals, physicians and other health care
professionals. There can be no assurance that the Company will be able to
successfully maintain significant existing referral sources and develop new
referral sources, or that certain of its referral sources, such as managed care
organizations and hospitals, will not become providers of home health services.
The loss of a significant number of existing referral sources or the failure to
develop important new referral sources (such as managed care organizations)
could have a material adverse effect on the Company's business, financial
condition, cash flows or results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."
Reimbursement Payment Delays. The Company is paid for its services by
government health administration authorities, insurance companies and other
third-party payors. The home health care industry is characterized by long
collection cycles for accounts receivable due to the complex and time consuming
requirements for obtaining reimbursement from private and governmental
third-party payors. In addition, reimbursement from government payors is subject
to audit and retroactive adjustment. Such delays or retroactive adjustments may,
from time to time, require the Company to borrow funds to meet its current
obligations. The Company would be adversely affected if it were to experience
such difficulties and were unable to borrow funds on acceptable terms, if at
all. See "Business -- Regulations."
Risk of Acquisitions and Expansion Into New Markets. In attempting to make
acquisitions, the Company competes with other providers, some of which have
greater financial resources than the Company. There can be no assurance that
suitable acquisitions will be identified, that consent from the Company's
lenders, where required, will be obtained, or that acquisitions will be
consummated on acceptable terms. Furthermore, there can be no assurance that
these companies, once acquired, will be integrated successfully into the
Company's operations or that any acquisition will not have a material adverse
effect upon the Company's operating and financial results, especially in the
fiscal quarters immediately following such transactions. In addition, the
Company will be required to comply with laws and regulations of states that
differ from those in which the Company currently operates, and may face
competitors with greater knowledge of such local markets. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy."
Management Information Systems. The Company is in the process of
substantially upgrading its management information systems to enhance its
existing capabilities and to integrate certain of its existing operations with
the operations of newly-acquired companies. The Company is jointly developing
portions of the information system with Rockwell, which along with the Company,
will have the right to offer major aspects of the system to companies in the
home health care industry. There can be no assurance that the Company will
successfully implement planned upgrades or integrate its management information
systems, or that the Company will not experience unanticipated delays and
expenses in such implementation and integration. Any malfunction or increase in
expenses could have a material adverse effect on the Company's business,
financial condition, cash flows or results of operations. See
"Business -- Information Systems."
Need for Additional Financing. The Company's acquisition strategy requires
substantial capital resources. In order to provide the funds necessary for the
Company to continue its acquisition strategy, the Company may incur, from time
to time, additional short- and long-term bank indebtedness. At December 31,
1995, the Company had negative working capital of $1.7 million. The Company also
may issue, in public or private transactions, equity or debt securities, the
availability of which will depend on market and other conditions. There can be
no assurance that any such additional financing will be available on terms
acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Dependence on Key Personnel. The Company is highly dependent on the
services of S. Wayne Bazzle, the Company's Chairman of the Board and Chief
Executive Officer, and Cheryl C. Bazzle, the Company's President and Chief
Operating Officer, as well as its other senior management and its staff of
health care professionals. The Company has obtained "key man" life insurance
policies on the lives of S. Wayne Bazzle and Cheryl C. Bazzle, which policies
provide benefits of $2 million and $1.5 million upon the deaths of
8
<PAGE> 10
S. Wayne Bazzle and Cheryl C. Bazzle, respectively, and name the Company as sole
beneficiary. The loss of S. Wayne Bazzle or Cheryl C. Bazzle, or an inability to
attract, retain and motivate sufficient numbers of qualified employees, could
adversely affect the Company's business and prospects. In addition, the loss of
either S. Wayne Bazzle or Cheryl C. Bazzle constitutes a default under the
Company's credit facilities with its principal lender. The Company has not
entered into employment agreements with its officers.
Competition. The home health care industry is highly fragmented, and
competition varies significantly from market to market. The Company faces direct
competition for acquisitions, employees and patients. Many of the Company's
current and potential competitors are larger and have significantly greater
financial and marketing resources than those of the Company. There can be no
assurance that such competition will not limit the Company's ability to maintain
or to increase its market share and will not adversely affect the Company's
business. See "Business -- Competition."
Liability and Adequacy of Insurance. In recent years, physicians, hospitals
and other participants in the health care industry have been subjected to an
increasing number of lawsuits alleging malpractice, product liability or
negligence, many of which involve large claims and significant defense costs. It
is expected that the Company periodically may be subject to such suits. The
Company currently maintains liability insurance intended to cover such claims.
The Company maintains professional liability insurance coverage of $5.0 million
in the aggregate or $5.0 million per occurrence covering the negligent acts and
omissions of its home health care personnel while rendering services. The
Company maintains product liability insurance coverage of $2.0 million in the
aggregate or $1.0 million per occurrence covering all the medical equipment,
supplies and pharmaceuticals that it sells, leases or provides to its home care
patients. The Company also maintains umbrella coverage in excess of its general
liability insurance which provides $4.0 million in the aggregate or $4.0 million
per occurrence. There can be no assurance, however, that the coverage limits of
the Company's insurance policies will be adequate. While the Company has been
able to obtain liability insurance in the past, such insurance varies in cost
and may not be available in the future on acceptable terms, if at all. A
successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect upon the Company and its financial
condition. See "Business -- Insurance."
Control by Executive Officers and Directors. Upon completion of the
offering, the Company's executive officers and directors and their affiliates
will beneficially own approximately 60.6% of the outstanding shares of the
Common Stock (58.8% if the Underwriters' over-allotment option is exercised in
full). As a result, these stockholders, acting together, would be able to exert
substantial influence over the Company and matters requiring approval by the
stockholders of the Company, including the election of directors. The voting
power of these stockholders under certain circumstances could have the effect of
delaying or preventing a change in control of the Company. See "Management" and
"Principal and Selling Stockholders."
Absence of Prior Public Market; Offering Price Determined by Agreement;
Possible Volatility of Stock Price. Prior to this offering, there has been no
public market for the Company's Common Stock, and there can be no assurance that
an active market will develop or will be sustained following this offering. The
initial public offering price for the shares of Common Stock sold in this
offering will be determined through negotiations between the Company and
representatives of the Underwriters and does not necessarily reflect the market
price for the Common Stock following the offering. The trading price of the
Common Stock may fluctuate widely in response to variations in quarterly
operating results, announcements by the Company or its competitors, new statutes
or regulations, general trends in the industry, general economic conditions and
other events or factors.
Anti-Takeover Provisions. Certain provisions of the Company's Amended and
Restated Certificate of Incorporation and certain provisions of the Delaware
General Corporation Law may make it difficult to change control of the Company
and replace incumbent management. For example, the Company's Amended and
Restated Certificate of Incorporation permits the Board of Directors, without
stockholder approval, to issue additional shares of Common Stock or establish
one or more classes or series of Preferred Stock having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as the Board of Directors may determine. See
"Certain Transactions" and "Description of Capital Stock."
9
<PAGE> 11
Potential Adverse Impact of Shares Eligible for Future Sale. Sales of
substantial amounts of Common Stock in the public market following this
offering, or the perception that such sales could occur, could adversely affect
the prevailing market price of the Common Stock. The Company cannot predict the
effect, if any, that future sales of Common Stock or the availability of Common
Stock for sale may have on the market price of the Common Stock. As of the date
of this Prospectus, approximately 6,087,518 shares of Common Stock of the
Company are eligible for sale in the public market in reliance on Rule 144(k)
under the Securities Act; 5,779,072 of these shares, however, are subject to
certain lock-up arrangements. In addition the holders of 3,179,072 currently
outstanding shares of Common Stock have the right to require the Company to
register such shares for resale. See "Description of Capital
Stock -- Registration Rights," "Shares Eligible for Future Sale" and
"Underwriting."
Dividend Policy and Restrictions. The Company does not intend to pay cash
dividends on the Common Stock in the foreseeable future and anticipates that
future earnings will be retained to finance future operations and expansion. The
Company's revolving credit facility (the "Revolving Credit Facility") with Texas
Commerce Bank National Association ("Texas Commerce Bank") prohibits the Company
from paying dividends on its Common Stock. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Dilution to New Investors. Purchasers of the shares of Common Stock offered
hereby will experience immediate and substantial dilution of $10.10 per share in
the net tangible book value of their investment from the initial offering price.
Additional dilution will occur upon exercise of outstanding options. See
"Dilution" and "Shares Eligible for Future Sale."
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered by the Company are estimated to be approximately $37.0 million
($40.7 million if the Underwriters' over-allotment option is exercised in full),
assuming an initial offering price of $13.50 per share and after deducting
estimated underwriting discounts and commissions and offering expenses. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
The Company intends to use approximately $25.0 million of such proceeds to
repay the Company's acquisition line of credit under the Company's loan
agreement with Texas Commerce Bank National Association (the "Loan Agreement")
which was incurred to finance the Company's acquisition of Home Hospital
Equipment, Inc., RTA Homecare, Inc., Cross-Timbers Visiting Nurses, Inc., All
Medical, Inc. and I Care of Arkansas, Inc. This indebtedness bears interest at
the Company's option at rates ranging from the prime rate (as defined in the
Loan Agreement) to the prime rate plus .75% or rates ranging from 1.25% to 2.75%
over Eurodollar rates and matures in June 2001. The Company will also use a
portion of the net proceeds to repay $1.0 million of notes issued in connection
with certain acquisitions. These notes bear interest at fixed rates ranging from
6% to 8% per annum at March 31, 1996 and mature on various dates through
September 1998. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company intends to use $11 million of net proceeds from this offering
to fund potential future acquisitions and for general corporate purposes. The
Company is currently conducting preliminary discussions with numerous potential
acquisition candidates that provide home healthcare services in the Company's
key target markets although no agreements have been reached with respect to any
potential acquisition. There can be no assurance that any potential acquisition
by the Company can be consummated on favorable terms or that any acquisition, if
completed, will be successful. Pending use by the Company of the net proceeds
from this offering, the Company will invest the net proceeds in short-term,
investment grade, interest bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company intends to retain any earnings to fund future growth and the
operation of its business and, therefore, does not anticipate paying any cash
dividends in the foreseeable future. Moreover, the Company's Revolving Credit
Facility prohibits the payment of dividends or other distributions on the Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as of
March 31, 1996; (ii) on a pro forma basis; and (iii) on a pro forma as adjusted
basis:
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term indebtedness, including capital lease
obligations......................................... $11,607 $27,532 $ 2,522
Redeemable convertible preferred stock................ 5,340 -- --
Stockholders' equity:
Common Stock, $.01 par value, 40,000,000 shares
authorized; 3,062,803 shares issued and
outstanding, actual; 6,552,100 shares issued and
outstanding, pro forma; and 9,552,100 shares
issued and outstanding, pro forma as
adjusted(3)...................................... 31 66 96
Additional paid-in capital.......................... 2,471 8,076 45,011
Retained earnings................................... 10,531 10,531 10,531
------- ------- -------
Total stockholders' equity..................... 13,033 18,673 55,638
------- ------- -------
Total capitalization...................... $29,980 $46,205 $58,160
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to the acquisition of All Medical, Inc. and the I Care Group as
of March 31, 1996, the conversion of the Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock into 3,339,297 shares of
Common Stock and the exercise of outstanding warrants to purchase 150,000
shares of Common Stock. See "Description of Capital Stock -- Offering
Related Transactions."
(2) Adjusted to give effect to the sale by the Company of Common Stock offered
hereby and the application of the estimated net proceeds therefrom as if the
sale and such application of estimated net proceeds occurred on March 31,
1996. At May 31, 1996, the Company had $25.0 million of indebtedness
outstanding under its acquisition term facility. See "Use of Proceeds."
(3) Excludes options and warrants outstanding on the date hereof to purchase
379,628 shares of Common Stock.
12
<PAGE> 14
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996
was approximately $(4.5) million, or $(0.69) per share of Common Stock. "Pro
forma net tangible book value per share" is equal to the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding and gives effect to the Offering Related Transactions.
After giving effect to the sale by the Company of 3,000,000 shares of Common
Stock in this offering (at an assumed initial offering price of $13.50 per share
and after deducting estimated underwriting discounts and offering expenses), the
pro forma net tangible book value of the Company as of March 31, 1996 would have
been $32.4 million, or $3.40 per share of Common Stock. This represents an
immediate increase in net tangible book value per share of $4.09 to existing
holders and immediate dilution in net tangible book value of $10.10 per share to
new investors. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share................................... $13.50
Pro forma net tangible book value per share at March 31, 1996............ $(0.69)
Increase per share attributable to new investors......................... 4.09
------
Pro forma net tangible book value per share after the offering(1).......... 3.40
------
Net tangible book value dilution per share to new investors................ $10.10
======
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by existing stockholders
and by investors purchasing shares offered by the Company hereby.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............ 6,552,100 68.6% $ 8,141,571 16.7% $ 1.24
New investors....................... 3,000,000 31.4 40,500,000 83.3 $ 13.50
--------- ----- ----------- -----
Total.......................... 9,552,100 100.0% $48,641,571 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Excludes an aggregate of 354,628 shares issuable upon the exercise of
options outstanding as of such date with a weighted average exercise price
of $4.68 per share, of which options to purchase 157,125 shares of Common
Stock are exercisable. As of March 31, 1996, 270,372 shares of Common Stock
were available for issuance under the 1989 Stock Option Plan and the 1996
Incentive Plan. In addition, 25,000 shares of Common Stock will be available
for issuance upon the exercise of Warrants outstanding at May 31, 1996, at a
purchase price of $4.00 per share.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data which
have been derived from the consolidated financial statements of the Company. The
selected financial data for the year ended March 31, 1992, the nine months ended
December 31, 1992 and the years ended December 31, 1993, 1994 and 1995 has been
derived from the audited financial statements of the Company. The selected
financial data for the three months ended March 31, 1995 and 1996 are unaudited.
The following selected financial data is qualified in its entirety and should be
read in conjunction with the Company's financial statements and related notes
included elsewhere in this Prospectus. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
NINE MONTHS ENDED
YEAR ENDED ENDED YEARS ENDED DECEMBER 31, MARCH 31,
MARCH 31, DECEMBER 31, ----------------------------- ------------------
1992 1992 1993 1994 1995(1) 1995 1996(1)
---------- ------------ ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 24,443 $ 34,301 $60,097 $57,151 $81,557 $17,553 $24,255
Operating expenses:
Compensation and related benefits..... 17,898 23,257 41,531 38,894 49,724 11,368 13,372
General and administration ........... 5,072 7,394 12,978 12,072 21,272 4,110 7,349
Depreciation and amortization
expense............................. 272 514 1,181 1,440 2,299 473 894
Provision for doubtful accounts....... 250 1,020 1,318 1,115 1,489 342 506
------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 23,492 32,185 57,008 53,521 74,784 16,293 22,121
------- ------- ------- ------- ------- ------- -------
Income from operations.................. 951 2,116 3,089 3,630 6,773 1,260 2,134
Interest, net........................... 138 244 427 244 987 119 486
------- ------- ------- ------- ------- ------- -------
Income before income taxes.............. 813 1,872 2,662 3,386 5,786 1,141 1,648
Provision for income taxes.............. 100 523 1,129 1,359 2,202 438 677
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 713 $ 1,349 $ 1,533 $ 2,027 $ 3,584 $ 703 $ 971
======= ======= ======= ======= ======= ======= =======
Net income per common share............. $ .16 $ .23 $ .24 $ .31 $ .55 $ .11 $ .15
Weighted average common shares
outstanding........................... 4,619 5,787 6,403 6,490 6,546 6,489 6,543
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
MARCH 31, --------------------------------------------- ------------------
1992 1992 1993 1994 1995 1995 1996
---------- ------------ ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,594 $ 1,491 $ 506 $ 3,775 $ 1,628 $ 4,726 $ --
Working capital......................... 1,696 1,923 1,292 1,296 (1,737) 1,021 (2,750)
Total assets............................ 8,455 19,444 22,251 24,504 52,573 30,087 57,193
Total debt, including capital leases.... 1,483 2,014 1,678 4,374 19,860 7,970 20,078
Redeemable convertible preferred
stock................................. 1,914 5,342 5,342 5,340 5,340 5,340 5,340
Stockholders' equity.................... 1,488 2,837 5,046 7,074 12,062 13,094 13,033
</TABLE>
- ---------------
(1) See "Unaudited Pro Forma Condensed Consolidated Financial Data" for the
effect of acquisitions completed during the period indicated as if such
acquisitions were effective at the beginning of such period.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements.
OVERVIEW
Since inception in 1984, the Company and its predecessor have expanded
operations from 12 offices in three states to 75 offices in eight states at May
31, 1996. The Company, since January 1995, has acquired 14 home health care
companies, including home nursing, respiratory therapy/medical equipment and
infusion therapy companies with approximately $34.1 million in annualized net
revenues. The operations of the acquired companies are included in the Company's
operations from the dates of acquisition. The following table represents the
Company's changing net revenue mix for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS PRO FORMA
YEARS ENDED DECEMBER ENDED THREE MONTHS
31, MARCH 31, ENDED
----------------------- -------------- MARCH 31,
1993 1994 1995 1995 1996 1996
----- ----- ----- ----- ----- ------------
<S> <C> <C> <C> <C> <C> <C>
Nursing................................... 83.0% 79.2% 74.2% 77.9% 66.8% 58.0%
Respiratory therapy/medical equipment..... 12.5 16.5 19.8 17.0 25.3 25.3
Infusion therapy.......................... 4.5 4.3 6.0 5.1 7.9 16.7
----- ----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== =====
</TABLE>
As the Company further pursues its fully-integrated home health care
strategy, the Company's revenue mix has shifted from predominately nursing to
higher margin respiratory therapy/medical equipment and infusion therapy. The
Company is paid for its services and products primarily by Medicare, Medicaid
and private payors, including insurance companies, managed care organizations
and other third-party payors. The following table represents the Company's payor
mix:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1993 1994 1995 1996
----- ----- ----- ------------
<S> <C> <C> <C> <C>
Medicare Part A (cost-based)............................. 71.5% 69.5% 67.2% 60.7%
Medicare Part B (charge-based)........................... 4.5 13.7 13.8 16.6
Medicaid................................................. 2.2 1.1 1.3 1.9
Third-party payors and others............................ 21.8 15.7 17.7 20.8
----- ----- ----- -----
Total.................................................. 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
Medicare reimburses the Company for both Part A and Part B services.
Medicare Part A reimburses the Company on a "cost basis" based on the lower of
the Company's allowable cost as defined by Medicare regulations, not to exceed
annual cost limits or the Company's actual charges. Allowable cost is the actual
cost directly related to providing nursing, plus an overhead allocation. A cost
report evidencing the fiscal year allowable costs, visit data, charges and other
financial information is filed annually and subject to audit. Medicare Part B is
paid on a fixed fee-for-service basis similar to third-party payors, such as
managed care organizations.
As a result of initiatives aimed at controlling the rising cost of the
Medicare program and the Company's focus on lowering operating costs, the
Company may experience future declines in net revenues attributable to
Medicare's Part A reimbursement system for nursing. The Federal Government is
currently examining the feasibility of changing Medicare reimbursement for
nursing from the existing retrospective cost-based system to a prospective
payment system. The Company believes that reimbursement under a prospective
payment system would consist of either an established fee for a specific
clinical diagnosis or a fixed per diem amount for
15
<PAGE> 17
providing service. The Company believes it could generate a profit from Medicare
nursing by providing such services cost-effectively, which the clinically-based
management information system will facilitate.
RESULTS OF OPERATIONS
The following table sets forth certain items included in the Company's
consolidated statements of income as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Compensation and related benefits................ 69.1 68.1 61.0 64.8 55.1
General and administration....................... 21.6 21.1 26.1 23.4 30.3
Depreciation and amortization.................... 2.0 2.5 2.8 2.7 3.7
Provision for doubtful accounts.................. 2.2 2.0 1.8 1.9 2.1
----- ----- ----- ----- -----
Total operating expenses................. 94.9 93.7 91.7 92.8 91.2
----- ----- ----- ----- -----
Income from operations............................. 5.1 6.3 8.3 7.2 8.8
Interest, net...................................... 0.7 0.4 1.2 0.7 2.0
----- ----- ----- ----- -----
Income before income taxes......................... 4.4 5.9 7.1 6.5 6.8
Provision for income taxes......................... 1.8 2.4 2.7 2.5 2.8
----- ----- ----- ----- -----
Net income......................................... 2.6% 3.5% 4.4% 4.0% 4.0%
===== ===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The Company's results of operations during the three months ended March 31,
1996 reflect the performance of 12 companies acquired in 1995 for the entire
period; and the results of operations for the three months ended March 31, 1995
reflect the results of two of these acquisitions. Accordingly, the comparison of
the results of operations between 1995 and 1996 is materially affected by these
acquisitions.
Net revenues. Net revenues increased from $17.6 million in the first three
months of 1995 to $24.3 million in the first three months of 1996, an increase
of $6.7 million, or 38.1%. Of this $6.7 million increase, $2.0 million
represents internal growth of 11.4%, and the remaining $4.7 million is
incremental net revenues generated from the acquisitions made after March 31,
1995. The internal growth relates to expansion of services throughout all of the
Company's offices.
Compensation and related benefits. Compensation and related benefits
increased from $11.4 million to $13.4 million for the three months in 1996, an
increase of $2.0 million, or 17.5%. Of the $2.0 million increase, $1.4 million
relates to personnel employed as a result of acquisitions made during the year
as well as additional administrative support at the corporate office to support
the growth. The remaining $0.6 million relates to salaries and benefits for
personnel to service internal revenue growth. Compensation and related benefits
include salaries and related benefits associated with providing nursing and
infusion therapy, as well as salary cost and related benefits for administrative
and support staff at both the office and corporate level.
General and administration. General and administration expenses increased
from $4.1 million in the first three months of 1995 to $7.3 million in the first
three months of 1996, an increase of $3.2 million, or 78.0%, primarily as a
result of increased costs of products sold from acquisitions and the related
operating costs associated with the addition of 20 offices after March 31, 1995.
As a percentage of net revenues, general and administration expenses have
increased from 23.4% to 30.3% primarily as a result of the shift in service mix
to a higher percentage of respiratory therapy/medical equipment and infusion
therapy. General and administration expenses include the costs for
respiratory/medical equipment, infusion therapy products, nursing supplies,
delivery expenses, occupancy costs and other nonpatient care operating expenses.
Depreciation and amortization. Depreciation and amortization expense
increased from $0.5 million in the first three months of 1995 to $0.9 million in
the first three months of 1996, an increase of $0.4 million, or 80.0%, primarily
as a result of increased acquisitions in 1995 and information services equipment
and costs
16
<PAGE> 18
capitalized as part of the development of the Company's clinically-based
management information system. Depreciation and amortization expense includes
the amortization, over a period of 40 years, of the excess of the costs of
acquired businesses over the fair value of the net assets acquired by the
Company. Depreciation expense includes the depreciation of capitalized equipment
generally over a life of 3 to 15 years.
Provision for doubtful accounts. Provision for doubtful accounts increased
from $0.3 million in the first three months of 1995 to $0.5 million the first
three months in 1996, an increase of $0.2 million, or 66.7%, primarily as a
result of an increase in net revenues from both acquisitions and internal
growth.
Interest, net. Interest, net increased from $0.1 million in the first three
months of 1995 to $0.5 million in the first three months in 1996, an increase of
$0.4 million, or 400.0%. This increase occurred primarily as a result of
increased indebtedness related to the 1995 acquisitions and, to a lesser degree,
from 1996 borrowings under the Company's line of credit to support the Company's
growth in operations and capital leases relating to the development of the
Company's clinically-based management information system. Interest, net,
reflects the result of interest paid by the Company for indebtedness, net of
interest income.
Provision for income taxes. Provision for income taxes increased from $0.4
in the first three months of 1995 to $0.7 million in the first three months in
1996, an increase of $0.3 million, or 75.0%, primarily related to the increase
in income before income taxes.
YEARS ENDED DECEMBER 31, 1995 AND 1994
During 1995, the Company completed the acquisition of 12 home health care
companies. In addition, during 1994, the Company acquired three home health care
companies. Primarily due to growth from these acquisitions, the Company operated
50 and 67 home health care offices at the end of 1994 and 1995, respectively.
Accordingly, the comparison of the results of operations between 1994 and 1995
is materially affected by these acquisitions.
Net revenues. Net revenues increased from $57.1 million in 1994 to $81.6
million in 1995, an increase of $24.5 million, or 42.9%. Of this $24.5 million
increase, $4.8 million represents internal growth of 8.4%. Internal growth was
primarily due to a $3.7 million growth in Medicare Part A services and a $1.1
million growth in infusion therapy. The remaining increase of $19.7 million is
primarily attributable to net revenues from acquisitions.
Compensation and related benefits. Compensation and related benefits
increased from $38.9 million in 1994 to $49.7 million in 1995, an increase of
$10.8 million, or 27.8%, primarily as a result of increased personnel and
related benefits associated with the acquisitions made in late 1994 and 1995.
However, relative to a percentage of net revenues, compensation and related
benefits decreased from 68.1% in 1994 to 61.0% in 1995. The percentage decrease
occurred because the mix of acquisitions in 1995 was concentrated in respiratory
therapy/medical equipment and infusion therapy, which have lower compensation
levels as a percentage of net revenues than home nursing.
General and administration. General and administration expenses increased
from $12.1 million in 1994 to $21.2 million in 1995, an increase of $9.1
million, or 75.2%. This increase is attributable primarily to additional costs
of products sold associated with the acquisitions which have been concentrated
in respiratory services/medical equipment and infusion therapy and have resulted
in the ratio of general and administration expenses to net revenues increasing
from 21.1% to 26.1%.
Depreciation and amortization. Depreciation and amortization expense
increased from $1.4 million in 1994 to $2.3 million in 1995, an increase of $0.9
million, or 64.3%. This increase is attributable primarily to acquisitions
during 1995.
Provision for doubtful accounts. Provision for doubtful accounts increased
from $1.1 million in 1994 to $1.5 million in 1995, an increase of $0.4 million
or 36.4%. This increase is primarily a result of the increase in net revenues
from acquisitions.
Interest, net. Interest, net increased from $0.2 million in 1994 to $1.0
million in 1995, an increase of $0.8 million, or 400.0%. This increase is due
primarily to interest expense on indebtedness incurred to fund acquisitions.
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Provision for income taxes. Provision for income taxes increased from $1.4
million in 1994 to $2.2 million in 1995, an increase of $0.8 million or 57.1%,
primarily to the increase in income before income taxes.
YEARS ENDED DECEMBER 31, 1994 AND 1993
During 1994, the Company completed the acquisition of three home health
care companies. There were no significant acquisitions during 1993. Primarily
due to growth from these acquisitions, the Company operated 41 and 50 home
health care offices at the end of 1993 and 1994, respectively. Accordingly, the
comparison of the results of operations between 1993 and 1994 is materially
affected by the acquisitions.
Net revenues. Net revenues decreased from $60.1 million in 1993 to $57.2
million in 1994, a decrease of $2.9 million, or 4.8%. This decrease is
attributable primarily to a reduction in Medicare nursing net revenues. As a
result of reduced Medicare cost limits, the Company implemented a cost reduction
program. Although this resulted in a $3.1 million reduction in Medicare net
revenues, it allowed the Company to meet the reduced cost limits. Additionally,
several referral hospitals developed internal home health departments or
agencies causing Medicare visits to decline 9.3%, resulting in reduced net
revenues of $3.5 million. These factors were offset by internal growth from
other services of $0.9 million and $3.3 million from acquisitions.
Compensation and related benefits. Compensation and related benefits
decreased from $41.5 million in 1993 to $38.9 million in 1994, a net decrease of
$2.6 million. $4.6 million of the decrease related to decreased personnel and
related benefits associated with the reduction of Medicare nursing net revenues
and the cost reduction program. This decrease was offset by an increase of $2.0
million of compensation and related benefits resulting from acquisitions.
General and administration. General and administration expenses decreased
from $13.0 million in 1993 to $12.1 million in 1994, a decrease of $1.8 million
attributable primarily to reduction of Medicare nursing net revenues and the
cost reduction program. This decrease was offset by an increase of $0.9 million
of general and administration expenses related to acquisitions.
Depreciation and amortization. Depreciation and amortization expense
increased from $1.2 million in 1993 to $1.4 million in 1994, an increase of $0.2
million, or 16.7%. This increase is attributable primarily to acquisitions in
1994.
Provision for doubtful accounts. Provision for doubtful accounts decreased
from $1.3 million in 1993 to $1.1 million, a decline of $0.2 million or 15.4%.
The decrease is a result of the decline in net revenues and improvements in
respiratory therapy/medical equipment collections.
Interest, net. Interest, net decreased from $0.4 million in 1993 to $0.2
million in 1994, a decrease of $0.2 million, or 50.0%. This decrease is due
primarily to lower utilization of the line of credit in 1994 as a result of
increased cash flow from operations.
Provision for income taxes. Provision for income taxes increased from $1.1
million in 1993 to $1.4 million in 1994, an increase of $0.3 million or 27.3%,
primarily to the increase in income before income taxes.
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SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly operating
results for 1994, 1995 and the first three months of 1996. The Company believes
this unaudited information has been prepared on the same basis as the annual
financial statements and includes all adjustments necessary for a fair
presentation of the information for the quarters presented when read in
conjunction with the Consolidated Financial Statements included elsewhere in
this Prospectus. The operating results for any quarter are not necessarily
indicative of results for any subsequent quarter. The Company's results of
operations are not significantly affected by seasonality factors.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues................. $13,769 $13,781 $13,754 $15,847 $17,553 $18,368 $21,577 $24,059 $24,255
Income from operations....... 560 830 1,086 1,153 1,260 1,229 1,854 2,430 2,134
Income before income taxes... 499 753 1,042 1,091 1,141 1,096 1,538 2,011 1,648
Net income................... $ 281 $ 446 $ 644 $ 655 $ 703 $ 677 $ 958 $ 1,246 $ 971
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for acquisitions of
additional home health care companies and expansion of the services provided
through its existing home health care offices. The Company historically has
funded its working capital requirements and capital expenditures primarily from
cash flows provided from operations supplemented by short-term borrowings.
At December 31, 1995, the Company had current assets of $18.3 million and
current liabilities of $20.0 million, resulting in negative working capital of
$1.7 million. The Company also had negative working capital of $2.7 million at
March 31, 1996. This compares to working capital of $1.3 million at December 31,
1994. These decreases in working capital are attributable primarily to increases
in the current portion of long-term indebtedness resulting from acquisitions and
decreases in invested cash used to fund acquisitions. The Company's liquidity is
significantly affected by the timing of payments from government and third-party
payors. These payments average two months after services are provided.
Historically, the Company has been able to fund its operations through
internally generated cash and bank credit facilities.
Accounts receivable at March 31, 1996 were $15.3 million compared to $11.5
million at December 31, 1995 and $4.6 million at December 31, 1994. Days of
Sales Outstanding ("DSO"), defined as accounts receivable divided by average net
revenues for the last three months in the respective period were 57.0, 41.6 and
26.1 for these periods, respectively. The Company receives interim payments from
Medicare A for nursing primarily using the Periodic Interim Payment ("PIP")
program. This program pays the Company a fixed amount every two weeks. The PIP
payment is based upon the Company's historic allowable cost of nursing and is
adjusted quarterly. Because a significant portion of the Company's cash is
received under the PIP program, management believes that the Company's DSO is
lower than other home health care companies. The increase in DSO from December
31, 1995 to March 31, 1996 is attributable primarily to: (i) timing delays
resulting from a mandated change in the Company's Medicare fiscal intermediary;
(ii) net revenue deferrals relating to the reimbursement of certain
re-engineering costs; (iii) changes in net revenue mix towards
respiratory/medical equipment and infusion therapy, which historically have
higher DSO; and (iv) a slowdown by Medicare in paying for respiratory
therapy/medical equipment and infusion therapy. The increase in DSO from
December 31, 1994 to December 31, 1995 is attributable to factors discussed in
(ii) and (iii) above, as well as increases in Medicare cost report receivables.
Net cash provided by operating activities decreased from $6.3 million in
1994 to $5.8 million in 1995. This decrease is attributable primarily to
increases in accounts receivable relating to changes in revenue mix. Net cash
used in investing activities increased from $3.6 million in 1994 to $24.6
million in 1995 as a result of increased acquisition expenditures of $14.7
million. Capital expenditures also increased $6.3 million primarily due to costs
capitalized as part of the re-engineering project. Net cash provided from
financing activities
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<PAGE> 21
increased from $0.6 million in 1994 to $16.7 in 1995. This increase is
attributable primarily to debt incurred in connection with acquisitions.
On May 16, 1996, the Company entered into a credit agreement with Texas
Commerce Bank (the "Credit Agreement"), consisting of a $10.0 million revolving
line of credit and a $25.0 million term facility, the proceeds of which will be
used, in part, to finance acquisitions. The Credit Agreement replaced a prior
credit agreement between the Company and Texas Commerce Bank (the "Old Credit
Agreement"). The Company's assets have been pledged as security for borrowings
under the Credit Agreement. As of May 31, 1996, the Company had used all of the
term portion of the Credit Agreement and there was $5.6 million outstanding
under the revolving line of credit. At the Company's option, borrowings under
the Credit Agreement bear interest at either the bank's Eurodollar rate plus
rates ranging from 1.25% to 2.75%, or the bank's prime rate plus rates ranging
from 0% to 0.75%, determined by the ratio of funded debt to EBITDA (defined as
earnings before interest, taxes, depreciation and amortization and certain other
non-cash expenditures).
The Credit Agreement contains various financial covenants, including funded
debt to EBITDA ratio, consolidated net worth, fixed charge coverage ratio,
capital expenditures, and unleveraged non-reimbursed capital expenditures. At
December 31, 1995, the Company was not in compliance with certain covenants of
the Old Credit Agreement, but obtained a waiver from the bank. The Credit
Agreement also contains certain covenants which, among other things, impose
certain limitations on the Company with respect to the incurrence of certain
indebtedness, the creation of security interest on the assets of the Company,
the payment of dividends and the redemption or repurchase of securities of the
Company, investments and sales of Company assets. The Company also must obtain
bank consent if the total consideration to be paid by the Company for an
acquisition is more than $3 million or if the total consideration to be paid by
the Company for such acquisition and all other acquisitions completed during the
previous six months exceeds $3 million in the aggregate.
At May 31, 1996, the Company had $4.4 million available under its Credit
Agreement. The Company has received a commitment from its bank to increase its
credit facility from $35 million to $75 million, subject to the completion of
this offering. Management believes that the combination of these sources,
together with the proceeds from the offering and funds generated from
operations, will be sufficient to satisfy its capital expenditure and working
capital needs, fund acquisitions and meet debt repayment requirements for the
next 12 months. The Company contemplates that additional bank indebtedness
and/or the issuance of equity or debt securities may be used by the Company to
fund future potential acquisitions that may occur subsequent to 12 months from
the date hereof. There can be no assurance that any such additional financing
will be available on terms acceptable to the Company.
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<PAGE> 22
BUSINESS
OVERVIEW
HealthCor is a leading provider of comprehensive home health care services
in the southwestern and central United States. The Company provides
fully-integrated home health care services, including nursing, respiratory
therapy/medical equipment and infusion therapy. Since incorporation in 1989, the
Company has expanded from 12 offices in three states to 75 offices in eight
states at May 31, 1996. The Company has successfully diversified its business
mix from approximately 98% nursing in 1989 to 58% nursing on a pro forma basis
as of March 31, 1996, reflecting the Company's evolution to a fully-integrated
home health care provider.
HealthCor seeks to differentiate itself from other home health care
companies by being a one-stop shop provider of home health care services and
products. Home nursing services continue to comprise an important component of
the Company's strategy because referral sources often will make arrangements for
home nursing services before making arrangements for other home health care
services. The Company believes that its strong market position in the home
health care industry facilitates its ability to sell fully-integrated health
care services to its referral sources and payors.
In December 1994, the Company, with the assistance of Rockwell and others,
began developing a custom-designed, clinically-based management information
system to reduce costs, improve productivity, produce and analyze clinical
outcomes data and manage growth more effectively. To date, the Company has
implemented several phases of this system, including the nursing component.
Productivity analyses conducted in various offices of the Company have
demonstrated increased individual nurse productivity in certain instances
ranging up to 40%. The Company believes that this system will enable it to
compete more effectively in an increasingly competitive managed care environment
and under new government reimbursement models, such as prospective pay. See
"-- Information Systems."
INDUSTRY
Home health care is among the fastest growing segments of the health care
industry with estimated annual expenditures of $36.1 billion in 1995, up from
$12.9 billion in 1990, representing a compounded annual growth rate of
approximately 23%. The underlying growth factors in the home health care
industry include: (i) the cost-effective nature of home care; (ii) an increasing
number of patients due to growth in the aging population; (iii) technological
advances that expand the range of home care procedures; and (iv) patient
preference for treatment in the home.
The home health care industry remains highly fragmented with over 17,000
companies currently providing home health care services in the United States.
Many of these companies are local providers that offer a limited scope of
services in a defined geographical area and lack the capital necessary to
substantially expand their operations. Managed care organizations and cost
containment initiatives by payors have driven the growth of home health care by
emphasizing lower cost alternatives to hospitals and skilled nursing facilities.
These organizations and payors seek coordinated, consistent quality home health
care across broad geographic areas in order to serve their patients more
effectively.
STRATEGY
The Company's business objective is to enhance its position as one of the
leading providers of comprehensive home health care services in the southwestern
and central United States. The Company's strategy to accomplish this objective
is as follows:
Provide One-Stop Shop Home Health Care Services. The Company provides payors,
physicians and patients with fully-integrated one-stop shop home health care
services in each of its existing geographic markets. The integration of
comprehensive home health care services enhances the Company's appeal to
referral sources and payors that increasingly prefer single-source providers of
home health care.
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<PAGE> 23
Acquire Companies to Enter New Markets and Further Penetrate Existing Markets.
In order to increase utilization of the Company's services by payors and
referral sources and enhance its overall market position, the Company has
focused on achieving broad regional market coverage in both urban and non-urban
areas. To this end, the Company seeks high-quality strategic acquisitions that
complement and expand its existing operations. Since January 1995, the Company
has acquired 14 home health care companies, adding 28 offices. These
acquisitions have enabled the Company to enter into key contiguous markets and
expand the range of services offered in existing markets. The Company believes
that due to the fragmentation of the home care industry, a substantial number of
acquisition opportunities exist in its target markets.
Accelerate Internal Growth by Expanding its Scope of Services. As the Company
acquires other health care providers, including nursing, respiratory therapy or
infusion therapy companies, the Company seeks to implement its full range of
services around acquired operations. The Company also seeks to accelerate
internal growth by introducing additional specialized health care services, such
as cardiac monitoring, hospice and primary home care to many of its offices.
Enhance Competitive Position Through the Use of Clinically-Based Information
Technology. The Company seeks to enhance its operations through the use of
clinically-based management information technology. The Company, with the
assistance of Rockwell and others, is developing an innovative, custom-designed,
clinically-based management information system to facilitate the provision of
comprehensive home health care services. By enhancing its operations through the
use of management information technology, the Company seeks to be a more
cost-effective provider in an environment increasingly influenced by managed
care and subject to potential changes in reimbursement, such as prospective pay.
OPERATIONS
The Company believes that home care is a local business dependent in large
part on personal relationships and, therefore, the Company provides its
operating managers with a significant degree of autonomy to encourage prompt and
effective responses to local market demands. The Company also provides, through
its corporate office, its local managers with information and management systems
that typically are not readily available to independent operators. The Company
retains centralized control over those functions necessary to monitor quality of
patient care and to maximize operational efficiency. Services performed at the
corporate level include billing, claims processing, quality improvement
oversight, Medicare and Joint Commission on Accreditation of Health Care
Organizations ("JCAHO") licensing, human resource management, financial and
accounting functions, policy and procedure development, system design,
acquisitions and corporate development.
SERVICES AND PRODUCTS
The Company provides a comprehensive array of services and products that
are essential to the proper implementation of the physician's plan of care in
the home.
Home Nursing. The Company provides a wide variety of nursing services to
individuals with acute illnesses, long-term chronic health conditions, permanent
disabilities, terminal illnesses or post-procedural needs. The home nursing that
the Company provides includes:
General nursing care that is provided by registered nurses and licensed
practical nurses who periodically assess the appropriateness of home health
care, perform clinical procedures and instruct the patient and family
regarding necessary treatments. Patients receiving such care typically
include stabilized post-operative patients in recovery at home, patients
who are acutely ill but who do not require hospitalization and patients who
are chronically or terminally ill.
Specialty nursing care that is provided by nurses with experience or
certification in hospital emergency room, intensive care, oncology,
intravenous therapy, geriatric and neonatal or pediatric nursing. Such
nurses are employed by the Company to provide a variety of infusion
therapies and specialty care regimens to patients in the home. These nurses
also instruct patients and their families in the self-
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<PAGE> 24
administration of certain infusion therapies and procedures, such as wound
care and infection control, emergency procedures and the proper handling
and usage of medication, medical supplies and equipment.
Therapy services that consist of rehabilitation therapies such as physical,
occupational, speech and respiratory therapy to patients recovering from
strokes, trauma or certain surgeries, services for high risk pregnancies,
post-partum care, mental health care, AIDS therapy, various medical social
services and case management services to insurance companies and
self-insured employers.
Home health aide care that involves personal care services and assistance
with activities of daily living such as personal hygiene and meal
preparation. The Company's home health aides must pass certain competency
tests and are supervised by a registered nurse.
Primary home care that is a state administered program that provides
unskilled homemaker services to the elderly or the disabled, as ordered by
a physician. A registered nurse makes the initial assessment and assigns a
homemaker, who may provide housekeeping, shopping and limited personal
care.
Hospice care that provides palliative support and care for persons in the
last phases of an incurable disease. Support and care under the direction
of a physician may be provided by a skilled nurse, aide, chaplain,
counselor, therapist or volunteer.
Patients are referred to the Company office by primary care and specialty
physicians as well as by hospital discharge planners and case managers. After
reviewing the pertinent medical records and treatment plan, a nurse or home
health aide, where appropriate, visits the patient in the home where care is
provided on either a continuous or intermittent basis. Treatment may involve a
few visits over a short period of time or may extend over several years.
Home Respiratory Therapy and Medical Equipment. The Company provides a wide
variety of home respiratory, monitoring and medical equipment services to
patients. Respiratory therapists manage the needs of the patient according to
the physician-directed plan of care and educate the patient and the care giver
regarding treatment requirements, use of equipment and self-care. The Company's
principal respiratory services include:
Oxygen systems that assist patients with breathing. The Company provides
three types of oxygen systems: (i) oxygen concentrators, which are
stationary units that filter ordinary air in order to provide a continuous
flow of oxygen and are generally the least expensive supply of oxygen for
patients who require a continuous flow of oxygen but do not require
excessive flow rates; (ii) liquid oxygen systems, which are containers used
for patients who require a continuous high flow of supplemental oxygen; and
(iii) high pressure oxygen cylinders, used for portability with oxygen
concentrators.
Nebulizers that deliver aerosol medications that are inhaled directly into
the patients' lungs. Nebulizers are used to treat patients with asthma,
chronic obstructive pulmonary disease, cystic fibrosis and neurologically
related respiratory problems and patients with AIDS.
Home ventilators that mechanically sustain a patient's respiratory function
in cases of severe respiratory failure.
Continuous positive airway pressure therapy that forces air through
respiratory passage-ways during sleep. This treatment is provided to adults
with sleep apnea, a condition in which a patient's normal breathing
patterns are disturbed during sleep.
The Company also rents, sells and services respiratory equipment for
patient use in the home and supplies patients with aerosol medications provided
by the Company for use in respiratory therapy treatments. The Company's
technicians deliver and install respiratory equipment, instruct patients in the
use of such
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<PAGE> 25
equipment, refill liquid oxygen systems and provide continuing maintenance of
the equipment. The Company's principal monitoring services include:
Cardiac monitoring for the detection of arrhythmias, a condition that is
responsible for 500,000 deaths each year in the United States. The Company
provides cardiac loop event recorders, which in conjunction with
transtelephonic monitoring, have proven to be an efficient and
cost-effective arrhythmia detection device.
Uterine monitoring which detects, records and sends uterine activity
information to the perinatal center to alert healthcare professionals of
pre-term labor in high-risk pregnancies.
Apnea monitors to warn parents of apnea episodes in newborn infants as a
preventive measure against sudden infant death syndrome.
The Company also leases and sells convalescent equipment, in connection
with the provision of its other services to patients in the home. Such equipment
includes hospital beds, wheelchairs, walkers and patient lifts and medical and
surgical supplies such as stethoscopes, orthopedic supplies, urinary catheters,
syringes and needles. The Company benefits from the efficiencies associated with
the provision of home medical equipment and supplies to its patients who are
receiving nursing, respiratory therapy or infusion therapy in the home.
Home Infusion Therapy. The Company provides a wide range of home infusion
therapies. Home infusion therapy involves the administration of nutrients,
antibiotics and other medications intravenously (into the vein), subcutaneously
(under the skin), intramuscularly (into the muscle), intrathecally or epidurally
(via spinal routes) or through feeding tubes into the digestive tract which
often begins during hospitalization of a patient and continues in the home
environment. The Company's principal infusion therapies include:
Antibiotic therapy which is the infusion of antibiotic medications into a
patient's bloodstream to treat a variety of serious infections and
diseases.
Enteral nutrition which is the administration of essential nutrients
through a feeding tube, is necessary for patients who are unable to orally
ingest adequate nutrients.
Total Parenteral Nutrition which is a nutrient solution administered
intravenously to restore and/or maintain electrolyte balance and
nutritional function.
Pain management which is provided to patients experiencing acute pain as a
result of traumatic injury, surgical procedures or other medical disorders.
The Company provides a comprehensive approach to pain management that
includes a thorough knowledge of available agents, routes of administration
and appropriate dosage levels as directed.
Chemotherapy which is provided in the home, allows patients with cancer an
alternative to frequent and expensive hospital stays.
Pentamidine which is an agent used specifically in the treatment of
patients with AIDS who have experienced one or more episodes of
pneumocystis carinii pneumonia.
When a patient is referred to a Company office, a Company pharmacist takes
the prescription order from the treating physician, prepares the prescribed
pharmaceuticals and coordinates their delivery to the patient's home. New
patients are assisted in the administration of infusion therapy and related
services by a registered nurse who is present at the time of the patient's first
home treatment.
INFORMATION SYSTEMS
In 1994, the Company, with the assistance of Rockwell and others, began
developing an innovative clinically-based management information system which
the Company has named HealthCor Medical Information Systems Network or HealthCor
MedisynTM (the "System"). A United States patent application was filed on July
1, 1996 with respect to the System. However, no assurance can be given that a
patent will be granted. The System is designed to re-engineer all aspects of the
Company's operations by providing automated, paperless data collection and
transmission capabilities that the Company believes will enable it to
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<PAGE> 26
enhance operating efficiencies, produce and analyze clinical outcomes data and
manage growth more effectively. The Company believes the System will generate
the data required to price and manage the Company's services and products
competitively in a managed care environment and to measure the quality and cost
of care that is delivered in the home.
The implementation of the first phase of the System, which consisted of
equipping and training all of the Company's approximately 800 nurses with
hand-held point-of-care computers was initiated with a beta test in August 1994.
The Company began a comprehensive rollout of the PtCT units in April 1995 and
concluded such rollout in March 1996. These hand-held computers, called PtCT
units, allow each of the Company's nurses to have an electronic patient chart in
hand and allow the Company to collect clinical, payroll and billing information.
Information is transmitted via modem to the Company's appropriate client server.
Once the clinical data has been recorded, the System enables the Company to
develop clinical assessments of patients via computer generated documentation.
Same-day reporting capabilities reduce paperwork and transcription errors, which
has increased certain individual nurse productivity ranging to 40% based on
productivity analyses conducted by the Company. The System also expedites the
processing of payroll data, accelerates the transfer of information to attending
physicians and improves the consistency and completeness of the assessments
generated. The Company anticipates equipping and training all of its home health
aides with PtCT units by early 1997, with respiratory and physical therapists to
be equipped by the end of 1997.
The Company conducted two separate productivity analyses which compared
individual nurse performance prior to and after implementation of the PtCT
units. Although individual productivity is affected by various factors including
a nurse's willingness to adapt to using the PtCT unit, management expertise at
the branch level, quality of training, computer proficiency, amount of time
spent on the PtCt unit, depth of documentation prior to the PtCT unit, patient
load and patient type, the Company did not selectively construct its samples to
take into consideration these factors. The first analysis surveyed nurses at 12
of the Company's 75 offices and measured the number of weekly visits performed.
The second analysis measured time spent conducting a routine nursing visit. This
study encompassed all of the Company's Licensed Vocational Nurses having
measurable results who were employed prior to March 1, 1995 and still employed
by the Company at July 1, 1996.
The Company intends to implement additional phases of the System over the
next six months, including: (i) a comprehensive general ledger, human resources,
payroll, materials management and cost accounting system; (ii) a central client
intake application and wide area networks to allow regional intake personnel to
enter the referral/admissions information for clients of all services and
transmit such information to the appropriate office's client server; and over
the next 18 months, (iii) a data warehousing application to allow extensive
analysis and reporting of outcomes data, clinical and financial reports.
MARKETING
The Company's market development efforts focus on referral sources which
include physicians, hospital discharge planners, social workers, community
service organizations, managed care organizations and other commercial payors.
In urban areas, managed care organizations are becoming increasingly important
as both referral sources and payors. As a result, the Company has created a
corporate department that develops specialized programs designed to provide
comprehensive, cost effective home care services. A large portion of the
Company's revenues originate in non-urban areas where local referral sources
continue to be very important. At the local market level, the Company's
employees, including office management, licensed professionals and coordinators
of professional services, continually communicate with referral sources in order
to provide such referral sources with knowledge of the services provided by the
Company and the level of reimbursement available from payor sources. The Company
believes that its ability to provide a full range of services to clients in all
of its markets is a strong advantage in developing relationships with managed
care organizations. In addition, the Company works with managed care
organizations to provide custom programs to effectively manage high cost
patients. These programs, coupled with the Company's focus on clinically-based
management information systems, enable the Company to effectively compete for
managed care relationships.
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QUALITY ASSURANCE
Management believes that the quality of the Company's services is critical
to its ability to obtain referrals and expand its business. To assure the
delivery of high-quality patient care, and to improve the overall quality of
service, the Company has established policies and procedures prescribing
standards of patient care. The Company has a Progressive Improvement Council
designed to integrate and assess the improvement activities and processes across
all services. The Progressive Improvement Council has a fully-automated survey
tool used to assess each office to ensure compliance with its standards on a
quarterly basis. These standards include the monitoring of clinical and billing
documentation, accountability of clinical personnel by interviews and monitoring
of home visits, evaluating customer satisfaction information, reporting adverse
medical incidents, monitoring risk management and ensuring a safe and
appropriate working environment.
The Company is accredited by JCAHO in a majority of its offices. The
objective standards established by JCAHO are one of the few methods by which
referring health care professionals can assess the quality of services provided.
The Company believes that it is JCAHO certified in all markets where such
certification is important to third-party payors. There have been a number of
initiatives to require such accreditation as a prerequisite for participation in
government reimbursement and private insurance programs, and such accreditation
is generally preferred by managed care and other third-party payors.
HUMAN RESOURCE MANAGEMENT
Competition for qualified managers and personnel in the home health care
industry is intense. The Company continuously recruits, screens, trains and
offers benefits and other programs in an effort to retain its personnel.
Recruiting is conducted primarily through advertising, employment fairs, direct
contact with community groups and the use of bonuses and other employee benefit
programs to encourage new employee referrals by existing employees. The Company
has implemented a computerized interviewing software system to assist in
screening and hiring of potential employees.
The Company operates 11 regional learning centers to provide orientation
and training to new employees and continuing education for existing employees.
All care providers must complete a core curriculum before they begin independent
patient care. The Company routinely develops and distributes quality improvement
in-service materials, manuals and forms to its nurses and has implemented an
internal system of employee recognition and rewards. In addition, skilled nurses
are initially assigned to a nurse preceptor until the Company believes that
these new nurses have acquired a sufficient degree of home health care knowledge
and experience. The Company also has implemented an infusion therapy
verification program for skilled nurses. The Company is recognized as a provider
of continuing education units by the Texas Nursing Association, which is
accredited by the American Nursing Credentialing Center.
PROPERTIES AND OFFICE LOCATIONS
The Company currently leases all of its office space, with the exception of
the office located in Raton, New Mexico which the Company owns. The executive
offices, consisting of approximately 27,900 square feet, are subject to a lease
expiring March 31, 1997. The rent payable thereunder is $28,393 monthly.
On June 10, 1996, the Company executed a lease agreement for new executive
offices, effective November 1, 1996. The new executive offices, comprising
approximately 57,400 square feet, are subject to a lease expiring November 1,
2006. The rent payable thereunder is $65,753 monthly, beginning February 1,
1997.
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The following is a list of the Company's 75 home health care offices.
Unless otherwise indicated, the Company has one office in each city.
Texas(42) Texarkana Arizona(5)
Tomball
Abilene Tyler Casa Grande
Andrews Wichita Falls Gilbert
Austin Willis Mesa
Beaumont Winnsboro Payson
Bedford Phoenix
Brenham Oklahoma(12)
Bryan Arkansas(5)
Center Ada
Cleburne Bartlesville Fayetteville
Dallas Edmond Fort Smith
DeLeon(2) Enid Jonesboro
Denton Ft. Gibson Little Rock
El Paso Holdenville Texarkana
Grand Prairie Lawton
Houston(4) Oklahoma City Kansas(2)
Jasper(2) Ponca City
Lake Jackson Sapulpa Kansas City
Longview Stillwater Independence
Lubbock Tulsa
Lufkin New Mexico(2)
Mineral Wells Missouri(6)
Mule Shoe Hobbs
Odessa Columbia Raton
Rising Star Independence
San Antonio(2) Jefferson City Colorado(1)
Sherman Kirksville
Stephenville(2) Mexico Englewood
Temple(2) Osage Beach
COMPETITION
The Company faces substantial competition in its existing markets. Home
health care providers compete for referrals based primarily on range and quality
of services, price, geographic coverage and pertinent clinical and statistical
information. Most of the markets in which the Company provides home health care
services are highly fragmented with a large number of local, independent
competitors. The Company also competes with local offices of national companies
and hospital-based home health care organizations. Some of the Company's current
and potential competitors have, or may obtain, significantly greater financial
and marketing resources than the Company.
REGULATION
The Company's business is subject to extensive and increasing regulation by
federal, state and local government. Federal agencies which regulate aspects of
the Company's business include the Department of Health and Human Services, the
Health Care Financing Administration, the Office of the Inspector General, the
Food and Drug Administration, the Drug Enforcement Agency and the Occupational
Safety and Health Administration. In most states, home health care providers are
regulated by the state department of health and board of pharmacy and certain
local agencies. See "Risk Factors -- Operation Restore Trust" and "-- Subpoenas
of Records."
27
<PAGE> 29
The Company is subject to federal laws covering the repackaging and
dispensing of drugs and regulating interstate motor-carrier transportation and
state laws governing pharmacies, nursing services and certain types of home
health agency activities. Under state laws, the Company's offices must be
licensed prior to commencing business and must renew its licenses periodically.
In Arkansas, the Company is limited to providing nursing services under the
Medicare program to those geographic areas in which it has obtained a Permit of
Approval by demonstrating a need for the particular type of services which it
proposes to provide. The Company believes that the absence of this requirement
in the other states in which the Company operates has proven to be a significant
operational advantage in comparison to home health care providers in states with
this requirement. In addition, certain of the Company's employees are subject to
state laws and regulations governing the professional practice of respiratory
therapy, pharmacy and nursing.
As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the Medicare and Medicaid anti-kickback statute, also
known as "fraud and abuse laws." This law prohibits any offer, payment,
solicitation or receipt of any form of remuneration to induce the referral of
business reimbursable under Medicare or state health programs or in return for
the purchase, lease, or order of items or services covered by Medicare or state
health programs. Violations of the fraud and abuse laws can result in the
imposition of substantial civil and criminal penalties and, potentially,
exclusion from Medicare and state health programs. In addition, several states
in which the Company operates have laws that prohibit certain direct or indirect
payments or fee-splitting arrangements between health care providers if such
arrangements are designed to induce or to encourage the referral of patients to
a particular provider. See "Risk Factors -- Operation Restore Trust" and
"-- Subpoenas of Records."
Congress adopted legislation in 1989, known as the "Stark" legislation,
that generally prohibits or restricts a physician from referring a Medicare
beneficiary's clinical laboratory services to any entity in which such physician
(or a member of his immediate family) has an ownership or individual interest or
with which such physician has a financial relationship, and prohibits such
entity from billing for or receiving reimbursement on account of such referral,
unless a specified exemption is available. Additional legislation became
effective as of January 1, 1993 known as "Stark II," expanding the Stark
legislation to referrals of services eligible for Medicaid reimbursement and
"designated health services," including home health services, durable medical
equipment and outpatient prescription drugs. Pursuant to Stark II, physicians
who own an interest in the Company or who are compensated by the Company will be
prohibited from making referrals to the Company, and the Company will be
prohibited from seeking reimbursement for services rendered to such patients
unless an exception applies. Ownership interests are excepted if the interest
held is a publicly traded security in a company having shareholders' equity of
at least $75 million.
Several of the states in which the Company conducts business have enacted
statutes similar in scope and purpose to the federal fraud and abuse laws and
the Stark Laws. There is no authority interpreting the state fraud and abuse
laws in a manner that applies to the Company's operations. These laws are
generally based upon the federal fraud and abuse law, so that the interpretation
of the federal law may govern the application of the state laws.
In May 1995, the Clinton Administration instituted Operation Restore Trust,
a health care fraud and abuse initiative focusing on nursing homes, home health
care agencies and durable medical equipment companies located in five states
with the largest Medicare populations. Texas, the Company's corporate base, is
one of the targeted states. As of May 13, 1996, Operation Restore Trust has been
responsible for over $24.5 million in criminal restitutions, fines and recovery
of overpayments; over $14.1 million in civil judgments, settlements and civil
monetary penalties; 35 criminal convictions and 18 civil judgments; and 93
exclusions of individuals and corporations from the Medicare program. Operation
Restore Trust has also been expanded to cover six states, and the Clinton
Administration has called for an expansion of this initiative to all fifty
states in fiscal year 1997. The Company cannot predict the effect of Operation
Restore Trust on the Company or its results of operations.
A significant portion of the Company's revenues are derived from the
Medicare program. A number of initiatives are pending in the United States
Congress to control the cost of the Medicare program, including
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<PAGE> 30
proposals to reduce certain reimbursement rates. It is possible that the amounts
reimbursable for Medicare services will be subject to limitation, if not a
reduction, in the future.
The Company's home medical equipment operations are subject to the Omnibus
Budget Reconciliation Act ("OBRA"). OBRA 1987 created six categories for home
medical equipment reimbursement under the Medicare program. OBRA 1987 also
defined whether products would be paid for on a rental or sale basis and
established fixed payment rates for oxygen services as well as a 15-month rental
ceiling on certain medical equipment. OBRA 1990 made new changes to Medicare
reimbursement that were implemented in 1991. The substantive changes included a
national standardization of Medicare rates for certain equipment categories and
further reductions in amounts paid for home medical equipment rentals. In 1992,
the industry experienced minimal changes in both regulation and in levels of
Medicare reimbursement.
In August 1993, Congress passed OBRA 1993, which included significant
reimbursement reductions to the Medicare program through 1998. These
reimbursement reductions began to take effect on January 1, 1994, and were
estimated to negatively affect the home medical equipment industry by
approximately $81.0 million in 1994. The specific reimbursement changes
effective for fiscal 1994 relate to recategorization of certain home respiratory
therapy products, coupled with a reduction in reimbursement rates for these
products. Offsetting this reduction, OBRA 1993 provided a Consumer Price Index
increase on certain Medicare fees, which was approximately 2.9% in 1994 and 2.5%
in 1995.
INSURANCE
The Company maintains professional liability insurance covering the
negligent acts and omissions of its home health care personnel while rendering
services. This policy provides coverage of $5.0 million in the aggregate or $5.0
million per occurrence for each policy year. The Company believes that the
insurance which it maintains, in relation to the size of its business, is
customary in the home health care industry; however, there can be no assurance
that any such insurance will be adequate to cover the Company's liabilities. The
Company maintains product liability insurance on all of the medical equipment,
supplies and pharmaceuticals that it sells, leases or provides to its home care
patients. This insurance provides coverage of $2.0 million in the aggregate or
$1.0 million per occurrence for each policy year. The Company also maintains
umbrella coverage in excess of its general liability insurance which provides
$4.0 million in the aggregate or $4.0 million per occurrence for each policy
year.
EMPLOYEES
The retention of qualified employees is a high priority for the Company. As
of May 31, 1996, the Company employed over 2,000 individuals. Management
believes that the Company's employee relations are good. None of the Company's
employees are represented by a labor union or other collective bargaining
organization.
LEGAL PROCEEDINGS
The Company is currently not party to any material litigation and is
currently not aware of any pending or threatened litigation that could have a
material adverse effect on the Company's business, financial condition, cash
flow or results of operations.
29
<PAGE> 31
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
S. Wayne Bazzle(1)............... 60 Chairman of the Board, Chief Executive Officer and
Secretary
Cheryl C. Bazzle................. 48 President, Chief Operating Officer and Director
Susan L. Belske.................. 49 Vice President and Treasurer
Michael J. Foster(1)(2).......... 43 Director
Robert B. Crates(1)(2)........... 34 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Mr. Bazzle has served as the Chairman of the Board and Chief Executive
Officer of the Company since the Company's incorporation in October 1989. In
addition, Mr. Bazzle served as President of the Company from October 1989 to
October 1991 when Cheryl C. Bazzle was elected President. From October 1985 to
October 1989, Mr. Bazzle served as Chairman of the Board and Chief Executive
Officer of HealthCor, Inc., a predecessor of the Company. From September 1983 to
September 1985, Mr. Bazzle served as a consultant to Concepts of Care, Inc., a
home health care company. Mr. Bazzle was President and Chief Executive Officer
of Drum Financial Corporation, a publicly traded insurance and financial
services corporation from 1976 to 1981. Prior thereto, Mr. Bazzle was employed
with the Bank of Virginia, where he served as President and Chief Administrative
Officer from 1973 to 1976. Mr. Bazzle is married to Cheryl C. Bazzle.
Ms. Bazzle has served as President, Chief Operating Officer and Director
since 1991. From 1989 to 1991, Ms. Bazzle served as Senior Vice President of the
Company. From December 1987 to October 1989, Ms. Bazzle served in various
capacities for HealthCor, Inc., a predecessor and a subsidiary of the Company,
including as Senior Vice President, Chief Operating Officer and President. From
September 1985 to December 1987, Ms. Bazzle served in various capacities for
Concepts of Care, Inc. From September 1981 to October 1985, Ms. Bazzle operated
an equipment leasing company which she founded and no longer operates. Ms.
Bazzle is married to S. Wayne Bazzle.
Ms. Belske has served as Vice President and Treasurer of the Company since
April 1993. From 1987 to 1993, Ms. Belske served as Vice President and Chief
Financial Officer of Nurse Finders, Inc. From 1981 to 1987, she served as Vice
President and Chief Financial Officer of Kimberly Service, Inc., the predecessor
to Kimberly Quality Care. Prior to 1981, Ms. Belske was employed by Ernst &
Young for 11 years. Ms. Belske is a certified public accountant.
Mr. Foster has served as a Director of the Company since October 1991 and
was elected to the Board of Directors pursuant to agreements executed in
connection with the purchase by RFE Investment Partners IV, L.P. ("RFE IV") of
Series B Preferred Stock. Since 1989, Mr. Foster has been employed by RFE
Management Corp., an investment manager of several private equity investment
funds, and a general partner of RFE Associates IV, L.P. the general partner of
RFE IV. Prior thereto, Mr. Foster was a partner with the law firm of O'Sullivan
Graev & Karabell. Mr. Foster has previously served as a director of Community
Health Systems, Inc. and ReLife, Inc. See "Certain Transactions" and "Principal
and Selling Stockholders."
Mr. Crates has served as a Director of the Company since June 1992 and was
elected to the Board of Directors in connection with the purchase by LKCM
Venture Partners I, Ltd., a Texas limited partnership ("LKCM Venture Partners"),
of Series B Preferred Stock, as required by the purchase agreement under which
the Series B Preferred Stock was sold. Since December 1995, Mr. Crates has been
a principal of Crates Thompson Capital, Inc., an investment company engaged in
direct investments. From May 1988 to November 1995, Mr. Crates served as a Vice
President of Luther King Capital Management, an investment advisory firm. In
that capacity, Mr. Crates, individually and as President of RBC Investment
Corp., served as
30
<PAGE> 32
the general partner of LKCM Venture Partners I, Ltd., a stockholder of the
Company which is affiliated with Luther King Capital Management. From October
1994 to January 1995, Mr. Crates concurrently served as Interim Chairman and
Chief Executive Officer of Eddie Haggar Limited, Inc., a company in which LKCM
Venture Partners I, Ltd. had an investment, that filed for protection under
federal bankruptcy laws. See "Certain Transactions" and "Principal and Selling
Stockholders."
The Compensation Committee of the Company's Board of Directors determines
the Company's executive compensation policies and practices and changes in
compensation and benefits for senior management. The Compensation Committee also
administers the 1996 Incentive Plan. See "-- Executive Compensation."
The Audit Committee reviews the internal accounting procedures of the
Company, consults with the Company's independent public accountants and reviews
the services provided by such accountants.
BOARD COMPENSATION
All of the members of the Board of Directors (the "Board") are reimbursed
for expenses incurred in connection with their attendance at Board and Committee
meetings. The Company pays each non-employee director a monthly retainer of
$500, as well as a $750 fee for attending each regular or special meeting of the
Board. The Company does not compensate any director for committee participation
or special assignments. In addition, each of the Company's new non-employee
directors are eligible to receive stock options under the 1996 Incentive Plan
upon their election to the Board. See "-- Stock Option Plans."
EXECUTIVE COMPENSATION
The following table sets forth for the year ended December 31, 1995, the
compensation paid by the Company to the Company's Chairman and Chief Executive
Officer, President and Chief Operating Officer and the other most highly
compensated executive officer (collectively, the "Named Executive Officers")
whose cash compensation was in excess of $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION(1)
-------------------------------- ---------------
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
COMPEN- OPTIONS/ COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS(3) SATION(4) SARS(#) SATION(5)
- ------------------------------------- ---- --------- -------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
S. Wayne Bazzle
Chairman of the Board and Chief
Executive Officer.................. 1995 $ 240,000 $72,000 $ 2,250 -- $ 12,060
Cheryl C. Bazzle
President and Chief Operating
Officer............................ 1995 200,000 60,000 2,250 -- 6,591
Susan L. Belske
Vice President & Treasurer......... 1995 120,000 15,000 1,927 -- --
</TABLE>
- ---------------
(1) The Company did not grant any stock options, stock appreciation rights or
make any long-term incentive plan payments to any of the Named Executive
Officers in 1995.
(2) Represents annual salary, including compensation deferred by the Named
Executive Officers pursuant to the Company's 401(k) Plan.
(3) Represents annual bonus earned by the Named Executive Officers for the
period indicated.
(4) Represents the Company's contribution to its 401(k) Plan made on behalf of
the Named Executive Officers.
(5) Represents amounts paid by the Company for automobile expenses on behalf of
the Named Executive Officers.
OPTIONS GRANTED DURING LAST FISCAL YEAR
During 1995, the Company did not grant any options to any of the Named
Executive Officers.
31
<PAGE> 33
OPTION EXERCISES DURING 1995 AND OPTION VALUES AT DECEMBER 31, 1995
The following table summarizes information regarding the value of all
unexercised options at December 31, 1995 by the Named Executive Officers. No
stock options were exercised by any of the Named Executive Officers during the
fiscal year. The Company does not have any outstanding stock appreciation rights
("SARs").
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
YEAR-END(#) YEAR-END(1)
SHARES VALUE ----------------------------- -----------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------ -------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Wayne Bazzle... -- -- -- -- -- --
Cheryl C. Bazzle.. -- -- -- -- -- --
Susan L. Belske... -- -- 12,500 7,500 $ 118,550 $61,650
</TABLE>
- ---------------
(1) Based on an assumed offering price of $13.50.
STOCK OPTION PLANS
1996 Incentive Plan. The Company may grant officers, directors and key
employees awards with respect to shares of Common Stock under the HealthCor
Holdings, Inc. 1996 Long-Term Incentive Plan (the "1996 Incentive Plan"). The
awards under the 1996 Incentive Plan include: (i) incentive stock options
qualified as such under U.S. federal tax laws, (ii) stock options that do not
qualify as incentive stock options, (iii) SARs and (iv) restricted stock awards.
The 1996 Incentive Plan authorizes the issuance of 237,500 shares of Common
Stock pursuant to the exercise of non-transferable options granted to
participating employees. The Company has not granted any options under the 1996
Incentive Plan to any officers, directors or employees.
The 1996 Incentive Plan is administered by the Board or a committee of the
Board (the "Committee") who determines the exercise price of each option granted
under the 1996 Incentive Plan. However, the exercise price for an incentive
stock option must not be less than the fair market value of the Common Stock on
the date of grant. Stock options may be exercised as the Committee determines
but not later than ten years from the date of grant in the case of incentive
stock options. At the discretion of the Committee, holders may use shares of
Common Stock to pay the exercise price, including shares issuable upon exercise
of the option.
An SAR may be awarded in connection with or separate from a stock option.
An SAR is the right to receive an amount in cash or stock equal to the fair
market value of a share of the Common Stock on the date of exercise less the
exercise price specified in the agreement governing the SAR (for SARs not
granted in connection with a stock option) or the exercise price of the related
stock option (for SARs granted in connection with a stock option). An SAR
granted in connection with a stock option will require the holder, upon
exercise, to surrender the related stock option or portion thereof relating to
the number of shares for which the SAR is exercised. The surrendered stock
option, or portion thereof, will then cease to be exercisable. Such an SAR is
exercisable or transferable only to the extent that the related stock option is
exercisable or transferable. An SAR granted independently of a stock option will
be exercisable as the Committee determines. The Committee may limit the amount
payable upon exercise of any SAR and such amounts may be paid in cash or stock.
A restricted stock award is a grant of shares of Common Stock that is
nontransferable or subject to risk of forfeiture until specific conditions are
met. The restrictions will lapse in accordance with a schedule or other
conditions as the Committee determines. During the restriction period, the
holder of a restricted stock award may, in the Committee's discretion, have
certain rights as a stockholder, including the right to vote the stock subject
to the award or to receive dividends thereon. Restricted stock may also be
issued upon exercise or settlement of options or SARs.
32
<PAGE> 34
An award under the 1996 Incentive Plan may have change of control features
as the Committee determines. Such change of control features may provide that
upon the change of control of the Company: (i) the holder of a stock option will
be granted a corresponding SAR, (ii) all outstanding SARs and options will
become immediately and fully vested and exercisable in full and (iii) the
restriction period on any restricted stock award will be accelerated and the
restrictions will expire. Outstanding options under the 1996 Incentive Plan have
the provision described in the preceding clause (ii). A "change in control" of
the Company means: (i) a person other than the Company, certain affiliated
companies or benefit plans, or a company a majority of which is owned directly
or indirectly by the stockholders of the Company becomes the beneficial owner of
50% or more of the voting power of the Company's outstanding voting securities;
(ii) a majority of the Board of Directors is not comprised of the members of the
Board of Directors at June , 1996, and persons whose elections as directors
were approved by those directors of their approved successors; (iii) the Company
merges or consolidates with another corporation or entity (whether the Company
or the other entity is the survivor), or the Company and the holders of the
voting securities of such other corporation or entity (or the stockholders of
the Company and such other corporation or entity) participate in a securities
exchange, other than a merger, consolidation or securities exchange in which the
Company's voting securities are converted into or continue to represent
securities having the majority of voting power in the surviving company; or (iv)
the Company liquidates or sells all or substantially all of its assets, except
sales to an entity having substantially the same ownership as the Company.
If a restructuring of the Company occurs that does not constitute a change
in control of the Company, the Committee may: (i) accelerate in whole or in part
the time of vesting and exercisability of any outstanding stock options and
SARs, in order to permit those stock options and SARs to be exercisable before,
upon, or after the completion of the restructuring; (ii) grant each option
holder corresponding SARs; (iii) accelerate in whole or in part the expiration
of some or all of the restrictions on any restricted stock award; (iv) if the
restructuring involves a transaction in which the Company is not the surviving
entity, cause the surviving entity to assume in whole or in part any one or more
of the outstanding awards under the 1996 Incentive Plan upon such terms and
provisions as the Committee deems desirable; or (v) redeem in whole or in part
any one or more of the outstanding awards (whether or not then exercisable) in
consideration of a cash payment, adjusted for withholding obligations. A
restructuring generally is any merger of the Company or the direct or indirect
transfer of all or substantially all of the Company's assets (whether by sale,
merger, consolidation, liquidation, or otherwise) in one transaction or a series
of transactions.
The options granted in 1996 under the 1996 Incentive Plan to executive
officers automatically vest upon a change in control, termination of their
employment with the Company by the Company without cause or termination of their
employment with the Company by the officer for good reason.
1989 Stock Option Plan. The Company's 1989 Stock Option Plan (the "1989
Stock Option Plan"), which was approved by the Board of Directors in October
1989 and subsequently amended in June 1996, provides for the issuance of
Incentive and Non-Qualified Stock Options to purchase up to 387,500 shares of
Common Stock of the Company. Non-Qualified Stock Options may be granted to
full-time employees (including executive officers and directors other than Mr.
and Ms. Bazzle) of the Company or to part-time employees or persons performing
services for the Company. Incentive Stock Options may only be granted to
full-time employees of the Company. Unexercised options under the 1989 Stock
Option Plan are subject to adjustment if the outstanding shares of Common Stock
of the Company are increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities or other
securities of the Company or of another corporation through a stock split,
combination, reorganization, merger, consolidation or similar transaction.
The 1989 Stock Option Plan is administered by the Board or the Committee
which (i) selects the employees, officers or directors who are to be granted
options, (ii) establishes the number of shares of Common Stock subject to the
options, (iii) determines the exercise prices and (iv) establishes the terms,
restrictions and/or conditions applicable to the options. The exercise price for
an Incentive Stock Option must not be less than the fair market value of the
Common Stock on the date of grant. Options granted under the 1989 Stock Option
Plan vest over a three year period beginning on the date of the grant, with
one-third of the options vesting and becoming exercisable on each anniversary of
the grant. All options will vest automatically
33
<PAGE> 35
upon the occurrence of a change in control triggering event, which includes a
consolidation or merger of the Company with or into any other entity or a sale
or other transfer of substantially all of the property and assets of the
Company. Options are not transferable except by the laws of devise and descent,
and during an optionee's lifetime may only be exercised by the optionee.
As of May 31, 1996, the Company has granted options to purchase 350,878
shares of Common Stock, 185,042 of which options are currently vested. The
number of shares currently available for additional grants under the 1989 Stock
Option Plan is 36,622.
EMPLOYEE STOCK OWNERSHIP PLAN
The Board of Directors adopted an Employee Stock Ownership Plan ("ESOP"),
effective as of April 1, 1990, for eligible employees. The ESOP is an employee
stock ownership plan that is intended to satisfy the applicable qualification
requirements set forth in the Code. The ESOP is designed to invest primarily in
shares of the Company's Common Stock.
Contributions of Common Stock and cash by the Company, when declared at the
discretion of the Board, are allocated to the accounts of participants based on
the ratio each participant's compensation for the year bears to all
participants' compensation for that year. Participants are not vested in any
amounts allocated to them until they have completed at least 1,000 hours of
service per year for one year. After five such years, a participant is 100%
vested in such amounts. Generally, a participant also will be fully vested upon
attaining age 65 or in the event of total and permanent disability, death or
termination of the ESOP.
Shares of Common Stock, together with any other ESOP assets, are held by a
trustee appointed by the Company. Under the ESOP, each participant has a right
to direct the trustee as to the manner in which shares of Common Stock allocated
to his or her account, as well as a portion of the shares of Common Stock held
by the trustee pending allocation to participant accounts, are to be voted at
each meeting of the Company's stockholders. Allocated shares for which no timely
instructions are received will be voted by the trustee proportionally in the
manner as the shares for which voting instructions were received.
Upon termination of employment, a participant is entitled to the amounts
which have been allocated to his or her account and which have become vested. If
a participant dies before receiving vested benefits from the ESOP, then ESOP
assets held for the participant will be distributed to the participant's
beneficiary. Under the ESOP, participants and beneficiaries will receive ESOP
distributions in the form of Common Stock and cash in lieu of any fractional
shares. If the Common Stock is not publicly traded, a participant or beneficiary
receiving a distribution of shares of Common Stock from the ESOP has a put
option to require the Company to purchase the distributed shares at fair market
value.
401(K) PLAN
The Company has a defined contribution plan (the "401(k) Plan") pursuant to
which employees at least 21 years of age and who have completed a minimum of
1,000 hours of service and 12 months of employment are eligible to participate.
Participants in the 401(k) Plan may contribute up to 10% of his or her pre-tax
total compensation with the Company matching 25% of the participant's
contributions, up to 6% of the participant's compensation. The 401(k) Plan is
being modified July 1, 1996, to merge the 401(k) Plan of an acquired Company
into the Company's 401(k) Plan. Eligible employees are 100% vested in their own
contributions.
LIMITATION ON DIRECTORS' LIABILITY
The Company's Amended and Restated Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions is to eliminate the
rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above.
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<PAGE> 36
CERTAIN TRANSACTIONS
In June 1992, in connection with an acquisition, the Company issued and
sold an aggregate of 1,250,013 shares of Series B Preferred Stock at a price of
$2.80 per share in a private placement. LKCM Venture Partners I, Ltd., a Texas
limited partnership, participated in this offering at this per share price by
purchasing 803,575 shares. RFE Investment Partners IV, L.P. participated in this
offering at this per share price by purchasing 267,863 shares. The Company's
ESOP also purchased 178,575 shares of Series B Preferred Stock at this per share
price. The shares of Series B Preferred Stock owned by the ESOP were converted
into shares of Common Stock in fiscal 1994.
35
<PAGE> 37
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock of as of May 31, 1996, and as
adjusted to reflect the sale of the shares of Common Stock being offered by the
Company and the Selling Stockholders hereby and giving effect to the Offering
Related Transactions (as defined below) for: (i) each person known by the
Company to own beneficially more than 5% of the outstanding shares of the
Company's Common Stock; (ii) each Selling Stockholder; (iii) each executive
officer and director of the Company; and (iv) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF SHARES TO BE BENEFICIALLY
OFFERING(1)(2) SHARES OWNED AFTER OFFERING(2)
-------------------- BEING -----------------------------
NUMBER PERCENT OFFERED NUMBER PERCENT OF CLASS
--------- ------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
S. Wayne Bazzle(3)............................. 2,600,000 39.6% -- 2,600,000 27.2%
Cheryl C. Bazzle
5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
RFE Investment Partners IV, L.P.(4)............ 2,334,828 35.6 -- 2,334,828 24.4
36 Grove Street
New Canaan, Connecticut 06840
LKCM Venture Partners I, Ltd.(5)............... 933,044 14.2 88,800 844,244 8.8
301 Commerce Street
Suite 1600
Fort Worth, Texas 76102
Morningstar Holdings Limited(6)................ 75,000 * 75,000 -- --
Shadanana P. Attaluri.......................... 25,000 * 25,000 -- --
C. Al Buis..................................... 4,466 * 4,466 -- --
Breck Ray...................................... 44,641 * 4,500 40,141 *
William G. Ritter(6)........................... 50,000 * 50,000 -- --
Paul T. Stoffel................................ 22,319 * 2,234 20,085 *
Susan L. Belske(7)............................. 12,500 * -- 12,500 *
Michael J. Foster(8)........................... 2,334,828 35.6 -- 2,334,828 24.4
Robert B. Crates(9)............................ 933,044 14.2 88,800 844,244 8.8
All directors and officers as a group (5
persons)..................................... 5,880,372 89.6% 88,800 5,791,572 60.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Includes shares of Common Stock which an individual has a right to acquire
upon exercise of options or warrants within 60 days of March 31, 1996. Such
shares are deemed to be outstanding for the purpose of computing the
percentage ownership of the individual holding such shares, but are not
deemed outstanding for purposes of computing the percentage of any other
person shown on the table.
(2) The number of shares of Common Stock deemed outstanding prior to this
offering includes shares issuable upon conversion of the Series A Preferred
Stock and the Series B Preferred Stock. The number of shares of Common
Stock deemed outstanding after this offering includes 3,000,000 shares
being offered for sale by the Company in this offering.
(3) Of the shares indicated, 1,175,000 shares are owned by S. Wayne Bazzle,
1,175,000 shares are owned by Cheryl C. Bazzle and 250,000 shares are owned
by the John Bradley Bazzle Trust (the "Trust"). S. Wayne Bazzle and Cheryl
C. Bazzle serve as trustees of the Trust. Each of Mr. and Ms. Bazzle
disclaim beneficial ownership of the shares owned by the other and the
Trust.
(4) In the event the Underwriters' over-allotment option is exercised in full,
RFE Investment Partners will sell 176,300 shares of the 487,500 additional
shares sold solely to cover over-allotments. If such shares are sold by RFE
Investment Partners pursuant to an exercise of such option, RFE Investment
Partners will own 2,158,528 shares, or 21.9%, of the total shares of Common
Stock outstanding upon the closing of this offering and upon the closing of
the sale of the additional shares subject to the over-allotment option.
(5) In the event the Underwriters' over-allotment option is exercised in full,
LKCM Venture Partners will sell 11,200 shares of the 487,500 additional
shares sold solely to cover over-allotments. If such shares are sold by
LKCM Venture Partners pursuant to an exercise of such option, LKCM Venture
Partners will own 833,044 shares, or 8.5%, of the total shares of Common
Stock outstanding upon the closing of this offering and upon the closing of
the sale of the additional shares subject to the over-allotment option.
(6) William G. Ritter may be deemed to be beneficial owner of the shares held of
record by Morningstar Holdings Limited, a entity organized and existing
under the laws of the British Virgin Islands.
(7) Represents shares issuable upon exercise of stock options which are vested
or will be vested prior to July 31, 1996.
(8) Michael J. Foster disclaims beneficial ownership of the shares held of
record by RFE Investment Partners except to the extent of his partnership
interest in RFE Investment Partners.
(9) Robert B. Crates disclaims beneficial ownership of the shares held of record
by LKCM Venture Partners except to the extent of his partnership interest
in LKCM Venture Partners.
36
<PAGE> 38
DESCRIPTION OF CAPITAL STOCK
Upon the consummation of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $.01 par value, and
10,000,000 shares of preferred stock, $.01 par value (the "Preferred Stock").
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
There is no provision in the Company's Amended and Restated Certificate of
Incorporation for cumulative voting with respect to the election of directors.
Accordingly, the holders of more than 50% of the total voting power of the
Common Stock may, if they choose to do so, could elect all of the directors of
the Company. The holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock would be entitled to share in the Company's
assets remaining after the payment of liabilities and after the satisfaction of
the liquidation preference granted to the holders of any outstanding shares of
Preferred Stock. The shares of Common Stock have no preemptive or conversion
rights, redemption rights or sinking fund provisions and are not subject to
calls, assessments or rights of redemption by the Company. The outstanding
shares of Common Stock are, and the shares being offered hereby will be, upon
issuance and sale, duly authorized, validly issued, fully-paid and
nonassessable.
As of May 31, 1996, after giving effect to the Offering Related
Transactions, there were 6,554,600 shares of Common Stock outstanding and held
of record by 12 stockholders. After giving effect to the issuance of 3,000,000
shares of Common Stock to be sold by the Company in this offering, the
conversion of all of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock and the exercise of warrants to purchase 150,000 shares
of Common Stock, there will be 9,554,600 shares of Common Stock outstanding
after the offering.
PREFERRED STOCK
The Board is authorized, without further action by the Company's
stockholders, to issue Preferred Stock, from time to time, in one or more series
and to fix, as to any such series, the voting rights, if any, applicable to such
series and such other designations, preferences and special rights as the Board
may determine, including dividend, conversion, redemption and liquidation rights
and preferences. Upon the closing of this offering, there will be no shares of
Preferred Stock outstanding. The issuance of shares of Preferred Stock under
certain circumstances could have the effect of delaying or preventing a change
in control of the Company or other corporate actions. See "-- Provisions with
Potential Anti-Takeover Effect."
WARRANTS
In connection with an acquisition completed on June 1, 1992, the Company
issued Warrants to purchase an aggregate of 150,000 shares of Common Stock at a
price of $2.00 per share, exercisable in whole or in part in increments of 1,000
at any time. These Warrants expire June 1, 1997. Unexercised Warrants, and the
exercise price thereof, are subject to adjustment if the Company issues Common
Stock for a consideration per share less than the exercise price (subject to
certain exceptions) or if there is a subdivision or consolidation of the
Company's Common Stock, the payment of a stock dividend or other increase or
decrease in the number of shares of Common Stock outstanding, and the Company
does not receive compensation therefor. In addition, the number and type of
securities subject to a Warrant are subject to adjustment if the Company is
party to a merger or consolidation. The provisions of the Warrant Agreement
relating to adjustment to the exercise price and number of shares for which such
Warrants are exercisable terminate in the event of the consummation of a public
offering of the Company's Common Stock which results in aggregate gross cash
proceeds to the Company of not less than $7,500,000 at a net offering price of
not less than $14.14 per share. The holders of the Warrants are entitled to
certain registration rights with respect to the Common Stock issued upon the
exercise thereof. See "Management -- Principal and Selling Stockholders."
37
<PAGE> 39
In connection with an acquisition completed on November 16, 1994, the
Company issued Warrants to purchase up to 25,000 shares of Common Stock at the
exercise of $4.00 per share, exercisable at any time in whole or in part. These
Warrants expire on November 1, 1999. Unexercised Warrants, and the exercise
price thereof, are subject to adjustment upon a subdivision, consolidation or
reclassification of the Company's Common Stock or a declaration of a stock
dividend. Additionally, the number and type of securities subject to a Warrant
are subject to adjustment if the Company is party to a merger, sale or
consolidation.
REGISTRATION RIGHTS
The Company has entered into an agreement with certain existing holders of
3,179,072 shares of Common Stock pursuant to which: (i) those holders that
formerly represented at least a majority of interest in the Series A Preferred
Stock (the "Former Series A Holders"); or (ii) those holders that formerly
represented at least a majority of interest in the Series B Preferred Stock (the
"Former Series B Holders") may cause the Company to file a registration
statement under the Securities Act of 1933 (the "Securities Act") covering the
shares of Common Stock owned by them. Additionally, upon receipt of notice of a
request to register such shares of Common Stock by such holders or in the event
the Company proposes to register any of its shares of Common Stock under the
Securities Act for its own account, all Former Series A Holders and Former
Series B Holders will be entitled to require the Company to include all, or a
portion of, their shares in such registration, subject to certain conditions and
restrictions. Generally, all fees, costs and expenses (other than underwriting
discounts and commissions) will be borne by the Company.
PROVISIONS WITH POTENTIAL ANTI-TAKEOVER EFFECT
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation, Delaware law, the Company's 1996 Incentive Plan and the
employment agreements and indemnification agreements of certain executive
officers and directors of the Company summarized in the following paragraphs may
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might consider to be in that stockholder's
best interests, including attempts that might result in a premium over the
market price to be paid for the shares held by stockholders.
Amended and Restated Certificate of Incorporation
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, the Company's Board by resolution may issue additional shares of
Common Stock or establish one or more classes or series of Preferred Stock
having the number of shares, designations, relative voting rights, dividend
rates, liquidation and other rights, preferences and limitations that the Board
fixes without stockholder approval. Any additional issuance of Common Stock or
designation of rights, preferences, privileges and limitations with respect to
Preferred Stock could have the effect of impeding or discouraging the
acquisition of control of the Company by means of a merger, tender offer, proxy
contest, or otherwise, and thereby protect the continuity of the Company's
management. Specifically, if, in the due exercise of its fiduciary obligations,
the Board were to determine that a takeover proposal was not in the Company's
best interest, such shares could be issued by the Board without stockholder
approval in one or more transactions that might prevent, or make more difficult
or costly, the completion of the proposed takeover transaction by diluting the
voting or other rights of the proposed acquirer or insurgent stockholder group,
by putting a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.
In addition, the Company's Amended and Restated Certificate of
Incorporation prohibits stockholder action by written consent in lieu of a
meeting. As a result, stockholder action can be taken only at an annual or
special meeting of stockholders. This prevents the holders of a majority of the
voting stock of the Company from using the written consent procedure to take
stockholder action without giving all of the stockholders of the Company
entitled to vote on action the opportunity to participate in determining the
proposed action.
38
<PAGE> 40
INDEMNIFICATION OF CERTAIN PERSONS
Upon the closing of this offering, the Company intends to enter into
indemnification agreements with each of its executive officers and directors.
Pursuant to these agreements, the Company will, to the extent permitted under
applicable law, indemnify these persons against all expenses, judgments, fines
and penalties incurred in connection with the defense or settlement of any
actions brought against them by reason of the fact that they are, or were,
officers or directors of the Company or that they assumed certain
responsibilities at the direction of the Company. In addition, the Company's
Certificate of Incorporation provides for certain limitations on directors'
liability. See "Management -- Limitations on Directors' Liability."
OFFERING RELATED TRANSACTIONS
Concurrently with the closing of this offering, the following transactions
(the "Offering Related Transactions") will be consummated: (i) all of the
2,000,000 outstanding shares of the Company's Series A Convertible Preferred
Stock, which were issued in connection with the organization of the Company in
1989, will convert automatically by its terms into an equal number of shares of
Common Stock of the Company; (ii) all of the 1,071,438 outstanding shares of the
Company's Series B Preferred Stock, which were issued in connection with
acquisitions in 1992, will convert automatically by its terms into 1,339,297
shares of Common Stock of the Company; and (iii) Warrants issued to certain
individuals to purchase an aggregate of 150,000 shares of Common Stock, which
were issued in connection with acquisitions in 1992, will be exercised at the
option of such holders at an exercise price of $2.00 per share.
DELAWARE ANTI-TAKEOVER STATUTE
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless: (i) prior to such date, the Board of Directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Chemical
Mellon Shareholder Services.
39
<PAGE> 41
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this offering, the Company will have an aggregate of
9,554,600 shares of Common Stock outstanding (assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
Warrants). Of these shares, the 3,250,000 shares sold in this offering will be
freely transferable without restriction or further registration under the
Securities Act, except that any shares held by "affiliates" of the Company, as
that term is defined in Rule 144 under the Securities Act ("Rule 144"), may
generally only be sold in compliance with the limitations of Rule 144 described
below.
SALES OF RESTRICTED SHARES
The remaining 6,304,600 shares of Common Stock (the "Restricted Shares")
held by existing stockholders were sold by the Company in reliance on exemptions
from the registration requirements of the Securities Act and are thus treated as
"restricted" securities under Rule 144. As of the Effective Date, approximately
6,087,518 of the Restricted Shares are eligible for sale in the public market in
reliance on Rule 144(k) under the Securities Act; 5,779,072 of these shares,
however, are subject to the lock-up arrangements described below (the "Lock-up
Arrangements"). Beginning 90 days after the Effective Date, approximately 87,500
additional Restricted Shares will become eligible for sale in the public market,
pursuant to Rule 144 and Rule 701 under the Securities Act. Beginning 180 days
after the Effective Date, upon the expiration of the Lock-up Arrangements,
approximately 6,087,518 shares in the aggregate will become eligible for sale in
the public market, subject to the provisions of Rule 144 and Rule 701. The
Commission has proposed an amendment to Rule 144 which would reduce the holding
period from two years to one year for shares subject to Rule 144 to become
eligible for sale in the public market. If this proposal were adopted, an
additional 89,583 shares would become eligible for sale to the public 180 days
after the Effective Date.
Any employee, officer or director of or consultant to the Company who
purchased shares pursuant to a written compensatory plan or contract is entitled
to rely on the resale provisions of Rule 701 under the Securities Act, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with Rule 144's holding period restrictions, in each case commencing 90 days
after the Effective Date.
In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned restricted securities within the meaning
of Rule 144 for at least two years would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the then outstanding shares of the Company's Common Stock (approximately 95,546
shares) or the average weekly trading volume of the Company's Common Stock on
Nasdaq during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of Common Stock in the public market may adversely affect
the market price of the Common Stock offered hereby.
OPTIONS
As of May 31, 1996, options to purchase a total of 350,878 shares of Common
Stock were outstanding, of which options to purchase 185,042 shares were then
exercisable; 12,500 shares issuable pursuant to stock options are subject to
certain lock-up arrangements.
Prior to this offering, there has not been any public market for the Common
Stock of the Company. Further sales of substantial amounts of Common Stock in
the open market may adversely affect the market
40
<PAGE> 42
price of the Common Stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.
LOCK-UP ARRANGEMENTS
All directors, officers and certain other stockholders, who hold in the
aggregate 5,779,072 shares of Common Stock and options to purchase 12,500 shares
of Common Stock, have agreed that they will not, without the prior written
consent of the Representatives, sell or otherwise dispose of any shares of
Common Stock or options to acquire shares of Common Stock during the 180-day
period following the Effective Date.
Certain stockholders have the right to cause the Company to register the
sale of their shares under the Securities Act. See "Description of Capital
Stock -- Registration Rights."
41
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated and Bear, Stearns & Co. Inc., have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Alex. Brown & Sons Incorporated...................................................
Bear, Stearns & Co. Inc...........................................................
---------
Total............................................................................. 3,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $
per share to certain other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the Representatives of
the Underwriters.
The Company and certain Selling Stockholders have granted to the
Underwriters an option, exercisable not later than 30 days after the date of
this Prospectus, to purchase up to 487,500 additional shares of Common Stock at
the public offering price less the underwriting discounts and commissions set
forth on the cover page of this Prospectus. To the extent that the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to 3,250,000,
and the Company and certain Selling Stockholders will be obligated, pursuant to
the option, to sell such shares to the Underwriters. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of Common Stock offered hereby. If purchased, the Underwriters will offer
such additional shares on the same terms as those on which the 3,250,000 shares
are being offered.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The Company, its executive officers, directors and certain stockholders
have agreed that, subject to certain exceptions, they will not, for a period of
180 days after the date of this Prospectus, sell, offer to sell, contract to
sell or otherwise dispose of any of their shares of Common Stock (except for
sales described in or contemplated by this Prospectus) or any other securities
of the Company without the prior written consent of the Representatives of the
Underwriters.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock has been determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors considered in such
42
<PAGE> 44
negotiations were prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of development
of other companies which the Company and the Representatives of the Underwriters
believed to be comparable to the Company, estimates of the business potential of
the Company, the present state of the Company's development and other factors
deemed relevant.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Vinson & Elkins L.L.P., Dallas, Texas. Certain legal matters will be
passed on for the Underwriters by Akin, Gump, Strauss, Hauer and Feld, L.L.P.,
Dallas, Texas.
EXPERTS
The audited financial statements and schedule of the Company as of December
31, 1994 and 1995 and for the years ended December 31, 1993, 1994 and 1995; the
audited combined financial statements of Specialty Med-Equip, Inc., Superior
Med-Equip, Inc. and Cross Timbers Visiting Nurses, Inc. for the year ended
December 31, 1994; the audited combined financial statements of C. Edward Elsey
d/b/a A.M. Medical and Discount Medical Equipment Company for the year ended
December 31, 1994; the audited combined financial statements of Colorado I.V.
Associates, Inc. and Specialized Nursing Services, Inc. for the year ended
December 31, 1994; the audited consolidated financial statements of RTA
HomeCare, Inc. and Subsidiary for the years ended December 31, 1993 and 1994;
and the audited financial statements of Home Hospital Equipment, Inc. for the
year ended December 31, 1994, included in this Prospectus and elsewhere in the
Registration Statement to the extent and for the years indicated in their
reports have been audited by Arthur Andersen LLP, independent public accountants
and are included herein in reliance upon the authority of said firm as experts
in giving said reports.
The audited combined financial statements of I Care of Arkansas, Inc. and
Affiliate, I Care, Inc. d/b/a I Care Health Services as of December 31, 1994 and
1995 and for the years ended December 31, 1993, 1994 and 1995 included in this
Prospectus and elsewhere in the Registration Statement to the extent and for the
years indicated in their reports have been audited by Bell & Company,
independent public accountants and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The audited financial statements of Physician Home Health Network, Inc. for
the ten months ended October 31, 1994 included in this Prospectus and elsewhere
in the Registration Statement to the extent and for the period indicated in
their report have been audited by Ift & Barber, Chartered, independent public
accountants and are included herein in reliance upon the authority of said firm
as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus, which is a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto, copies of which may be inspected without charge
at the public reference facilities maintained by the Commission at Judiciary
Plaza, Room 1024, 450 Fifth Street N.W., Washington, D.C. 20549, or obtained
from the Public Reference Section of the Commission, Washington, D.C. 20549,
upon payment of the fees prescribed by the Commission. Such documents may also
be obtained through the Web Site maintained by the Commission at
http://www.sec.gov. The summaries in this Prospectus of additional information
included in the Registration Statement or any exhibit thereto are qualified in
their entirety by reference to such information or exhibit.
43
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
Report of Independent Public Accountants............................................ F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995........................ F-4
Consolidated Statements of Income for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1993, 1994, and 1995............................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994,
and 1995......................................................................... F-7
Notes to Consolidated Financial Statements.......................................... F-8
Unaudited Condensed Consolidated Balance Sheets as of March 31, 1996................ F-18
Unaudited Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1995 and 1996.......................................................... F-19
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1995 and 1996.......................................................... F-20
Notes to Unaudited Condensed Consolidated Financial Statements...................... F-21
</TABLE>
<TABLE>
<S> <C>
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES -- ACQUISITIONS
I CARE OF ARKANSAS, INC. AND AFFILIATE, I CARE, INC. D/B/A I CARE HEALTH SERVICES
Report of Independent Public Accountants............................................ F-23
Combined Balance Sheets as of December 31, 1994 and 1995............................ F-24
Combined Statements of Income for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-25
Combined Statements of Retained Earnings for the Years Ended December 31, 1993,
1994, and 1995................................................................... F-26
Combined Statements of Cash Flows for the Years Ended December 31, 1993, 1994, and
1995............................................................................. F-27
Notes to Combined Financial Statements.............................................. F-28
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC., AND CROSS TIMBERS VISITING
NURSES, INC.
Report of Independent Public Accountants............................................ F-33
Combined Statement of Income for the Year Ended December 31, 1994................... F-34
Combined Statement of Retained Earnings for the Year Ended December 31, 1994........ F-35
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-36
Notes to Combined Financial Statements.............................................. F-37
Unaudited Condensed Combined Statement of Income for the Six Months Ended
June 30, 1995.................................................................... F-39
Unaudited Condensed Combined Statement of Cash Flows for the Six Months Ended June
30, 1995......................................................................... F-40
Note to Unaudited Condensed Combined Financial Statements........................... F-41
C. EDWARD ELSEY D/B/A A. M. MEDICAL AND DISCOUNT MEDICAL EQUIPMENT COMPANY
Report of Independent Public Accountants............................................ F-42
Combined Statement of Income for the Year Ended December 31, 1994................... F-43
Combined Statement of Owner's Equity for the Year Ended December 31, 1994........... F-44
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-45
Notes to Combined Financial Statements.............................................. F-46
Unaudited Condensed Combined Statement of Income for the Six Months Ended
June 30, 1995.................................................................... F-48
Unaudited Condensed Combined Statement of Cash Flows for the Six Months Ended June
30, 1995......................................................................... F-49
Note to Unaudited Condensed Consolidated Financial Statements....................... F-50
</TABLE>
F-1
<PAGE> 46
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
Report of Independent Public Accountants............................................ F-51
Combined Statement of Income for the Year Ended December 31, 1994................... F-52
Combined Statement of Retained Earnings for the Year Ended December 31, 1994........ F-53
Combined Statement of Cash Flows for the Year Ended December 31, 1994............... F-54
Notes to Combined Financial Statements.............................................. F-55
Unaudited Condensed Combined Statement of Income for the Six Months Ended
June 30, 1995.................................................................... F-57
Unaudited Condensed Combined Statement of Cash Flows for the Six Months Ended
June 30, 1995.................................................................... F-58
Note to Unaudited Condensed Combined Financial Statements........................... F-59
RTA HOMECARE, INC. AND SUBSIDIARY
Report of Independent Public Accountants............................................ F-60
Consolidated Statements of Income for the Years Ended December 31, 1993 and 1994.... F-61
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1993 and 1994.................................................................... F-62
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993 and
1994............................................................................. F-63
Notes to Consolidated Financial Statements.......................................... F-64
Unaudited Condensed Consolidated Statement of Income for the Three Months Ended
March 31, 1995................................................................... F-66
Unaudited Condensed Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1995................................................................... F-67
Note to Unaudited Condensed Consolidated Financial Statements....................... F-68
HOME HOSPITAL EQUIPMENT, INC.
Report of Independent Public Accountants............................................ F-69
Statement of Income and Retained Earnings for the Year Ended December 31, 1994...... F-70
Statement of Cash Flows for the Year Ended December 31, 1994........................ F-71
Notes to Financial Statements....................................................... F-72
PHYSICIANS HOME HEALTH NETWORK, INC.
Report of Independent Public Accountants............................................ F-74
Statements of Operations and Retained Deficit for the Ten Months Ended October 31,
1994............................................................................. F-75
Statement of Cash Flows for the Ten Months Ended October 31, 1994................... F-76
Notes to Financial Statements....................................................... F-77
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Condensed Consolidated Financial Statements Headnote............ P-1
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended
December 31, 1995................................................................ P-2
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Three Months
Ended March 31, 1996............................................................. P-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996....... P-4
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............ P-5
</TABLE>
F-2
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
HealthCor Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of HealthCor
Holdings, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of HealthCor Holdings,
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
March 29, 1996, except as to
paragraph 3 in Note 14, for
which the date is July 26, 1996
F-3
<PAGE> 48
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------- -----------
DECEMBER 31,
-------------------------------------------
1994 1995 1995
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................ $3,774,848.. $ 1,627,940 $ 1,927,940
Accounts receivable, net of allowance for doubtful
accounts of $1,285,000 and $2,056,000 in 1994 and 1995,
respectively........................................... 4,574,598 11,465,655 11,465,655
Supplies inventory....................................... 726,123 1,709,355 1,709,355
Prepaid expenses and other............................... 571,388 1,456,958 1,456,958
Income taxes receivable.................................. 15,106 -- --
Deferred income taxes.................................... 806,820 2,003,328 2,003,328
----------- ----------- -----------
Total current assets.............................. 10,468,883 18,263,236 18,563,236
Property and equipment, net of accumulated depreciation of
$3,742,518 and $7,946,627, respectively.................. 3,880,317 11,054,255 11,054,255
Excess of cost of acquired businesses over fair values of
net assets
acquired, net............................................ 10,107,673 23,220,167 23,220,167
Other assets............................................... 47,113 35,290 35,290
----------- ----------- -----------
Total assets...................................... $24,503,986 $52,572,948 $52,872,948
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued ESOP contribution................................ $ 1,501,291 $ 1,477,915 $ 1,477,915
Accrued payroll and related expenses..................... 4,401,400 4,836,735 4,836,735
Accounts payable and accrued expenses.................... 1,376,087 4,456,489 4,456,489
Estimated settlements with third-party payors............ 280,450 322,566 322,566
Line of credit payable................................... -- 2,475,000 2,475,000
Current portion of long-term debt........................ 1,284,503 4,256,973 4,256,973
Current portion of capital lease obligations............. 328,873 862,505 862,505
Income taxes payable..................................... -- 1,311,920 1,311,920
----------- ----------- -----------
Total current liabilities......................... 9,172,604 20,000,103 20,000,103
Deferred income taxes and other............................ 157,092 2,905,809 2,905,809
Long-term debt............................................. 2,501,411 10,668,632 10,668,632
Capital lease obligations.................................. 258,770 1,596,604 1,596,604
----------- ----------- -----------
Total liabilities................................. 12,089,877 35,171,148 35,171,148
Commitments and contingencies
Redeemable Convertible Preferred Stock, $.01 par value,
10,000,000 shares authorized
Series A Preferred Stock, 2,000,000 shares issued and
outstanding, redemption and liquidation values of
$4,079,726............................................. 20,000 20,000 --
Series B Preferred Stock, 1,071,438 shares issued and
outstanding, redemption and liquidation values of
$4,075,035............................................. 10,714 10,714 --
Additional paid-in capital on Series A and B Preferred
Stocks................................................. 5,309,100 5,309,100 --
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares
authorized; 2,935,720 and 3,062,803 shares issued and
outstanding in 1994 and 1995, respectively............. 29,357 30,628 65,521
Additional paid-in capital............................... 1,068,234 2,471,129 8,076,050
Retained earnings........................................ 5,976,704 9,560,229 9,560,229
----------- ----------- -----------
Total stockholders' equity........................ 7,074,295 12,061,986 17,701,800
----------- ----------- -----------
Total liabilities and stockholders' equity........ $24,503,986 $52,572,948 $52,872,948
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 49
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues........................................ $60,096,700 $57,151,154 $81,557,284
Operating expenses:
Compensation and related benefits................. 41,530,959 38,893,904 49,724,055
General and administrative........................ 12,977,724 12,072,232 21,272,118
Depreciation and amortization..................... 1,181,169 1,439,751 2,299,357
Provision for doubtful accounts................... 1,317,485 1,115,705 1,488,885
----------- ----------- -----------
57,007,337 53,521,592 74,784,415
Income from operations.............................. 3,089,363 3,629,562 6,772,869
Other income (expense):
Interest income................................... 7,142 61,345 162,283
Interest expense.................................. (434,149) (304,953) (1,149,260)
----------- ----------- -----------
(427,007) (243,608) (986,977)
Income before income taxes.......................... 2,662,356 3,385,954 5,785,892
Provision for income taxes.......................... 1,129,825 1,359,398 2,202,367
----------- ----------- -----------
Net income.......................................... $ 1,532,531 $ 2,026,556 $ 3,583,525
=========== =========== ===========
Net income per common share......................... $ .24 $ .31 $ .55
=========== =========== ===========
Weighted average common shares outstanding.......... 6,402,848 6,489,563 6,545,615
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 50
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992............. 2,600,000 $26,000 $ 393,109 $2,417,617 $ 2,836,726
Exercise of options.................. 25,000 250 19,750 -- 20,000
Issuance of common stock to ESOP..... 87,500 875 655,375 -- 656,250
Net income........................... -- -- -- 1,532,531 1,532,531
--------- ------- ---------- ---------- -----------
Balance, December 31, 1993............. 2,712,500 27,125 1,068,234 3,950,148 5,045,507
Conversion of Series B preferred
stock to common stock............. 223,220 2,232 -- 2,232
Net income........................... -- -- -- 2,026,556 2,026,556
--------- ------- ---------- ---------- -----------
Balance, December 31, 1994............. 2,935,720 29,357 1,068,234 5,976,704 7,074,295
Issuance of common stock to ESOP..... 125,000 1,250 1,398,750 -- 1,400,000
Purchases of common stock............ 2,083 21 4,145 -- 4,166
Net income........................... -- -- -- 3,583,525 3,583,525
--------- ------- ---------- ---------- -----------
Balance, December 31, 1995............. 3,062,803 $30,628 $2,471,129 $9,560,229 $12,061,986
========= ======= ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 51
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................... $ 1,532,531 $ 2,026,556 $ 3,583,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,181,169 1,439,751 2,299,357
Loss on disposition of leased assets.............. 51,207 14,299 61,784
Changes in operating assets and liabilities, net
of acquired businesses:
Accounts receivable, net........................ (724,966) 3,306,421 (4,790,507)
Supplies inventory.............................. 31,618 80,685 109,842
Prepaid expenses and other...................... 83,699 (228,140) (688,745)
Deferred income taxes........................... (378,521) 490,437 (1,184,566)
Accrued ESOP contribution....................... (462,352) 1,497,242 (23,376)
Third-party payor settlement.................... 875,799 (1,745,349) 42,116
Accounts payable and accrued expenses........... 503,103 (18,696) 2,982,865
Income taxes payable/receivable................. (941,727) (422,957) 919,447
Deferred income taxes and other................. 132,808 (180,443) 2,455,717
----------- ----------- ------------
Net cash provided by operating activities.... 1,884,368 6,259,806 5,767,459
----------- ----------- ------------
Cash flows from investing activities:
Payments for business acquisitions, net of cash
acquired.......................................... (297,346) (2,745,689) (17,458,780)
Additions to property and equipment.................. (1,957,194) (866,001) (7,179,800)
----------- ----------- ------------
Net cash used in investing activities........ (2,254,540) (3,611,690) (24,638,580)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............. 712,135 3,287,698 47,660,981
Payments on long-term debt........................... (1,129,044) (1,603,333) (32,340,934)
Issuance of common stock............................. 676,250 -- 1,404,166
Proceeds from loans from related parties............. 72,148 -- --
Payments on loans from related parties............... (945,597) (1,063,854) --
----------- ----------- ------------
Net cash provided by (used in) financing
activities................................. (614,108) 620,511 16,724,213
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents... (984,280) 3,268,627 (2,146,908)
Cash and cash equivalents, beginning of period......... 1,490,501 506,221 3,774,848
----------- ----------- ------------
Cash and cash equivalents, end of period............... $ 506,221 $ 3,774,848 $ 1,627,940
=========== =========== ============
Supplemental disclosure of cash flow information:
Debt issued in acquisitions.......................... $ -- $ 857,241 $ 1,567,321
Liabilities and debt assumed in acquisitions......... 81,453 217,441 566,340
Issuance of capital lease obligation................. 387,000 172,000 2,530,000
Interest paid........................................ 433,000 315,000 828,000
Income taxes paid.................................... 2,317,000 1,481,000 1,826,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 52
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994, AND 1995
1. GENERAL:
Organization
HealthCor Holdings, Inc., a Delaware corporation, and subsidiaries (the
"Company") commenced operations in October 1989, and provide home healthcare
services to patients including nursing, respiratory therapy, infusion therapy,
and medical equipment. The Company has operations in Arizona, Colorado, Kansas,
Missouri, Oklahoma, Texas, New Mexico, and Arkansas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation and Presentation
The consolidated financial statements of the Company include the accounts
of HealthCor Holdings, Inc. and its wholly owned subsidiaries, HealthCor, Inc.
(HealthCor), HealthCor Oxygen & Medical Equipment, Inc. (HOME), HealthCor
Pharmacy, Inc., Physicians Home Health Network, Inc., and HealthCor
Rehabilitation Services, Inc. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Supplies Inventory
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of medical supplies sold directly to patients for
use in their homes.
Property and Equipment
Property and equipment are stated at cost or fair market value at the
acquisition date (see Note 4). The cost of equipment held under capital leases
is equal to the lower of the net present value of the minimum lease commitments
or the fair value of the leased property at the inception of the lease (see Note
7). Property and equipment is depreciated using the straight-line method over
the following useful lives:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Furniture and equipment............................................ 10 - 15
Transportation equipment........................................... 4
Computer equipment................................................. 5
Leasehold improvements............................................. 3
</TABLE>
F-8
<PAGE> 53
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excess of Costs of Acquired Businesses Over the Fair Values of Assets Acquired
The value of excess cost of acquired businesses over the fair values of
assets acquired (goodwill) is recorded at the dates of acquisition. Goodwill is
being amortized on a straight-line basis over a 40-year period in accordance
with the provisions of APB No. 17. Accumulated amortization at December 31, 1994
and 1995, was approximately $717,000 and $1,186,000, respectively.
The Company reviews the carrying value of goodwill at least annually on a
market-by-market basis to determine if facts and circumstances exist which would
suggest that goodwill may be impaired or that the amortization period needs to
be modified. Among the factors the Company considers in making the evaluation
are changes in the Company's market position, reputation, profitability and
geographic penetration. If indicators are present which may indicate impairment
is probable, the Company will prepare a projection of the undiscounted cash
flows of the specific market and determine if goodwill is recoverable based on
these undiscounted cash flows. If impairment is indicated, then an adjustment
will be made to reduce the carrying amount of the goodwill to their fair value.
The Company does not expect the adoption of Statement of Financial Accounting
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" to have a material impact on its
financial condition or results of operations.
Income Taxes
Deferred income taxes (receivable) provide for temporary differences
between the financial statement and income tax basis of assets and liabilities
in accordance with SFAS No. 109 "Accounting for Income Taxes."
Net Income Per Common Share
Net income per common share (both primary and fully diluted) has been
computed by dividing net income by the weighted average number of equivalent
common shares outstanding each year. The Company has treated the redeemable
convertible preferred stocks as common stock equivalents for purposes of
computing net income per common share. Accordingly, historical and pro forma net
income per common share amounts are equal. (See Note 13)
Pursuant to the requirements of the Securities and Exchange Commissions for
the purposes of computing net income per common share for the three years ended
December 31, 1995, the Company has treated the options granted and common stock
issued during the twelve months immediately preceding the filing of the initial
public offering as if they had been outstanding for all periods presented, using
the treasury stock method.
The Company plans to adopt Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective
January 1, 1996. SFAS No. 123 allows companies adopting the pronouncement to
either change the actual accounting methods for stock based compensation in the
financial statements or to disclose certain pro forma results of operations as
if the pronouncement had been adopted in the financial statements. The Company
plans to disclose pro forma information in the footnotes to the financial
statements. As a result, the adoption of SFAS 123 will have no effect on the
consolidated financial statements.
Net Revenues and Estimated Settlements with Third-Party Payors
Revenues are recognized on the date services and related products are
provided to patients and are recorded at estimated net realizable amounts from
patients, third-party payors, and others for services rendered. For the years
ended December 31, 1993, 1994, and 1995, approximately 70% of net patient
service revenues were derived under federal third-party reimbursement programs
which are based on cost reimburse-
F-9
<PAGE> 54
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ment and case payment principles. These revenues are subject to audit and
retroactive adjustment by the respective third-party fiscal intermediary. In the
opinion of management, retroactive adjustments, if any, will not be material to
the financial position or results of operations of the Company. Settlements
based on third-party reimbursement program audits are recorded in the year they
become known.
Certain capital expenditures relating to the implementation of a new
management information system have been appropriately expensed for third-party
reimbursement purposes creating a deferred credit of approximately $2,399,000 as
of December 31, 1995. This deferred credit will be amortized over the useful
life of the management information system when operational using the straight
line method.
3. ACCRUED PAYROLL AND RELATED EXPENSES:
Accrued payroll and related expenses consisted of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Salaries.................................................... $2,134,199 $2,391,660
Workers' compensation....................................... 795,288 853,018
Other....................................................... 1,471,913 1,592,057
---------- ----------
$4,401,400 $4,836,735
========== ==========
</TABLE>
4. ACQUISITIONS:
1995 Acquisitions
On January 1, 1995, the Company acquired, in separate transactions, for
$3,675,000 in cash, $254,000 in deferred payments, and $400,000 in debt, the net
assets of Home Hospital Equipment, Inc. and Medi-Networks, Inc. Both are
respiratory therapy companies located in Texas, specializing in providing home
medical and respiratory equipment and supplies to patients.
On June 30, 1995, the Company acquired, in separate transactions, for
$1,870,000 in cash and $546,000 in debt, the net assets of McDuffie's Rentals,
Inc. and Southwest Professional Registry, Inc. Both respiratory therapy
companies are located in Texas, specializing in providing home respiratory
equipment and supplies.
On July 31, 1995, the Company acquired for $6,400,000 in cash and
$1,000,000 in debt, the net assets of RTA Homecare and Subsidiaries (RTA). RTA,
located in Arizona, is a respiratory therapy company specializing in providing
home medical and respiratory equipment, supplies, and pharmaceuticals to
patients.
On August 31, 1995, the Company acquired for $700,000 in cash and $100,000
in debt, the net assets of Colorado I.V. Associates, Inc./Specialized Nursing
Services, Inc. ("Colorado IV"). Colorado IV, located in Colorado, is a
pharmaceutical company specializing in providing home infusion therapy.
On September 30, 1995, in separate transactions, the Company acquired for
$597,000 in cash, the net assets of Newborn Nursing Services, Inc. ("Newborn
Nursing") and Charlie's Discount Drug, Inc. ("Charlie's"). Newborn Nursing,
located in Oklahoma, is a nursing company specializing in providing pediatric
nursing care services and providing leasing and selling of medical equipment.
Charlie's, located in Oklahoma, is a respiratory company specializing in
providing home respiratory equipment and supplies.
On October 31, 1995, in separate transactions, the Company acquired for
$2,952,000 in cash and $450,000 in debt, the net assets of A.M. Medical/Discount
Medical Equipment Company ("A.M. Medical"), Cross Timbers Visiting Nurses, Inc.
("Cross Timbers"), Specialty Med-Equip, Inc. ("Specialty Med-Equip"), and
Superior Med-Equip, Inc. ("Superior Med-Equip"). A.M. Medical, Cross Timbers,
Specialty Med-Equip, and Superior Med-Equip are located in Texas. Cross Timbers
specializes in providing home nursing services. A.M. Medical, Specialty
Med-Equip, and Superior Med-Equip specialize in providing home respiratory
equipment and supplies.
F-10
<PAGE> 55
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1994 Acquisitions
On April 12, 1994, the Company acquired, for $887,000 in cash and $200,000
in debt, all of the outstanding capital stock of Colfax Medical Supply and
Service Company, Inc. ("Colfax"). Colfax, located in New Mexico, is a
respiratory therapy company specializing in providing home medical and
respiratory equipment, supplies, and pharmaceuticals to patients.
On July 22, 1994, the Company acquired, for $500,000 in cash and $157,000
in debt, all of the outstanding capital stock of Ponca Medical Supply, Inc., a
respiratory company located in Oklahoma.
On November 1, 1994, the Company acquired for $1,000,000 in cash and
$500,000 in debt, all of the outstanding capital stock of Physician's Home
Health Network, Inc. (PHHN). At acquisition date, PHHN's liabilities exceeded
its assets by approximately $451,000. PHHN is a nursing company located in
Missouri, which specializes in providing home nursing care to patients.
The 1995 and 1994 acquisitions have been accounted for using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets acquired (including all identifiable intangible assets, if material) and
liabilities assumed based upon their estimated fair values at the dates of
acquisition in accordance with APB No. 16. The results of operations of the
acquired practices are included in the consolidated financial statements from
the respective dates of acquisition. None of the acquisition agreements contain
earn-out provisions with the sellers.
Pro Forma Information
The following unaudited pro forma information reflects the effect on the
consolidated statements of income assuming that significant acquisitions were
consummated as of January 1, 1994 and 1995. This information does not purport to
be indicative of the results that would have actually been obtained if the
acquisitions had occurred on such dates. Therefore, pro forma information cannot
be considered indicative of future operations. The unaudited proforma
information for the years ended December 31, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues................................................... $84,988 $94,258
Net income..................................................... 2,539 4,239
Net income per common share.................................... .39 .65
</TABLE>
5. CREDIT FACILITIES:
The Company has a $5,000,000 revolving line of credit from a bank which
contains certain financial covenants with respect to maintenance of a maximum
ratio of funded debt to adjusted earnings, a minimum current ratio, and a
minimum fixed charge coverage ratio. The line of credit expires on June 30,
1997, and provides for the quarterly payment to the bank of a .25% commitment
fee on the unused portion of the line. Interest is payable at the bank's prime
rate. In addition to the borrowings of $2,475,000 at December 31, 1995, the
Company has committed $200,000 of the line to a letter of credit issued in
connection with the Company's workers' compensation coverage. In 1996, an
additional $165,000 of the line will be committed to obtain a separate letter of
credit in connection with other workers' compensation coverage.
The Company has a $20,000,000 advance-type term facility from the same bank
to be used in connection with acquisitions, which contains the same financial
covenants as above. At December 31, 1995, gross advances drawn for acquisitions
under this facility totaled $14,230,000. The outstanding balance of the facility
at December 31, 1995 was approximately $12,973,000, with varying repayment terms
as discussed in Note 6.
F-11
<PAGE> 56
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The facility provides for a quarterly payment of a .25% commitment fee on the
unused amount of the facility. Interest is payable at either the bank's prime
rate or at the Eurodollar rate plus a specified margin. At December 31, 1995,
the applicable Eurodollar rate was 5.9375%, and the margin was 1.75%. Borrowings
on both the revolving line and acquisition facility are collateralized by
substantially all operating assets of the Company.
The Company is in the process of refinancing all bank debt and is seeking
to increase its working capital line of credit from $5,000,000 to $10,000,000,
to refinance its current bank debt, and to secure an additional acquisition
facility of approximately $5,000,000. The Company was not in compliance with the
financial covenants regarding the required minimum current ratio and minimum
fixed charge coverage ratio at December 31, 1995. These covenants were waived by
the lender from November 1995 through February 1996. Amendments were made to the
credit agreement effective March 1, 1996 which placed the Company in compliance
with the financial covenants.
6. LONG-TERM DEBT:
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Notes payable to individuals in connection with
acquisitions; principal and interest payable monthly at
rates ranging from 6% to 9.5%, matures through September
1998, unsecured......................................... $ 1,716,750 $ 1,661,066
Notes payable to banks; principal and interest payable
monthly at rates ranging from prime plus 1 1/2% to prime
plus 2 1/4%; matures July 1995.......................... 130,343 --
Advance-type facilities with a bank; interest payable
monthly at rates ranging from prime to prime plus 1/4%
or Eurodollar plus 1.25% to Eurodollar plus 2.75% based
at the Company's option, matures through March 1998..... 1,908,420 12,973,144
Other..................................................... 30,401 291,395
----------- -----------
3,785,914.. 14,925,605
less: current portion..................................... (1,284,503) (4,256,973)
----------- -----------
$2,501,411.. $10,668,632
=========== ===========
</TABLE>
Aggregate maturities of long-term obligations subsequent to December 31,
1995, are as follows:
<TABLE>
<S> <C>
1996............................................................ $ 4,256,973
1997............................................................ 5,364,696
1998............................................................ 1,916,303
1999............................................................ 3,387,633
2000............................................................ --
-----------
14,925,605
Less -- Current portion......................................... (4,256,973)
-----------
Total................................................. $10,668,632
===========
</TABLE>
F-12
<PAGE> 57
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY AND EQUIPMENT:
At December 31, 1994 and 1995, property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Furniture and equipment................................... $ 1,721,068 $ 2,691,563
Transportation equipment.................................. 168,269 689,953
Leasehold improvements.................................... 190,490 301,295
Medical equipment......................................... 4,034,295 8,236,435
Computer equipment........................................ 1,508,713 4,274,718
Software.................................................. -- 2,806,918
----------- -----------
7,622,835 19,000,882
Less -- Accumulated depreciation.......................... (3,742,518) (7,946,627)
----------- -----------
Property and equipment, net............................... $ 3,880,317 $11,054,255
=========== ===========
</TABLE>
8. LEASE COMMITMENTS:
The Company leases office space, furniture, and equipment under
noncancelable operating lease agreements which expire on various dates to 2000
and contain renewal options for up to 5 years.
The Company leases various office equipment under capital lease
arrangements. The capitalized value of leases amounted to approximately
$1,270,000 and $4,217,000 at December 31, 1994 and 1995, respectively, and net
book value amounted to approximately $495,000 and $2,584,000 at December 31,
1994 and 1995, respectively. Future minimum lease payments at December 31, 1995,
under the capital leases and noncancelable operating leases with initial or
remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
1996...................................................... $1,489,447 $1,114,050
1997...................................................... 752,925 963,584
1998...................................................... 508,757 817,919
1999...................................................... 439,750 26,992
2000...................................................... 319,430 --
---------- ----------
Total minimum payments...................................... $3,510,309 2,922,545
==========
Amount representing interest................................ (463,436)
----------
Present value of minimum payments........................... 2,459,109
Current portion............................................. (862,505)
----------
Total....................................................... $1,596,604
==========
</TABLE>
Rent expense under all operating leases was approximately $1,151,000,
$1,428,000, and $2,270,000 for the years ended December 31, 1993, 1994, and
1995, respectively.
F-13
<PAGE> 58
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The provision for income taxes includes the following components:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal............................................. $1,171,397 $1,017,755 $ 2,896,714
State............................................... 156,644 138,553 329,962
---------- ---------- ----------
1,328,041 1,156,308 3,226,676
---------- ---------- ----------
Deferred:
Federal............................................. (164,916) 193,317 (944,878)
State............................................... (33,300) 9,773 (79,431)
---------- ---------- ----------
(198,216) 203,090 (1,024,309)
---------- ---------- ----------
Total....................................... $1,129,825 $1,359,398 $ 2,202,367
========== ========== ==========
</TABLE>
The reconciliation of the provision for income taxes to the federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income taxes at statutory rate................. $ 905,201 $1,151,224 $1,967,204
Amortization................................... 79,328 77,351 108,954
State taxes, net of federal tax effect......... 81,406 97,895 165,350
Tax credits utilized........................... -- -- (92,500)
Other.......................................... 63,890 32,928 53,359
---------- ---------- ----------
$1,129,825 $1,359,398 $2,202,367
========== ========== ==========
</TABLE>
Deferred tax assets and deferred tax liabilities consist of the following
items:
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Bad debts.................................... $ 343,612 $ 215,378 $ 598,991
Self-insurance and workers' compensation..... 114,822 -- 542,254
Amounts due to third-party payor............. 646,000 361,000 554,361
Accrued compensation......................... 123,066 165,734 193,841
State current liability...................... -- 52,381 106,702
Net operating loss carryforwards............. 168,023 61,508 --
Other........................................ 1,539 5,838 7,179
---------- --------- ----------
Total................................ 1,397,062 861,839 2,003,328
---------- --------- ----------
Deferred tax liabilities:
Depreciation and amortization................ (291,879) (92,722) (469,169)
Other........................................ (38,594) (55,019) --
---------- --------- ----------
Total................................ (330,473) (147,741) (469,169)
---------- --------- ----------
Other tax liability............................ (106,867) (64,370) (37,147)
---------- --------- ----------
Total net assets............................... $ 959,722 $ 649,728 $1,497,012
========== ========= ==========
</TABLE>
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In connection with an acquisition, the Company sold 2,000,000 shares of its
Series A preferred stock ($.01 par value) for $2,000,000, less issuance costs of
$85,532 to an unrelated entity. Each share has a liquidation preference of $1.00
per share, plus accrued dividends. Dividends per share are cumulative at $.20
per annum ($400,000) and are payable only upon liquidation, dissolution,
redemption, or upon certain other
F-14
<PAGE> 59
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
events. At the holder's option, the shares are convertible into 2,000,000 shares
of the Company's common stock.
In connection with an acquisition, the Company issued 1,071,438 shares of
its Series B preferred stock ($.01 par value) for $3,000,025 to the Series A
preferred stock investor and an unrelated investor and 178,575 shares of its
Series B preferred stock for $500,010 to the Company's Employee Stock Ownership
Trust (ESOT). The Company paid $72,636 in costs associated with these two
issuances. The Series B preferred shares have a ratable liquidation preference
with the Series A preferred stock. The liquidation preference is $2.80 per
share, plus accrued dividends. The Series B preferred shares carry a 10% annual
dividend rate which is cumulative in nature and payable as declared by the
Company's Board of Directors or upon liquidation, dissolution, redemption, or
upon certain other events. At the holder's option, the Series B preferred shares
are convertible into 1,562,517 shares of the Company's common stock. The
conversion rate is subject to adjustment up to 312,503 common shares based on
the Company's post issuance earnings level. On November 28, 1994, the 178,575
Series B preferred shares held by the ESOT were converted to 223,220 common
shares. The Series B preferred shares carry a ratable dividend preference with
the Series A preferred stock over all other existing equity issues.
The shareholders of the Series A and Series B preferred stock are eligible
to vote on all matters put to the common shareholders. The preferred shares
carry voting power equivalent to the number of shares into which the preferred
shares are convertible. The Series A and Series B preferred shares are also
subject to mandatory redemption at such time as the Company's Chairman and Chief
Executive Officer ceases to devote substantially all of his working time on
behalf of the Company, the sale of the Company, or October 15, 1997, whichever
date occurs first. The Company has no funding requirements prior to redemption.
The Series A and Series B preferred shareholders are obligated to convert
all preferred shares in the event the Company's common shares become registered
and traded on a national exchange, subject to certain requirements. Conversion
would eliminate the Company's obligation to pay cumulative unpaid dividends on
the Series A and Series B preferred stock of $2,079,726 and $1,075,010,
respectively, as of December 31, 1995.
11. EMPLOYEE BENEFIT PLANS:
The Company has an incentive and qualified stock option plan and has
reserved 387,500 shares of the Company's common stock for issuance. Options to
purchase shares of the Company's common stock have been granted to nonofficer
and noninvestor directors and key employees. Options are granted at a price
determined by the Board of Directors, which approximates the fair value of the
shares at the dates of grant. Accordingly, no compensation expense is recorded
by the Company. Options granted become exercisable at the rate of 1/3 per year,
and expire 10 years after the date of grant. Information on stock options is as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding at beginning of year............ 196,250 148,750 301,375
Granted..................................... 31,250 163,875 118,253
Exercised................................... (25,000) -- (2,083)
Canceled.................................... (53,750) (11,250) (57,918)
------------ ------------ ------------
Outstanding at end of year.................. 148,750 301,375 359,627
============ ============ ============
Exercisable at end of year.................. 57,500 93,338 157,940
============ ============ ============
Price range................................. $.80 - $5.44 $.80 - $6.00 $.80 - $7.04
============ ============ ============
</TABLE>
On April 1, 1990, the Company established an employee stock ownership plan
(ESOP), which will award shares of the Company's common stock on a
noncontributory basis to eligible employees of the Company.
F-15
<PAGE> 60
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contributions of common stock and cash by the Company, when declared at the
discretion of the Board, are allocated to the accounts of participation based on
the ratio each participant's compensation for the year bears to all
participants' compensation for that year. The Company contributed 87,500 and
125,000 common shares in 1993 and 1995. Participants are not vested in any
amounts allocated to them until they have completed at least 1,000 hours of
service per year for one year. After five such years, a participant is 100%
vested in such amounts. Generally, a participant also will be fully vested upon
attaining age 65 or in the event of total and permanent disability, death or
termination of the ESOP. Compensation expense is recognized on a pro rata basis
throughout the year at the discretion of the Board. ESOP shares which are
committed to be released are treated as outstanding for earnings per share
computations. Compensation expense for the ESOP was approximately $1,500,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Effective April 1, 1991, the Company formed a deferred compensation plan
structured under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all employees meeting certain minimum service requirements. Under
the plan, contributions are made by the employees and matched by the Company
subject to certain limitations. The Company's contribution to this plan was
approximately $70,000, $101,000, and $105,000 for the years ended December 31,
1993, 1994, and 1995, respectively.
12. COMMITMENTS AND CONTINGENCIES:
The Company, in the normal course of business, is party to various matters
of litigation. Management is of the opinion that the eventual outcome of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
The Company self-insures its employees and their dependents for injury and
hospitalization. The Company self-insures claims up to $75,000 per person, with
an insurance company covering claims in excess of this amount up to a maximum of
$1,000,000 per person. A liability is accrued for claims incurred but not yet
reported (IBNR) based on historical claims paid information as provided by the
respective insurance company. The IBNR liability at December 31, 1994 and 1995
was approximately $337,000 and $522,000, respectively. The Company has paid
claims of approximately $1,301,000, $1,375,000, and $1,700,000 for the years
ended December 31, 1993, 1994, and 1995, respectively.
In May 1993, the Company learned that a complaint against the Company was
filed with the Federal Government and that such complaint was being reviewed.
Shortly thereafter at a meeting requested by the Company, the FBI agent assigned
to the matter would not disclose the nature of such complaint. The Company
subsequently learned that at least one of its former employees had been
interviewed by the government in connection with the complaint. On April 17,
1995, the U.S. Attorney for the Northern district of Texas served the Company
with grand jury subpoenas duces tecum ("Subpoenas"). The Subpoenas sought
production of personnel and payroll records for the period January 1, 1991, to
April 17, 1995 concerning 155 of the Company's current and former employees and
certain other payroll tax information, as well as invoices from the Company's
independent auditing firm. The Company tendered documents responsive to the
Subpoenas on May 31, 1995. Since the production of such documents, no request
for additional information has been made by the U.S. Attorney and the FBI agent
in charge of the matter called counsel for the Company and informed him that the
subpoenaed records would be returned to the Company. No further action has been
taken by the government in connection with this matter, however, there can be no
assurance that the U.S. Attorney or any other government agency will not request
further information or pursue a civil or criminal investigation or proceeding
against the Company or its management. Such investigation or proceeding, if
commenced, could result in one or more of the following: no action, fines, civil
monetary penalties, criminal indictments, recovery of overpayments, criminal
restitution, settlements, civil judgments and exclusion of the Company or
individuals from the Medicare program.
F-16
<PAGE> 61
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
On January 1, 1995, the Company adopted the Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments." Cash and cash equivalents, accounts receivable, and accounts
payable and accrued liabilities are reflected in the consolidated financial
statements at fair value because of the short-term maturity of those
instruments. In addition, the fair value of the Company's long-term debt and
capital lease obligations were determined to approximate its carrying value
since (i) a substantial amount of the December 31, 1995, long-term debt and
capital lease obligations were issued at fair market value during 1995, and (ii)
certain long-term debt amounts are interest rate variable in nature.
14. SUBSEQUENT EVENTS:
Subsequent to year-end, the Company acquired, for $800,000 in cash and
$200,000 in debt, the net assets of All Medical, Inc., a company located in
Wichita Falls, Texas, and engaged in selling and leasing medical equipment and
supplies to the home healthcare industry. The acquisition was funded through an
advance on the acquisition term facility and was accounted for under the
purchase method.
Additionally, subsequent to year-end, the Company signed a letter of intent
to purchase an infusion therapy services and respiratory therapy equipment
company (I Care for Arkansas, Inc. and Affiliate and I Care, Inc.) for
$12,750,000. The Company anticipates funds for this acquisition will be obtained
through additional bank financing. This acquisition, if completed, will be
accounted for as a purchase.
The Company is currently in the process of an initial public offering (the
"Offering") of its common stock, $.01 par value. The Company plans to use the
net proceeds from the Offering (i) to repay outstanding indebtedness under its
bank credit facilities, (ii) to fund potential acquisitions, and (iii) for
general corporate purposes. On July 26, 1996, the Company declared a 5 for 2
stock split in the form of a stock dividend of its common stock. The
accompanying consolidated financial statements give retroactive effect to the
stock split. In addition to the stock split, the Company increased the number of
authorized preferred shares to 10,000,000 and the number of authorized common
shares to 40,000,000. In connection with the Offering, the Company's redeemable
convertible preferred stocks will be converted into 3,339,297 shares of common
stock. In addition, the 150,000 warrants will be exercised and converted into
common stock. The pro forma information below gives effect to such conversion at
December 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 (UNAUDITED)
-------------------------------------------------
AS STATED PRO FORMA
----------------------- -----------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A and B preferred stocks....... 3,071,438 $ 30,714 -- $ --
Additional paid-in capital............ -- 5,309,100 -- --
Stockholders' equity:
Common stock.......................... 3,062,803 30,628 6,552,100 65,521
Additional paid-in capital............ -- 2,471,129 -- 8,076,050
Retained earnings..................... -- 9,560,229 -- 9,560,229
----------- -----------
Total stockholders' equity.... $12,061,986 $17,701,800
=========== ===========
</TABLE>
The unaudited pro forma consolidated balance sheet at December 31, 1995
presented with the audited consolidated balance sheets at December 31, 1994 and
1995 gives effect exclusively to the previously described transactions.
F-17
<PAGE> 62
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------- -----------
MARCH 31,
---------------------------
1996 1996
----------- -----------
<S> <C> <C>
Current assets:
Accounts receivable, net of allowance for doubtful accounts of
$4,901,671................................................... $15,328,226 $15,328,226
Supplies inventory.............................................. 1,626,657 1,626,657
Prepaid expenses and other...................................... 1,247,962 1,247,962
Deferred income taxes........................................... 2,420,246 2,420,246
----------- -----------
Total current assets.................................... 20,623,091 20,623,091
Property and equipment, net....................................... 13,377,565 13,377,565
Excess of cost of acquired businesses over fair values of net
assets acquired, net............................................ 23,192,834 23,192,834
----------- -----------
Total assets............................................ $57,193,490 $57,193,490
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash deficit.................................................... $ 3,047,581 $ 2,747,581
Accounts payable and accrued expenses........................... 5,575,212 5,575,212
Accrued payroll and related expenses............................ 4,782,987 4,782,987
Estimated settlements with third-party payors................... 322,566 322,566
Line of credit payable.......................................... 2,900,000 2,900,000
Current portion of long-term debt and capital lease
obligations.................................................. 5,571,391 5,571,391
Income taxes payable............................................ 1,172,929 1,172,929
----------- -----------
Total current liabilities............................... 23,372,666 23,072,666
Deferred income taxes and other................................... 3,841,126 3,841,126
Long-term debt and capital lease obligations...................... 11,606,610 11,606,610
----------- -----------
Total liabilities....................................... 38,820,402 38,520,402
Commitments and contingencies
Redeemable convertible preferred stock............................ 5,339,814 --
Stockholders' equity:
Common stock, $.01 par value, 40,000,000 shares authorized;
3,062,803 shares issued and outstanding...................... 30,628 65,521
Additional paid-in capital...................................... 2,471,129 8,076,050
Retained earnings............................................... 10,531,517 10,531,517
----------- -----------
Total stockholders' equity.............................. 13,033,274 18,673,088
----------- -----------
Total liabilities and stockholders' equity.............. $57,193,490 $57,193,490
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated balance sheets.
F-18
<PAGE> 63
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Net revenues...................................................... $17,552,547 $24,254,490
Operating expenses:
Compensation and related benefits............................... 11,368,292 13,371,684
General and administrative...................................... 4,109,331 7,349,313
Depreciation and amortization................................... 473,341 893,716
Provision for doubtful accounts................................. 342,221 506,129
----------- -----------
Total operating expenses................................ 16,293,185 22,120,842
----------- -----------
Income from operations............................................ 1,259,362 2,133,648
Interest, net..................................................... (118,966) (485,900)
----------- -----------
Income before income taxes........................................ 1,140,396 1,647,748
Provision for income taxes........................................ 437,713 676,462
----------- -----------
Net income........................................................ $ 702,683 $ 971,286
=========== ===========
Net income per common share....................................... $ .11 $ .15
=========== ===========
Weighted average common shares outstanding........................ 6,489,220 6,543,430
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-19
<PAGE> 64
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net cash used in operating activities............................. $ (296,157) $(1,797,416)
----------- -----------
Cash flows from investing activities:
Payments for business acquisitions, net of cash acquired.......... (2,890,701) (55,883)
Additions to property and equipment............................... (416,332) (3,040,508)
----------- -----------
Net cash used in investing activities..................... (3,307,033) (3,096,391)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt and capital leases....... 5,463,697 1,062,190
Payments on long-term debt and capital leases..................... (909,024) (843,904)
----------- -----------
Net cash provided by financing activities................. 4,554,673 218,286
----------- -----------
Net increase (decrease) in cash and cash equivalents................ 951,483 (4,675,521)
Cash and cash equivalents, beginning of period...................... 3,774,848 1,627,940
Amount reflected as a cash deficit in accounts payable and accrued
expenses.......................................................... -- 3,047,581
----------- -----------
Cash and cash equivalents, end of period............................ $ 4,726,331 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-20
<PAGE> 65
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the three-
month period ended March 31, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996.
2. ACQUISITIONS:
Effective April 1, 1996, the Company acquired, for $800,000 in cash and
$200,000 in debt, the net assets of All Medical, Inc., a company located in
Wichita Falls, Texas and engaged in selling and leasing medical equipment and
supplies to the home healthcare industry.
Additionally, during 1996, the Company signed a letter of intent to
purchase an infusion therapy services and respiratory therapy equipment company
for $12,750,000. The Company anticipates funds for this acquisition will be
obtained through additional bank financing. The Company completed the
acquisition in April 1996.
Both acquisitions will be accounted for using the purchase method of
accounting. Accordingly, the purchase price will be allocated to the assets
acquired (including all identifiable intangible assets, if material) and
liabilities assumed based upon their estimated fair values at the dates of
acquisition in accordance with APB 16. The excess of the total acquisition costs
over the fair value of the net assets acquired was approximately $9.7 million.
The results of operations of the acquired businesses have been included in the
condensed consolidated statement of income since the dates of acquisition.
3. CREDIT FACILITY:
On May 16, 1996, the Company obtained a $35.0 million credit facility from
a bank, consisting of a $10.0 million revolving line of credit and a $25.0
million term facility to be used to finance acquisitions. The credit facility
matures in June, 2001. The Company's assets have been pledged as security for
borrowings under the credit facility. As of May 31, 1996, the Company had used
all of the term portion of the credit facility, but there was $5.6 million
outstanding under the line of credit. At the Company's option, borrowings under
the credit facility bear interest at either the bank's Eurodollar rate plus
rates ranging from 1.25% to 2.75%, or the bank's prime rate plus rates ranging
from 0% to 0.75%, determined by the ratio of funded debt to EBITDA, (defined as
earnings before interest, taxes, depreciation and amortization.)
4. INITIAL PUBLIC OFFERING:
The Company is currently in the process of an initial public offering (the
"Offering") of its common stock, $.01 par value. The Company plans to use the
net proceeds from the Offering (i) to repay outstanding indebtedness under its
bank credit facilities, (ii) to fund potential acquisitions, and (iii) for
general corporate purposes. On June , 1996, the Company declared a 5 for 2
stock split in the form of a stock dividend of its common stock. In addition,
the Company increased the number of authorized preferred shares to 10,000,000
and the number of authorized common shares to 40,000,000.
F-21
<PAGE> 66
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Offering, the Company's redeemable convertible
preferred stocks will be converted into 3,339,297 shares of common stock. In
addition, 150,000 warrants will be exercised and converted into common stock.
The pro forma information below gives effect to such conversion at March 31,
1996.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------
AS STATED PRO FORMA
----------------------- -----------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Redeemable convertible preferred stock:
Series A and B preferred stocks....... 3,071,438 $ 30,714 -- $ --
Additional paid-in capital............ -- 5,309,100 -- --
Stockholders' equity:
Common stock.......................... 3,062,803 30,628 6,552,100 65,521
Additional paid-in capital............ -- 2,471,129 -- 8,076,050
Retained earnings..................... -- 10,531,517 -- 10,531,517
----------- -----------
Total stockholders' equity.... $13,033,274 $18,673,088
=========== ===========
</TABLE>
The unaudited pro forma condensed consolidated balance sheet at March 31,
1996 presented with the audited condensed consolidated balance sheet at March
31, 1996 gives effect, exclusively to the previously described transactions.
F-22
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors,
I Care of Arkansas, Inc. and Affiliate, I Care, Inc. d/b/a I Care Health
Services:
We have audited the accompanying combined statements of income, retained
earnings, and cash flows of I Care of Arkansas, Inc. and Affiliate, and I Care,
Inc. d/b/a I Care Health Services (an Arkansas corporation) (the "Company") for
the three years ended December 31, 1995. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these combined financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, retained earnings,
and cash flows of the Company for the years ended December 31, 1995, in
conformity with generally accepted accounting principles.
BELL & COMPANY
Little Rock, Arkansas,
April 18, 1996
F-23
<PAGE> 68
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 445,439 $ 897,795
Accounts receivable, net of allowance for uncollectibles of
$599,636 and $2,008,203 in 1994 and 1995, respectively....... 3,123,653 3,798,162
Receivables from related companies.............................. 33,135 302,077
Other receivables............................................... 224,771 421,253
Inventories..................................................... 56,177 73,657
Prepaid expenses and other current assets....................... 16,433 55,604
Current deferred taxes.......................................... 54,727 47,368
----------- -----------
Total current assets.................................... 3,954,335 5,595,916
Property and equipment:
Land and building............................................... 121,052 121,052
Leasehold improvements.......................................... 322,722 328,988
Machinery and equipment......................................... 521,047 552,363
Furniture and fixtures.......................................... 8,762 15,310
Vehicles........................................................ 134,502 111,721
Rental equipment................................................ 818,765 1,321,899
----------- -----------
1,926,850 2,451,333
Accumulated depreciation and amortization....................... (1,326,115) (1,460,620)
----------- -----------
Net property and equipment.............................. 600,735 990,713
Other assets...................................................... 29,491 167,537
----------- -----------
Total assets............................................ $ 4,584,561 $ 6,754,166
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable................................................... $ 260,000 $ 1,000,000
Accounts payable -- trade....................................... 1,430,909 1,503,486
Accounts payable -- related companies........................... 223,841 501,968
Accrued expenses................................................ 317,323 375,677
Income taxes payable............................................ 71,390 --
Current portion of long-term debt............................... 6,882 162,619
----------- -----------
Total current liabilities............................... 2,310,345 3,543,750
Long-term debt.................................................... 169,278 409,831
----------- -----------
Total liabilities....................................... 2,479,623 3,953,581
Excess fair value of net assets of company acquired over
cost................................................. 14,630 --
----------- -----------
Deferred income taxes................................... 6,500 12,112
----------- -----------
Stockholders' equity:
Common stock, $1 par value; 1,300 shares authorized, issued and
outstanding.................................................. 1,300 1,300
Additional paid-in capital...................................... 291,442 291,442
Retained earnings............................................... 1,791,066 2,495,731
----------- -----------
Total stockholders' equity.............................. 2,083,808 2,788,473
----------- -----------
Total liabilities and stockholders' equity.............. $ 4,584,561 $ 6,754,166
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined balance sheets.
F-24
<PAGE> 69
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Patient service revenue.......................... $11,245,649 $15,794,202 $ 20,040,403
Allowances and uncollectibles.................... (5,271,204) (7,891,597) (10,108,413)
----------- ----------- ------------
Net patient service revenues............. 5,974,445 7,902,605 9,931,990
Sales revenues................................... 1,821,561 1,881,242 2,580,477
----------- ----------- ------------
Net revenues............................. 7,796,006 9,783,847 12,512,467
Cost of services provided.......................... 2,800,439 3,916,934 5,172,873
----------- ----------- ------------
Gross profit....................................... 4,995,567 5,866,913 7,339,594
----------- ----------- ------------
Operating expenses:
Compensation and related benefits................ 2,998,154 3,382,614 4,111,403
Depreciation..................................... 124,507 110,293 128,206
Interest......................................... 17,319 20,725 31,047
General and administration....................... 398,704 366,852 485,838
Other operating expenses......................... 1,005,624 982,253 1,225,235
----------- ----------- ------------
Total operating expenses................. 4,544,308 4,862,737 5,981,729
----------- ----------- ------------
Other income:
Interest......................................... 25,199 20,493 32,139
Other............................................ 163,923 98,821 90,516
Loss on sale of assets........................... (1,744) -- --
----------- ----------- ------------
Total other income....................... 187,378 119,314 122,655
----------- ----------- ------------
Income before income taxes....................... 638,637 1,123,490 1,480,520
Income taxes..................................... 43,577 25,380 12,971
----------- ----------- ------------
Net income......................................... $ 595,060 $ 1,098,110 $ 1,467,549
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE> 70
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
COMBINED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<S> <C>
Balance, December 31, 1992....................................................... $ 564,108
Net income..................................................................... 595,060
Dividends paid................................................................. (99,667)
----------
Balance, December 31, 1993....................................................... 1,059,501
Net income..................................................................... 1,098,110
Dividends paid................................................................. (366,545)
----------
Balance, December 31, 1994....................................................... 1,791,066
Net income..................................................................... 1,467,549
Dividends paid................................................................. (762,884)
----------
Balance, December 31, 1995....................................................... $2,495,731
=========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 71
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1993 1994 1995
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 595,060 $1,098,110 $ 1,467,549
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................... 309,397 295,282 276,440
Loss on sale of assets.......................... 1,744 -- 2,560
Deferred taxes (benefit)........................ -- (48,227) 12,971
Change in operating assets and liabilities:
Accounts receivable........................... 538,658 (730,149) (1,139,935)
Inventories................................... 11,492 (4,206) (17,480)
Other current assets.......................... (32,598) 23,239 (39,171)
Accounts payable.............................. (1,359,003) 77,832 85,050
Refundable income taxes....................... 5,256 -- --
Accrued expenses.............................. (119,983) 40,328 58,355
Note payables................................. 139,274 26,451 265,653
Income taxes payable.......................... (9,296) 36,616 (71,390)
----------- ---------- -----------
Net cash provided by operating
activities............................... 80,001 815,276 900,602
----------- ---------- -----------
Cash flows from investing activities:
Additions to property and equipment................ (84,321) (432,814) (218,020)
Proceeds from sale of property and equipment....... 20,000 -- --
Collections of notes receivable.................... 105,952 57,000 --
Reduction in other assets.......................... -- 671 6,231
Purchase of intangibles............................ -- (23,352) (150,000)
----------- ---------- -----------
Net cash provided by (used in) investing
activities............................... 41,631 (398,495) (361,789)
----------- ---------- -----------
Cash flows from financing activities:
Proceeds from note payables........................ -- 60,000 1,000,000
Repayment of note payables......................... 300,000 (100,000) (260,000)
Proceeds from long-term borrowings................. 110,000 180,000 265,000
Principal payments of long-term debt............... (107,518) (98,454) (328,573)
Dividends paid..................................... (99,667) (366,545) (762,884)
----------- ---------- -----------
Net cash provided by (used in) financing
activities............................... 202,815 (324,999) (86,457)
----------- ---------- -----------
Net increase in cash................................. 324,447 91,782 452,356
Cash and cash equivalents, beginning of period....... 29,210 353,657 445,439
----------- ---------- -----------
Cash and cash equivalents, end of period............. $ 353,657 $ 445,439 $ 897,795
=========== ========== ===========
Supplemental disclosure of cash flow information:
Interest paid...................................... $ 11,753 $ 18,163 $ 28,261
Taxes paid......................................... 31,500 38,600 101,765
Property and equipment acquired through long term
debt............................................ -- -- 459,864
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 72
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Combination
The accompanying combined financial statements include the accounts of I
Care of Arkansas, Inc., I Care Home IV Affiliates, Inc., and I Care Inc. d/b/a I
Care Health Services (the "Company") which are under common control.
Intercompany transactions and balances have been eliminated in combination.
Nature of Business
I Care of Arkansas, Inc. was established in March 1992 in Little Rock,
Arkansas, for the purpose of providing home IV and nutritional services to
patients throughout Arkansas by utilizing a network of local free-standing
facilities strategically located with the state.
I Care Home IV Affiliates, Inc. is an Arkansas-based corporation which
provides managerial and clinical support for pharmacies in the home IV therapy
business throughout the United States.
I Care, Inc. is an Arkansas corporation which operates under the name I
Care Health Services. The Company provides healthcare professionals and patients
throughout Arkansas a complete line of home healthcare equipment and supplies
for sale or rental. I Care Inc. has locations in Little Rock, Fort Smith,
Fayetteville, Jonesboro, and Texarkana.
Basis of Accounting
The Company uses the accrual basis of accounting. The Company uses the cash
basis of accounting for income tax purposes.
Cash and Cash Equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits and instruments with original maturities of three months or less.
Accounts Receivable
Uncollectible accounts receivable are provided for using the allowance
method based on historical experience and management's evaluation of outstanding
accounts receivable at the end of each year. The allowance for uncollectibles
consists of amounts expected to be adjusted due to certain contractual
agreements with third-party payors as well as anticipated bad debts. All
receivables which were determined to be uncollectible at December 31, 1994 and
1995 have been provided for in the applicable periods.
Inventories
Inventories consist of medical supplies and equipment and are carried at
the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are carried at cost. Depreciation has been provided
using the straight-line and accelerated methods over estimated useful lives of
related assets as follows:
F-28
<PAGE> 73
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
LIVES METHOD
------------- --------------
<S> <C> <C>
Leasehold improvements............................... 7 -- 10 years Accelerated
Machine and equipment................................ 5 -- 7 years Accelerated
Furniture and fixtures............................... 7 years Accelerated
Vehicles............................................. 5 -- 7 years Accelerated
Rental equipment..................................... 3 years Straight-line
</TABLE>
Total depreciation expense for the Company for the years ended December 31,
1993, 1994, and 1995 was approximately $124,000, $110,000, and $128,000,
respectively.
Income Taxes
I Care of Arkansas Inc. and Affiliate, with the consent of its
shareholders, has elected under the Internal Revenue Code to be an S
corporation. In lieu of corporate income taxes I Care of Arkansas, Inc. and
Affiliate's shareholders are taxed on their proportionate share of I Care of
Arkansas, Inc. and Affiliate's taxable income.
I Care, Inc. is a C corporation and therefore income taxes are included in
the combined statements. Deferred income taxes are based on timing differences
between financial statement and income tax reporting. Timing differences which
give rise to deferred tax assets and liabilities arise from differences in the
deductibility of the allowance for uncollectibles and from the use of
accelerated methods of depreciation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications have been made to the 1995 balances in order to
conform to the 1996 presentation.
2. OTHER RECEIVABLES:
The Company has an operating agreement with Abbott Labs ("Abbott") under
which Abbott reimburses the Company for certain pharmaceutical products and
provides certain other pharmaceutical products for the Company to use in patient
treatment. In return, the Company pays commissions to Abbott based on various
contracted percentages of collected revenues. At December 31, 1993, 1994, and
1995, approximately $397,000, $224,000, and $417,000, respectively, in amounts
due from Abbott was included in the accounts receivable. Additionally,
$1,036,787, $1,118,372, and $1,398,853 was accrued and included in accounts
payable for commissions to Abbott for uncollected revenues included in accounts
receivable at December 31, 1993, 1994, and 1995, respectively.
3. ACQUISITIONS:
During October 1995, the Company purchased certain assets of Respiratory
Care of Arkansas, Inc., an unrelated Arkansas corporation. In connection with
this acquisition, the Company paid $150,000 for goodwill, which represents the
excess of cost of the business over the fair value of the net assets acquired.
F-29
<PAGE> 74
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
During 1994, the Company purchased a subsidiary at a cost below the fair
value of the subsidiary's net assets at the date of acquisition. The deferred
credit represents the unallocated portion of the excess and is being amortized
using the straight-line method over three years.
The results of operations of the acquired entities are not material to the
Company.
4. CAPITALIZED LEASE OBLIGATIONS:
The Company leases equipment from several different leasing companies under
capital leases. The economic substance of these transactions is that the Company
is financing the acquisition of the assets through the lease. Accordingly, the
present value of the minimum lease payments is included in long-term debt.
The following is the future minimum lease payments under capitalized lease
obligations, together with their present value as of December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
----------------------------------------------------------------------
<S> <C>
1996............................................................. $ 86,648
1997............................................................. 59,649
1998............................................................. 28,562
1999............................................................. 8,239
2000............................................................. 395
--------
Total minimum lease payments..................................... 183,493
Less amounts representing interest............................... (12,184)
--------
Present value of minimum lease payments.......................... $171,309
========
</TABLE>
5. NOTES PAYABLE:
The Company has a note payable on demand to a stockholder, bearing interest
at 8.5%, secured by accounts receivable, property and equipment. Outstanding
borrowings at December 31, 1995 were $1,000,000.
In 1994, the Company had a line of credit with a commercial bank which
provides for short-term borrowings up to $500,000 secured by accounts
receivable, property and equipment. Interest accrues on advances at Chase prime
rate (8.25% at December 31, 1994). Outstanding borrowings at December 31, 1994
were $200,000.
6. LONG-TERM DEBT:
Long-term debt for the Company at December 31, 1995, consists of the
following:
<TABLE>
<S> <C>
Capitalized lease obligations payable in varying monthly installments of
up to $3,099, secured by equipment..................................... 77,045
8.75% note payable to a bank in monthly installments of $8,397, including
interest, secured by equipment......................................... 231,863
7.5% note payable to a bank in monthly installments of $1,695, including
interest, through June 1999, secured by real estate.................... 169,278
Capitalized lease obligations payable in monthly installments of up to
$9,266, secured by equipment........................................... 94,264
---------
Total long-term debt..................................................... 572,450
Less current maturities.................................................. (162,619)
---------
Long-term debt, less current maturities.................................. $ 409,831
=========
</TABLE>
F-30
<PAGE> 75
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Annual aggregate portion of long-term debt is as follows:
<TABLE>
<S> <C>
1996.............................................................. $162,619
1997.............................................................. 154,494
1998.............................................................. 101,569
1999.............................................................. 153,373
2000.............................................................. 395
--------
$572,450
========
</TABLE>
7. INCOME TAXES:
The provision for income taxes is composed of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- -------
<S> <C> <C> <C>
Current provision.................................... $43,577 $115,055 $ --
Deferred provision (benefit)......................... -- (89,675) 12,971
------- -------- -------
$43,577 $ 25,380 $12,971
======= ======== =======
</TABLE>
A reconciliation of income tax at statutory rates and the actual income tax
provision is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Tax at statutory rate............................... $ 24,205 $ 31,229 $14,136
State income tax.................................... 4,840 6,386 2,890
Nondeductible expense............................... 25,712 1,206 1,547
Nontaxable income................................... (11,180) (11,033) (5,602)
Surtax exemption.................................... -- (2,408) --
-------- -------- -------
$ 43,577 $ 25,380 $12,971
======== ======== =======
</TABLE>
F-31
<PAGE> 76
I CARE OF ARKANSAS, INC. AND AFFILIATE
I CARE, INC. D/B/A I CARE HEALTH SERVICES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
I Care of Arkansas, Inc. and Affiliate, an S corporation, did not pay
income taxes. The provision for income taxes, on a pro forma basis, using I Care
Inc.'s effective tax rate of 29% and 26% for the years ended March 31, 1996 and
1995, respectively, is $266,566 and $416,456 for the years ended December 31,
1994 and 1995.
8. PROFIT SHARING PLAN:
The Company has a trusteed, noncontributory profit sharing plan covering
substantially all employees. The Company may contribute amounts as determined by
the Board of Directors, not in excess of the lesser of the maximum deduction
allowable for income tax purposes or a specific percentage of the operating
profits of the Company, as defined in the plan. The Company made contributions
to the plan of $40,320, $47,681, and 50,200 in 1993, 1994 and 1995,
respectively.
9. LEASE COMMITMENTS:
The Company leases certain vehicles and facilities under noncancelable
operating leases which expire in various years through 2002.
Future minimum lease payments under these noncancelable operating leases
are as follows:
<TABLE>
<S> <C>
1996.............................................................. $326,913
1997.............................................................. 177,319
1998.............................................................. 102,057
1999.............................................................. 68,944
2000.............................................................. 71,627
Thereafter........................................................ 124,800
</TABLE>
Rent expense under all operating leases was approximately $226,475, $258,451,
and $257,202 for the years ended December 31, 1993, 1994, and 1995,
respectively.
10. CONTINGENCIES:
The Company is involved in various legal and regulatory proceedings which
have arisen in the ordinary course of its business and have not been finally
adjudicated. These actions, when ultimately concluded or determined, will not,
in the opinion of management, have a material adverse impact upon the Company's
combined financial position, results of operations or liquidity.
11. SUBSEQUENT EVENT:
On April 15, 1996, the Company and HealthCor Holdings, Inc. ("HealthCor"),
a Dallas-based home healthcare services provider, entered into an asset purchase
agreement whereby HealthCor agreed to purchase certain assets and assume certain
liabilities of the Company for approximately $12,750,000.
F-32
<PAGE> 77
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Specialty Med-Equip, Inc., Superior Med-Equip, Inc.,
and Cross Timbers Visiting Nurses, Inc.:
We have audited the accompanying combined statements of income, retained
earnings, and cash flows of Specialty Med-Equip, Inc., Superior Med-Equip, Inc.,
and Cross Timbers Visiting Nurses, Inc. (the "Company") for the year ended
December 31, 1994. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, retained earnings,
and cash flows of the Company for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
December 27, 1995
F-33
<PAGE> 78
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and rental income...................................................... $ 4,450,684
Cost of sales................................................................ 256,856
-----------
Total gross profit................................................. 4,193,828
-----------
Operating expenses:
Compensation and related benefits.......................................... 2,563,396
Rents and leases........................................................... 161,212
Purchased services, supplies, and other.................................... 1,243,027
Provision for doubtful accounts............................................ 131,064
Depreciation and amortization.............................................. 105,254
Interest expense........................................................... 41,419
-----------
Total expenses..................................................... 4,245,372
-----------
Net loss..................................................................... $ (51,544)
===========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-34
<PAGE> 79
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
COMBINED STATEMENT OF RETAINED EARNINGS
<TABLE>
<S> <C>
Balance, January 1, 1994.......................................................... $168,468
Net loss........................................................................ (51,544)
--------
Balance, December 31, 1994........................................................ $116,924
========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-35
<PAGE> 80
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net loss................................................................... $ (51,544)
Adjustments to reconcile net loss to net cash provided by operating
activities
Depreciation and amortization........................................... 105,254
Changes in assets and liabilities
Increase in trade accounts receivable, net............................ (52,839)
Increase in other receivables......................................... (46,065)
Increase in inventory................................................. (2,130)
Increase in prepaid expenses.......................................... (11,695)
Increase in trade accounts payable.................................... 28,320
Increase in accrued liabilities and other............................. 46,010
---------
Net cash provided by operating activities.......................... 15,311
---------
Cash flows from investing activities:
Purchases of property and equipment, net................................... (173,109)
---------
Net cash used in investing activities.............................. (173,109)
---------
Cash flows from financing activities:
Increase in notes payable.................................................. 67,096
Proceeds from issuance of common stock..................................... 57,902
---------
Net cash provided by financing activities.......................... 124,998
---------
Net decrease in cash and cash equivalents.................................... (32,800)
Cash and cash equivalents, beginning of period............................... 66,443
---------
Cash and cash equivalents, end of period..................................... $ 33,643
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 41,518
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-36
<PAGE> 81
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION:
Specialty Med-Equip, Inc. ("Specialty") is a Texas S corporation
incorporated in 1992. Specialty is engaged in the rental of durable medical
equipment as well as the sale of various other medical supplies. As of December
31, 1994, Specialty had three store locations in DeLeon, Stephenville, and
Richardson, Texas.
The stockholders and executive officers of Specialty and their ownership
percentage at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
-------------------- ----------
<S> <C> <C>
Mike McCrary............................. President 32%
Coy A. Noles, Jr......................... Secretary/Treasurer 32%
Others................................... -- 36%
</TABLE>
Superior Med-Equip, Inc. ("Superior") is a Texas corporation incorporated
in 1988. Superior is engaged in the rental of durable medical equipment as well
as the sale of various other medical supplies. As of December 31, 1994, Superior
had three store locations in Muleshoe, Alpine, and Abilene, Texas.
The stockholders and executive officers of Superior and their ownership
percentage at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
-------------------- ----------
<S> <C> <C>
Valeri, Carrie & Taylor Noles............. -- 53%
Coy A. Noles, Jr.......................... President 42%
Gae Noles................................. Secretary Treasurer 5%
Mike McCrary.............................. Vice President --
</TABLE>
Cross Timbers Visiting Nurses, Inc. ("Cross Timbers") is a Texas
corporation incorporated in 1991. Cross Timbers is engaged in the business of
providing home healthcare services to homebound patients, primarily patients
covered by the Medicare and Medicaid programs.
The stockholders and executive officers of Cross Timbers and their
ownership percentage at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
OWNERSHIP
POSITION PERCENTAGE
------------------------------------------- ----------
<S> <C> <C>
Coy A. Noles, Jr........... Chief Executive Officer 29%
Mike McCrary............... -- 28%
Jan Hoover................. Executive Vice President and Administrator 10%
Julie Thomas............... Vice President and Assistant Administrator 10%
Wanda Baird................ Vice President 10%
Others..................... -- 13%
</TABLE>
As a home nursing services provider, Cross Timbers is certified by the
Medicare Part A program. As of December 31, 1994, Cross Timbers had four offices
located in DeLeon, Rising Star, Richardson (closed in May 1995), and Mineral
Wells, Texas.
Specialty, Superior, and Cross Timbers (the "Company") jointly rent a
corporate office located in Abilene, Texas.
F-37
<PAGE> 82
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying financial statements are presented on a combined basis
because of the common ownership by Coy A. Noles, Jr., Mike McCrary, and certain
other stockholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operating Revenues
Operating revenues are reported at the estimated net realizable amounts
from Medicare and Medicaid payors, private insurance companies, and cash sales
to customers. Payment for the retail sale and rental of durable medical
equipment and supplies to Medicare and Medicaid beneficiaries is based on the
lower of actual charges and approved fee schedules subject to certain
limitations.
Property and Equipment
Property and equipment are valued at cost at the date of acquisition and
are depreciated over their estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Durable medical equipment....................................... 2 - 7 years
Furniture and fixtures.......................................... 5 - 7 years
Transportation equipment........................................ 5 years
</TABLE>
Start-up cost resulted from expenses incurred in 1991 before Cross Timbers
was issued a provider number and commenced operations. The cost is being
amortized over five years.
Income Taxes
In lieu of corporation income taxes, the Company's shareholders are taxed
on their proportionate share of the Company's taxable income.
3. OPERATING LEASES:
Specialty and Superior lease office and retail space at all locations. The
office space in Abilene, Texas, is leased by Cross Timbers month-to-month and
sublet to Specialty and Superior. Total rent expense for 1994 was approximately
$68,000.
4. COMMITMENTS AND CONTINGENCIES:
The Company is a party to various suits; however, in the opinion of
management, no claim will ultimately require a material settlement by the
Company over the amount covered by outside insurance policies.
5. SUBSEQUENT EVENT:
On October 31, 1995, Specialty and Superior were acquired by HealthCor
Holdings, Inc. ("HealthCor"), a Dallas-based home healthcare services provider,
for cash and debt totaling approximately $1,100,000 and $100,000, respectively.
The acquisition included the net assets of both companies excluding certain
assets and liabilities. Additionally, HealthCor acquired the fixed assets, and
medical supplies of Cross Timbers for cash and debt of approximately $714,000
and $200,000, respectively.
F-38
<PAGE> 83
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
<S> <C>
Net revenues................................................................... $2,446,010
Operating Expenses:
Compensation and related benefits............................................ 1,609,954
General and administrative................................................... 730,160
Depreciation and amortization................................................ 31,595
Provision for doubtful accounts.............................................. 6,701
--------------
Total operating expenses............................................. 2,378,410
Income from operations......................................................... 67,600
Interest, net.................................................................. (34,208)
--------------
Net income..................................................................... $ 33,392
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-39
<PAGE> 84
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.,
AND CROSS TIMBERS VISITING NURSES, INC.
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
<S> <C>
Cash flows from operating activities........................................... $ (339,541)
--------------
Net cash used in operating activities................................ (339,541)
--------------
Cash flows from investing activities:
Purchases of property and equipment.......................................... (71,519)
--------------
Net cash used in investing activities................................ (71,519)
--------------
Cash flows from financing activities:
Increase in notes payable.................................................... 417,211
Proceeds from issuance of common stock....................................... 3,916
--------------
Net cash provided by financing activities............................ 421,127
--------------
Net increase in cash........................................................... 10,067
Cash and cash equivalents, beginning of period................................. 33,643
--------------
Cash and cash equivalents, end of period....................................... $ 43,710
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-40
<PAGE> 85
SPECIALTY MED-EQUIP, INC., SUPERIOR MED-EQUIP, INC.
AND CROSS TIMBERS VISITING NURSES, INC.
NOTE TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the six month
period ended June 30, 1995 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995.
F-41
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO C. EDWARD ELSEY:
We have audited the accompanying combined statements of income, owner's equity,
and cash flows of C. Edward Elsey dba A. M. Medical and Discount Medical
Equipment Company (the "Company") for the year ended December 31, 1994. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, owner's equity, and
cash flows of the Company for the year ended December 31, 1994, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 15, 1995
F-42
<PAGE> 87
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and rental income...................................................... $ 1,942,218
Cost of sales................................................................ 578,552
-----------
Total gross profit................................................. 1,363,666
-----------
Operating expenses:
Compensation and related benefits.......................................... 535,951
Rents and leases........................................................... 30,566
Professional fees.......................................................... 39,283
Purchased services, supplies, and other.................................... 254,127
Provision for doubtful accounts............................................ 30,993
Depreciation and amortization.............................................. 151,709
Interest expense........................................................... 37,542
-----------
Total expenses..................................................... 1,080,171
-----------
Net income................................................................... $ 283,495
===========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-43
<PAGE> 88
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
COMBINED STATEMENT OF OWNER'S EQUITY
<TABLE>
<S> <C>
Balance, January 1, 1994......................................................... $ 395,199
Net income..................................................................... 283,495
Distributions to the owner, net................................................ (206,617)
---------
Balance, December 31, 1994....................................................... $ 472,077
=========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-44
<PAGE> 89
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net income................................................................. $ 283,495
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization........................................... 151,709
Changes in assets and liabilities-
Increase in trade accounts receivable, net............................ (106,968)
Increase in inventory................................................. (7,754)
Increase in prepaid expenses and other................................ (23,279)
Decrease in trade accounts payable and accrued liabilities............ (111,204)
---------
Net cash provided by operating activities............................. 185,999
---------
Cash flows from investing activities:
Purchases of property and equipment........................................ (154,762)
---------
Net cash used in investing activities.............................. (154,762)
---------
Cash flows from financing activities:
Increase in notes payable.................................................. 206,622
Decrease in capital lease obligation....................................... (15,229)
Distributions to the owner................................................. (206,617)
---------
Net cash used in financing activities.............................. (15,224)
---------
Net increase in cash......................................................... 16,013
Cash, beginning of period.................................................... 5,122
---------
Cash, end of period.......................................................... $ 21,135
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 37,542
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-45
<PAGE> 90
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION:
A. M. Medical is a sole proprietorship registered in the county of El Paso,
Texas, in 1971. A. M. Medical is engaged in the retail sale and rental of
durable medical equipment as well as the sale of various other medical supplies.
Discount Medical Equipment Company ("Discount Medical") is a sole
proprietorship registered in the county of El Paso, Texas, in 1993. Discount
Medical is engaged in the discount retail sale of certain types of durable
medical equipment. Both A. M. Medical and Discount Medical (the "Company") are
owned and operated by C. Edward Elsey and Linda Elsey. As a result of common
ownership, the financial statements are presented on a combined basis.
As of December 31, 1994, A. M. Medical and Discount Medical each has one
primary store location serving El Paso, Texas, and its surrounding areas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Accounting
The Company's combined financial statements are presented using the accrual
method of accounting. Revenues are recognized when earned and expenses when
incurred.
Revenues are reported at the estimated net realizable amounts from private
insurance companies, contracted payors, Medicare and Medicaid programs, and cash
sales to customers.
Property and Equipment
Property and equipment are valued at cost at the date of acquisition and
are depreciated over their estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives for each asset classification are as
follows:
<TABLE>
<S> <C>
Buildings................................................................ 30 years
Durable medical equipment................................................ 5 years
Furniture and fixtures................................................... 5-10 years
Transportation equipment................................................. 3-5 years
</TABLE>
Federal Income Taxes
The Company operates as a sole proprietorship. Under the provisions of the
Internal Revenue Code, the owner is liable for federal income taxes on the
Company's taxable income. Accordingly, no provision or liability for federal
income taxes has been made in the accompanying combined financial statements.
3. OPERATING LEASES:
The Company leases certain types of office equipment and transportation
equipment which are accounted for as operating leases. The future minimum lease
payments under noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1995............................................................... $11,007
1996............................................................... 10,336
1997............................................................... 10,336
1998............................................................... 5,436
</TABLE>
F-46
<PAGE> 91
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
The Company, in its regular course of business, is a party to various law
suits; however, in the opinion of management, no claim will ultimately require a
material settlement by the Company over the amount covered by outside insurance
policies.
5. SUBSEQUENT EVENT:
On October 31, 1995, the Company and HealthCor Holdings, Inc.
("HealthCor"), a Dallas-based home healthcare services provider, entered into an
asset purchase agreement whereby HealthCor agreed to purchase certain assets and
assume certain liabilities of the Company for approximately $1,300,000.
F-47
<PAGE> 92
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
---------------
<S> <C>
Net Revenues........................................................... $ 578,213
Operating Expenses:
Compensation and related benefits.................................... 281,434
General and administrative........................................... 115,127
---------------
Total operating expenses..................................... 396,561
Income from operations................................................. 181,652
Interest, net.......................................................... (25,586)
---------------
Net income............................................................. $ 156,066
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-48
<PAGE> 93
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
<S> <C>
Cash flows from operating activities:.......................................... $ 35,801
--------------
Net cash provided by operating activities............................ 35,801
--------------
Cash flows from investing activities:
Purchases of property and equipment.......................................... (3,597)
--------------
Net cash used in financing activities................................ (3,597)
Cash flows from financing activities:
Payments on capital leases................................................... (9,722)
--------------
Net cash used in financing activities................................ (9,722)
--------------
Net increase in cash........................................................... 22,482
Cash and cash equivalents, beginning of period................................. 21,136
--------------
Cash and cash equivalents, end of period....................................... $ 43,618
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-49
<PAGE> 94
C. EDWARD ELSEY DBA A. M. MEDICAL AND
DISCOUNT MEDICAL EQUIPMENT COMPANY
NOTE TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the six month
period ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995.
F-50
<PAGE> 95
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Colorado I.V. Associates, Inc.
and Specialized Nursing Services, Inc.:
We have audited the accompanying combined statements of income, retained
earnings, and cash flows of Colorado I.V. Associates, Inc. and Specialized
Nursing Services, Inc. (the "Company") for the year ended December 31, 1994.
These combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the results of operations, retained earnings,
and cash flows of the Company for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
December 21, 1995
F-51
<PAGE> 96
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Sales and service income, net................................................ $ 1,897,456
Cost of sales................................................................ 570,053
-----------
Total gross profit................................................. 1,327,403
-----------
Operating expenses:
Compensation and related benefits.......................................... 624,297
Rents and leases........................................................... 38,488
Professional fees.......................................................... 24,723
Purchased services, supplies, and other.................................... 165,115
Provision for doubtful accounts............................................ 487,174
Depreciation and amortization.............................................. 15,999
Interest expense........................................................... 3,477
-----------
Total expenses..................................................... 1,359,273
-----------
Net loss..................................................................... $ (31,870)
===========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-52
<PAGE> 97
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
COMBINED STATEMENT OF RETAINED EARNINGS
<TABLE>
<S> <C>
Balance, January 1, 1994.......................................................... $596,157
Net loss........................................................................ (31,870)
--------
Balance, December 31, 1994........................................................ $564,287
========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-53
<PAGE> 98
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net loss................................................................... $ (31,870)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization........................................... 15,999
Changes in assets and liabilities-
Increase in trade accounts receivable, net............................ (2,541)
Increase in inventory................................................. (1,036)
Decrease in other assets.............................................. 213
Decrease in trade accounts payable and accrued liabilities............ (813)
-----------------
Net cash used in operating activities.............................. (20,048)
-----------------
Cash flows from investing activities:
Additions of property and equipment........................................ (5,392)
-----------------
Net cash used in investing activities.............................. (5,392)
-----------------
Cash flows from financing activities:
Payments on long-term notes payable........................................ (9,052)
-----------------
Net cash used in financing activities.............................. (9,052)
-----------------
Net decrease in cash......................................................... (34,492)
Cash, beginning of period.................................................... 100,401
-----------------
Cash, end of period.......................................................... $ 65,909
=============
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 3,477
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-54
<PAGE> 99
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION:
Colorado I.V. Associates, Inc. (CIVA) is a Colorado S corporation
incorporated in 1990. CIVA is engaged in the business of providing home infusion
therapy to home healthcare patients. CIVA has one office location in the Denver
metropolitan area.
The shareholders and executive officers of CIVA and their respective
ownership percentage at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
---------- ------------------------
<S> <C> <C>
Priscilla Steinhauer............................. 50% President
Gregg Pederson................................... 50 Vice-President/Treasurer
</TABLE>
Specialized Nursing Services, Inc. (SNS) is a Colorado S corporation
incorporated in 1988. SNS is engaged in the business of providing skilled
nursing services to patients requiring I.V. therapy at home. SNS was purchased
in May 1990 from Ann Damore as a stock acquisition by Gregg Pederson. The
shareholders of SNS and their respective ownership percentage at December 31,
1994, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
---------- ------------------------
<S> <C> <C>
Priscilla Steinhauer............................. 50% President
Gregg Pederson................................... 50 Vice-President/Treasurer
</TABLE>
SNS operates from the CIVA location using CIVA's administrative personnel.
At December 31, 1994, CIVA and SNS (the "Company") were under the common
ownership and control of Priscilla Steinhauer and Gregg Pederson. As a result,
the financial statements are presented on a combined basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenues
Revenues are reported at the estimated net realizable amounts from Medicare
and Medicaid payors and private insurance companies.
Property and Equipment
Property and equipment is valued at cost at the date of acquisition and is
depreciated over their estimated useful lives between five to seven years using
the straight-line method. Maintenance and repairs are expensed at the time the
expenditures are incurred.
Federal Income Taxes
The Company, with the consent of its shareholders, elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal income taxes on its taxable income.
Instead, the shareholders are liable for federal income taxes on the Company's
taxable income. Accordingly, no provision or liability for federal income taxes
has been made in these combined financial statements.
F-55
<PAGE> 100
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
3. OPERATING LEASES:
The Company leases office space in Denver, Colorado. The future minimum
lease payments under noncancelable operating leases for buildings are as
follows:
<TABLE>
<S> <C>
1995....................................................................... $22,080
1996....................................................................... 9,200
-------
Total................................................................. $31,280
=======
</TABLE>
Rent expense under all operating leases was approximately $22,500 for the
year ended December 31, 1994.
4. RETIREMENT PLANS:
The Company provides a defined contribution pension plan and a profit
sharing plan for employees who meet certain eligibility requirements. The
Company is obligated to contribute $42,224 to the pension plan for the year
ended December 31, 1994. Contributions to the profit sharing plan are at the
discretion of the Company's management, and no contribution was made to the plan
for 1994 as the Company incurred a net loss.
5. SUBSEQUENT EVENT:
In August 1995, the Company's assets were acquired by HealthCor Holdings,
Inc., a Dallas-based home healthcare services provider, for approximately
$800,000.
F-56
<PAGE> 101
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
UNAUDITED CONDENSED COMBINED STATEMENT OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
<S> <C>
Net revenues................................................................... $587,081
Operating Expenses:
Compensation and related benefits............................................ 428,901
General and administrative................................................... 115,722
--------
Total operating expenses............................................. 544,623
--------
Income from operations......................................................... 42,458
Interest, net.................................................................. (3,777)
--------
Net income..................................................................... $ 38,681
========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-57
<PAGE> 102
COLORADO I.V. ASSOCIATES, INC. AND SPECIALIZED NURSING SERVICES, INC.
UNAUDITED CONDENSED COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
1995
--------------
<S> <C>
Cash flows from operating activities........................................... $162,412
--------
Net cash provided by operating activities............................ 162,412
--------
Cash flows from financing activities:
Payments of notes payable.................................................... (8,430)
--------
Net cash used in financing activities................................ (8,430)
--------
Net increase in cash........................................................... 153,982
Cash and cash equivalents, beginning of period................................. 30,909
--------
Cash and cash equivalents, end of period....................................... $184,891
========
</TABLE>
The accompanying note is an integral part of this unaudited condensed combined
financial statement.
F-58
<PAGE> 103
COLORADO I.V. ASSOCIATES AND SPECIALIZED NURSING SERVICES, INC.
NOTE TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the six-month
period ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995.
F-59
<PAGE> 104
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
RTA Homecare, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows of RTA Homecare, Inc. and subsidiary (the
"Company") for the years ended December 31, 1993 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations, shareholders'
equity, and cash flows of RTA Homecare, Inc. and subsidiary for the years ended
December 31, 1993 and 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
November 30, 1995
F-60
<PAGE> 105
RTA HOMECARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------
1993 1994
---------- ----------
<S> <C> <C>
Sales and rental income............................................. $4,965,640 $5,846,048
Cost of sales....................................................... 852,870 1,518,382
---------- ----------
Total gross profit........................................ 4,112,770 4,327,666
---------- ----------
Operating expenses:
Compensation and related benefits................................. 1,936,355 1,941,376
Rents and leases.................................................. 245,098 338,124
Purchased services, supplies, and other........................... 847,089 1,002,581
Provision for doubtful accounts................................... 171,404 97,619
Depreciation and amortization..................................... 168,212 311,917
---------- ----------
Total expenses............................................ 3,368,158 3,691,617
---------- ----------
Income from operations.............................................. 744,612 636,049
Benefit (provision) for income taxes................................ (187,663) 92,625
Minority interest in income (loss) of subsidiary.................... 3,426 (51,114)
---------- ----------
Net income.......................................................... $ 560,375 $ 677,560
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<PAGE> 106
RTA HOMECARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------ ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1992................................ $5,050 $1,018,902 $1,023,952
Net income.............................................. -- 560,375 560,375
------ ---------- ----------
Balance, December 31, 1993................................ 5,050 1,579,277 1,584,327
Net income.............................................. -- 677,560 677,560
------ ---------- ----------
Balance, December 31, 1994................................ $5,050 $2,256,837 $2,261,887
====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-62
<PAGE> 107
RTA HOMECARE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------
1993 1994
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 560,375 $ 677,560
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization.................................. 168,212 311,917
Changes in assets and liabilities --
Increase in trade accounts receivable, net................... (297,868) (94,988)
Increase in inventory........................................ (223,344) (89,332)
Decrease (increase) in employee advances..................... 50,674 (3,274)
Decrease (increase) in other assets.......................... (19,990) 9,269
Increase in accounts payable................................. 179,135 114,633
Increase (decrease) in accrued liabilities................... 155,103 (177,455)
Increase in deferred income taxes payable.................... 152,195 71,924
--------- ---------
Net cash provided by operating activities................. 724,492 820,254
--------- ---------
Cash flows from investing activities:
Additions of property and equipment............................... (587,326) (985,179)
Issuance of notes receivable...................................... -- (380,779)
Payments on notes receivable...................................... 5,786 --
--------- ---------
Net cash used in investing activities..................... (581,540) (1,365,958)
--------- ---------
Cash flows from financing activities:
Issuance of notes payable......................................... -- 446,980
Payments on notes payable......................................... (97,209) --
Net change in minority interest in subsidiary..................... (3,426) 51,114
--------- ---------
Net cash provided by (used in) financing activities....... (100,635) 498,094
--------- ---------
Net increase (decrease) in cash..................................... 42,317 (47,610)
Cash, beginning of period........................................... 69,859 112,176
--------- ---------
Cash, end of period................................................. $ 112,176 $ 64,566
========= =========
Supplemental disclosure of cash flow information:
Interest paid..................................................... $ 20,815 $ 25,448
Taxes paid........................................................ 138,648 88,213
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-63
<PAGE> 108
RTA HOMECARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994
1. ORGANIZATION:
RTA Homecare, Inc. ("Homecare"), an Arizona corporation, commenced
operations in June 1988. Homecare is engaged in the retail sale and rental of
durable medical equipment as well as the sale of various other medical supplies
and apparel. As of December 31, 1994, Homecare had four store locations in the
Phoenix, Arizona, metropolitan area and one location in southeastern Arizona.
The shareholders and executive officers of Homecare and their respective
ownership percentages at December 31, 1994, were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
---------- -------------------------------
<S> <C> <C>
Steven J. Shcolnik............... 45.45% Director & President
Beverly A. Shcolnik.............. 45.45 Director & Secretary/Treasurer
Bryan L. Faith................... 4.55 Director/Vice President
David A. and Bonita Shcolnik..... 4.55 Shareholders
</TABLE>
RTA Infusion, Inc. ("Infusion"), an 80%-owned subsidiary of Homecare, is an
Arizona corporation that commenced operations in October 1990. Infusion provides
infusion services, supplies, and equipment to individual patients as prescribed
by physicians. Infusion operates from a separate office facility with its own
personnel and agents.
Homecare and Infusion (the "Company") derives a significant portion of its
income from the rental of various items of medical equipment as prescribed by
physicians. A majority of the rental charges are reimbursed by Medicare or other
insurance carriers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Operating Revenues
Operating revenues are reported at the estimated net realizable amounts
from Medicare and Medicaid payors, private insurance companies, and cash sales
to customers. Payment for the retail sale and rental of durable medical
equipment and supplies to Medicare and Medicaid beneficiaries is based on the
lower of actual charges and approved fee schedules subject to certain
limitations. Charges derived from Medicare and Medicaid beneficiaries were
approximately 60% as a percentage of total charges for the years ended December
31, 1993 and 1994.
Property and Equipment
Property and equipment are valued at cost at the date of acquisition and
are depreciated over their estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives and depreciation method used for each asset
classification are as follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements........................... 31 - 39 years
Durable medical equipment...................................... 4 - 7 years
Furniture and fixtures......................................... 5 - 7 years
Transportation equipment....................................... 5 years
</TABLE>
F-64
<PAGE> 109
RTA HOMECARE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Federal Income Taxes
The Company is taxed as a Subchapter C corporation under the Internal
Revenue Code. Deferred income taxes are provided for temporary differences
between the financial statement and income tax basis of assets and liabilities
in accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes."
3. OPERATING LEASES:
The Company leases office and retail space at all locations except for the
Phoenix retail location. In addition to the annual base liability of the retail
store and offices, an additional liability exists if the sales for a location
exceed $480,000 per year. The liability is computed at 4% of excess sales. The
Company also leases various vehicles under noncancelable operating leases.
The future minimum lease payments under noncancelable operating leases for
buildings and vehicles are:
<TABLE>
<S> <C>
1995.............................................................. $183,512
1996.............................................................. 187,329
1997.............................................................. 154,717
1998.............................................................. 136,926
1999.............................................................. 18,526
</TABLE>
Rent expense under all operating leases was approximately $165,000 and
$228,000 for December 31, 1993 and 1994 respectively.
4. RELATED-PARTY TRANSACTIONS:
Homecare owns 100% of RTA Hospice, Inc. ("Hospice"), an Arizona
corporation, which commenced operations in December 1993. Hospice provides
nursing care to terminally ill, homebound patients. Hospice was not consolidated
in the accompanying consolidated financial statements, as it was not included in
the purchase by HealthCor Holdings, Inc. (see Note 6).
5. PROFIT SHARING PLAN:
The Company provides a profit sharing plan for its employees which is
administered by an independent agency. Employees become participants after one
year of employment if they are at least 21 years old. The Company contributed
$60,000 and $80,000 to the plan for the years ended December 31, 1993 and 1994,
respectively.
6. SUBSEQUENT EVENT:
On July 31, 1995, the Company was acquired by HealthCor Holdings, Inc., a
Dallas-based home healthcare services provider, for approximately $7,400,000.
The acquisition included the net assets and liabilities of the Company excluding
certain fixed assets, liabilities, and a Hospice.
F-65
<PAGE> 110
RTA HOMECARE, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1995
--------------
<S> <C>
Net revenues........................................................... $1,384,057
Operating Expenses:
Compensation and related benefits.................................... 550,604
General and administrative........................................... 358,042
Depreciation and amortization........................................ 33,950
Provision for doubtful accounts...................................... 6,217
Total operating expenses..................................... 948,813
--------------
Income from operations................................................. 435,244
--------------
Minority interest in loss of subsidiary................................ 14,439
Income before taxes.................................................... 420,805
Provision for income taxes............................................. 162,781
--------------
Net income............................................................. $ 258,024
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed
consolidated financial statement.
F-66
<PAGE> 111
RTA HOMECARE, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1995
--------------
<S> <C>
Cash flows from operating activities................................... $ 55,152
--------------
Net cash provided by operating activities.................... 55,152
--------------
Cash flows from investing activities:
Proceeds from sale of property and equipment......................... 50,370
Issuance of notes receivable......................................... (96,119)
--------------
Net cash used in investing activities........................ (45,749)
--------------
Cash flows from financing activities:
Issuance of notes payable............................................ 97,821
Payments of notes payable............................................ (62,372)
Net change in minority interest in subsidiary........................ 14,439
--------------
Net cash provided by financing activities.................... 49,888
--------------
Net increase in cash................................................... 59,291
Cash and cash equivalents, beginning of period......................... 31,538
--------------
Cash and cash equivalents, end of period............................... $ 90,829
===========
</TABLE>
The accompanying note is an integral part of this unaudited condensed
consolidated financial statement.
F-67
<PAGE> 112
RTA HOMECARE, INC. AND SUBSIDIARY
NOTE TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, considered necessary
for a fair presentation have been included. Operating results for the three-
month period ended March 31, 1995, are not necessarily indicative of the results
that may be expected for the year ending December 31, 1995.
F-68
<PAGE> 113
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Home Hospital Equipment, Inc.:
We have audited the accompanying statement of income and retained earnings and
cash flows of Home Hospital Equipment, Inc. (a Texas corporation) for the year
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations, retained earnings, and cash
flows of the Company for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
July 17, 1995
F-69
<PAGE> 114
HOME HOSPITAL EQUIPMENT, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Revenues:
Medical equipment rental income............................................ $ 1,318,885
Sale of medical equipment and supplies..................................... 326,073
Cost of sales.............................................................. (193,224)
-----------
Net sale of medical equipment and supplies......................... 132,849
-----------
Total revenues..................................................... 1,451,734
-----------
Expenses:
Compensation and related benefits.......................................... 463,694
General and administrative................................................. 356,760
Depreciation............................................................... 218,863
Provision for doubtful accounts............................................ 86,818
Interest................................................................... 62,249
-----------
1,188,384
-----------
Income from operations....................................................... 263,350
Other income................................................................. 1,072
-----------
Net income................................................................... 264,422
Accumulated deficit, beginning of year....................................... (2,064)
-----------
Retained earnings, end of year............................................... $ 262,358
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-70
<PAGE> 115
HOME HOSPITAL EQUIPMENT, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Cash flows from operating activities:
Net income................................................................. $ 264,422
Adjustments to reconcile net income to net cash provided by operating
activities -- Depreciation.............................................. 218,863
Changes in operating assets and liabilities --
Decrease in accounts receivable....................................... 150,181
Increase in inventory................................................. (64,018)
Increase in prepaid expenses.......................................... (14,311)
Increase in accounts payable.......................................... 4,778
Decrease in accrued liabilities....................................... (41,668)
---------
Net cash provided by operating activities.......................... 518,247
---------
Cash flows from investing activities:
Additions to property and equipment........................................ (239,306)
---------
Net cash used in investing activities.............................. (239,306)
---------
Cash flows from financing activities:
Payments on advances from related parties.................................. (132,000)
Payments on bank line of credit............................................ (100,000)
---------
Net cash used in financing activities.............................. (232,000)
---------
Net increase in cash......................................................... 46,941
Cash, beginning of period.................................................... 10,746
---------
Cash, end of period.......................................................... $ 57,687
=========
Supplemental disclosure of cash flow information:
Interest paid.............................................................. $ 62,249
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-71
<PAGE> 116
HOME HOSPITAL EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION:
Home Hospital Equipment, Inc. (the "Company") is a Texas S corporation
incorporated since 1993. The Company is engaged in the retail sale and rental of
durable medical equipment in San Antonio, Texas.
The stockholders and executive officers of the Company and their respective
ownership percentage at December 31, 1994, were:
<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP POSITION
--------- ---------------
<S> <C> <C>
William E. Gay, Jr.............................. 50% President
Erwin E. Ward................................... 50% Vice-President
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenues
Revenues are reported at the estimated net realizable amounts from Medicare
and Medicaid payors, private insurance companies, and cash sales to customers.
Payment for the retail sale and rental of durable medical equipment and supplies
to Medicare and Medicaid beneficiaries is based on the lower of actual charges
and approved fee schedules subject to certain limitations. Charges derived from
Medicare and Medicaid beneficiaries were approximately 66% as a percentage of
total charges for the year ended December 31, 1994.
Property and Equipment
Property and equipment is valued at cost at the date of acquisition and
depreciated over the respective estimated useful lives using the straight-line
method. Maintenance and repairs are expensed at the time the expenditures are
incurred. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Durable medical equipment....................................... 5 years
Office furniture and equipment.................................. 5 to 7 years
</TABLE>
Federal Income Taxes
The Company, with the consent of its stockholders, elected to be taxed
under the provisions of Subchapter S of the Internal Revenue Code. Under these
provisions, the Company does not pay federal income taxes on its taxable income.
Instead, the stockholders are liable for federal income taxes on the Company's
taxable income. Accordingly, no provision or liability for federal income taxes
has been made in these financial statements.
3. RELATED-PARTY TRANSACTIONS:
The Company has received various advances from stockholders. These advances
bear interest at prime plus 1.5% and are due June 3, 1997. The following is a
summary of amounts owed under the arrangements as of December 31, 1994:
<TABLE>
<S> <C>
William E. Gay, Jr................................................ $301,435
Erwin E. Ward..................................................... 301,435
--------
$602,870
========
</TABLE>
Interest expense on officer advances was approximately $52,000 for the year
ended December 31, 1994.
F-72
<PAGE> 117
HOME HOSPITAL EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES:
The Company leases office and warehouse facilities in San Antonio,
vehicles, and medical equipment held for rent under noncancelable operating
leases expiring on various dates through 2000. At December 31, 1994, the
Company's future minimum rental payments for operating leases having remaining
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------
<S> <C>
1995.......................................................... $111,960
1996.......................................................... 109,254
1997.......................................................... 100,895
1998.......................................................... 81,286
1999.......................................................... 71,056
Thereafter.................................................... 11,843
--------
$486,294
========
</TABLE>
Rental expense for operating leases was $94,884 during the year ended
December 31, 1994.
5. SUBSEQUENT EVENT:
On January 20, 1995, the Company and HealthCor Oxygen and Medical
Equipment, Inc. (HOME), a wholly owned subsidiary of HealthCor Holdings, Inc.,
closed an asset purchase agreement whereby HOME purchased certain assets and
assumed certain liabilities of the Company for approximately $4,329,000.
F-73
<PAGE> 118
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors,
Physicians Home Health Network, Inc.:
We have audited the accompanying statement of operations and retained deficit
and cash flows of Physicians Home Health Network, Inc. for the ten months ended
October 31, 1994. These financial statements are the responsibility of
management of Physicians Home Health Network, Inc. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and retained deficit, and cash
flows for the ten months ended October 31, 1994, in conformity with generally
accepted accounting principles.
IFFT & BARBER, CHARTERED
Leawood, Kansas
December 23, 1994
F-74
<PAGE> 119
PHYSICIANS HOME HEALTH NETWORK, INC.
STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1994
----------------
<S> <C>
Net revenues.................................................................. $8,572,590
----------
Operating expenses:
Professional care of patients............................................... 5,476,768
General and administrative.................................................. 2,986,786
Occupancy................................................................... 91,229
Depreciation and amortization............................................... 4,000
----------
Total operating expense............................................. 8,558,783
----------
Operating income before interest expense...................................... 13,807
Interest expense.............................................................. 18,802
----------
Net loss...................................................................... (4,995)
Retained deficit at beginning of year......................................... (90,226)
----------
Retained deficit at end of year............................................... $ (95,221)
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-75
<PAGE> 120
PHYSICIANS HOME HEALTH NETWORK, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
OCTOBER 31, 1994
----------------
<S> <C>
Cash flows from operating activities:
Cash received from services................................................. $8,586,929
Cash paid to employees and suppliers........................................ (8,402,151)
Interest paid............................................................... (20,371)
Deposits paid............................................................... (1,400)
----------
Net cash provided by operating activities........................... 163,007
----------
Cash flows from financing activities:
Payments on lines of credit................................................. (274,999)
Payments on long-term debt.................................................. (30,215)
----------
Net cash used in financing activities............................... (305,214)
----------
Net (decrease) in cash and cash equivalents................................... (142,207)
Cash and cash equivalents, beginning of year.................................. 227,360
----------
Cash and cash equivalents, end of year........................................ $ 85,153
==========
Reconciliation of net loss to net cash provided by operating activities:
Net loss................................................................. $ (4,995)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization.......................................... 4,000
Decrease in accounts receivable........................................ 14,339
Decrease in due from affiliate......................................... 40,203
Decrease in accounts payable........................................... (60,232)
Increase in accrued payroll and vacation costs......................... 178,622
Decrease in accrued interest........................................... (1,569)
Decrease in due to affiliate........................................... (5,961)
Increase in deposits................................................... (1,400)
----------
Net cash provided by operating activities........................... $ 163,007
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-76
<PAGE> 121
PHYSICIANS HOME HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General
Physicians Home Health Network, Inc. (the "Company") was incorporated in
January 1985 in Missouri. The Company provides health and supportive services to
individuals at their homes.
The Company is located in Columbia, Missouri, and serves patients in 45
counties in mid-Missouri.
Net Patient Service Revenue
Net patient service revenue represents the estimated net realizable amounts
from Medicare.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization are computed using the straight line method over the estimated
lives of the assets or over the term of the leases.
Income Taxes
The Company has elected to be taxed as a S corporation effective January 1,
1987. As such, the Company does not pay federal corporate income taxes on its
taxable income, rather, the shareholders are responsible for individual federal
income taxes on their respective shares of the Company's taxable income.
Accordingly, income taxes are not provided in the accompanying financial
statements.
2. NET REVENUES AND ESTIMATED SETTLEMENTS WITH THIRD PARTY PAYORS:
All of net revenue was derived under federal third-party reimbursement
programs. These revenues are based on cost reimbursement principles and are
subject to audit and retroactive adjustment by the respective third party
intermediary. In the opinion of management, retroactive adjustments, if any,
would not be material to the financial position, results of operations or cash
flows of the Company.
3. RETIREMENT PLAN:
The Company has a salary reduction/profit sharing plan under provisions of
Section 401(k) of the Internal Revenue Code to provide retirement benefits for
its eligible employees. The plan covers all employees who have completed one
full year of service and have worked over 1,000 hours. Each plan year the
Company has the option to make a discretionary employer contribution to the
plan. During 1994, the Company matched 100% of the first 8% of an employee's
salary deferral contribution for the first three months of the year, and 100% of
the first 5% of an employee's salary deferral contribution for the last seven
months of the year. The matching contribution for 1994 was $112,716 plus
approximately $8,000 in administrative costs. The plan has a graded vesting
schedule for the Company contributions with 100% vesting after five years.
4. RELATED PARTIES:
The Company provides administrative and personnel functions for Home Health
Network, a related party. Home Health Network is charged $3,000 monthly for
these services. The total amount due the Company from Home Health Network was
$12,638 at October 31, 1994.
The Company entered into an operating lease with a related party (see Note
5).
F-77
<PAGE> 122
PHYSICIANS HOME HEALTH NETWORK, INC.
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES:
Leases that do not meet the criteria for capitalization are classified as
operating leases with related rentals charged to operations as incurred.
The following is a schedule by year of future minimum lease payments under
operating leases as of October 31, 1994, that have remaining lease terms of over
one year:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1994 (two months ended)............................................... $ 46,672
1995.................................................................. 380,652
1996.................................................................. 352,925
1997.................................................................. 319,418
1998.................................................................. 301,306
1999.................................................................. 291,532
Thereafter............................................................ 2,687,344
----------
$4,379,849
==========
</TABLE>
Total rental expense in 1994 for all operating leases was $125,707.
The Company entered into an operating lease to rent office space commencing
October 1, 1994. The lease term is for 15 years with a monthly rental payment of
$22,969. The former principal shareholder and president of the Company has
ownership interest in the office space under this lease.
6. SUBSEQUENT EVENT:
In November, 1994, the shareholders sold all the outstanding shares of
capital stock of the Company to HealthCor Holdings, Inc., a Dallas-based home
healthcare services provider, for $1,500,000.
F-78
<PAGE> 123
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed consolidated statements of
income for the year ended December 31, 1995, and the three-month period ended
March 31, 1996, reflect (i) the acquisitions by the Company in 1995 and 1996
(referred to as the "Recent Acquisitions") using the purchase method of
accounting and (ii) the receipt and application of the net proceeds (after
deducting offering related expenses) from the sale of common stock offered
hereby and the exercise of 150,000 warrants to purchase common stock. The
unaudited pro forma condensed consolidated statements of income do not purport
to represent the Company's results of operations had the transactions occurred
in January 1, 1995, or to project the Company's results of operations for any
future periods.
The following unaudited pro forma condensed consolidated balance sheet as
of March 31, 1996, reflects (i) the Recent Acquisitions by the Company in 1996
using the purchase method of accounting, (ii) the receipt and application of the
net proceeds (after deducting offering related expenses) from the sale of common
stock offered hereby and the exercise of 150,000 warrants to purchase common
stock, and (iii) the conversion of the redeemable convertible preferred stock
into common stock, as if such transactions had occurred as of March 31, 1996.
The Company usually implements significant changes to the operations of the
entities that it acquires to enhance profitability. The expected benefits and
cost reductions anticipated by the Company have not been reflected in the
accompanying unaudited proforma condensed consolidated financial statements.
Accordingly, these pro forma financial statements are not necessarily indicative
of the operating results that would have been achieved had the Recent
Acquisitions occurred at the beginning of each period presented.
The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the transactions referenced above, and
are expected to have a continuing impact on the Company's business, results of
operations, and financial condition. The following unaudited pro forma
consolidated financial statements should be read in conjunction with the
historical financial statements of the Company and the companies acquired, which
are included elsewhere in this Prospectus.
P-1
<PAGE> 124
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL
HEALTHCOR RECENT PRO FORMA
HOLDINGS, INC. ACQUISITIONS ADJUSTMENTS OFFERING AS ADJUSTED
-------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues.................... $ 81,557,284 $ 12,700,355(A) $ -- $ -- $94,257,639
Operating expenses:
Compensation and related
benefits.................... 49,724,055 7,405,983(A) -- -- 57,130,038
General and administrative.... 21,272,118 2,893,304(A) -- -- 24,165,422
Depreciation and
amortization................ 2,299,357 310,747(A) 160,283(B) -- 2,770,387
Provision for doubtful
accounts.................... 1,488,885 175,141(A) -- -- 1,664,026
----------- ----------- -------- ----------- ----------
74,784,415 10,785,175 160,283 -- 85,729,873
Income from operations.......... 6,772,869 1,915,180 (160,283) -- 8,527,766
Interest, net................... (986,977) 1,118(A) (663,760)(C) 1,527,598(D) (122,021)
----------- ----------- -------- ----------- ----------
Income before income taxes...... 5,785,892 1,916,298 (824,043) 1,527,598 8,405,745
Provision for income taxes...... 2,202,367 766,519(E) (329,617)(E) 611,039(E) 3,250,308
----------- ----------- -------- ----------- ----------
Net income...................... $ 3,583,525 $ 1,149,779 $(494,426) $ 916,559 $ 5,155,437
=========== =========== ======== =========== ==========
Net income per common share:
Net income per common share... $ .55 $ .54
=========== ==========
Weighted average common shares
outstanding................. 6,545,615 9,545,615
=========== ==========
</TABLE>
The accompanying notes are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements.
P-2
<PAGE> 125
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
HISTORICAL
HEALTHCOR RECENT PRO FORMA
HOLDINGS, INC. ACQUISITIONS ADJUSTMENTS OFFERING AS ADJUSTED
-------------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues....................... $ 24,254,490 $3,704,020(A) $ -- $ -- $27,958,510
Operating expenses:
Compensation and related
benefits....................... 13,371,684 1,986,692(A) -- -- 15,358,376
General and administrative....... 7,349,313 1,291,921(A) -- -- 8,641,234
Depreciation and amortization.... 893,716 30,397(A) 61,629(B) -- 985,742
Provision for doubtful
accounts....................... 506,129 -- -- -- 506,129
----------- ---------- --------- -------- -----------
22,120,842 3,309,010 61,629 -- 25,491,481
----------- ---------- --------- -------- -----------
Income from operations............. 2,133,648 395,010 (61,629) -- 2,467,029
Interest, net...................... (485,900) -- (270,976)(C) 517,575(D) (239,301)
----------- ---------- --------- -------- -----------
Income before income taxes......... 1,647,748 395,010 (332,605) 517,575 2,227,728
Provision for income taxes......... 676,462 158,004(E) (133,042) (E) 207,030(E) 908,454
----------- ---------- --------- -------- -----------
Net income......................... $ 971,286 $ 237,006 $(199,563) $310,545 $ 1,319,274
=========== ========== ========= ======== ===========
Net income per common share:
Net income per common share...... $ .15 $ .14
=========== ===========
Weighted average common shares
outstanding.................... 6,543,430 9,543,430
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements
P-3
<PAGE> 126
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
HISTORICAL OFFERING
HEALTHCOR RECENT RELATED PRO FORMA
HOLDINGS, INC. ACQUISITIONS(F) ADJUSTMENTS(G) TRANSACTIONS(H) PRO FORMA OFFERING(I) AS ADJUSTED
-------------- --------------- -------------- --------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash............. $ -- $ -- $ -- -- $ -- $ 7,548,913 $7,548,913
Accounts
receivable, net
of allowance
for doubtful
accounts of
$4,901,671..... 15,328,226 2,425,378 -- -- 17,753,604 -- 17,753,604
Supplies
inventory...... 1,626,657 857,230 -- -- 2,483,887 -- 2,483,887
Prepaid expenses
and other...... 1,247,962 37,444 -- -- 1,285,406 -- 1,285,406
Deferred income
taxes.......... 2,420,246 -- -- -- 2,420,246 -- 2,420,246
----------- ---------- ----------- ----------- ------------ -----------
Total
current
assets... 20,623,091 3,320,052 -- -- 23,943,143 7,548,913 31,492,056
Property and
equipment, net... 13,377,565 991,229 -- -- 14,368,794 -- 14,368,794
Excess of cost of
acquired
businesses over
fair values of
net assets
acquired......... 23,192,834 -- 9,860,697 -- 33,053,531 -- 33,053,531
----------- ---------- ----------- ----------- ------------ -----------
Total
assets... $ 57,193,490 $ 4,311,281 $ 9,860,697 -- $71,365,468 $ 7,548,913 $78,914,381
=========== ========== =========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities:
Cash deficit..... $ 3,347,581 $ (27,894) -- $ (300,000) $ 3,019,687 $ (3,019,687) --
Accounts payable
and accrued
expenses....... 5,275,212 372,827 -- -- 5,648,039 -- $5,648,039
Accrued payroll
and related
expenses....... 4,782,987 -- -- -- 4,782,987 -- 4,782,987
Estimated
settlements
with
third-party
payors......... 322,566 -- -- -- 322,566 -- 322,566
Line of credit
payable........ 2,900,000 -- -- -- 2,900,000 -- 2,900,000
Current portion
of long-term
debt and
capital lease
obligations.... 5,571,391 77,045 (2,174,915) -- 3,473,521 (1,387,136) 2,086,385
Income taxes
payable........ 1,172,929 -- -- -- 1,172,929 -- 1,172,929
----------- ---------- ----------- ----------- ------------ -----------
Total
current
liabilities... 23,372,666 421,978 (2,174,915) (300,000) 21,319,729 (4,406,823) 16,912,906
Deferred income
taxes and
other............ 3,841,126 -- -- -- 3,841,126 -- 3,841,126
Long-term debt and
capital lease
obligations...... 11,606,610 -- 15,924,915 -- 27,531,525 (25,009,264) 2,522,261
----------- ---------- ----------- ----------- ------------ -----------
Total
liabilities... 38,820,402 421,978 13,750,000 (300,000) 52,692,380 (29,416,087) 23,276,293
Commitments and
contingencies
Redeemable
convertible
preferred
stocks........... 5,339,814 -- -- (5,339,814) -- -- --
Stockholders'
equity:
Preferred
stock.......... -- -- -- -- -- -- --
Common stock..... 30,628 176,685 (176,685) 34,893 65,521 30,000 95,521
Additional
paid-in
capital........ 2,471,129 1,041,442 (1,041,442) 5,604,921 8,076,050 36,935,000 45,011,050
Retained
earnings....... 10,531,517 2,671,176 (2,671,176) -- 10,531,517 -- 10,531,517
----------- ---------- ----------- ----------- ------------ -----------
Total
stockholders'
equity... 13,033,274 3,889,303 (3,889,303) 5,639,814 18,673,088 36,965,000 55,638,088
----------- ---------- ----------- ----------- ------------ -----------
Total
liabilities
and
stockholders'
equity... $ 57,193,490 $ 4,311,281 $ 9,860,697 -- $71,365,468 $ 7,548,913 $78,914,381
=========== ========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the
Unaudited Pro Forma Condensed Consolidated Financial Statements
P-4
<PAGE> 127
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Reflects the historical net revenues, compensation and related benefits
expense, general and administrative expense, depreciation and amortization
expense, provision for doubtful accounts, interest, net, and provision for
income taxes recorded up to the time of acquisition for the Recent
Acquisitions on a consolidated basis.
(B) Represents incremental amortization of the excess purchase price over the
net assets acquired as a result of the Recent Acquisitions. Goodwill is
being amortized over a 40-year period. The calculation is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
To record amortization of goodwill (based on $13,167,738 and
$9,860,697 of goodwill related to acquisitions during 1995 and
1996, respectively)............................................ 329,193 61,629
To eliminate HealthCor's historical amortization expense related
to acquisitions recorded during the period..................... (168,910) --
-------- ------
Additional goodwill expense related to pro forma effect of
acquisitions during the period................................. $ 160,283 $ 61,629
======== ======
</TABLE>
(C) Reflects the additional interest expense that would have been incurred had
the debt issued, assumed, or incurred to finance the Recent Acquisitions
been outstanding from the beginning of the period to the dates of
acquisition. The calculation is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
To record incremental interest on $13.3 million and $12.6
million of bank financing related to acquisitions taking place
during 1995 and 1996, respectively (8.2% and 7.8% effective
interest rate)................................................. 607,753 247,569
To record incremental interest on $2.0 million and $1.2 million
of seller financing related to acquisitions taking place during
1995 and 1996, respectively (8.2% and 8.0% effective interest
rate).......................................................... 56,007 23,407
------- -------
Incremental interest expense related to acquisitions............ $663,760 $270,976
======= =======
</TABLE>
(D) Reflects an adjustment to reduce interest expense relating to the use of
proceeds of the offering. See "Use of Proceeds".
(E) Represents an adjustment to reflect income tax expense at an assumed
effective tax rate of 40%.
(F) Represents the acquisitions of All Medical, Inc. and the I Care Group
completed during 1996 based on the historical costs of the assets and
liabilities acquired.
(G) Represents an adjustment for the application of the purchase method of
accounting to the Recent Acquisitions. The estimated fair values reflected
are based on preliminary estimates and assumptions and are subject to
revision. In management's opinion, the preliminary allocation is not
expected to be materially different from the final allocation. The estimated
excess of cost over fair values of net assets acquired (goodwill) is being
amortized over a 40-year period in accordance with the provisions of APB No.
17. See Note 2 to the Company's Consolidated Financial Statements for
information regarding the Company's periodic evaluation of recorded goodwill
amounts and the related amortization period. Additionally represents the
effect of refinancing the "Old Credit Agreement" with the "Credit Agreement"
as described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
P-5
<PAGE> 128
(H) Represents an adjustment to reflect the conversion of 2,000,000 shares of
Series A Preferred Stock and 1,071,438 shares of Series B Preferred Stock
into 2,000,000 and 1,339,297 shares of Common Stock, respectively and the
exercise of warrants to purchase 150,000 shares of Common Stock at an
exercise price of $2.00 per share. See "Description of Capital
Stock -- Offering Related Transactions."
(I) Adjustments for this offering include the issuance of 3,000,000 shares of
Common Stock offered by the Company hereby and the retirement of
approximately $26.4 million of indebtedness outstanding under the Company's
credit facility. See "Use of Proceeds".
P-6
<PAGE> 129
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 11
Dividend Policy........................ 11
Capitalization......................... 12
Dilution............................... 13
Selected Consolidated Financial Data... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 15
Business............................... 21
Management............................. 30
Certain Transactions................... 35
Principal and Selling Stockholders..... 36
Description of Capital Stock........... 37
Shares Eligible for Future Sale........ 40
Underwriting........................... 42
Legal Matters.......................... 43
Experts................................ 43
Additional Information................. 43
Index to Financial Statements.......... F-1
</TABLE>
---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,250,000 SHARES
[HEALTHCOR HOLDINGS LOGO]
HEALTHCOR HOLDINGS, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
ALEX. BROWN & SONS
INCORPORATED
BEAR, STEARNS & CO. INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the registrant in connection with the
registration, issuance and distribution of the Common Stock offered hereby,
other than underwriting discounts and commissions, are as follows.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 18,938
NASD filing fee........................................................... 6,000
Nasdaq National Market listing fee........................................ 41,380
Printing and engraving expenses........................................... 125,000
Legal fees and expenses................................................... 200,000
Accounting fees and expenses.............................................. 150,000
Fees and expenses of Transfer Agent....................................... 50,000
"Blue Sky" fees and expenses (including legal fees)....................... 20,000
Miscellaneous expenses.................................................... 88,682
--------
Total........................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of the registrant's Amended and Restated Certificate of
Incorporation provides that the registrant shall indemnify its officers and
directors to the maximum extent allowed by the Delaware General Corporation Law.
Pursuant to Section 145 of the Delaware General Corporation Law, the registrant
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best interests
of the registrant, and with respect to any criminal action, so long as they had
no reasonable cause to believe their conduct was unlawful. With respect to suits
by or in the right of the registrant, however, indemnification is generally
limited to attorneys' fees and other expenses and is not available if the person
is adjudged to be liable to the registrant, unless the court determines that
indemnification is appropriate. The statute expressly provides that the power to
indemnify authorized thereby is not exclusive of any rights granted under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.
The registrant also has the power to purchase and maintain insurance for its
directors and officers. Additionally, Article Eighth of the Company's Amended
and Restated Certificate of Incorporation provides that, in the event that an
officer or director files suit against the registrant seeking indemnification of
liabilities or expenses incurred, the burden will be on the registrant to prove
that the indemnification would not be permitted under the Delaware General
Corporation Law.
The preceding discussion of the registrant's Amended and Restated
Certificate of Incorporation and Section 145 of the Delaware General Corporation
Law is not intended to be exhaustive and is qualified in its entirety by the
Amended and Restated Certificate of Incorporation and Section 145 of the
Delaware General Corporation Law.
The registrant intends to enter into indemnification agreements with the
registrant's directors and officers. Pursuant to such agreements, the registrant
will, to the extent permitted by applicable law, indemnify such persons against
all expenses, judgments, fines and penalties incurred in connection with the
defense or settlement of any actions brought against them by reason of the fact
that they were directors or officers of the registrant or assumed certain
responsibilities at the direction of the registrant.
The form of Underwriting Agreement included as Exhibit 1.1 provides for
indemnification of the registrant and certain controlling persons under certain
circumstances, including indemnification for liabilities under the Securities
Act of 1933.
II-1
<PAGE> 131
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All securities described below were sold in reliance upon the exemption
from registration under the Securities Act provided by sections 3(a)(11), 3(b)
and/or 4(2) of the Securities Act and the rules promulgated thereunder.
1. Since June 1, 1992, the Company has periodically issued and
contributed an aggregate of 435,717 shares of Common Stock to the Company's
ESOP. Participation in the ESOP by the Company's employees is mandatory and
non-contributory. Accordingly, these contributions do not involve a sale of
securities.
2. On May 14, 1993, the Company issued and sold 25,000 shares of
Common Stock at an exercise price of $0.80 per share, to an individual
exercising stock options granted to such individual pursuant to the 1989
Stock Option Plan. In issuing such securities, the Company relied upon the
exemption from registration and prospectus delivery requirements of the
Securities Act provided by Section 4(2) and Rule 701 promulgated
thereunder.
3. On November 16, 1994, the Company issued, in connection with an
acquisition, a warrant to purchase 25,000 shares of Common Stock at an
exercise price of $2.00 per share. In issuing such securities, the Company
relied upon the exemption from registration and prospectus delivery
requirements of the Securities Act provided by Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 Amended and Restated Bylaws of the Company.
*4.1 Specimen Stock Certificate of the Company.
+4.2 Credit Agreement by and between the Company and Texas Commerce Bank
National Association, dated May 16, 1996.
*5.1 Opinion of Vinson & Elkins L.L.P.
+10.1 Registration Rights Agreement, dated as of June 1, 1992 between the
Company and certain stockholders of the Company.
*10.2 HealthCor Holdings, Inc. 1989 Stock Option Plan effective October 18,
1989.
*10.3 HealthCor Holdings, Inc. 1996 Long-Term Incentive Plan effective June
24, 1996.
*10.4 HealthCor Holdings, Inc. Employee Stock Ownership Plan and Trust, dated
April 1, 1990, as amended.
*10.5 Warrant Agreement among the Company and certain individuals to purchase
Common Stock of the Company, dated as of June 1, 1992.
+10.6 Warrant Agreement between the Company and an individual to purchase
Company Stock of the Company, dated as of November 1, 1994.
*10.7 Form of Indemnification Agreement to be entered between the Company and
its executive officers and directors.
+10.8 Stock Purchase Agreement, dated April 15, 1995, regarding the
acquisition of all of the outstanding capital stock of I Care, Inc. and
I Care Home I.V. Affiliates, Inc. and the assets of I Care of Arkansas,
Inc.
+11.1 Statement concerning Computation of net income per common share.
</TABLE>
II-2
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
+21.1 List of Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Bell & Company.
*23.3 Consent of IFT & Barber, Chartered.
*23.4 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
+24.1 Power of Attorney (included on page II-4).
+27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
(b) Financial Statement Schedule.
Report of Independent Public Accountants on Schedule.
Schedule II -- Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on the 6th day of August, 1996.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
---------------------------------
S. Wayne Bazzle
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------- ------------------------------ ---------------
<C> <S> <C>
/s/ S. WAYNE BAZZLE Chairman of the Board, Chief August 6, 1996
- --------------------------------------------- Executive Officer and
S. Wayne Bazzle Director (Principal
Executive Officer)
* President, Chief Operating August 6, 1996
- --------------------------------------------- Officer and Director
Cheryl C. Bazzle
* Vice President and Treasurer August 6, 1996
- --------------------------------------------- (Principal Financial and
Susan L. Belske Accounting Officer)
* Director August 6, 1996
- ---------------------------------------------
Michael J. Foster
* Director August 6, 1996
- ---------------------------------------------
Robert B. Crates
/s/ S. WAYNE BAZZLE Attorney-in-fact* August 6, 1996
- ---------------------------------------------
S. Wayne Bazzle
</TABLE>
II-4
<PAGE> 134
July 29, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HealthCor Holdings, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of HealthCor Holdings, Inc. and subsidiaries
included in this registration statement and have issued our report dated March
29, 1996 (except as to paragraph 3 in Note 12 for which the date is July 26,
1996).
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements are presented for purposes of complying with the Securities
and Exchange Commissions rules and are not part of the basis financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 29, 1996
S-1
<PAGE> 135
SCHEDULE II
HEALTHCOR HOLDINGS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- --------------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
December 31, 1993:
Allowance for Doubtful Accounts...... $1,333,000 $1,317,000 $ (836,000)(b)(c) $1,814,000
Accumulated Amortization of
Intangible Assets................. 239,000 233,000 -- 472,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $1,572,000 $1,550,000 $ (836,000) $2,286,000
========== ========== =========== ==========
December 31, 1994:
Allowance for Doubtful Accounts...... $1,814,000 $1,116,000 $(1,645,000)(b)(c) $1,285,000
Accumulated Amortization of
Intangible Assets................. 472,000 245,000 -- 717,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $2,286,000 $1,361,000 $(1,645,000) $2,002,000
========== ========== =========== ==========
December 31, 1995:
Allowance for Doubtful Accounts...... $1,285,000 $1,489,000 $ (718,000)(b)(c) $2,056,000
Accumulated Amortization of
Intangible Assets................. 717,000 469,000 -- 1,186,000
---------- ---------- ----------- ----------
Total Reserves and
Allowances................. $2,002,000 $1,958,000 $ 718,000 $3,242,000
========== ========== =========== ==========
</TABLE>
- ---------------
(a) This schedule should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto.
(b) Recovery of bad debt write-off.
(c) Write off of uncollectible receivables.
S-2
<PAGE> 136
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------------------- ------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of the Company.
*3.2 Amended and Restated Bylaws of the Company.
*4.1 Specimen Stock Certificate of the Company.
+4.2 Credit Agreement by and between the Company and Texas Commerce Bank
National Association, dated May 16, 1996.
*5.1 Opinion of Vinson & Elkins L.L.P.
+10.1 Registration Rights Agreement, dated as of June 1, 1992 between the
Company and certain stockholders of the Company.
*10.2 HealthCor Holdings, Inc. 1989 Stock Option Plan effective October 18,
1989.
*10.3 HealthCor Holdings, Inc. 1996 Long-Term Incentive Plan effective June
24, 1996.
*10.4 HealthCor Holdings, Inc. Employee Stock Ownership Plan and Trust, dated
April 1, 1990, as amended.
*10.5 Warrant Agreement among the Company and certain individuals to purchase
Common Stock of the Company, dated as of June 1, 1992.
+10.6 Warrant Agreement between the Company and an individual to purchase
Company Stock of the Company, dated as of November 1, 1994.
*10.7 Form of Indemnification Agreement to be entered between the Company and
its executive officers and directors.
+10.8 Stock Purchase Agreement, dated April 15, 1995, regarding the
acquisition of all of the outstanding capital stock of I Care, Inc. and
I Care Home I.V. Affiliates, Inc. and the assets of I Care of Arkansas,
Inc.
+11.1 Statement concerning Computation of net income per common share.
+21.1 List of Subsidiaries of the Company.
*23.1 Consent of Arthur Andersen LLP.
*23.2 Consent of Bell & Company.
*23.3 Consent of IFT & Barber, Chartered.
*23.4 Consent of Vinson & Elkins L.L.P. (included in Exhibit 5.1).
+24.1 Power of Attorney (included on page II-4).
+27.1 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
DRAFT OF
7/23/96
3,250,000 Shares
HealthCor Holdings, Inc.
Common Stock
($0.01 Par Value)
UNDERWRITING AGREEMENT
August ___, 1996
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
As Representatives of the
Several Underwriters
c/o Alex. Brown & Sons Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Gentlemen:
HealthCor Holdings, Inc., a Delaware corporation (the "COMPANY"), and
certain stockholders of the Company (the "SELLING STOCKHOLDERS") propose to
sell to the several underwriters (the "UNDERWRITERS") named in Schedule I
hereto for whom you are acting as representatives (the "REPRESENTATIVES") an
aggregate of 3,250,000 shares of the Company's Common Stock, $0.01 par value
(the "FIRM SHARES"), of which 3,000,000 shares will be sold by the Company and
250,000 shares will be sold by the Selling Stockholders. The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the respective amounts
to be sold by the Selling Stockholders are set forth opposite their names in
Schedule II hereto. The Company and the Selling Stockholders are sometimes
referred to herein collectively as the "SELLERS." The Company and certain
Selling Stockholders also propose to sell at the Underwriters' option (the
"OVER-ALLOTMENT OPTION") an aggregate of up to 487,500 additional shares (the
"OPTION SHARES") of the Company's Common Stock as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (i) that you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (ii) that the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their pro
rata portion of the Option Shares if you elect to exercise the Over-allotment
Option in whole or
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in part for the accounts of the several Underwriters. The Firm Shares and the
Option Shares (to the extent the Over-allotment Option is exercised) are herein
collectively called the "SHARES."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1 (File No.
333-5779) with respect to the Shares has been carefully prepared by the
Company in conformity with the requirements of the Securities Act of
1933, as amended (the "ACT"), and the Rules and Regulations (the "RULES
AND REGULATIONS") of the Securities and Exchange Commission (the
"COMMISSION") thereunder and has been filed with the Commission.
Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the
Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have
heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the
Company pursuant to Rule 462 (b) of the Act, is herein referred to as
the "REGISTRATION STATEMENT," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A under the Act
and contained in the Prospectus referred to below, has become effective
under the Act and no post-effective amendment to the Registration
Statement has been filed as of the date of this Agreement.
"PROSPECTUS" means (A) the form of prospectus first filed with the
Commission pursuant to Rule 424(b) or (B) the last preliminary
prospectus included in the Registration Statement filed prior to the
time it becomes effective or filed pursuant to Rule 424(a) under the
Act that is delivered by the Company to the Underwriters for delivery
to purchasers of the Shares. Each preliminary prospectus included in
the Registration Statement prior to the time it becomes effective is
herein referred to as a "PRELIMINARY PROSPECTUS."
(ii) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. Each of the subsidiaries of the Company as listed in
Exhibit A hereto (collectively, the "SUBSIDIARIES") has been duly
organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Subsidiaries
are the only subsidiaries, direct or indirect, of the Company. The
Company and each of the Subsidiaries are duly qualified to transact
business in all jurisdictions in which the conduct of their business
requires such qualification, other than those jurisdictions in which
the failure to qualify would not have a material adverse effect upon
the business or operations of the Company and the Subsidiaries taken as
a whole. The outstanding
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shares of capital stock of each of the Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable and,
except as set forth in Exhibit A hereto, are owned by the Company or
another Subsidiary free and clear of all liens, encumbrances and
equities and claims; no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in the
Subsidiaries have been issued or are outstanding.
(iii) The outstanding shares of Common Stock of the Company,
including all shares to be sold by the Selling Stockholders, have been
duly authorized and validly issued and are fully paid and non-
assessable; the portion of the Shares to be issued and sold by the
Company have been duly authorized and when issued and paid for as
contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof, except the
right of each stockholder of the Company described in Section 6.3 of
the Company's Amended and Restated Certificate of Incorporation, which
right shall be waived or extinguished on or prior to the Closing Date
referred to below. Neither the filing of the Registration Statement
nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the
Shares conform to the description thereof contained in the Registration
Statement. The form of certificates for the Shares conforms to the
corporate law of the jurisdiction of the Company's incorporation.
(v) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering
of the Shares nor instituted proceedings for that purpose. The
Registration Statement contains, and the Prospectus and any amendments
or supplements thereto will contain, all statements which are required
to be stated therein by, and will conform to the requirements of the
Act and the Rules and Regulations in all material respects. The
Registration Statement and any amendment thereto do not contain, and
will not contain, any untrue statement of a material fact and do not
omit, and will not omit, to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, however, that the Company makes no representation
or warranty concerning the information contained in the Prospectus
forming a part of the Registration Statement, or any amendment thereto,
under the caption "Underwriting." The Prospectus and any amendments
and supplements thereto do not contain, and will not contain, any
untrue statement of material fact; and do not omit, and will not omit,
to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
Company makes no representations or warranties as to information
contained in the Prospectus under the caption "Underwriting" and the
other information described in Section 13 hereof.
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(vi) The consolidated financial statements of the Company
and the Subsidiaries, together with related notes and schedules as set
forth in the Registration Statement, present fairly the financial
position and the results of operations and cash flows of the Company
and the consolidated Subsidiaries, at the indicated dates and for the
indicated periods. Such financial statements and related schedules
have been prepared in accordance with generally accepted principles of
accounting, consistently applied throughout the periods involved,
except as disclosed therein, and all adjustments necessary for a fair
presentation of results for such periods have been made. The summary
financial and statistical data included in the Registration Statement
presents fairly the information shown therein and such data has been
compiled on a basis consistent with the financial statements presented
therein and the books and records of the Company. The pro forma
financial statements and other pro forma financial information included
in the Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, have been properly compiled on the pro forma bases
described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
(vii) Arthur Andersen, LLP, Bell & Company and Ift & Barber,
Chartered, who have certified certain of the financial statements filed
with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the Rules and
Regulations.
(viii) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company or
any of the Subsidiaries before any court or administrative agency or
otherwise which if determined adversely to the Company or any of its
Subsidiaries might result in any material adverse change in the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and of the Subsidiaries taken as a whole or to prevent the
consummation of the transactions contemplated hereby and the Company
has no reason to believe that any facts or circumstances exist which
could give rise to any governmental proceeding against the Company
which could have a material adverse effect on the Company, except, in
each case, as set forth in the Registration Statement.
(ix) The Company and the Subsidiaries have good and
marketable title to all of the properties and assets reflected in the
financial statements (or as described in the Registration Statement)
hereinabove described, subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except those reflected in such financial
statements (or as described in the Registration Statement) or which are
not material in amount. The Company and the Subsidiaries occupy their
leased properties under valid and binding leases conforming in all
material respects to the description thereof set forth in the
Registration Statement.
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(x) The Company and the Subsidiaries have filed all
Federal, State, local and foreign income tax returns which have been
required to be filed and have paid all taxes indicated by said returns
and all assessments received by them or any of them to the extent that
such taxes have become due and are not being contested in good faith.
All tax liabilities have been adequately provided for in the financial
statements of the Company.
(xi) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or
affecting the earnings, business, management, properties, assets,
rights, operations, condition (financial or otherwise), or prospects of
the Company and its Subsidiaries taken as a whole, whether or not
occurring in the ordinary course of business, and there has not been
any material transaction entered into or any material transaction that
is probable of being entered into by the Company or the Subsidiaries,
other than transactions in the ordinary course of business and changes
and transactions described in the Registration Statement, as it may be
amended or supplemented. The Company and the Subsidiaries have no
material contingent obligations which are not disclosed in the
Company's financial statements which are included in the Registration
Statement.
(xii) Neither the Company nor any of the Subsidiaries is or
with the giving of notice or lapse of time or both, will be, in
violation of or in default under its certificate of incorporation or
by-laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any
of its properties, is bound and which default is of material
significance in respect of the condition, financial or otherwise of the
Company and its Subsidiaries taken as a whole or the business,
management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company and the
Subsidiaries taken as a whole. The execution and delivery of this
Agreement and the consummation of the transactions herein contemplated
and the fulfillment of the terms hereof will not conflict with or
result in a breach of any of the terms or provisions of, or constitute
a default under, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a
party or of the Amended and Restated Certificate of Incorporation or
by-laws of the Company or any order, rule or regulation applicable to
the Company or any Subsidiary of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body necessary in connection with
the execution and delivery by the Company of this Agreement and the
consummation of the transactions herein contemplated (except such
additional steps as may be required by the National Association of
Securities Dealers, Inc. (the "NASD") or such additional steps as may
be necessary to qualify the Shares for public offering by the
Underwriters under state securities or Blue Sky laws) has been obtained
or made and is in full force and effect.
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(xiv) The Company and each of the Subsidiaries holds all
material licenses, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses; and
neither the Company nor any of the Subsidiaries has infringed any
patents, patent rights, trade names, trademarks or copyrights, which
infringement is material to the business of the Company and the
Subsidiaries taken as a whole. The Company knows of no material
infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xv) Neither the Company, nor any of its Subsidiaries, has
taken or may take, directly or indirectly, any action designed to cause
or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price
of the Shares of Common Stock to facilitate the sale or resale of the
Shares. The Company acknowledges that the Underwriters may engage in
passive market making transactions in the Shares on The Nasdaq Stock
Market in accordance with Rule 10b-6A under the Exchange Act.
(xvi) Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(xvii) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xviii) The Company and each of its Subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the value
of their respective properties and as is customary for companies
engaged in similar industries.
(xix) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "CODE"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has
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occurred, whether by action or by failure to act, which would cause the
loss of such qualification.
(xx) The Company confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba, and the Company further agrees that if it commences engaging in
business with the government of Cuba or with any person or affiliate
located in Cuba after the date the Registration Statement becomes or
has become effective with the Commission or with the Florida Department
of Banking and Finance (the "DEPARTMENT"), whichever date is later, or
if the information reported or incorporated by reference in the
Prospectus, if any, concerning the Company's business with Cuba or with
any person or affiliate located in Cuba changes in any material way,
the Company will provide the Department notice of such business or
change, as appropriate, in a form acceptable to the Department.
(xxi) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance
in all material respects with all applicable federal, state, local laws
and regulations respecting employment and employment practices, terms
and conditions of employment and wages and hours, the failure to comply
with which could reasonably be expected to have a material adverse
effect on the Company and the Subsidiaries taken as a whole. There are
no pending investigations of which the Company is aware involving the
Company, by the U.S. Department of Labor, or any other governmental
agency responsible for the enforcement of such federal, state or local
laws and regulations. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or, to the Company's knowledge, threatened against or
involving the Company, or any predecessor entity, and none has ever
occurred. No representation question exists respecting the employees
of the Company, and no collective bargaining agreement or modification
thereof is currently being negotiated by the Company. No material
labor dispute with the employees of the Company exists, or, to the
Company's knowledge, is imminent.
(b) Each of the Selling Stockholders severally represents
and warrants to each of the Underwriters as follows:
(i) Such Selling Stockholder now has and at the Closing
Date and the Option Closing Date, as the case may be (as such dates are
hereinafter defined) will have good and marketable title to the Firm
Shares and the Option Shares to be sold by such Selling Stockholder,
free and clear of any liens, encumbrances, equities and claims, and
full right, power and authority to effect the sale and delivery of such
Firm Shares and Option Shares; and upon the delivery of, against
payment for, such Firm Shares and Option Shares pursuant to this
Agreement, the Underwriters will acquire good and marketable title
thereto, free and clear of any liens, encumbrances, equities and
claims.
(ii) Such Selling Stockholder has full right, power and
authority to execute and deliver this Agreement, the Power of Attorney,
and the Custody Agreement referred to
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below and to perform its obligations under such Agreements. The
execution and delivery of this Agreement and the consummation by such
Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not
require any consent, approval, authorization, or other order of any
court, regulatory body, administrative agency or other governmental
body (except as may be required under the Act, state securities laws or
Blue Sky laws or by the NASD) and will not result in a breach of any of
the terms and provisions of, or constitute a default under,
organizational documents of such Selling Stockholder, if not an
individual, or any material indenture, mortgage, deed of trust or other
agreement or instrument to which such Selling Stockholder is a party,
or of any order, rule or regulation applicable to such Selling
Stockholder of any court or of any regulatory body or administrative
agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not
take, directly or indirectly, any action designed to, or which has
constituted, or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of the Common Stock
of the Company and, other than as permitted by the Act, the Selling
Stockholder will not distribute any prospectus or other offering
material in connection with the offering of the Shares.
(iv) Without having undertaken to determine independently
the accuracy or completeness of the representations and warranties of
the Company contained herein or the information contained in the
Registration Statement (other than the information contained therein
relating to such Selling Stockholder), such Selling Stockholder has no
reason to believe that the representations and warranties of the
Company contained in this Section 1 are not true and correct, is
familiar with the Registration Statement and has no knowledge of any
material fact, condition or information not disclosed in the
Registration Statement which has adversely affected or may adversely
affect the business of the Company or any of the Subsidiaries taken as
a whole; and the sale of the Firm Shares and the Option Shares by such
Selling Stockholder pursuant hereto is not prompted by any information
concerning the Company or any of the Subsidiaries which is not set
forth in the Registration Statement. The information pertaining to
such Selling Stockholder under the caption "Selling Stockholders" in
the Prospectus is complete and accurate in all respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set
forth, the Sellers agree to sell to the Underwriters and each
Underwriter agrees, severally and not jointly, to purchase, at a price
of $_____ per share, the number of Firm Shares set forth opposite the
name of each Underwriter in Schedule I hereof, subject to adjustments
in accordance with Section 9 hereof. The number of Firm Shares to be
purchased by each Underwriter from each Seller shall be as nearly as
practicable in the same proportion to the total number of Firm Shares
being sold by each Seller as the number of Firm Shares being purchased
by each Underwriter bears to the total number of Firm Shares to be sold
hereunder. The
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obligations of the Company and of each of the Selling Stockholders
shall be several and not joint.
(b) Certificates in negotiable form for the total number
of the Shares to be sold hereunder by the Selling Stockholders have
been placed in custody with S. Wayne Bazzle or Cheryl C. Bazzle as
custodian (the "CUSTODIAN") pursuant to the Custody Agreement executed
by each Selling Stockholder for delivery of all Firm Shares and any
Option Shares to be sold hereunder by the Selling Stockholders. Each
of the Selling Stockholders specifically agrees that the Firm Shares
and any Option Shares represented by the certificates held in custody
for the Selling Stockholders under the Custody Agreement are subject to
the interests of the Underwriters hereunder, that the arrangements made
by the Selling Stockholders for such custody are to that extent
irrevocable, and that the obligations of the Selling Stockholders
hereunder shall not be terminable by any act or deed of the Selling
Stockholders (or by any other person, firm or corporation including the
Company, the Custodian or the Underwriters) or by operation of law
(including the death of an individual Selling Stockholder or the
dissolution of a corporate Selling Stockholder) or by the occurrence of
any other event or events, except as set forth in the Custody Agreement
or Section 7 hereof. If any such event should occur prior to the
delivery to the Underwriters of the Firm Shares or the Option Shares
hereunder, certificates for the Firm Shares or the Options Shares, as
the case may be, shall be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such event has not
occurred. The Custodian is authorized to receive and acknowledge
receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
(c) Payment for the Firm Shares to be sold hereunder is to
be made in New York Clearing House funds by certified or bank cashier's
checks drawn to the order of the Company for the shares to be sold by
it and to the order of S. Wayne Bazzle or Cheryl C. Bazzle, "as
Custodian" for the shares to be sold by the Selling Stockholders, in
each case against delivery of certificates therefor to the
Representatives for the several accounts of the Underwriters. Such
payment and delivery are to be made at the offices of Alex. Brown &
Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at
10:00 a.m., Baltimore time, on the third business day after the date of
this Agreement or at such other time and date not later than five
business days thereafter as you and the Company shall agree upon, such
time and date being herein referred to as the "CLOSING DATE." (As used
herein, "business day" means a day on which the New York Stock Exchange
is open for trading and on which banks in New York are open for
business and not permitted by law or executive order to be closed.)
The certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives request
in writing not later than the second full business day prior to the
Closing Date, and will be made available for inspection by the
Representatives at least one business day prior to the Closing Date.
(d) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions
herein set forth, the Company and the Selling Stockholders listed on
Schedule III hereto hereby grant an option to the several Underwriters
to purchase the Option Shares at the price per share as set forth in
the first
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paragraph of this Section 2. The maximum number of Option Shares to be
sold by the Company and the Selling Stockholders is set forth opposite
their respective names on Schedule III hereto. The option granted
hereby may be exercised in whole or in part by giving written notice
(i) at any time before the Closing Date and (ii) only once thereafter
within 30 days after the date of this Agreement, by you, as
Representatives of the several Underwriters, to the Company, the
Attorney-in-Fact, and the Custodian setting forth the number of Option
Shares as to which the several Underwriters are exercising the option,
the names and denominations in which the Option Shares are to be
registered and the time and date at which such certificates are to be
delivered. If the option granted hereby is exercised in part, the
respective number of Option Shares to be sold by the Company and each
of the Selling Stockholders listed in Schedule III hereto shall be
determined on a pro rata basis in accordance with the percentages set
forth opposite their names on Schedule II hereto, adjusted by you in
such manner as to avoid fractional shares. The time and date at which
certificates for Option Shares are to be delivered shall be determined
by the Representatives but shall not be earlier than three nor later
than 10 full business days after the exercise of such option, nor in
any event prior to the Closing Date (such time and date being herein
referred to as the "OPTION CLOSING DATE"). If the date of exercise of
the option is three or more days before the Closing Date, the notice of
exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in
the same proportion to the total number of Option Shares being
purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you
in such manner as to avoid fractional shares. The option with respect
to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such
option at any time prior to its expiration by giving written notice of
such cancellation to the Company and the Attorney-in-Fact. To the
extent, if any, that the option is exercised, payment for the Option
Shares shall be made on the Option Closing Date in New York Clearing
House funds by certified or bank cashier's check drawn to the order of
the Company for the Option Shares to be sold by it and to the order of
S. Wayne Bazzle or Cheryl C. Bazzle, as Custodian," for the Option
Shares to be sold by the Selling Stockholders against delivery of
certificates therefor at the offices of Alex. Brown & Sons
Incorporated, 135 East Baltimore Street, Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the
case may be, any Selling Stockholder fails to sell the Firm Shares or
Option Shares which such Selling Stockholder has agreed to sell on such
date as set forth in Schedule II hereto, the Company agrees that it
will sell or arrange for the sale of that number of shares of Common
Stock to the Underwriters which represents Firm Shares or the Option
Shares which such Selling Stockholder has failed to so sell, as set
forth in Schedule II hereto, or such lesser number as may be requested
by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem
it advisable to do so. The Firm Shares are to be initially offered to
the public at the initial public offering price set forth in the
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Prospectus. The Representatives may from time to time thereafter
change the public offering price and other selling terms. To the
extent, if at all, that any Option Shares are purchased pursuant to
Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the
Shares in accordance with a Master Agreement Among Underwriters entered
into by you and the several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule
430A of the Rules and Regulations is followed, to prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations
a Prospectus in a form approved by the Representatives containing
information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Rules and
Regulations, and (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives
shall not previously have been advised and furnished with a copy or to
which the Representatives shall have reasonably objected in writing or
which is not in compliance with the Rules and Regulations and (C) file
on a timely basis all reports and any definitive proxy or information
statements required to be filed by the Company with the Commission
subsequent to the date of the Prospectus and prior to the termination
of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly
(A) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (B) of receipt of any comments
from the Commission, (C) of any request of the Commission for amendment
of the Registration Statement or for supplement to the Prospectus or
for any additional information, and (D) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose. The Company will use
its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of
such jurisdictions as the Representatives may reasonably have
designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required
for that purpose, provided the Company shall not be required to qualify
as a foreign corporation or to file a general consent to service of
process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time,
prepare and file such statements, reports, and other documents, as are
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<PAGE> 12
or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for
distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company
will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The
Company will deliver to the Representatives at or before the Closing
Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will
deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits
filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934 (the "EXCHANGE
ACT"), and the rules and regulations of the Commission thereunder, so
as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the
period in which a Prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in
the judgment of the Company or in the reasonable opinion of the
Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend
or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus
so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or
so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any
event not later than 15 months after the effective date of the
Registration Statement, an earning statement (which need not be
audited) in reasonable detail, covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been
so made available.
(vii) The Company will, for a period of five years from the
Closing Date, deliver to the Representatives copies of annual reports
and copies of all other documents, reports and information furnished by
the Company to its stockholders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Securities Exchange Act of 1934, as amended.
The Company will deliver to the Representatives similar reports with
respect to
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<PAGE> 13
significant subsidiaries, as that term is defined in the Rules and
Regulations, which are not consolidated in the Company's financial
statements.
(viii) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common
Stock or derivative of Common Stock (or agreement for such) (other
than pursuant to the Company's incentive and qualified stock option
plan, employee stock ownership plan, and deferred compensation plan or
upon the conversion, exchange, or exercise of convertible or
exchangeable securities (including warrants) outstanding as of the date
of this Agreement) will be made for a period of 180 days after the date
of this Agreement, directly or indirectly, by the Company otherwise
than hereunder or with the prior written consent of Alex. Brown & Sons
Incorporated.
(ix) The Company will use its best efforts to list, subject
to notice of issuance, the Shares on The Nasdaq Stock Market.
(x) The Company has caused each officer and director and
certain stockholders of the Company to furnish to you, on or prior to
the date of this agreement, a letter or letters, in form and substance
satisfactory to the Underwriters, pursuant to which each such person
shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the
Company, or any other securities convertible, exchangeable or
exercisable for Common Shares or derivative of Common Shares (other
than pursuant to the Company's incentive and qualified stock option
plan, employee stock ownership plan, and deferred compensation plan or
upon the conversion, exchange, or exercise of convertible or
exchangeable securities (including warrants) outstanding as of the date
of this Agreement) owned by such person or request the registration for
the offer or sale of any of the foregoing (or as to which such person
has the right to direct the disposition of) for a period of 180 days
after the date of this Agreement, directly or indirectly, except with
the prior written consent of Alex. Brown & Sons Incorporated ("LOCKUP
AGREEMENTS").
(xi) The Company shall apply the net proceeds of its sale
of the Shares as set forth in the Prospectus and shall file such
reports with the Commission with respect to the sale of the Shares and
the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use, the
proceeds received by the Company from its sale of the Shares in such a
manner as would require the Company or any of the Subsidiaries to
register as an investment company under the Investment Company Act of
1940, as amended (the "1940 ACT").
(xiii) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a
registrar for the Common Stock.
(xiv) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company.
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<PAGE> 14
(b) Each of the Selling Stockholders covenants and agrees
with the several Underwriters that:
(i) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other capital stock of
the Company or other securities convertible, exchangeable or
exercisable for Common Stock or derivative of Common Stock owned by the
Selling Stockholder (other than pursuant to the Company's incentive and
qualified stock option plan, employee stock ownership plan, and
deferred compensation plan or upon the conversion, exchange, or
exercise of convertible or exchangeable securities (including warrants)
outstanding as of the date of this Agreement) or request the
registration for the offer or sale of any of the foregoing (or as to
which the Selling Stockholder has the right to direct the disposition
of) will be made for a period of 180 days after the date of this
Agreement, directly or indirectly, by such Selling Stockholder
otherwise than hereunder or with the prior written consent of Alex.
Brown & Sons Incorporated.
(ii) In order to document the Underwriters' compliance with
the reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 and the Interest and Dividend Tax Compliance
Act of 1983 with respect to the transactions herein contemplated, each
of the Selling Stockholders agrees to deliver to you prior to or at the
Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form or statement specified by
Treasury Department regulations in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has
constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any securities of the
Company.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the
following: accounting fees of the Company; the fees and disbursements
of counsel for the Company and the Selling Stockholders; the cost of
printing and delivering to, or as requested by, the Underwriters copies
of the Registration Statement, Preliminary Prospectuses, the
Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Nasdaq Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing
fees of the Commission; the filing fees and expenses (including legal
fees and disbursements) incident to securing any required review by the
NASD of the terms of the sale of the Shares; the Listing Fee of the
Nasdaq Stock Market; and the expenses, including the reasonable fees
and disbursements of counsel for the Underwriters, incurred in
connection with the qualification of the Shares under State securities
or Blue Sky laws. To the extent, if at all, that any of the Selling
Stockholders engage special legal counsel to represent them in
connection with this offering, the fees and expenses of such counsel
shall be borne by such Selling Stockholder. Any transfer taxes imposed
on the sale of
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<PAGE> 15
the Shares to the several Underwriters will be paid by the Sellers pro
rata. The Company agrees to pay all costs and expenses of the
Underwriters, including the reasonable fees and disbursements of
counsel for the Underwriters, incident to the offer and sale of
directed shares of the Common Stock by the Underwriters to employees
and persons having business relationships with the Company and its
Subsidiaries. The Company shall not, however, be required to pay for
any of the Underwriters expenses (other than those related to
qualification under NASD regulation and State securities or Blue Sky
laws) except that, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11
hereof, or by reason of any failure, refusal or inability on the part
of the Company or the Selling Stockholders to perform any undertaking
or satisfy any condition of this Agreement or to comply with any of the
terms hereof on their part to be performed, unless such failure to
satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall
reimburse the several Underwriters for reasonable out-of-pocket
expenses, including reasonable fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company and the Selling Stockholders
shall not in any event be liable to any of the several Underwriters for
consequential damages including damages on account of loss of
anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the
Option Closing Date are subject to the accuracy, as of the Closing Date
or the Option Closing Date, as the case may be, of the representations
and warranties of the Company and the Selling Stockholders contained
herein, and to the performance by the Company and the Selling
Stockholders of their covenants and obligations hereunder and to the
following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made, and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise)
shall have been disclosed to the Representatives and complied with to
their reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to
time, shall have been issued and no proceedings for that purpose shall
have been taken or, to the knowledge of the Company or the Selling
Stockholders, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or
state court of competent jurisdiction shall have been issued as of the
Closing Date which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinion of
Vinson & Elkins L.L.P., counsel for the Company and the Selling
Stockholders, dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Underwriters (and stating that, to the
extent
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<PAGE> 16
stated in Section 6(c), it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; each of the Subsidiaries has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement; the Company and each of the
Subsidiaries are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification, and in which the failure to qualify would have a
materially adverse effect upon the business of the Company and the
Subsidiaries taken as a whole; and the outstanding shares of capital
stock of each of the Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and are owned of record by
the Company or a Subsidiary; and the outstanding shares of capital
stock of each of the Subsidiaries is owned free and clear of all liens,
encumbrances and equities and claims, and no options, warrants or other
rights to purchase, agreements or other obligations to issue or other
rights to convert any obligations into any shares of capital stock or
of ownership interests in the Subsidiaries are outstanding.
(ii) The Company has authorized and outstanding capital
stock as set forth in the Prospectus; the authorized shares of the
Company's Common Stock have been duly authorized; the outstanding
shares of the Company's Common Stock, including the Shares to be sold
by the Selling Stockholders, have been duly authorized and validly
issued and are fully paid and non-assessable; all of the Shares conform
to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with
the Commission, are in due and proper form; the shares of Common
Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be
validly issued, fully paid and non-assessable when issued and paid for
as contemplated by this Agreement; and no preemptive rights, rights of
first refusal or rights of co-sale of stockholders exist with respect
to any of the Shares or the issue or sale thereof other than rights
that have been waived, extinguished or satisfied.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or
evidencing the right to purchase or subscribe for any shares of capital
stock of the Company and there are no outstanding or authorized
options, warrants or rights of any character obligating the Company to
issue any shares of its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or subscribe for
any shares of such stock other than rights that have been waived,
extinguished or satisfied; and except as described in the Prospectus,
to the knowledge of such counsel, no holder of any securities of the
Company or any other person has the right, contractual or otherwise,
which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to
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<PAGE> 17
underwrite the sale of, any of the Shares or the right to have any
Common Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any
shares of Common Stock or other securities of the Company.
(iv) Such counsel has been advised by a member of the staff
of the Commission that the Registration Statement has become effective
under the Act and no stop order proceedings with respect thereto have
been instituted or are pending or threatened under the Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the applicable rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements financial information and
related schedules therein).
(vi) The statements under the captions "Description of
Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus,
insofar as such statements constitute a summary of documents referred
to therein or matters of law, fairly summarize in all material respects
the information called for with respect to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration
Statement or described in the Registration Statement or the Prospectus
which are no so filed or described as required, and such contracts and
documents as are summarized in the Registration Statement or the
Prospectus are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or
any of the Subsidiaries except as set forth in the Prospectus.
(ix) The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated do not and will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the Restated Certificate
of Incorporation or By-laws of the Company, the constituent documents
of any Subsidiary, or any agreement or instrument to which the Company
or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound that is (i) referenced in the
Registration Statement or the Prospectus, (ii) filed as an exhibit to
the Registration Statement or (iii) listed in a certificate of an
officer of the Company as being an agreement or instrument material to
the Company and its Subsidiaries taken as a whole..
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory,
administrative or other governmental body is necessary in connection
with the execution and delivery of this Agreement and the consummation
of the transactions herein contemplated (other than as may be required
by the NASD or
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<PAGE> 18
as required by State securities and Blue Sky laws as to which such
counsel need express no opinion) except such as have been obtained or
made, specifying the same.
(xii) The Company is not, and will not become, as a result
of the consummation of the transactions contemplated by this Agreement,
and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the
1940 Act.
(xiii) This Agreement has been duly authorized, executed and
delivered on behalf of the Selling Stockholders.
(xiv) Each Selling Stockholder has full legal right, power
and authority, and any approval required by law (other than as required
by State securities and Blue Sky laws or the NASD as to which such
counsel need express no opinion), to enter into this Agreement and
sell, assign, transfer and deliver in the manner provided in this
Agreement the portion of the Shares to be sold by such Selling
Stockholder.
(xv) The Custody Agreement and the Power of Attorney
executed and delivered by each Selling Stockholder is valid and
binding.
(xvi) The Underwriters (assuming that they are bona fide
purchasers within the meaning of the Uniform Commercial Code) have
acquired good and marketable title to the Shares being sold by each
Selling Stockholder on the Closing Date, and the Option Closing Date,
as the case may be, free and clear of all liens, encumbrances, equities
and claims.
(xvii) The Shares issued and sold by the Company and the
Shares sold by the Selling Stockholders have been authorized for
quotation on the Nasdaq National Market.
(xviii) In rendering such opinion Vinson & Elkins L.L.P. may
rely as to matters governed by the laws of states other than Delaware
or Federal laws on local counsel in such jurisdictions provided that in
each case Vinson & Elkins L.L.P. shall state that they believe that
they and the Underwriters are justified in relying on such other
counsel. In addition to the matters set forth above, such opinion
shall also include a statement to the effect that nothing has come to
the attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act
(but after giving effect to any modifications incorporated therein
pursuant to Rule 430A under the Act) and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (ii) the Prospectus, or any supplement thereto, on the
date it was filed pursuant to the Rules and Regulations and as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that
such counsel need express no view as to financial statements, schedules
and financial and other statistical information therein). With respect
to such statement, Vinson & Elkins L.L.P. may state that their
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<PAGE> 19
belief is based upon the procedure set forth therein, but is without
independent check and verification.
(c) The Representatives shall have received from Akin,
Gump, Strauss, Hauer & Feld, L.L.P. ("AGSH&F"), counsel for the
Underwriters, an opinion dated the Closing Date or the Option Closing
Date, as the case may be, substantially to the effect specified in
subparagraphs (ii), (iii), (iv) and (ix) of Paragraph (b) of this
Section 6, and that the Company is a duly organized and validly
existing corporation under the laws of the State of Delaware. In
rendering such opinion AGSH&F may rely as to all matters governed other
than by the laws of the State of Texas or Federal laws on the opinion
of counsel referred to in Paragraph (b) of this Section 6. In addition
to the matters set forth above, such opinion shall also include a
statement to the effect that nothing has come to the attention of such
counsel which leads them to believe that (i) the Registration
Statement, or any amendment thereto, as of the time it became effective
under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the
Closing Date or the Option Closing Date, as the case may be, contained
an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations
and as of the Closing Date or the Option Closing Date, as the case may
be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in
the light of the circumstances under which they are made, not
misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein).
With respect to such statement, Akin, Gump may state that their belief
is based upon the procedures set forth therein, but is without
independent check and verification.
(d) The Representatives shall have received at or prior to
the Closing Date from Akin, Gump a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares
under the State securities or Blue Sky laws of such jurisdictions as
the Representatives may reasonably have designated to the Company.
(e) You shall have received, on each of the dates hereof,
the Closing Date and the Option Closing Date, as the case may be, a
letter dated the date hereof, the Closing Date or the Option Closing
Date, as the case may be, in form and substance satisfactory to you, of
Arthur Andersen LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating that in their opinion the
financial statements and schedules examined by them and included in the
Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related published
Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters"
to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration
Statement and Prospectus.
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<PAGE> 20
(f) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Company, signed by the Chief Executive Officer and
the Chief Financial Officer of the Company, to the effect that, as of
the Closing Date or the Option Closing Date, as the case may be, each
of them severally represents as follows:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the
effectiveness of the Registrations Statement has been issued,
and no proceedings for such purpose have been taken or are, to
his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as
of the Closing Date or the Option Closing Date, as the case
may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the
Registration Statement and the Prospectus and, in his or her
opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration
Statement were true and correct, and such Registration
Statement and Prospectus did not omit to state a material fact
required to be stated therein or necessary in order to make
the statements therein not misleading, and since the effective
date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an
amendment of the Prospectus which has not been so set forth in
such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been any material adverse change or
any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise,
of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of
the Company and the Subsidiaries taken as a whole, whether or
not arising in the ordinary course of business.
(g) The Company and the Selling Stockholders shall have
furnished to the Representatives such further certificates and
documents confirming the representations and warranties, covenants and
conditions contained herein and related matters as the Representatives
may reasonably have requested.
(h) The Firm Shares and Option Shares have been approved
for listing upon notice of issuance on the Nasdaq Stock Market.
(i) The Lockup Agreements described in Section 4(j)(x) are
in full force and effect.
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The opinions and certificates mentioned in this Agreement
shall be deemed to be in compliance with the provisions hereof only if
they are in all material respects satisfactory to the Representatives
and to Akin, Gump, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters
hereunder may be terminated by the Representatives by notifying the
Company and the Selling Stockholders of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date,
as the case may be.
In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to
the extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
The obligations of the Company and the Selling Stockholders to
sell and deliver the portion of the Shares required to be delivered as
and when specified in this Agreement are subject to the conditions that
at the Closing Date or the Option Closing Date, as the case may be, no
stop order suspending the effectiveness of the Registration Statement
shall have been issued and in effect or proceedings therefor initiated
or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages or
liabilities to which such Underwriter or any such controlling person
may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and will
reimburse each Underwriter and each such controlling person upon demand
for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating or
defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Shares, whether or not such Underwriter
or controlling person is a party to any action or proceeding; provided,
however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon an untrue statement or alleged untrue statement, or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically
for use in the preparation
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<PAGE> 22
thereof. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.
(b) The Selling Stockholders, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of
or are based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse each Underwriter
and each such controlling person upon demand for any legal or other
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the Shares,
whether or not such Underwriter or controlling person is a party to any
action or proceeding; provided, however, that the Selling Stockholders
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof. In no event, however, shall the liability of any Selling
Stockholder for indemnification under this Section 8(a) exceed the
proceeds received by such Selling Stockholder from the Underwriters in
the offering. This indemnify agreement will be in addition to any
liability which the Selling Stockholders may otherwise have.
(c) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each of
its officers who have signed the Registration Statement, the Selling
Stockholders, and each person, if any, who controls the Company or the
Selling Stockholders within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such
director, officer, Selling Stockholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus or any amendment
or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such
director, officer, Selling Stockholder or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, action or proceeding; provided, however, that each
Underwriter will be liable in each case to the extent, but only to the
extent, that such
22
<PAGE> 23
untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance
upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to this Section 8, such person
(the "INDEMNIFIED PARTY") shall promptly notify the person against whom
such indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available
to any party who shall fail to give notice as provided in this Section
8(c) if the party to whom notice was not given was unaware of the
proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the failure to give
such notice shall not relieve the indemnifying party or parties from
any liability which it or they may have to the indemnified party for
contribution or otherwise than on account of the provisions of Section
8(a), (b) or (c). In case any such proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall
pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall
have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as
incurred (or within 30 days of presentation) the fees and expenses of
the counsel retained by the indemnified party in the event (i) the
indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iii) the indemnifying
party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time
after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all
such indemnified parties. Such firm shall be designated in writing by
you in the case of parties indemnified pursuant to Section 8(a) or 8(b)
and by the Company and the Selling Stockholders in the case of parties
indemnified pursuant to Section 8(c). The indemnifying party shall not
be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify
the indemnified party from and against any loss or liability by reason
of such settlement or judgment. In addition, the indemnifying party
will not, without the prior written consent of the indemnified party,
settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action
23
<PAGE> 24
or proceeding) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all liability
arising out of such claim, action or proceeding.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party
under Section 8(a), (b) or (c) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to
the amount paid or payable by such indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company, the Selling Stockholders and
the Underwriters from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not
permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company, the Selling Stockholders and the Underwriters
shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company
or the Selling Stockholders, as the case may be, bear to the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or the Selling
Stockholders or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contributions pursuant
to this Section 8(e) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(e). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the lesser of
(A) that proportion of the total of such losses, claims, damages or
liabilities indemnified or contributed against equal to the proportion
of the
24
<PAGE> 25
total Shares sold hereunder which is being sold by such Selling
Stockholder, or (B) the proceeds received by such Selling Stockholder
from the Underwriters in the offering. The Underwriters' obligations
in this Section 8(e) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement
or amendment thereto, each party against whom contribution may be
sought under this Section 8 hereby consents to the jurisdiction of any
court having jurisdiction over any other contributing party, agrees
that process issuing from such court may be served upon him or it by
any other contributing party and consents to the service of such
process and agrees that any other contributing party may join him or it
as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or
contribution under this Section 8 shall be paid by the indemnifying
party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred. The indemnity and contribution
agreements contained in this Section 8 and the representations and
warranties of the Company set forth in this Agreement shall remain
operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or
any persons controlling the Company, (ii) acceptance of any Shares and
payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be
entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion
of the Shares which such Underwriter has agreed to purchase and pay for
on such date (otherwise than by reason of any default on the part of
the Company or a Selling Stockholder), you, as Representatives of the
Underwriters, shall use your reasonable efforts to procure within 36
hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company and the Selling Stockholders such amounts
as may be agreed upon and upon the terms set forth herein, the Firm
Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option
Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares
with respect to which such default shall occur does not exceed 10% of
the Firm Shares or Option Shares, as the case may be, covered hereby,
the other Underwriters shall be obligated, severally, in proportion to
the respective numbers of Firm Shares or Option Shares, as the case may
be, which they are obligated to purchase hereunder, to purchase the
Firm Shares or Option Shares, as the case may be, which
25
<PAGE> 26
such defaulting Underwriter or Underwriters failed to purchase, or (b)
if the aggregate number of shares of Firm Shares or Option Shares, as
the case may be, with respect to which such default shall occur exceeds
10% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company and the Selling Stockholders or you as the
Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling
Stockholders except to the extent provided in Section 8 hereof. In the
event of a default by any Underwriter or Underwriters, as set forth in
this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as
you, as Representatives, may determine in order that the required
changes in the Registration Statement or in the Prospectus or in any
other documents or arrangements may be effected. The term
"UNDERWRITER" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve
any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except
as otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Alex.
Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore,
Maryland 21202, Attention: _______________ ; with a copy to Alex. Brown
& Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland
21202. Attention: General Counsel; if to the Company or the Selling
Stockholders, to S. Wayne Bazzle, HealthCor Holdings, Inc., 5720 LBJ
Freeway, Suite 550, Dallas, Texas 75240.
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or
(ii) 11:30 a.m. on the first business day following the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus,
any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole or the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial
26
<PAGE> 27
markets of the United States would, in your reasonable judgment, make
it impracticable to market the Shares or to enforce contracts for the
sale of the Shares, or (iii) suspension of trading in securities
generally on the New York Stock Exchange or the American Stock Exchange
or limitation on prices (other than limitations on hours or numbers of
days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority
which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or
New York State authorities, (vi) any downgrading in the rating of the
Company's debt securities by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Exchange Act); (vii) the suspension of trading of the Company's Common
Stock by the Commission on the Nasdaq Stock Market or (viii) the taking
of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a
material adverse effect on the securities markets in the United States;
or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters, the Company and the Selling Stockholders and their
respective successors, executors, administrators, heirs and assigns,
and the officers, directors and controlling persons referred to herein,
and no other person will have any right or obligation hereunder. No
purchaser of any of the Shares from any Underwriter shall be deemed a
successor or assign merely because of such purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Stockholders and the Underwriters
acknowledge and agree that the only information furnished or to be
furnished by any Underwriter to the Company for inclusion in any
Prospectus or the Registration Statement consists of the information
set forth in the last paragraph on the front cover page (insofar as
such information relates to the Underwriters), legends required by Item
502(d) of Regulation S-K under the Act and the information under the
caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any
investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its directors or
officers and (c) delivery of and payment for the Shares under this
Agreement.
27
<PAGE> 28
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.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders,
the Company and the several Underwriters in accordance with its terms.
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-Fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-Fact
to take such action.
28
<PAGE> 29
Very truly yours,
HEALTHCOR HOLDINGS, INC.
By:
----------------------------------------------
S. Wayne Bazzle
Chairman and Chief Executive Officer
Selling Stockholders listed on Schedule II hereto
By:
----------------------------------------------
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
As Representative of the several
Underwriters listed on Schedule I
By: Alex. Brown & Sons Incorporated
By:
----------------------------------------------
Authorized Officer
29
<PAGE> 30
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ------------------------
<S> <C>
Alex. Brown & Sons Incorporated
Bear, Stearns & Co. Inc.
----------
Total 3,250,000
</TABLE>
30
<PAGE> 31
SCHEDULE II
SCHEDULE OF SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
Number of
Selling Stockholder Firm Shares to be Sold
------------------- ----------------------------
<S> <C>
LKCM Venture Partners I, Ltd. 88,800
Shadana P. Attaluri 25,000
C. Al Buis 4,466
William G. Ritter 125,000
Breck Ray 4,500
Paul T. Stoffel 2,234
----------
Total 250,000
</TABLE>
31
<PAGE> 32
SCHEDULE III
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
-------------- ---------------- ---------------
<S> <C> <C>
HealthCor Holdings, Inc. 300,000 61.5
RFE Investment Partners IV, L.P. 176,300 36.2
LKCM Venture Partners I, Ltd. 11,200 2.3
-------- ----
Total 487,500 100%
----
</TABLE>
32
<PAGE> 33
Exhibit A
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY STATE OF INCORPORATION
- ---------- ----------------------
<S> <C>
HealthCor, Inc. Delaware
HealthCor Pharmacy, Inc. ("HealthCor Pharmacy") Texas
HealthCor Oxygen and Medical Equipment Holdings, Inc. Texas
("HealthCor OME Holdings")
HealthCor Rehabilitation Services, Inc. Texas
Physicians Home Health Network, Inc. Missouri
HealthCor Oxygen and Medical Equipment, Inc. Texas
("HealthCor OME") (a wholly-owned subsidiary of HealthCor
OME Holdings)
Ponca Medical Supply, Inc. (a wholly-owned subsidiary Oklahoma
of HealthCor OME)
McDuffies Rental, Inc. (a wholly-owned subsidiary of Texas
HealthCor OME)
RTA Homecare, Inc. (a wholly-owned subsidiary of HealthCor Arizona
OME)
RTA Infusion, Inc. (a wholly-owned subsidiary of HealthCor Arizona
Pharmacy)
Specialty Med-Equip, Inc. (a wholly-owned subsidiary of Texas
HealthCor OME)
Superior Med-Equip, Inc. (a wholly-owned subsidiary of Texas
HealthCor OME)
</TABLE>
33
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHCOR HOLDINGS, INC.
HealthCor Holdings, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby amend and restate in its entirety the Corporation's
Certificate of Incorporation, which was originally filed on May 11, 1989, and
thereafter amended and restated.
The undersigned hereby certifies that this Amended and Restated
Certificate of Incorporation has been duly adopted in accordance with Sections
228, 242 and 245 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation is HealthCor Holdings, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the registered agent of
the Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to
engage in any and all lawful acts and activities for which corporations may be
organized under the General Corporation Law of Delaware. The Corporation will
have perpetual existence.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is fifty million
(50,000,000), of which (a) forty million (40,000,000) shares shall be
designated as Common Stock, par value $.01 per share, and (b) ten million
(10,000,000) shares shall be designated as Preferred Stock, par value $1.00 per
share, 2,000,000 of which are hereby designated as Series A Convertible
Preferred Stock, par value $1.00 per share (the "Series A Preferred Stock"),
and 1,339,298 of which are hereby designated as Series B Convertible
Exchangeable Preferred Stock, par value $1.00 per share (the "Series B
Preferred Stock").
The following is a statement of the designations, preferences,
limitations and relative rights, including voting rights, in respect of the
classes of stock of the Corporation and of the authority with respect thereto
expressly vested in the Board of Directors of the Corporation:
A. COMMON STOCK
1. Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the stockholders of the Corporation and shall be entitled to one vote for each
share of Common Stock held.
<PAGE> 2
2. Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of shares of the Common Stock shall be entitled to receive such dividends
(payable in cash, stock or otherwise) as may be declared thereon by the Board
of Directors at any time and from time to time out of any funds of the
Corporation legally available therefor.
3. In the event of any voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the holders of shares of the
Preferred Stock or any series thereof, the holders of shares of the Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them. A
liquidation, dissolution or winding-up of the Corporation, as such terms are
used in this Paragraph (3), shall not be deemed to be occasioned by or to
include any merger of the Corporation with or into one or more corporations or
other entities, any acquisition or exchange of the outstanding shares of one or
more classes or series of the Corporation or any sale, lease, exchange or other
disposition of all or a part of the assets of the Corporation.
B. PREFERRED STOCK
1. Shares of the Preferred Stock may be issued from time to time
in one or more series, the shares of each series to have such voting powers,
designations, preferences, rights and qualifications, limitations or
restrictions, as shall be stated and expressed herein or in a resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation (or a duly authorized committee thereof). Each
such series of Preferred Stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation (or a duly authorized committee thereof) is hereby
expressly authorized, subject to the limitations provided by law, to establish
and designate series of the Preferred Stock, to fix the number of shares
constituting each series and to fix the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of the
shares of each series and the variations of the relative rights and preferences
as between series, and to increase and to decrease the number of shares
constituting each series, provided that the Board of Directors (or a duly
authorized committee thereof) may not decrease the number of shares within a
series to less than the number of shares within such series that are then
issued. The relative powers, preferences, rights and qualifications,
limitations or restrictions may vary between and among series of Preferred
Stock in any and all respects so long as all shares of the same series are
identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon cumulate.
The authority of the Board of Directors of the Corporation (or a duly
authorized committee thereof) with respect to each series shall include, but
shall not be limited to, the authority to determine the following:
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<PAGE> 3
(a) The designation of such series;
(b) The number of shares initially constituting such
series;
(c) The rate or rates and the times at which dividends on
the shares of such series shall be paid, the periods in respect of
which dividends are payable, the conditions upon such dividends, the
relationship and preferences, if any, of such dividends to dividends
payable on any other class or series of shares, whether or not such
dividends shall be cumulative, partially cumulative or noncumulative,
if such dividends shall be cumulative or partially cumulative, the
date or dates from and after which, and the amounts in which, they
shall accumulate, whether such dividends shall be share dividends,
cash or other dividends or any combination thereof, and if such
dividends shall include share dividends, whether such share dividends
shall be payable in shares of the same or any other class or series of
shares of the Corporation (whether now or hereafter authorized), or
any combination thereof and the other terms and conditions, if any,
applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be
redeemable or subject to repurchase at the option of the Corporation
or the holder thereof or upon the happening of a specified event, if
such shares shall be redeemable, the terms and conditions of such
redemption, including but not limited to the date or dates upon or
after which such shares shall be redeemable, the amount per share
which shall be payable upon such redemption, which amount may vary
under different conditions and at different redemption dates and
whether such amount shall be payable in cash, property or rights,
including securities of the Corporation or another corporation;
(e) The rights of the holders of shares of such series
(which may vary depending upon the circumstances or nature of such
liquidation, dissolution or winding up) in the event of the voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation and the relationship or preference, if any, of such rights
to rights of holders of stock of any other class or series. A
liquidation, dissolution or winding up of the Corporation, as such
terms are used in this subparagraph (e), shall not be deemed to be
occasioned by or to include any merger of the Corporation with or into
one or more corporations or other entities, any acquisition or
exchange of the outstanding shares of one or more classes or series of
the Corporation or any sale, lease, exchange or other disposition of
all or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have
voting powers and, if such shares shall have such voting powers, the
terms and conditions thereof, including, but not limited to, the right
of the holders of such shares to vote as a separate class either alone
or with the holders of shares of one or more other classes or series
of stock and the right to have more (or less) than one vote per share;
(g) Whether or not a sinking fund shall be provided for
the redemption of the shares of such series and, if such a sinking
fund shall be provided, the terms and conditions thereof;
-3-
<PAGE> 4
(h) Whether or not a purchase fund shall be provided for
the shares of such series and, if such a purchase fund shall be
provided, the terms and conditions thereof;
(i) Whether or not the shares of such series, at the
option of either the Corporation or the holder or upon the happening
of a specified event, shall be convertible into stock of any other
class or series and, if such shares shall be so convertible, the terms
and conditions of conversion, including, but not limited to, any
provision for the adjustment of the conversion rate or the conversion
price;
(j) Whether or not the shares of such series, at the
option of either the Corporation or the holder or upon the happening
of a specified event, shall be exchangeable for securities,
indebtedness or property of the Corporation and, if such shares shall
be so exchangeable, the terms and conditions of exchange, including,
but not limited to, any provision for the adjustment of the exchange
rate or the exchange price; and
(k) Any other preferences, limitations and relative
rights as shall not be inconsistent with the provisions of this
Article Fourth or the limitations provided by law.
2. Except as otherwise provided herein, as required by law or in
any resolution of the Board of Directors (or a duly authorized committee
thereof) creating any series of Preferred Stock, the holders of shares of
Preferred Stock and all series thereof who are entitled to vote shall vote
together with the holders of shares of Common Stock, and not separately by
class.
C. SERIES A CONVERTIBLE PREFERRED STOCK AND SERIES B CONVERTIBLE
PREFERRED STOCK
1. Dividends. The holder of each share of Preferred Stock shall
be entitled to receive, before any dividends shall be declared and paid upon or
set aside for the Junior Stock (as defined in Section C.7 of this Article),
when and as declared by the Board of Directors of the Corporation, out of funds
legally available for that purpose, dividends in cash at the rate (the
"Preferred Dividend Rate") of $.50 per annum per share of Series A Preferred
Stock and $.70 per annum per share of Series B Preferred Stock, payable upon
liquidation, dissolution or winding-up in accordance with Section C.2 hereof or
upon redemption in accordance with Section C.3 hereof (any such dividend
payment date being hereinafter referred to as a "Dividend Payment Date").
Dividends on shares of Preferred Stock shall be cumulative from the Original
Issuance Date (as defined in Section C.7 of this Article) (whether or not there
shall be net profits or net assets of the Corporation legally available for the
payment of such dividends), so that, if at any time Full Cumulative Dividends
(as defined in said Section C.7 of this Article) upon the Preferred Stock shall
not have been paid or declared and a sum sufficient for payment thereof set
apart, the amount of the deficiency in such dividends shall be fully paid (but
without interest) or dividends in such amount shall have been declared on the
shares of the Preferred Stock and a sum sufficient for the payment thereof
shall have been set apart for such payment, before any dividend shall be
declared or paid or any other distribution ordered or made upon any Junior
Stock (other than a dividend payable in such Junior Stock) and before any sum
or sums shall be set aside for or applied to the purchase or redemption of
Junior Stock. All dividends declared upon the Preferred Stock and any other
class of stock
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ranking on a parity as to dividends with such Preferred Stock shall be declared
pro rata per share. Holders of shares of Preferred Stock shall not be entitled
to any dividends, whether payable in cash, property or stock, in excess of the
Full Cumulative Dividends at the rate set forth above. All payments due under
this Section C.1 to any holder of shares of Preferred Stock shall be made to
the nearest cent.
2. Rights on Liquidation, Dissolution, or Winding-Up. In the
event of any liquidation, dissolution or winding up of the Corporation, the
holders of shares of Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any payment
shall be made to the holders of any Junior Stock, an amount (the "Liquidation
Amount") equal to (i) $2.50 per share of Series A Preferred Stock plus Accrued
Dividends (as defined in Section C.7. of this Article) on each such share, if
any, to the date of payment and (ii) $7.00 per share of Series B Preferred
Stock plus Accrued Dividends on each such share, if any, to the date of
payment. If upon any liquidation, dissolution or winding- up of the
Corporation the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Preferred
Stock the full amounts to which they respectively shall be entitled, the
holders of shares of Preferred Stock shall share ratably in any distribution of
assets according to the respective amounts which would be payable in respect of
the shares held by them upon such distribution if all amounts payable on or
with respect to said shares were paid in full. In the event that such
distribution of assets is other than in cash, such distribution of cash and
other assets (including securities) shall be made ratably among the holders of
the shares of Preferred Stock based upon the fair market value of any such
assets as determined by a nationally recognized investment banking firm
selected mutually by the holders of a majority in voting power of the Preferred
Stock then outstanding and the Corporation (or if such selection cannot be
made, by a nationally recognized investment banking firm selected by the
American Arbitration Association in accordance with its rules). In the event
of any liquidation, dissolution or winding-up of the Corporation, after payment
shall have been made to the holders of shares of Preferred Stock of the full
amount to which they shall be entitled as aforesaid, the holders of any Junior
Stock shall be entitled, to the exclusion of the holders of shares of Preferred
Stock, to share, according to their respective rights and preferences, in all
remaining assets of the Corporation available for distribution to its
stockholders. The merger or consolidation of the Corporation into or with
another corporation or the merger or consolidation of any other corporation
into or with the Corporation, or the sale or other disposition of all or
substantially all the assets of the Corporation as an entirety to a third party
shall not be deemed to be a liquidation, dissolution or winding-up of the
Corporation.
3. Redemption
3.1 Requested Redemption. (a) Subject to Section
C.3.1(d) below, if at any time there shall exist an Event of Requested
Redemption (as defined in Section C.7 of this Article), and so long as any
shares of Preferred Stock shall be outstanding, the Corporation shall (unless
otherwise prevented by law) redeem, at the separate option of the holders of a
majority of each outstanding series of Preferred Stock, exercised at any time
or from time to time until such Event of Requested Redemption shall cease to
exist, all (or such lesser number as specified by any such holder in the
written notice referred to below) of such holders' shares of such series of
Preferred Stock then
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outstanding. Such option shall be exercised on a date (any such date being
hereinafter referred to as a "Requested Redemption Date") specified in a
written notice (a "Requested Redemption Notice") to the Corporation at least 30
days prior to the Requested Redemption date to the Corporation by the holders
of a majority of the outstanding Series A Preferred Stock or Series B Preferred
Stock, as applicable, which notice shall state such holder's intention to
exercise the redemption option set forth herein and the number of shares of
Preferred Stock sought to be redeemed. Within five days after receipt of any
Requested Redemption Notice, the Corporation shall notify all other holders of
Preferred Stock of such Requested Redemption Notice and each of such other
holders shall also have the right, exercisable by written notice to the
Corporation within 10 days after receipt of such notice from the Corporation,
to request that all (or such lesser number as specified by any such holder) of
such holder's shares of Preferred Stock be redeemed by the Corporation on the
Requested Redemption Date. The amount per share of Preferred Stock at which
the shares of Preferred Stock are to be redeemed pursuant to this Section
C.3.1(a) on any Requested Redemption Date by the Corporation shall be an amount
equal to the appropriate Liquidation Amount in effect on such Requested
Redemption Date (Accrued Dividends to be calculated through and including the
Requested Redemption Date). The total sum payable per share of Preferred Stock
on any Requested Redemption Date is hereinafter referred to as the "Requested
Redemption Price," and any payment to be made is hereinafter referred to as the
"Requested Redemption Payment," as to any holder of Preferred Stock.
Notwithstanding the foregoing, subject to Section C.3.1(a) below, all shares
of Preferred Stock outstanding on January 31, 2000 or such later date as the
Corporation and the holders of a majority of each outstanding series of
Preferred Stock may agree (the "Mandatory Redemption Date") shall l (unless
otherwise prevented by law) be redeemed (the "Mandatory Redemption") by the
Corporation in exchange for an amount equal to the appropriate Liquidation
Amount in effect on such date (Accrued Dividends to be calculated through and
including January 31, 2000 or such later date (the "Mandatory Redemption
Price")).
(b) On and after any Requested Redemption Date or the
Mandatory Redemption Date, as the case may be (unless default shall be made by
the Corporation in the payment of the applicable Requested Redemption Price or
Manadatory Redemption Price as hereinafter provided, in which event such rights
shall be exercisable until such default is cured or unless the Company and the
holders of a majority of each outstanding series of Preferred Stock may
otherwise agree), all rights in respect of the shares of Preferred Stock to be
redeemed, except the right to receive the applicable Requested Redemption Price
or the Manadatory Redemption Price, as the case may be, as hereinafter
provided, shall cease and terminate; and such shares shall no longer be deemed
to be outstanding, whether or not the certificates representing such shares
have been received by the Corporation.
(c) Notice of any exercise of the redemption option
pursuant to this Section C.3.1 shall be sent by first-class certified mail,
return receipt requested, postage prepaid, to the Corporation. At any time on
or after the Requested Redemption Date or the Mandatory Redemption Date, as the
case may be, the holders of records of shares of Preferred Stock requesting
such Preferred Stock to be redeemed on such Requested Redemption Date or the
Mandatory Redemption Date, as the case may be, in accordance with this Section
C.3.1 shall be entitled to receive the applicable Requested Redemption Price or
the Mandatory Redemption Price, as the case may be, upon actual delivery to the
Corporation or its agents of the certificates representing the shares to be
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<PAGE> 7
redeemed. If upon any redemption the assets of the Corporation available for
redemption shall be insufficient to pay the holders of the shares of Preferred
Stock the full amounts to which they shall be entitled, the holders of shares
of Preferred Stock being redeemed shall share ratably in any such redemption
according to the respective amounts which would be payable in respect of such
shares requested to be redeemed by the holders thereof if all amounts payable
on or with respect to such shares were paid in full.
(d) Anything contained in this Section C.3.1 to the
contrary notwithstanding, the holders of shares of Preferred Stock shall have
the right, exercisable at any time up to the close of business on the Requested
Redemption Date or the Mandatory Redemption Date, as the case may be (unless
the Company and the holders of a majority of each outstanding series of
Preferred Stock may otherwise agree or unless default shall be made by the
Corporation in the payment of the Requested Redemption Price or the Mandatory
Redemption Price, as the case may be, as herein provided, in which event such
right shall be exercisable until such default is cured), to convert all or any
part of such shares requested by such holder to be redeemed as herein provided
pursuant to Section C.6 of this Article. If, and to the extent, any shares of
Preferred Stock so entitled to redemption are converted pursuant to Section C.6
of this Article by the holders thereof prior to the close of business on the
Redemption Date or the Mandatory Redemption Date, as the case may be, the total
number of shares of Preferred Stock otherwise to be redeemed on such Requested
Redemption Date or the Mandatory Redemption Date, as the case may be, shall be
reduced by the number of shares of Preferred Stock so converted.
3.2 Special Redemption. (a) In connection and
concurrently with an Event of Sale (as hereinafter defined), the Corporation
shall (to the extent allowed by law) redeem (the "Special Redemption"), at the
separate option (the "Option") of the holders of a majority of the voting power
of each Series of Preferred Stock, each voting separately as one class, then
outstanding exercised by delivery of written notice to the Corporation by such
holders at least 5 business days prior to the date of the consummation of the
Event of Sale, all of the shares of such Series of Preferred Stock then
outstanding, out of funds legally available therefor. The amount per share of
Preferred Stock at which the shares of Preferred Stock are to be redeemed
pursuant to this Section C.3.2(a) by the Corporation (the "Special Redemption
Price") shall be equal to the appropriate Liquidation Amount in effect on the
date of the consummation of such Special Redemption (Accrued Dividends to be
calculated through and including such date). The Corporation shall deliver to
each holder of Preferred Stock, not later than 30 days prior to the
consummation of a Event of Sale, notice of such proposed Event of Sale
including the date on which such Event of Sale is expected to be consummated.
To the extent that one or more redemptions and/or a liquidation are occurring
concurrently and the Corporation is legally prohibited from effecting all such
redemptions and/or liquidation, the Special Redemption shall be deemed to occur
first.
(b) For purposes of this Section C.3.2, a "Event of Sale"
shall mean a consolidation or merger of the Corporation with or into another
corporation or entity which is not affiliated with any holder of Preferred
Stock (other than with or into a wholly-owned subsidiary of the Corporation) in
any transaction in which the stockholders of the Corporation are to receive
cash, securities or other consideration in exchange for the shares of capital
stock of the Corporation then held by them (other than a merger or
consolidation in which holders of the capital stock of the
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<PAGE> 8
Corporation immediately prior thereto shall own at least 51% (by voting power)
of the outstanding voting capital stock of the surviving or resulting
corporation immediately after such merger of consolidation) or the sale of all
or substantially all of the assets of the Corporation as an entirety to a third
party or parties which are not affiliated with any holder of Preferred Stock.
(c) Anything contained in this Section C.3.2 to the
contrary notwithstanding, the holders of shares of Preferred Stock to be
redeemed under this Section 3.2 as a result of the exercise of the Option by
the holders of a majority of the voting power of a Series of Preferred Stock,
each voting separately as a class, then outstanding shall have the right,
exercisable at any time until the consummation of the Event of Sale (unless
default shall be made by the Corporation in the payment of the Special
Redemption Price, in which event such right shall be exercisable until such
default is cured), to convert all or any part of such shares of Preferred Stock
into shares of Common Stock pursuant to Section C.6 of this Article Fourth.
4. Voting of Series A Preferred Stock. (a) In addition to the
rights specified in Sections C.4(b), (c) and (e) below and any other rights
provided in the Corporation's Bylaws or by law, each share of Series A
Preferred Stock shall entitle the holder thereof to such number of votes per
share as shall equal the number of votes per share as to which the number of
shares of Common Stock (rounded to nearest whole share) into which each share
of Series A Preferred Stock is then convertible pursuant to Section C.6.1 of
this Article and shall be entitled to vote on all matters as to which holders
of Common Stock shall be entitled to vote, in the same manner and with the same
effect as such holders of Common Stock, voting together with the holders of
Common Stock and Series B Preferred Stock as one class.
(b) In addition to the rights specified in Section C.4(a)
above, the holders of a majority in voting power of the Series A Preferred
Stock, voting separately as one class, shall have the right (i) at all times to
elect one director to the Board of Directors of the Corporation, and (ii) if at
any time there shall have occurred an Event of Election (as defined in Section
C.7 of this Article), to elect the smallest number of directors to the Board of
Directors as shall constitute a majority of such Board of Directors. In any
election of directors pursuant to this Section C.4(b), each holder of shares of
Series A Preferred Stock shall be entitled to one vote for each share of Series
A Preferred Stock held and no holder of Series A Preferred Stock shall be
entitled to cumulate his votes by giving one candidate more than one vote per
share. The Corporation shall use its best efforts to effectuate the terms and
provisions of this Section C.4(b). The voting right of the holders of the
Series A Preferred Stock, voting separately as one class, contained in this
Section C.4(b) may be exercised either at a special meeting of the holders of
Series A Preferred Stock called as provided below, or at any annual or special
meeting of the shareholders of the Corporation, or by written consent of such
holders in lieu of a meeting. The directors to be elected by the holders in
lieu of a meeting. The directors to be elected by the holders of the Series A
Preferred Stock, voting separately as one class, pursuant to this Section
C.4(b), shall serve for terms extending from the date of their election and
qualification until the time of the next succeeding annual meeting of
shareholders and until their successors have been elected and qualified;
provided, however, that in the case of an Event of Election as defined in
Section C.7(f)(i) of this Article Fourth, the right of the holders of Series A
Preferred Stock to elect a majority to the Board of Directors contained in
clause (ii) above of this
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<PAGE> 9
Section C.4(b) shall terminate at the first meeting of the Board of Directors
held after such Event of Election shall have been cured.
(c) If at any time any directorship to be filled by the
holders of Series A Preferred Stock, voting separately as one class, pursuant
to Section C.4(b) above, has been vacant for a period of 10 days, or at any
time after the occurrence of an Event of Election, the Secretary of the
Corporation shall, upon the written request of the holders of record of shares
representing at least a majority of the voting power of the Series A Preferred
Stock then outstanding, call a special meeting of the holders of Series A
Preferred Stock for the purpose of electing a director or directors to fill
such vacancy or vacancies. Such meeting shall be held at the earliest
practicable date at such place as is specified in or determined in accordance
with the Bylaws of the Corporation. If such meeting shall not be called by the
Secretary of the Corporation within 10 days after personal service of said
written request on him, then the holders of record of shares representing at
least a majority of the voting power of the Series A Preferred Stock then
outstanding may designate in writing one of their number to call such meeting
at the expense of the Corporation, and such meeting may be called by such
person so designated upon the notice required for annual meetings of
shareholders and shall be held at such specified place. Any holder of the
Series A Preferred Stock so designated shall have access to the stock books of
the Corporation relating to the Series A Preferred Stock for the purpose of
calling a meeting of the holders of Series A Preferred Stock pursuant to these
provisions.
(d) At any meeting held for the purpose of electing
directors at which the holders of Series A Preferred Stock shall have the
right, voting separately as one class, to elect directors as provided in
Section C.4(b) above, the presence, in person or by proxy, of the holders of
record of shares representing at least a majority of the voting power of the
Series A Preferred Stock then outstanding shall be required to constitute a
quorum of the Series A Preferred Stock for such election. At any such meeting
or adjournment thereof, the absence of such a quorum of the Series A Preferred
Stock shall not prevent the election of directors other than the director or
directors to be elected by holders of Series A Preferred Stock, voting
separately as one class, pursuant to Section C.4(b) above, and the absence of a
quorum for the election of such other directors shall not prevent the election
of the director or directors to be elected by the holders of Series A Preferred
Stock, voting separately as one class, pursuant to Section C.4(b) above, and in
the absence of either or both of such quorums, the holders of record of shares
representing at least a majority of the voting power present in person or by
proxy of the meeting for the election of directors which they are entitled to
elect from time to time without notice other than announcement at the meeting.
A vacancy in the directorships to be elected by the holders of the Series A
Preferred Stock, pursuant to Section C.4(b) above, may be filled only by vote
or written consent in lieu of a meeting of the holders of at least a majority
of the voting power of the Series A Preferred Stock.
(e) Except for the transactions to be consummated
pursuant to the 1992 Purchase Agreement and the transactions to be consummated
simultaneously therewith under the Acquisition Agreements (as defined in the
1992 Purchase Agreement), until (a) the occurrence of an Event of Conversion or
(b) such time as there shall cease to be outstanding at least eighty percent
(80%) of the Series A Preferred Stock outstanding immediately after the
Original Issuance Date of Series A Preferred Stock, the Corporation shall not,
directly or indirectly (through any subsidiary or
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otherwise), without the affirmative consent or approval of the holders of
shares representing at least a majority of the voting power of the Series A
Preferred Stock then outstanding, acting separately as one class, given by
written consent in lieu of a meeting or by vote at a meeting called for such
purpose for which notice shall have been given to the holders of the Series A
Preferred Stock, (i) sell, abandon, transfer, lease or otherwise dispose of all
or substantially all of its properties or assets, (ii) declare, pay or set
aside any amount in respect of any dividends on, or make any distribution of
cash, capital stock or property with respect to any Junior Stock, whether by
reduction of capital or otherwise, (iii) make any payment on account of the
purchase, directly or indirectly, redemption or other retirement of any shares
of Junior Stock, (iv) merge or consolidate with or into, or permit any
subsidiary to merge or consolidate with or into, any other corporation,
corporations or other entity or entities (other than any merger or
consolidation of any subsidiary with or into any other subsidiary), (v)
voluntarily dissolve, liquidate or wind-up or carry out any partial liquidation
or distribution or transaction in the nature of a partial liquidation or
distribution, (vi) purchase or otherwise acquire or permit any subsidiary to
purchase or otherwise acquire (whether by purchase or lease of assets or stock
or by merger or consolidation) any tangible or intangible assets which exceed
$50,000 individually or $125,000 in the aggregate in any one year, other than
purchases or leases of assets, equipment, or inventory purchased or leased in
the ordinary course of business or pursuant to Budgets previously approved by
the Corporation's Board of Directors, (vii) in any manner authorize, create,
issue or sell any shares of capital stock of the Corporation or any subsidiary
thereof or securities by their terms convertible into or exchangeable for
capital stock of the Corporation or any subsidiary thereof or options to
purchase or rights to subscribe for capital stock of the Corporation or any
subsidiary thereof, other than options to purchase Common Stock issued pursuant
to the Corporation's 1989 Stock Option Plan relating to not in excess of
155,000 shares of Common Stock (as constituted on the date hereof) (the "1989
Stock Option Plan"), the Warrants and the Additional Warrants (as both terms
are defined in the Acquisition Agreement), and the conversion of the Preferred
Stock, (viii) in any manner authorize, create, issue or sell any debt security
or other debt instrument convertible into or exchangeable for (or having any
other equity feature relating to) any capital stock of the Corporation, (ix) in
any manner alter or change the designations or the powers, preferences or
rights, or the qualifications, limitations or restrictions of the Series A
Preferred Stock, (x) take any action to cause any amendment, alteration or
repeal of any of the provisions of the Certificate of Incorporation or Bylaws
of the Corporation, (xi) authorize or adopt any stock option or stock purchase
plan or program with respect to employees of or consultants to the Corporation
("Employee Plans"), except the 1989 stock Option Plan, (xii) engage, directly
or indirectly, in any business outside the home healthcare industry and any
directly-related business, (xiii) change the Corporation's fiscal year-end to a
date other than March 31, (xiv) in any fiscal year enter into a Related
Transaction (as defined below) which, when taken together with all Related
Transactions in such fiscal year, has a value in excess of, or involves
remuneration or other expenditures greater than, $10,000, (xv) in any material
respect, amend, modify, waive, terminate or otherwise change any of the terms
of the Acquisition Agreements, (xvi) change the Corporation's independent
certified public accountants, (xvii) take any action to cause any amendment,
alteration or repeal of any of the terms or provisions of the Bazzle Notes (as
defined in the 1989 Purchase Agreement), (xviii) amend in any respect the 1989
Stock Option Plan or stock option agreement executed or to be executed by the
optionees thereunder, other than immaterial amendments or amendments necessary
to cause such plan or agreements to be treated as "qualified" under the
Internal Revenue Code; provided that the holders of the Preferred Stock are
notified in writing of
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such amendments at least 30 days prior to the effective date thereof, (xix)
make any loans to officers, directors, employees, independent contractors or
physicians staffing or working in any of the Corporation's facilities which
exceed $5,000 individually or $25,000 in the aggregate in any fiscal year or
(xx) amend in any respect any employment agreement between the Corporation or
any of its subsidiaries and the Founder; provided, however, that, in lieu of
being approved by the holders of the Series A Preferred Stock as provided
herein, any such amendment may be approved by the person or a majority of the
persons designated to the Board of Directors of the Corporation by the holders
of the Series A Preferred Stock. As used herein, the term "Related
Transaction" shall mean any transaction with the Corporation (other than as an
employee, stockholder or debtholder) in which any then current or former
shareholder, director, officer or key employee of the Corporation or any
affiliate or member of the Immediate Family (as such term is defined in Item
404 of Regulation S-K promulgated under the Securities Act) of any such person,
directly or indirectly through his affiliation with any other person or entity,
is a party to and which provides for the furnishing of services by or to, or
rental of real or personal property from or to, or the transfer of any of the
Corporation's or any affiliate's assets by or to, or otherwise requiring cash
payments to or by any such person or any such person's affiliates or members of
his Immediate Family. The absence of a quorum at a meeting of the holders of
the Series A Preferred Stock called for the purpose of voting on any matter
pursuant to this Section 4(e) shall constitute a vote against such matter.
5. Voting of Series B Preferred Stock. (a) In addition to the
rights specified in Sections C.5(b), (c) and (e) below and any other rights
provided in the Corporation's Bylaws or by law, each share of Series B
Preferred Stock shall entitle the holder thereof to such number of votes per
share as shall equal the number of votes per share as to which the number of
shares of Common Stock (rounded to nearest whole share) into which each share
of Series B Preferred Stock is then convertible pursuant to Section C.6.1 of
this Article and shall be entitled to vote on all matters as to which holders
of Common Stock shall be entitled to vote, in the same manner and with the same
effect as such holders of Common Stock, voting together with the holders of
Common Stock and Series A Preferred Stock as one class.
(b) In addition to the rights specified in Section C.5(a)
above, the holders of a majority in voting power of the Series B Preferred
Stock, voting separately as one class, shall have the right at all times to
elect one director to the Board of Directors of the Corporation. In any
election of directors pursuant to this Section C.5(b), each holder of shares of
Series B Preferred Stock shall be entitled to one vote for each share of Series
B Preferred Stock held and no holder of Series B Preferred Stock shall be
entitled to cumulate his votes by giving one candidate more than one vote per
share. The Corporation shall use its best efforts to effectuate the terms and
provisions of this Section C.5(b). The voting right of the holders of the
Series B Preferred Stock, voting separately as one class, contained in this
Section C.5(b) may be exercised either at a special meeting of the holders of
Series B Preferred Stock called as provided below, or at any annual or special
meeting of the shareholders of the Corporation, or by written consent of such
holders of Series B Preferred Stock in lieu of a meeting. The director to be
elected by the holders of the Series B Preferred Stock, voting separately as
one class, pursuant to this Section C.5(b), shall serve for terms extending
from the date of their election and qualification until the time of the next
succeeding annual meeting of shareholders and until their successors have been
elected and qualified.
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(c) If at any time any directorship to be filled by the
holders of Series B Preferred Stock, voting separately as one class, pursuant
to Section C.5(b) above, has been vacant for a period of 10 days, the Secretary
of the Corporation shall, upon the written request of the holders of record of
shares representing at least a majority of the voting power of the Series B
Preferred Stock then outstanding, call a special meeting of the holders of
Series B Preferred Stock for the purpose of electing a director to fill such
vacancy. Such meeting shall be held at the earliest practicable date at such
place as is specified in or determined in accordance with the Bylaws of the
Corporation. If such meeting shall not be called by the Secretary of the
Corporation within 10 days after personal service of said written request on
him, then the holders of record of shares representing at least a majority of
the voting power or the Series B Preferred Stock the outstanding may designate
in writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such person so designated upon
the notice required for annual meetings of shareholders and shall be held at
such specified place. Any holder of the Series B Preferred Stock so designated
shall have access to the stock books of the Corporation relating to the Series
B Preferred Stock for the purpose of calling a meeting of the holders of Series
B Preferred Stock pursuant to these provisions.
(d) At any meeting held for the purpose of electing
directors at which the holders of Series B Preferred Stock shall have the
right, voting separately as one class, to elect directors as provided in
Section A.5(b) above, the presence, in person or by proxy, of the holders of
record of shares representing at least a majority of the voting power of the
Series B Preferred Stock then outstanding shall be required to constitute a
quorum of the Series B Preferred Stock for such election. At any such meeting
or adjournment thereof, the absence of such a quorum of the Series B Preferred
Stock shall not prevent the election of directors other than the director to be
elected by holders of Series B Preferred Stock, voting separately as one class,
pursuant to Section A.5(b) above, and the absence of a quorum for the election
of such other directors shall not prevent the election of the director to be
elected by the holders of Series B Preferred Stock, voting separately as one
class, pursuant to Section C.5(b) above, and in the absence of either or both
of such quorums, the holders of record of shares representing at least a
majority of the voting power present in person or by proxy of the class of
stock which lacks a quorum shall have power to adjourn the meeting for the
election of directors which they are entitled to elect from time to time
without notice other than announcement at the meeting. A vacancy in the
directorship to be elected by the holders of the Series B Preferred Stock,
pursuant to Section C.5(b) above, may be filled only by vote or written consent
in lieu of a meeting of the holders of at least a majority of the voting power
of the Series B Preferred Stock.
(e) Except for the transactions to be consummated
pursuant to the 1992 Purchase Agreement and the transactions to be consummated
simultaneously therewith under the Acquisition Agreements, until the (a)
occurrence of an Event of Conversion or (b) such time as there shall cease to
be outstanding at least eighty percent (80%) of the Series B Preferred Stock
outstanding immediately after the Original Issuance Date of Series B Preferred
Stock, the Corporation shall not, directly or indirectly (through any
subsidiary or otherwise), without the affirmative consent or approval of the
holders of shares representing at least a majority of the voting power of the
Series B Preferred Stock then outstanding, acting separately as one class,
given by written consent in lieu of a meeting or by vote at a meeting called
for such purpose for which notice shall have been given to
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<PAGE> 13
the holders of the Series B Preferred Stock, (i) sell, abandon, transfer, lease
or otherwise dispose of all or substantially all of its properties or assets,
(ii) declare, pay or set aside any amount in respect of any dividends on, or
make any distribution of cash, capital stock or property with respect to any
Junior Stock, whether by reduction of capital or otherwise, (iii) make any
payment on account of the purchase, directly or indirectly, redemption or other
retirement of any share of Junior Stock, (iv) merge or consolidate with or
into, or permit any subsidiary to merge or consolidate with or into, any other
corporation, corporations or other entity or entities (other than any merger or
consolidation of any subsidiary with or into any other subsidiary), (v)
voluntarily dissolve, liquidate or wind-up or carry out any partial liquidation
or distribution or transaction in the nature of a partial liquidation or
distribution, (vi) purchase or otherwise acquire or permit any subsidiary to
purchase or otherwise acquire (whether by purchase or lease of assets or stock
or by merger or consolidation) any tangible or intangible assets which exceed
$50,000 individually or $125,000 in the aggregate in any one year, other than
purchases or leases of assets, equipment, or inventory purchased or leased in
the ordinary course of business or pursuant to Budgets previously approved by
the Corporation's Board of Directors, (vii) in any manner authorize, create,
issue or sell any shares of capital stock of the Corporation or any subsidiary
thereof or securities by their terms convertible into or exchangeable for
capital stock of the Corporation or any subsidiary thereof or options to
purchase or rights to subscribe for capital stock of the Corporation or any
subsidiary thereof, other than options to purchase Common Stock issued pursuant
to the Corporation's 1989 Stock Option Plan, the Warrants and the Additional
Warrants (as both terms are defined in the Acquisition Agreement), and the
conversion of the Preferred Stock, (viii) in any manner authorize, create,
issue or sell any debt security or other debt instrument convertible into or
exchangeable for (or having any other equity feature relating to) any capital
stock of the Corporation, (ix) in any manner alter or change the designations
or the powers, preferences or rights, or the qualifications, limitations or
restrictions of the Series B Preferred Stock, (x) take any action to cause any
amendment, alteration or repeal of any of the provisions of the Certificate of
Incorporation or Bylaws of the Corporation, (xi) authorize or adopt any
Employee Plans, except the 1989 Stock Option Plan, (xii) engage, directly or
indirectly, in any business outside the home healthcare industry and any
directly-related business, (xiii) change the Corporation's fiscal year-end to a
date other than March 31, (xiv) in any fiscal year enter into a Related
Transaction which, when taken together with all Related Transactions in such
fiscal year, has a value in excess of, or involves remuneration or other
expenditures greater than, $10,000, (xv) in any material respect, amend,
modify, waive, terminate or otherwise change any of the terms of the
Acquisition Agreements, (xvi) change the Corporation's independent certified
public accountants, (xvii) take any action to cause any amendment, alteration
or repeal of any of the terms or provisions of the Bazzle Notes, (xviii) amend
in any respect the 1989 Stock Option Plan or stock option agreement executed or
to be executed by the optionees thereunder, other than immaterial amendments or
amendments necessary to cause such plan or agreements to be treated as
"qualified" under the Internal Revenue Code; provided that the holders of the
Preferred Stock are notified in writing of such amendments at least 30 days
prior to the effective date thereof, (xix) make any loans to officers,
directors, employees, independent contractors or physicians staffing or working
in any of the Corporation's facilities which exceed $5,000 individually or
$25,000 in the aggregate in any fiscal year or (xx) amend in any respect any
employment agreement between the Corporation or any of its subsidiaries and the
Founder; provided, however, that, in lieu of being approved by the holders of
the Series B Preferred Stock as provided herein, any such amendment may be
approved by the person or a majority of the persons designated to the Board of
Directors of the Corporation by the
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<PAGE> 14
holders of the Series B Preferred Stock. The absence of a quorum at a meeting
of the holders of the Series B Preferred Stock called for the purpose of voting
on any matter pursuant to this Section 5(e) shall constitute a vote against
such matter.
6. Conversion
6.1 Optional Conversion. (a) The holder of any shares of
Series A Preferred Stock shall have the right, at such holder's option, at any
time or form time to time to convert any or all of such holder's shares of
Series A Preferred Stock into such whole number of fully paid and nonassessable
shares of Common Stock as $2.50 multiplied by the number of shares of Series A
Preferred Stock being converted is a multiple of the Preferred Conversion Price
(as last adjusted and then in effect) for the shares of Series A Preferred
Stock being converted, by surrender of the certificates representing the shares
of Series A Preferred Stock so to be converted in the manner provided in
Section C.6.1(b) below. The holder of any shares of Series B preferred Stock
shall have the right, at such holder's option, at any time or from time to time
to convert any or all of such holder's shares of Series B Preferred Stock into
such whole number of fully paid and nonassessable shares of Common Stock as
$7.00 multiplied by the number of shares of Series B Preferred Stock being
converted is a multiple of the Preferred Conversion Price (as last adjusted and
then in effect) for the shares of Series B Preferred Stock being converted, by
surrender of the certificates representing the shares of Series B Preferred
Stock so to be converted in the manner provided in Section C.6.1(b) below. The
Preferred Conversion Price per share at which shares of Common Stock shall be
issuable upon conversion of shares of Series A Preferred Stock pursuant to this
Section C.6.1(a) shall be $2.50 and the Preferred Conversion Price per share at
which shares of Common Stock shall be issuable upon conversion of shares of
Series B Preferred Stock pursuant to this Section C.6.1(a) shall be $7.00;
provided, however, that such Preferred Conversion Price for both Series A
Preferred Stock and Series B Preferred Stock shall be subject to reduction as
set forth in Section C.6.1(d) below. If (i) an Event of Conversion shall not
have occurred before the 105th day following March 31, 1993 and (ii) the
Corporation's earnings per share on a pre-tax basis for the fiscal year ended
March 31, 1993 are less than $1.50 per share calculated on a fully-diluted
basis (taking into effect the dilution only from the conversion or exercise of
all Preferred Stock, options, and warrants outstanding on the Original Issuance
Date of the Series B Preferred Stock), with the pro forma treatment of earnings
as though the consummation of the Acquisition (as defined in Section C.7 of
this Article Fourth) was effective as of April 1, 1992, and otherwise
determined in accordance with generally accepted accounting principles
consistently applied, then the Preferred Conversion Price per share at which
shares of Common Stock shall be issuable upon conversion of shares of Series B
Preferred Stock pursuant to this Section C.6.1(a) shall be reduced to an amount
equal to 4.6 times such earnings per share on a pre-tax basis; provided,
however, such Preferred Conversion Price shall not in any event be reduced
below $5.60 per share of Series B Preferred Stock solely as a result of this
sentence.
The holder of any shares of Preferred Stock exercising the aforesaid
right to convert such shares into shares of Common Stock shall not be entitled
to payment of Accrued Dividends with respect to the shares of Preferred Stock
so converted, and shall be deemed to have waived any such Accrued Dividends
upon such conversion.
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<PAGE> 15
(b) The holder of any shares of Preferred Stock may
exercise the conversion right pursuant to Section C.6.1(a) above by delivering
to the Corporation during regular business hours, at the offices of the
Corporation, at the office of any transfer agent of the Corporation for the
Preferred Stock or at such other place as may be designated in writing by the
Corporation, the certificate or certificates for the shares to be converted,
duly endorsed or assigned in blank or to the Corporation (if required by it),
accompanied by written notice stating that such holder elects to convert such
shares and stating the name or names (with address or addresses) in which the
certificate or certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected with respect to conversion
under (i) Section C.6.1 above, on the date when the aforesaid delivery is made
and (ii) Section C.6.2, on the date of occurrence of the Event of Conversion
(as defined in Section A.7 of this Article Fourth), as the case may be, and any
such date is referred to herein as the "Conversion Date." As promptly as
practicable thereafter the Corporation shall, against delivery of the
certificate or certificates for the shares to be converted, issue and deliver
to or upon the written order of such holder, to the place designated by such
holder, a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash in respect of any
fractional interest in a share of Common Stock, as provided in Section C.6.1(c)
below, payable with respect to the shares of Preferred Stock so converted up to
and including the Conversion Date. The person in whose names the certificate
or certificates for Common Stock are to be issued shall be deemed to have
become a holder of Common Stock on the applicable Conversion Date unless the
transfer books of the Corporation are closed on that date, in which event such
holder shall be deemed to have become a holder of Common Stock on the next
succeeding date on which the transfer books are open, but the Preferred
Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Preferred Stock represented thereby to the same extent as if the certificate
theretofore covering such unconverted shares had not been surrendered for
conversion.
(c) No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of Preferred Stock. If more than one share
of Preferred Stock shall be surrendered for conversion at any one time by the
same holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon conversion of any shares of
Preferred Stock the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount as the Board of Directors of the Corporation
shall determine, in good faith and irrespective of any accounting treatment, to
be the fair market value of a share of Common stock multiplied by such
fractional interest. Fractional interests shall not be entitled to dividends,
and the holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interest.
(d) The Preferred Conversion Price shall be subject to
reduction from time to time as follows:
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<PAGE> 16
(i) If the Corporation shall at any time or from
time to time after the Original Issuance Date issue any shares of
Common Stock other than Excluded Stock (as hereinafter defined) for a
consideration per share less than the applicable Preferred Conversion
Price in effect immediately prior to such issuance, then the
applicable Preferred Conversion Price in effect immediately prior to
each such issuance shall forthwith be lowered to a price equal to such
consideration per share; provided, however, that the Preferred
Conversion Price shall not, pursuant to this Section C.6.1(d), be
lowered below $1.875 for Series A Preferred Stock and $5.25 for Series
B Preferred Stock (subject to equitable adjustments for stock splits,
dividends, subdivisions, combinations and like items).
For the purposes of any adjustment of the Preferred Conversion Price pursuant
to clause (i) above, the following provisions shall be applicable:
(A) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount
of cash paid therefor.
(B) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board
of Directors of the Corporation, irrespective of any
accounting treatment; provided, however, that the aggregate
fair market value of such non-cash and cash consideration
shall not exceed the Current Market Price (as hereinafter
defined) of the shares of Common Stock being issued.
(C) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock, (ii)
securities by their terms convertible into or exchangeable for
Common Stock or (iii) options to purchase or rights to
subscribe for such convertible or exchangeable securities:
(1) the shares of Common Stock
deliverable upon exercise 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 subdivisions (A) and (B) above), if any,
received by the Corporation upon the issuance of such
options or rights plus the purchase price provided in
such options or rights for the Common Stock covered
thereby;
(2) the shares of Common Stock
deliverable upon conversion of or in exchange 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 subsequent conversion or exchange
thereof 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 received by the Corporation for any
such securities and related options or rights
(excluding any cash received on account of accrued
interest or
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<PAGE> 17
accrued dividends), plus the additional
consideration, if any, to be received by the
Corporation 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 subdivisions (A)
and (B) above);
(3) on any change in the number of
shares or exercise price of Common Stock deliverable
upon exercise of any such options or rights or
conversion of or exchange for such convertible or
exchangeable securities, other the a change resulting
from the antidilution provisions thereof, the
applicable Preferred Conversion Price shall forthwith
be readjusted to such applicable Preferred Conversion
Price as would have obtained had the adjustment made
upon the issuance of such options, rights or
securities not converted prior to such change or
options or rights related to such securities not
converted prior to such change been made upon the
basis of such change; and
(4) on 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, in each case without any
such options or rights having been exercised, the
applicable Preferred Conversion Price shall forthwith
be readjusted to such applicable Preferred conversion
Price as would have obtained had such options,
rights, securities or options or rights related to
such securities not been issued.
(D) Anything contained herein to the contrary
notwithstanding, no adjustment shall be made to the applicable
Preferred Conversion Price pursuant to Section C.6.1(d) hereof
(i) when the subject issuance (or deemed issuance) of Common
Stock or series of related issuances (or deemed issuances)
involves aggregate proceeds to the Corporation of less than
$150,000 (unless the price (or deemed price) per share of
Common Stock in the subject issuance or series of related
issuances is less than $1.00 (such per share price subject to
equitable adjustment of stock splits, dividends, subdivisions,
combinations and like items) (in which event all adjustments
otherwise required by Section C.6.1(d) hereof shall be made))
(any issuances or deemed issuances of Common Stock within any
six-month period being conclusively presumed for this purpose
to constitute a "series of related issuances" (a "series of
related issuances" not, however, being limited to issuances
occurring within any such six-month period)) or (ii) if at the
time of the subject issuance (or deemed issuance) of Common
Stock the holders of Series A Preferred Stock shall have
elected a majority of the Board of Directors of the
Corporation pursuant to Section C.4(b) hereof and either (A) a
Change of Control (as defined in Section C.7 hereof) shall
have occurred with respect to the original holder of shares of
Series A Preferred Stock or (B) the aggregate proceeds from
such issuance (or deemed issuances) or series of related
issuances (or deemed issuances) are less than $750,000.
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<PAGE> 18
(ii) [Intentionally deleted]
(iii) "Excluded Stock" shall mean shares of Common
Stock issued by the Corporation: (1) as a stock dividend or upon any
stock split or other subdivision or combination of the outstanding
shares of Common Stock; (2) upon conversion of the Preferred Stock at
any time outstanding; (3) to officers or employees of the Corporation
pursuant to the 1989 Stock Option Plan; (4) upon exercise of any
warrant issued pursuant to the Acquisition Agreements; or (5) as
approved in writing as "Excluded Stock" by the holders of not less
than a majority in voting power of both the Series A Preferred Stock
and Series B Preferred Stock, each voting separately as a class, at
the time outstanding.
(iv) If, at any time after the Original Issuance
Date, the number of shares of Common Stock outstanding is increased by
a stock dividend payable in shares of Common Stock or by a subdivision
or split-up of shares of Common Stock, then, following the record date
fixed for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the applicable
Preferred Conversion Price for both the Series A Preferred Stock and
the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be increased in proportion to such
increase in outstanding shares.
(v) If, at any time after the Original Issuance
Date, the number of shares of Common Stock outstanding is decreased by
a combination of the outstanding shares of Common Stock, then,
following the record date for such combination, the Preferred
Conversion Price for both the Series A Preferred Stock and the Series
B Preferred Stock shall be appropriately increased so that the number
of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(vi) In case, at any time after the Original
Issuance Date, of any capital reorganization, or any reclassification
of the stock of the Corporation (other than a change in par value or
from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination
of shares), or the consolidation or merger of the Corporation with or
into another person (other than a consolidation or merger in which the
Corporation is the continuing corporation and which does not result in
any change in the Common Stock) or of the sale or other disposition of
all or substantially all the properties and assets of the Corporation
as an entirety to any other person, each share of Preferred Stock
shall after such reorganization, reclassification, consolidation,
merger, sale or other disposition be (unless, in the case of a
consolidation, merger, sale or other disposition constituting an Event
of Sale, payment shall have been made to the holders of all shares of
Preferred Stock of the full amount to which they shall have been
entitled pursuant to Section C.3.2 hereto) convertible into the kind
and number of shares of stock or other securities or property of the
Corporation or of the corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall
have been sold or otherwise disposed to which the holder of the number
of shares of Common Stock deliverable (immediately prior to the time
of such reorganization, reclassification,
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<PAGE> 19
consolidation, merger, sale or other disposition) upon conversion of
such share would have been entitled upon such reorganization,
reclassification, consolidation, merger, s ale or other disposition.
The provisions of this Section C.6.1 shall similarly apply to
successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(vii) All calculations under this paragraph (d)
shall be made to the nearest cent ($.01) or to the nearest one-tenth
of a share, as the case may be.
(viii) For the purpose of any computation pursuant
to this Section C.6.1(d) or Section C.6.1(c) above, the Current Market
Price at any date of one share of Common Stock shall be deemed to be
the average of the daily closing prices for the 30 consecutive
business days ending no more than 15 days before the day in question
(as adjusted for any stock dividend, split-up, combination or
reclassification that took effect during such 30- business-day
period). The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sales took place
on such day, the average of the last reported bid and asked prices
regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading
(or if the Common Stock is not at the time listed or admitted for
trading on any such exchange, then such price as shall be equal to the
average of the last reported bid and asked prices, as reported by the
National Association of Securities Dealers Automated Quotations System
("NASDAQ") on such day, or if, on any day in question, the security
shall not be quoted on the NASDAQ then such price shall be equal to
the last reported bid and asked prices on such day as reported by the
National Quotation Bureau, Inc. or any similar reputable quotation and
reporting service, if such quotation is not reported by the National
Quotation Bureau, Inc.); provided, however, that if the Common Stock
is not traded in such manner that the quotations referred to in this
clause (viii) are available for the period required hereunder, the
Current Market Price shall be determined by a nationally recognized
independent investment banking firm selected mutually by the holders
of a majority of the voting power of the Preferred Stock then
outstanding and the Corporation (or if such selection cannot be made,
by a nationally recognized independent investment banking firm
selected by the American Arbitration Association in accordance with
its rules).
(ix) In any case in which the provisions of this
Section C.6.1(d) shall require that an adjustment shall become
effective immediately after a record date for an event, the
Corporation may defer until the occurrence of such event (i) issuing
to the holder of any share of Preferred Stock converted after such
record date and before the occurrence of such event the additional
shares of capital stock issuable upon such conversion by reason of the
adjustment required by such event over and above the shares of capital
stock issuable upon such conversion before giving effect to such
adjustment and (ii) paying to such holder any amount in cash in lieu
of a fractional share of capital stock pursuant to Section C.6.1(c)
above; provided, however, that the Corporation shall deliver to such
holder a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares, and such cash, upon
he occurrence of the event requiring such adjustment.
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<PAGE> 20
(e) Whenever the Preferred Conversion Price shall be
adjusted as provided in Section C.6.1(d) above for the Series A Preferred Stock
and/or the Series B Preferred Stock, the Corporation shall forthwith file, at
the office of the transfer agent for the Preferred Stock or at such other place
as may be designated by the Corporation, a statement, signed by its independent
certified public accountants, showing in detail the facts requiring such
adjustment and the Preferred Conversion Price for the Series A Preferred Stock
and/or the Series B Preferred Stock that shall be in effect after such
adjustment. The Corporation shall also cause a copy of such statement to be
sent by first-class, certified mail, return receipt requested, postage prepaid,
to each holder of shares of Preferred Stock at such holder's address appearing
on the Corporation's records. Where appropriate, such copy may be given in
advance and may be included as part of a notice required to be mailed under the
provisions of Section C.6.1(f) below.
(f) In the event the Corporation shall propose to take
any action of the types described in clauses (i), (iv), (v) or (vi) of Section
C.6.1(d) above, the Corporation shall give notice to each holer of shares of
Preferred Stock, in the manner set forth in Section C.6.1(e) above, which
notice shall specify the record date, if any, with respect to any such action
and the date on which such action is to take place. Such notice shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Preferred Conversion Price and the number, kind
or class of shares or other securities or property which shall be deliverable
or purchasable upon the occurrence of such action or deliverable upon
conversion of shares of Preferred Stock. In the case of any action which would
require the fixing of a record date, such notice shall be given at least 20
days prior to the date so fixed, and in case of all other action, such notice
shall be given at least 30 days prior to the taking of such proposed action.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(g) The Corporation shall pay all documentary, stamp or
other transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Corporation upon conversion of any shares of Preferred
Stock; provided, however, that the Corporation shall not be required to pay any
taxes which may be payable in respect of any transfer involved in the issuance
or delivery of any certificate for such shares in a name other than that of the
holder of the shares of Preferred Stock in respect of which such shares are
being issued.
(h) The Corporation shall reserve, free from preemptive
rights, out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of Preferred Stock
sufficient shares to provide for the conversion of all outstanding shares of
Preferred Stock.
(i) All shares of Common Stock which may be issued in
connection with the conversion provisions set froth herein will, upon issuance
by the Corporation, be validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof, and free from all taxes,
liens or charges with respect thereto.
6.2 Automatic Conversion. Upon the occurrence of an
Event of Conversion (as defined below) all shares of Series A Preferred Stock
then outstanding shall by virtue of, and
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<PAGE> 21
simultaneously with, the occurrence of the Event of Conversion and without any
action on the part of the holders thereof, be deemed automatically converted
into such whole number of fully paid and nonassessable shares of Common Stock
as $2.50 multiplied by the number of shares of Series A Preferred Stock being
converted is a multiple of the Preferred Conversion Price for Series A
Preferred Stock as last adjusted pursuant to Section C.6.1(d) and then in
effect for Series A Preferred Stock. Upon the occurrence of an Event of
Conversion all shares of Series B Preferred Stock then outstanding shall by
virtue of, and simultaneously with, the occurrence of the Event of Conversion
and without any action on the part of the holders thereof, be deemed
automatically converted into such whole number of fully paid and nonassessable
shares of Common Stock as $7.00 multiplied by the number of shares of Series B
Preferred Stock being converted is a multiple of the Preferred Conversion Price
for Series B Preferred Stock as last adjusted pursuant to Section A.6.1(d) and
then in effect for Series B Preferred Stock. The provisions of Section A.6.1
shall apply to any such automatic conversion.
6.3 Preemptive Right. (a) Prior to the occurrence of an
Event of Conversion and except in the case of Excluded Securities (as
hereinafter defined), the Corporation shall not issue, sell or exchange, agree
to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange any (i) shares of Common Stock, (ii) any other equity security of the
Corporation, including without limitation, shares of Preferred Stock, (iii) any
debt security of the Corporation which by its terms is convertible into or
exchangeable for any equity security of the Corporation, (iv) any security of
the Corporation that is a combination of debt and equity, or (v) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
equity security or any such debt security of the Corporation convertible into
or exchangeable for any equity security of the Corporation, unless in each case
the Corporation shall have first offered to sell to each stockholder of the
Corporation holding at least 5% of the outstanding voting capital of the
Corporation (individually, an "Offeree" and collectively, the "Offerees"), that
amount of such securities (the "Offered Securities") as shall be necessary for
such Offeree to maintain its or his Proportionate Percentage (as hereinafter
defined), at a price and on such other terms as shall have been specified by
the Corporation in writing delivered to the Offerees (the "Offer"), which Offer
by its terms shall remain open and irremovable for a period of 30 days from the
date it is delivered by the Corporation to the Offerees. Each Offeree shall
have the right for a period of 20 days from the date such notice is delivered
to purchase, at the price and on the other terms and provisions specified in
the Offer, up to the number of shares of the Offered Securities necessary for
such Offeree to maintain its or his Proportionate Percentage.
(b) Each Offeree may exercise such right by delivery to
the Corporation prior to the expiration of such 20-day period of written notice
stating the number of shares of the Offered Securities it elects to purchase.
If any Offeree elects to purchase less than its Proportionate Percentage of the
Offered Securities, the other subscribing Offerees shall be entitled to
purchase the balance of that Offeree's Proportionate Percentage in the same
proportion in which they were entitled to purchase the Offered Securities
initially (excluding for such purposes such Offeree). The Corporation shall,
within 5 days following the expiration of the 20-day period, notify the
subscribing Offeree of the number of Offered Securities it may purchase
pursuant to the foregoing sentence, and each Offeree shall have 5 days from the
delivery of such notice to indicate such additional amount that it wishes to
purchase. The Offerees may sooner terminate the option periods described
herein
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<PAGE> 22
by delivery of notice prior to the expiration of such periods, in which case
the succeeding period begins to run when notices from all Offerees have been
received.
(c) If the Offerees do not exercise their preemptive
right contained herein as to all of the Offered Securities, the Corporation may
sell the remaining Offered Securities to the person and on the same terms and
conditions as was specified in the Offer at any time within 90 days from the
expiration of the periods specified above. If the sale described in the Offer
does not take place for any reason, the Offeree's right to purchase described
herein shall terminate as to such Offered Securities.
(d) Anything to the contrary contained herein
notwithstanding, in the event that there is any material change in the terms
of the Offer, the Offerees shall not be obligated to purchase the Offered
Securities. Any Offered Securities not purchased in accordance with this
Section 6.3 may not be sold or otherwise disposed of until they are again
offered to the Offerees pursuant to this Section 6.3. At the closing of the
sale of the Offered Securities, the Corporation shall sell and deliver to the
Offerees the Offered Securities as to which they exercised their preemptive
right, and the Offerees shall deliver the consideration therefor, at the terms
specified in the Offer.
(e) The rights of the Offerees under this Section 6.3
shall not apply to the following securities, pursuant to the 1989 Stock Option
Plan;
(i) Common Stock issued to officers, employees or
directors of the Corporation or its subsidiaries, pursuant to the 1989
Stock Option Plan;
(ii) Common Stock issued as a stock dividend or
upon any subdivision or combination of shares of Common Stock;
(iii) Common Stock issued upon conversion of any of
the Preferred Shares;
(iv) Securities offered by the Corporation
pursuant to a firm commitment underwritten public offering registered
under the Securities Act of 1933, as amended; or
(v) Common Stock issued upon the exercise of any
warrants issued pursuant to the Acquisition Agreements.
(f) For purposes of this Section 6.3, "Proportionate
Percentage" shall mean, as to any Offeree, that percentage figure which
expresses the ratio which (i) the number of shares of outstanding Common Stock
then owned by such Offeree bears to (ii) the aggregate number of shares of
outstanding Common Stock (treating (A) for purposes of clauses (i) and (ii) all
shares of Preferred Stock as being converted into shares of Common Stock at
rate at which such securities are convertible into Common Stock at the time of
delivery of the Offer and as being owned by such Offeree, which, in the case of
the Preferred Stock shall be determined pursuant to this Certificate of
Incorporation and (B) all options or warrants for securities of the Corporation
and all securities convertible into equity securities of the Corporation as
outstanding if the exercise or conversion price therefor is equal to or less
than the offering price for the Offered Securities).
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<PAGE> 23
7. Definitions. (a) The term "Accrued Dividends" shall mean Full
Cumulative Dividends to the date of determination, less the amount of all
dividends paid pursuant to Section C.1 of this Article upon the relevant share
of Preferred Stock.
(b) The term "Acquisition" shall mean the acquisition of
all of the issued and outstanding shares of capital stock of Permian Medical,
Inc., a Texas corporation, LM Supply and Service, Inc., a Texas corporation,
and Arlington Diversified Medical Equipment, Inc., a Texas corporation, and
certain of the assets of Permian Medical Home Health, a Texas corporation,
pursuant to that certain Stock and Asset Purchase Agreement, dated as of May
13, 1992, among the Corporation and the other parties thereto.
(c) The term "Affiliate" shall mean, with respect to the
person, any entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with
such person.
(d) The term "Change of Control" shall mean, with respect
to the original holder of shares of each Series of Preferred Stock, (i) the
merger of such holder with or into another entity which is not an Affiliate
(under circumstances in which the partners of such holder immediately prior to
such merger do not own at least a majority of the equity interests of the
surviving entity of such merger) or the sale of all or substantially all of the
assets of such holder as an entirety to a third party which is not an Affiliate
or (ii) the general partner (the "First Tier General Partner") of such holder
ceases to be controlled by one or more of the general partners of the First
Tier General Partner existing on the Original Issuance Date.
(e) The term "Event of Conversion" shall mean the
consummation of (A) a firm commitment underwritten public offering of shares of
Common Stock registered under the Securities Act of 1933, as amended, which
results in aggregate net cash proceeds to the Corporation of not less than
$7,500,000 and a price per share of Common Stock equal to or greater than
$10.36 (a "Public Offering").
(f) The term "Event of Election" shall mean the
occurrence of any of the following:
(i) the default in any redemption payment by the
Corporation pursuant to Section C.3 of this Article, whether or not
there are funds legally available therefor or whether or not
prohibited under contractual obligations;
(ii) (assuming S. Wayne Bazzle shall then be
employed by the Corporation as President and Chief Executive Officer),
he shall cease to devote substantially all of his working time on
behalf of the Corporation (other than by reason of death or disability
(the latter as determined by the Board of Directors of the Company) or
temporary absence due to extenuating personal circumstances beyond the
control of S. Wayne Bazzle (as determined by the Board of Directors));
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<PAGE> 24
(iii) the failure by the Corporation to meet the
Net Income Target for each Performance Period, as set forth and
reflected in the Prescribed Financial Statements to be included in the
Notice of Performance required to be delivered by the Corporation to
each holder of shares of Preferred Stock;
(iv) the failure by the Corporation to deliver the
Notice of Performance to each holder of Preferred Stock within 105
days after the conclusion of each Performance Period; provided,
however, that the failure by the Corporation to deliver the Notice of
Performance in accordance with this Section 7 shall not be deemed to
be an Event of Election for purposes solely of the first such failure
provided such failure is cured within 30 days after such failure to
timely deliver the Notice of Performance; or
(v) the nonoccurrence by January 1, 1994 (the
"Trigger Date"), of (A) an Event of Conversion (provided, however,
that if a Public Offering would have been consummated on or prior to
the Trigger Date but is delayed due to adverse market conditions and
the managing underwriter for such offering advises the Corporation in
writing to such effect, the Trigger Date shall be extended from
January 1, 1994 to May 1, 1994) or (B) (1) a consolidation, merger or
other transaction of the Corporation with or into another corporation
or entity that is not affiliated with any holder of Preferred Stock
(other than with or into a wholly owned subsidiary of the Corporation)
in which the holders of Preferred Stock are to receive cash,
securities, or other consideration in exchange for the shares of
Preferred Stock then held by them, (2) the sale of all or
substantially all of the assets of the Corporation as an entirety to a
third party or parties that are not affiliated with any holder of
Preferred Stock or (3) the sale of all of the outstanding shares of
Preferred Stock to the Corporation, a subsidiary of the Corporation,
an employee stock ownership plan of the Corporation, or a third party
that is not affiliated with any holder of Preferred Stock (each of the
foregoing being referred to as a "Buy-out"), in any case which results
in aggregate proceeds paid or payable or distributed or distributable
to the holders of Preferred Stock (assuming in the case of a sale of
assets, a liquidation of the Corporation immediately upon such sale of
assets) having a value of not less than $10.36 per share of Preferred
Stock. The value of any securities or other non-cash consideration
received in a Buy-out shall be the fair market value thereof, as
determined by a nationally recognized investment banking firm selected
mutually by the holders of a majority in voting power of the Preferred
Stock then outstanding and the Corporation (or if such selection
cannot be made, by a nationally recognized investment banking firm
selected by the American Arbitration Association in accordance with
its rules); provided, however, that if a Buy-out by the Trigger Date
fails to occur solely by reason of the failure of the holders of
Preferred Stock to approve such Buy-out then there shall be no Event
of Election pursuant to this Section 7(f)(v).
(g) The term "Event of Requested Redemption" shall mean
(assuming S. Wayne Bazzle shall then be employed by the Corporation as
President and Chief Executive Officer), he shall cease to devote substantially
all of his working time on behalf of the Corporation, other than by reason of
(i) death, (ii) disability (as determined by the Board of Directors of the
Company), (iii) temporary absence due to extenuating personal circumstance
beyond the control of S. Wayne
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<PAGE> 25
Bazzle (as determined by the Board of Directors), or (iv) the involuntary
termination of employment by the Board of Directors.
(h) The term "Full Cumulative Dividends" shall mean
(whether or not in respect of which such term is used there shall have been net
profits or net assets of the Corporation legally available for the payment of
such dividends) that amount which shall be equal to dividends at the full rate
fixed for the Preferred Stock as provided herein for the period of time elapsed
from the Original Issuance Date to the date of which Full Cumulative Dividends
are to be computed.
(i) The term "Junior Stock" shall mean the Common Stock
and any other class of capital stock of the Corporation other than the
Preferred Stock.
(j) The term "Net Income" shall mean the consolidated net
income of the Corporation and its consolidated subsidiaries determined in
accordance with generally accepted accounting principles applied on a
consistent basis (A) exclusive of gains from the sale of property other than in
the ordinary course of the Corporation's business and gains from other
extraordinary, nonrecurring items, and after (B) deduction of all operating
expenses, interest charges, rental charges, reserves and all other proper
deductions, as determined by and as reflected in the Prescribed Financial
Statements, and provision for Federal, state or local income taxes at rates of
taxation in effect on the Original Issuance Date and (C) adding thereto the
amortization of intangibles arising from acquisitions by the Corporation and
its consolidated subsidiaries subsequent to the Original Issuance Date.
(k) The term "Notice of Performance" shall mean a notice
delivered by the Corporation to each holder of Preferred Stock not later than
105 days after the conclusion of the Performance Period, which notice shall
include (A) the Prescribed Financial Statements and (B) a certificate signed by
the chief executive officer and chief financial officer of the Corporation (x)
to the effect that (1) such notice is being delivered pursuant to Section C.7
of the Certificate of Incorporation of the Corporation and (2) the Prescribed
Financial Statements are true, correct and complete, are in accordance with the
books and records of the Corporation, present fairly the financial position and
results of operations of the Corporation as of the conclusion of the
Performance Period and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis and (y) stating the Net
Income of the Corporation for the Performance Period as reflected in the
Prescribed Financial Statements included in such notice.
(l) The term "Original Issuance Date" shall mean (i) as
to Series A Preferred Stock, the date of original issuance of the first share
of Series A Preferred Stock and (ii) as to Series B Preferred Stock the date of
original issuance of the first share of Series B Preferred Stock.
(m) The term "Outstanding Stock" shall mean all
outstanding shares of Common Stock (assuming the conversion, exercise or
exchange of all outstanding securities which are convertible into or
exercisable or exchangeable directly or indirectly for Common Stock).
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<PAGE> 26
(n) The term "Performance Period" and "Net Income Target"
shall mean, respectively, those fiscal years and the related Net Income Targets
(calculated on a cumulative basis from and including the fiscal year ended
March 31, 1990) set forth below:
<TABLE>
<CAPTION>
Cumulative Net Income Targets
Fiscal Year (from Original Issuance Date
Ended Of Series A Preferred Stock
-------------- -----------------------------
<S> <C>
March 31, 1990 Greater than 50
March 31, 1991 Greater than $ 500,000
March 31, 1992 Greater than $1,500,000
March 31, 1993 Greater than $2,750,000
March 31, 1994 Greater than $4,250,000
</TABLE>
(o) The term "Prescribed Financial Statements" shall mean
the balance sheet of the Corporation as at the end of the respective
Performance Period, and the related cumulative statements of income (loss),
stockholders' equity and changes in financial position for the Performance
Period and for all preceding Performance Periods, if any, which financial
statements shall (i) be prepared by the Corporation's independent certified
public accountants and shall have attached thereto the unqualified opinion of
such firm of independent certified accountants, (ii) be prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
(iii) include a statement identifying with specificity amortization of
intangibles arising from acquisitions by the Corporation and its consolidated
subsidiaries subsequent to the Original Issuance Date and (iv) be included in
the Notice of Performance which shall be delivered by the Corporation to each
holder of Preferred Stock.
(p) The term "1992 Purchase Agreement" shall mean the
Series B Convertible Preferred Stock Purchase Agreement dated May 29, 19992,
among the Corporation and the other parties thereto relating to the original
issuance and sale of the Series B Preferred Stock.
(q) The term "1989 Purchase Agreement" shall mean the
Convertible Preferred Stock Purchase Agreement dated October 18, 1989, as
amended, among the Corporation and the other parties thereto relating to the
original issuance and sale of the Series A Preferred Stock.
(r) The term "Stockholders' Agreement" shall mean the
Stockholders' Agreement as in effect among the Corporation and all holders of
Common Stock or Preferred Stock.
FIFTH: Directors of the Corporation need not be elected by written
ballot unless the bylaws of the Corporation otherwise provide.
SIXTH: The directors of the Corporation shall have the power to
adopt, amend, and repeal the by-laws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one
or more of its directors, officers, or stockholders or between the Corporation
and any person (as used herein
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<PAGE> 27
"person" means other corporation, partnership, association, firm, trust, joint
venture, political subdivision, or instrumentality) or other organization in
which one or more of the directors, officers, or stockholders of the
Corporation are directors, officers, or stockholders, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to his or her relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall inure to the benefit of any director or officer who is
elected and accepts the position of director or officer of the Corporation or
elects to continue to serve as a director or officer of the Corporation while
this Article Eighth is in effect. Any repeal or amendment of this Article
Eighth shall be prospective only and shall not limit the rights of any such
director or officer or the obligations of the Corporation with respect to any
claim arising from or related to the services of such director or officer in
any of the foregoing capacities prior to any such repeal or amendment to this
Article Eighth. Such right shall include the right to be paid by the
Corporation expenses (including without limitation attorneys' fees) actually
and reasonably incurred by him in defending any such proceeding in advance of
its final disposition to the maximum extent permitted under the Delaware
General Corporation Law, as the same exists or may hereafter be amended. If a
claim for indemnification or advancement of expenses hereunder is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall also be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such
action that such indemnification or advancement of costs of defense is not
permitted under the Delaware General Corporation Law, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination
prior to the commencement of such action that indemnification of, or
advancement of costs of
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<PAGE> 28
defense to, the claimant is permissible in the circumstances nor an actual
determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
by-law, resolution of stockholders or directors, agreement, or otherwise.
The Corporation may also indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, any inquiry or investigation that could lead to such an
action, suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach or
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. Any repeal or amendment of this Article Ninth by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article Ninth, a director shall not be personally liable to
the Corporation or its stockholders to such further extent as permitted by any
law hereafter enacted, including without limitation any subsequent amendment to
the Delaware General Corporation Law.
TENTH: Following the closing date of the Corporation's first sale of
Common Stock pursuant to a registration statement filed and declared effective
under the Securities Act of 1933, as amended, no action required or permitted
to be taken at any meeting of the holders of Common Stock of the Corporation
may be taken without such meeting, the giving of the prior notice prescribed by
the General Corporation Law of the State of Delaware and the Corporation's
Bylaws (unless waived in accordance with such law and bylaws) and the taking of
a vote, and the power of the holders of Common Stock of the Corporation to
consent in writing or otherwise, without such meeting, notice, and vote, to the
taking of any action is specifically denied.
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<PAGE> 29
I, the undersigned, do make, file, and record this Amended and
Restated Certificate of Incorporation and do certify that this is my act and
deed and that the facts stated herein are true and, accordingly, I do hereunto
set my hand on this 29th day of July, 1996.
/s/ S. WAYNE BAZZLE
---------------------------------------
S. Wayne Bazzle
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
HEALTHCOR HOLDINGS, INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware, shall be the registered office named in
the original Certificate of Incorporation of the Corporation (as the same may
be amended and restated from time to time, the "Certificate of Incorporation"),
or such other office as may be designated from time to time by the Board of
Directors in the manner provided by law. Should the Corporation maintain a
principal office within the State of Delaware such registered office need not
be identical to such principal office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders
shall be held at the principal office of the Corporation, or at such other
place within or without the State of Delaware as shall be specified or fixed in
the notices or waivers of notice thereof.
Section 2. Quorum; Adjournment of Meetings. Unless otherwise
required by law or provided in the Certificate of Incorporation or these
bylaws, the holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business and the act of a majority of such stock so represented at any meeting
of stockholders at which a quorum is present shall constitute the act of the
meeting of stockholders. The stockholders present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Notwithstanding the other provisions of the Certificate of
Incorporation or these bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy, at any meeting of stockholders, whether or not a quorum is present,
shall have the power to adjourn such meeting from time to time, without any
notice other than announcement at the meeting of the time and place of the
holding of the adjourned meeting; provided, however, if the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at such meeting. At any
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally called.
<PAGE> 2
Section 3. Annual Meetings. An annual meeting of the
stockholders, for the election of directors to succeed those whose terms expire
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, within or without the State of Delaware,
on such date, and at such time as the Board of Directors shall fix and set
forth in the notice of the meeting, which date shall be within thirteen (13)
months subsequent to the later of the date of incorporation or the last annual
meeting of stockholders.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders for any
purpose or purposes may be called at any time by the Chairman of the Board (if
any), by the President or by a majority of the Board of Directors, or by a
majority of the executive committee (if any), and shall be called by the
Chairman of the Board (if any), by the President or the Secretary upon the
written request therefor, stating the purpose or purposes of the meeting,
delivered to such officer, signed by the holder(s) of at least ten percent
(l0%) of the issued and outstanding stock entitled to vote at such meeting.
Section 5. Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders,
or any adjournment thereof, or entitled to express consent to corporate action
in writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors of the Corporation
may fix, in advance, a date as the record date for any such determination of
stockholders, which date shall not be more than sixty (60) days nor less than
ten (l0) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If the Board of Directors does not fix a record date for any meeting
of the stockholders, the record date for determining stockholders entitled to
notice of or to vote at such meeting shall be at the close of business on the
day next preceding the day on which notice is given, or, if in accordance with
Article VIII, Section 3 of these bylaws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. If,
in accordance with Section 12 of this Article II, corporate action without a
meeting of stockholders is to be taken, the record date for determining
stockholders entitled to express consent to such corporate action in writing,
when no prior action by the Board of Directors is necessary, shall be the day
on which the first written consent is expressed. The record date for
determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 6. Notice of Meetings. Written notice of the place,
date and hour of all meetings, and, in case of a special meeting, the purpose
or purposes for which the meeting is called, shall be given by or at the
direction of the Chairman of the Board (if any) or the President, the Secretary
or the other person(s) calling the meeting to each stockholder entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the date of
the meeting. Such notice may be delivered either personally or by mail. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
2
<PAGE> 3
Section 7. Stock List. A complete list of stockholders entitled
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stock list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 8. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to a corporate action
in writing without a meeting may authorize another person or persons to act for
him by proxy. Proxies for use at any meeting of stockholders shall be filed
with the Secretary, or such other officer as the Board of Directors may from
time to time determine by resolution, before or at the time of the meeting.
All proxies shall be received and taken charge of and all ballots shall be
received and canvassed by the secretary of the meeting who shall decide all
questions touching upon the qualification of voters, the validity of the
proxies, and the acceptance or rejection of votes, unless an inspector or
inspectors shall have been appointed by the chairman of the meeting, in which
event such inspector or inspectors shall decide all such questions.
No proxy shall be valid after three (3) years from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless
such instrument shall provide the contrary, a majority of such persons present
at any meeting at which their powers thereunder are to be exercised shall have
and may exercise all the powers of voting or giving consents thereby conferred,
or if only one be present, then such powers may be exercised by that one; or,
if an even number attend and a majority do not agree on any particular issue,
each proxy so attending shall be entitled to exercise such powers in respect of
the same portion of the shares as he is of the proxies representing such
shares.
Section 9. Voting; Elections; Inspectors. Unless otherwise
required by law or provided in the Certificate of Incorporation, each
stockholder shall have one vote for each share of stock entitled to vote which
is registered in his name on the record date for the meeting. Shares
registered in the name of another corporation, domestic or foreign, may be
voted by such officer, agent or proxy as the bylaw (or comparable instrument)
of such corporation may prescribe, or in the absence of such provision, as the
Board of Directors (or comparable body) of such corporation may determine.
Shares registered in the name of a deceased person may be voted by his executor
or administrator, either in person or by proxy.
All voting, except as required by the Certificate of Incorporation or
where otherwise required by law, may be by a voice vote; provided, however,
that upon demand therefor by stockholders holding a majority of the issued and
outstanding stock present in person or by proxy at any meeting a stock vote
shall be taken. Every stock vote shall be taken by written ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
All elections of directors shall be by ballot, unless otherwise provided in the
Certificate of Incorporation.
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At any meeting at which a vote is taken by ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
Such inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as an inspector.
Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.
Section 10. Conduct of Meetings. The meetings of the
stockholders shall be presided over by the Chairman of the Board (if any), or
if he is not present, by the President, or if neither the Chairman of the Board
(if any), nor President is present, by a chairman elected at the meeting. The
Secretary of the Corporation, if present, shall act as secretary of such
meetings, or if he is not present, an Assistant Secretary shall so act; if
neither the Secretary nor an Assistant Secretary is present, then a secretary
shall be appointed by the chairman of the meeting. The chairman of any meeting
of stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order. Unless the chairman of the meeting of
stockholders shall otherwise determine, the order of business shall be as
follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if an annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote,
directly or indirectly, shares of its own stock owned by it and such shares
shall not be counted for quorum purposes.
Section 12. Action Without Meeting. Unless otherwise provided in
the Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, and subject to the restrictions imposed by law or the
Certificate of Incorporation, they may exercise all the powers of the
Corporation.
The number of directors which shall constitute the whole Board of
Directors, shall be five. Each director shall hold office for the term for
which he is elected, and until his successor shall have been elected and
qualified or until his earlier death, resignation or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate
of Incorporation, a majority of the total number of directors shall constitute
a quorum for the transaction of business of the Board of Directors and the vote
of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3. Place of Meetings; Order of Business. The directors
may hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from
time to time determine by resolution. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the Chairman of the Board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
Section 4. First Meeting. Each newly elected Board of Directors
may hold its first meeting for the purpose of organization and the transaction
of business, if a quorum is present, immediately after and at the same place as
the annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
a quorum shall be present, held next after the annual meeting of stockholders,
the Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the President
or, on the written request of any two directors, by the Secretary, in each case
on at least twenty-four (24) hours personal, written, telegraphic, cable or
wireless notice to each director. Such notice, or any waiver thereof pursuant
to Article VIII, Section 3 hereof, need not state the purpose or purposes of
such meeting, except as may otherwise be required by law or provided for in the
Certificate of Incorporation or these bylaws.
Section 7. Removal. Any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority
of the shares then entitled to vote at an election of directors; provided that,
unless the Certificate of Incorporation otherwise provides, if the Board of
Directors is
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classified, then the stockholders may effect such removal only for cause; and
provided further that, if the Certificate of Incorporation expressly grants to
stockholders the right to cumulate votes for the election of directors and if
less than the entire board is to be removed, no director may be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire Board of Directors, or, if
there be classes of directors, at an election of the class of directors of
which such director is a part.
Section 8. Vacancies; Increases in the Number of Directors.
Unless otherwise provided in the Certificate of Incorporation, vacancies and
newly created directorships resulting from any increase in the authorized
number of directors may be filled by a majority of the directors then in
office, although less than a quorum, or a sole remaining director; and any
director so chosen shall hold office until the next annual election and until
his successor shall be duly elected and shall qualify, unless sooner displaced.
If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall
qualify.
Section 9. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority
to fix the compensation of directors.
Section 10. Action Without a Meeting; Telephone Conference
Meeting. Unless otherwise restricted by the Certificate of Incorporation, any
action required or permitted to be taken at any meeting of the Board of
Directors, or any committee designated by the Board of Directors, may be taken
without a meeting if all members of the Board of Directors or committee, as the
case may be consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board of Directors or committee. Such
consent shall have the same force and effect as a unanimous vote at a meeting,
and may be stated as such in any document or instrument filed with the
Secretary of State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirement for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of such Board of Directors or committee, as the
case may be, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 11. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the
stockholders, or at any special meeting of the stockholders called for the
purpose of considering any such act or contract, and any act or contract that
shall be approved or be ratified by the vote of the stockholders holding a
majority of the issued and outstanding shares of stock of the Corporation
entitled to vote and present in person or by proxy at such meeting (provided
that a quorum is present), shall be as valid and as binding upon the
Corporation and upon all the stockholders as if it has been approved or
ratified by every stockholder of the Corporation. In addition, any such act or
contract may be approved or ratified by the written consent of stockholders
holding a majority of the issued and outstanding shares of capital stock of the
Corporation entitled to vote and such consent shall be as valid and as binding
upon the Corporation
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and upon all the stockholders as if it had been approved or ratified by every
stockholder of the Corporation.
ARTICLE IV
COMMITTEES
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, each
such committee to consist of one or more of the directors of the Corporation.
Any such designated committee shall have and may exercise such of the powers
and authority of the Board of Directors in the management of the business and
affairs of the Corporation as may be provided in such resolution, except that
no such committee shall have the power or authority of the Board of Directors
in reference to amending the Certificate of Incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution of the Corporation, or amending,
altering or repealing the bylaws or adopting new bylaws for the Corporation
and, unless such resolution or the Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Any such designated committee
may authorize the seal of the Corporation to be affixed to all papers which may
require it. In addition to the above such committee or committees shall have
such other powers and limitations of authority as may be determined from time
to time by resolution adopted by the Board of Directors.
Section 2. Procedure; Meetings; Quorum. Any committee
designated pursuant to Section 1 of this Article shall choose its own chairman,
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when requested, shall fix its own rules or procedures, and shall
meet at such times and at such place or places as may be provided by such
rules, or by resolution of such committee or resolution of the Board of
Directors. At every meeting of any such committee, the presence of a majority
of all the members thereof shall constitute a quorum and the affirmative vote
of a majority of the members present shall be necessary for the adoption by it
of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of
the Corporation shall be a President, one or more Vice Presidents (any one or
more of whom may be designated Executive Vice President or Senior Vice
President), a Treasurer, a Secretary and, if the Board of Directors so elects,
a Chairman of the Board and such other officers as the Board of Directors may
from time to time elect or appoint. Each officer shall hold office until his
successor shall be duly elected and shall qualify or until his
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death or until he shall resign or shall have been removed in the manner
hereinafter provided. Any number of offices may be held by the same person,
unless the Certificate of Incorporation provides otherwise. Except for the
Chairman of the Board, if any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed, either with or without cause, by the
vote of a majority of the whole Board of Directors at a special meeting called
for the purpose, or at any regular meeting of the Board of Directors, provided
the notice for such meeting shall specify that the matter of any such proposed
removal will be considered at the meeting but such removal shall be without
prejudice to the contract rights, if any, of the person so removed. Election
or appointment of an officer or agent shall not of itself create contract
rights.
Section 4. Vacancies. Any vacancy occurring in any office of
the Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer.
The Chairman of the Board shall be the chief executive officer of the
Corporation unless the Board of Directors designates the President as chief
executive officer. Subject to the control of the Board of Directors and the
executive committee (if any), the chief executive officer shall have general
executive charge, management and control of the properties, business and
operations of the Corporation with all such powers as may be reasonably
incident to such responsibilities; he may agree upon and execute all leases,
contracts, evidences of indebtedness and other obligations in the name of the
Corporation and may sign all certificates for shares of capital stock of the
Corporation; and shall have such other powers and duties as designated in
accordance with these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 6. Powers and Duties of the Chairman of the Board. If
elected, the Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors; and he shall have such other powers
and duties as designated in these bylaws and as from time to time may be
assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board
of Directors otherwise determines, the President shall have the authority to
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation; and, unless the Board of
Directors otherwise determines, he shall, in the absence of the Chairman of the
Board or if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 8. Vice Presidents. In the absence of the President, or
in the event of his inability or refusal to act, a Vice President designated by
the Board of Directors shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. In the absence of a designation by the Board of Directors of a
Vice President to perform the duties of the President, or in the event of his
absence or inability or refusal to act, the Vice President who is present and
who is senior in terms of time as a Vice President of the Corporation shall so
act. The Vice Presidents shall
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perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility
for the custody and control of all the funds and securities of the Corporation,
and he shall have such other powers and duties as designated in these bylaws
and as from time to time may be assigned to him by the Board of Directors. He
shall perform all acts incident to the position of Treasurer, subject to the
control of the chief executive officer and the Board of Directors; and he
shall, if required by the Board of Directors, give such bond for the faithful
discharge of his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to him by the chief executive officer or the Board of
Directors. The Assistant Treasurers shall exercise the powers of the Treasurer
during that officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of
all meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the
seal of the Corporation to all contracts of the Corporation and attest the
affixation of the seal of the Corporation thereto; he may sign with the other
appointed officers all certificates for shares of capital stock of the
Corporation; he shall have charge of the certificate books, transfer books and
stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the Corporation during business
hours; he shall have such other powers and duties as designated in these bylaws
and as from time to time may be assigned to him by the Board of Directors; and
he shall in general perform all acts incident to the office of Secretary,
subject to the control of the chief executive officer and the Board of
Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as designated in these bylaws and as from time to
time may be assigned to him by the chief executive officer or the Board of
Directors. The Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other
Corporations. Unless otherwise directed by the Board of Directors, the chief
executive officer shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in
which this Corporation may hold securities and otherwise to exercise any and
all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
Section 1. Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative, is or was or has
agreed to become a director or officer of the Corporation or is or was serving
or has agreed to serve at the request of the Corporation as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while
serving or having agreed to serve as a director or officer, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended, (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) against all expense, liability and loss (including without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to serve in the capacity which initially entitled
such person to indemnity hereunder and shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof), other than a proceeding (or part thereof) brought
under Section 3 of this Article VI, initiated by such person or his or her
heirs, executors and administrators only if such proceeding (or part thereof)
was authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Article VI shall be a contract right and
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a current, former or proposed director or officer in
his or her capacity as a director or officer or proposed director or officer
(and not in any other capacity in which service was or is or has been agreed to
be rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such indemnified person, to
repay all amounts so advanced if it shall ultimately be determined that such
indemnified person is not entitled to be indemnified under this Section or
otherwise.
Section 2. Indemnification of Employees and Agents. The
Corporation may, by action of its Board of Directors, provide indemnification
to employees and agents of the Corporation, individually or as a group, with
the same scope and effect as the indemnification of directors and officers
provided for in this Article.
Section 3. Right of Claimant to Bring Suit. If a written claim
received by the Corporation from or on behalf of an indemnified party under
this Article VI is not paid in full by the Corporation within ninety days after
such receipt, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the
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claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 4. Nonexclusivity of Rights. The right to
indemnification and the advancement and payment of expenses conferred in this
Article VI shall not be exclusive of any other right which any person may have
or hereafter acquire under any law (common or statutory), provision of the
Certificate of Incorporation of the Corporation, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 5. Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any person who is or was serving as a
director, officer, employee or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
Section 6. Savings Clause. If this Article VI or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and hold
harmless each director and officer of the Corporation, as to costs, charges and
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative to the full extent permitted by any
applicable portion of this Article VI that shall not have been invalidated and
to the fullest extent permitted by applicable law.
Section 7. Definitions. For purposes of this Article, reference
to the "Corporation" shall include, in addition to the Corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger prior to (or, in the case of an entity
specifically designated in a resolution of the Board of Directors, after) the
adoption hereof and which, if its separate existence had continued, would have
had the power and authority to indemnify its directors, officers and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had continued.
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ARTICLE VII
CAPITAL STOCK
Section 1. Certificates of Stock. The certificates for shares
of the capital stock of the Corporation shall be in such form, not inconsistent
with that required by law and the Certificate of Incorporation, as shall be
approved by the Board of Directors. The Chairman of the Board (if any),
President or a Vice President shall cause to be issued to each stockholder one
or more certificates, under the seal of the Corporation or a facsimile thereof
if the Board of Directors shall have provided for such seal, and signed by the
Chairman of the Board (if any), President or a Vice President and the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying
the number of shares (and, if the stock of the Corporation shall be divided
into classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures
shall have been placed upon any such certificate or certificates shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued by the Corporation, such certificate may nevertheless be issued by
the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue. The stock certificates shall
be consecutively numbered and shall be entered in the books of the Corporation
as they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representatives upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 3. Ownership of Shares. The Corporation shall be
entitled to treat the holder of record of any share or shares of capital stock
of the Corporation as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4. Regulations Regarding Certificates. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of
Directors may determine the conditions upon which a new certificate of stock
may be issued in place of a certificate which is alleged to have been lost,
stolen or destroyed; and may, in their discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient surety,
to indemnify the Corporation and each transfer agent and registrar against any
and all losses or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall be such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall
have charge of the seal (if any). If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Treasurer or by the Assistant Secretary or Assistant Treasurer.
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Certificate of Incorporation or under the
provisions of these bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic, cable or wireless transmission or (ii) by deposit of
the same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his post office address, as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or the bylaws.
Section 4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the chief executive officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions
for the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each
director and each member of any committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the Corporation by any of
its officers, or by an independent certified public accountant, or by an
appraiser selected with reasonable care by the Board of Directors or by any
such committee, or in relying in good faith upon other records of the
Corporation.
13
<PAGE> 14
ARTICLE IX
AMENDMENTS
If provided in the Certificate of Incorporation of the Corporation,
the Board of Directors shall have the power to adopt, amend and repeal from
time to time bylaws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
bylaws as adopted or amended by the Board of Directors.
14
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS COMMON STOCK
OF THE STATE OF DELAWARE PAR VALUE $.01
NUMBER SHARES
C
THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 422201 10 3
DALLAS, TEXAS AND NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
[LOGO]
HEALTHCOR HOLDINGS, INC.
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF
- --------------------------- HEALTHCOR HOLDINGS, INC. -------------------------
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
/s/ CHERYL C. BAZZLE /s/ S. WAYNE BASSLE BY
PRESIDENT SECRETARY AUTHORIZED SIGNATURE
HEALTHCOR HOLDINGS, INC.
CORPORATE
SEAL
DELAWARE
*
<PAGE> 2
HEALTHCOR HOLDINGS, INC.
The Corporation will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preferences and/or rights. A stockholder may
make the request to the Corporation or to its Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties --------- --------
JT TEN -- as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act
-----------------------
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Value Received, hereby sell, assign and
---------------------------------
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
---------------------------
X
------------------------------------------
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT X
OR ANY CHANGE WHATEVER. ------------------------------------------
(SIGNATURE)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15.
-------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-------------------------------------------------
<PAGE> 3
HEALTHCOR HOLDINGS, INC.
The Corporation will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preferences and/or rights. A stockholder may
make the request to the Corporation or to its Transfer Agent and Registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian
TEN ENT -- as tenants by the entireties --------- --------
JT TEN -- as joint tenants with right (Cust) (Minor)
of survivorship and not as Under Uniform Gifts to Minors
tenants in common Act
-----------------------
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
For Value Received, hereby sell, assign and
---------------------------------
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF
ASSIGNEE
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------Shares
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
- ----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
---------------------------
X
------------------------------------------
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S)
AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT X
OR ANY CHANGE WHATEVER. ------------------------------------------
(SIGNATURE)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C.
RULE 17Ad-15.
-------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
-------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
[VINSON & ELKINS LETTERHEAD]
August 6, 1996
HealthCor Holdings, Inc.
5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel to HealthCor Holdings, Inc., a Delaware
corporation (the "COMPANY"), in connection with the Company's registration
under the Securities Act of 1933 (the "SECURITIES ACT") of the offer and sale
of an aggregate of 3,737,500 shares (the "SHARES") of common stock, par value
$.01 per share (the "COMMON STOCK"), of the Company pursuant to the Company's
Registration Statement on Form S-1 (File No. 333-5779) filed with the
Securities and Exchange Commission (the "COMMISSION") on June 12, 1994, as
amended through the date hereof (the "REGISTRATION STATEMENT").
In reaching the opinions set forth herein, we have examined and
are familiar with originals or copies, certified or otherwise, of such
documents and records of the Company and such statutes, regulations and other
instruments as we have deemed necessary or advisable for purposes of this
opinion, including (i) the Registration Statement, (ii) the Certificate of
Incorporation of the Company, as filed with the Secretary of State of the State
of Delaware, and (iii) the By-Laws of the Company.
Based on the foregoing and having due regard for the legal
considerations we deem relevant, we are of the opinion that the Shares, when
issued in accordance with the Underwriting Agreement (as that term is defined
in the Registration Statement), will be validly issued by the Company, fully
paid and non-assessable.
The opinion expressed above is subject to the following assumptions,
exceptions and qualifications:
<PAGE> 2
HealthCor Holdings, Inc.
August 6, 1996
Page 2
(a) We have assumed that (i) all information contained in all
documents reviewed by us is true and correct, (ii) all signatures on all
documents reviewed by us are genuine, (iii) all documents submitted to us as
originals are true and complete, (iv) all documents submitted to us as copies
are true and complete copies of the originals thereof, and (v) each natural
person signing any document reviewed by us had the legal capacity to do so.
(b) We have also assumed that (i) the Shares will be issued in
accordance with the Underwriting Agreement as described in the Registration
Statement, (ii) the full consideration for each Share shall be paid to the
Company and in no event shall be less than the par value of such Shares, and
(iii) certificates evidencing the Shares shall be properly executed and
delivered by the Company in accordance with the Registration Statement and the
Delaware General Corporation Law (the "DGCL").
The opinion expressed above is limited to the laws of the State of
Texas, the DGCL and the federal laws of the United States of America.
This opinion letter may be filed as an exhibit to the Registration
Statement. Consent is also given to the reference to this firm under the
caption "Legal Matters" in the Registration Statement and in the Prospectus
included in the Registration Statement, as having passed on the validity of the
Shares. In giving this consent, this firm does not thereby admit that it comes
within the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ VINSON & ELKINS L.L.P.
<PAGE> 1
EXHIBIT 10.2
1989 STOCK OPTION PLAN
FOR
HEALTHCOR HOLDINGS, INC.
1. Purpose. The purpose of this Plan is to advance the interest
of HealthCor Holdings, Inc. (the "Company") by providing an additional
incentive to attract and retain qualified and competent officers, directors and
employees for the Company and its subsidiaries upon whose efforts and judgment
the success of the Company and its Subsidiaries is largely dependent, through
the encouragement of stock ownership in the Company by such officers, directors
and employees.
2. Definitions. As used herein, the following terms shall have
the meaning indicated:
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Committee" shall mean the Stock Option Committee
appointed by the Board pursuant to Section 13 hereof.
(c) "Fair Market Value" shall mean the fair market value
per Share determined by the Board in good faith and without regard to any
restriction other than a restriction which, by its terms, will never lapse.
(d) "Incentive Stock Option" shall mean an incentive
stock option as defined in Section 422A of the Code.
(e) "Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(f) "Option" (when capitalized) shall mean any option
granted under this Plan.
(g) "Optionee" shall mean a person other than S. Wayne
Bazzle or Cheryl C. Bazzle, to whom a stock option is granted under this Plan
or any person who succeeds to the rights of such person under this plan by
reason of the death of such person.
(h) "Plan" shall mean this 1989 Stock Option Plan for
HealthCor Holdings. Inc., as amended from time to time.
-1-
<PAGE> 2
(i) "Share(s)" shall mean a share or shares of the common
stock, $0.01 par value per share, of the Company.
(j) "Subsidiary" shall mean any corporation (other than
the Company) in any unbroken chain of corporations beginning with the Company
if, at the time of the granting of the Option, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. Shares of Stock Subject to Options
(a) The Company may grant to Optionees from time to time
Options to purchase aggregate of up to 155,000 Class A Shares from Shares held
in the Company's treasury or from authorized and unissued Shares. If any Option
granted under the Plan shall terminate, expire, or be cancelled as to any
Shares, new Options may thereafter be granted covering such Shares.
(b) The maximum aggregate Fair Market Value (determined
at the date of grant) of the Shares with respect to which an Optionee may be
granted one or more Incentive Stock Options (under this Plan and all plans of
the Company, any parent (as defined Section 425 of the Code) and Subsidiary of
the Company) which are exercisable for the first time in any calendar year
shall not exceed $100,000.
4. Options and Employment Provisions.
(a) Optionees shall be those persons selected by the
Board from among the class of regular officers, directors and employees of the
Company and of any Subsidiary, except that S. Wayne Bazzle and Cheryl C. Bazzle
are not permitted Optionees.
(b) In granting Options, the Board shall take into
consideration the contribution the officer, director or employee has made or
may make to the success of the Company or its Subsidiaries and such other
factors as the Board shall determine. The Board shall also have the authority
to consult with and receive recommendations from officers and other personnel
of the Company and its Subsidiaries with regard to these matters. The Board may
from time to time in granting Options under the Plan prescribe such other terms
and conditions concerning such Options as it deems appropriate, including,
without limitation, relating an Option to achievement of specific goals
established by the Board or to the continued employment of the Optionee for a
specified period of time, provided that such terms and conditions are not more
favorable to an Optionee than those expressly permitted herein.
-2-
<PAGE> 3
(c) The Options granted to officers, directors and
employees under this Plan shall be in addition to regular salaries, pension,
life insurance or other benefits related to their employment with the Company
or its Subsidiaries. Neither the Plan nor any Option granted under the Plan
shall confer upon any person any right to continuance of employment by the
Company or its Subsidiaries.
(d) The Board in its sole discretion shall determine in
each case whether periods of military or government service shall constitute a
continuation of employment for the purposes of this Plan or any Option.
(e) Notwithstanding anything in this Plan (including this
Section 4) to the contrary, no Option shall be granted unless such Option, and
the terms and conditions of such Option, are approved by either (i) the member
of the Board designated by Regional Financial Enterprises IV, L.P. or (ii)
holders of a majority in interest of any outstanding shares of the Company's
Convertible Preferred Stock, $.01 par value.
5. Option Price. The option price per Share of any Option shall
be any price determined by the Board; provided, however, that the option price
per Share of an Incentive Stock Option shall not be less than the Fair Market
Value per Share on the date such Option is granted.
6. Exercise of Options. An Option shall be deemed exercised when
the Company has received written notice of such exercise in accordance with the
terms of the Option, and full payment of the aggregate option price of the
Shares as to which the Option is exercised has been made. Unless further
limited by the Board in any Option, the option price of any Shares purchased
shall be paid solely in cash, by certified or cashier's check, by money order,
with Shares or by a combination of the above; provided, however, that the Board
in its sole discretion may accept a personal check in full or partial payment
of any Shares. If paid in whole or in part with Shares, the value of the Shares
surrendered shall be their Fair Market Value. Nothing herein shall prohibit the
Company, in its sole discretion, from lending to an Optionee, guaranteeing a
loan to an Optionee, or otherwise assisting an Optionee in obtaining the cash
necessary to exercise all or a portion of an Option granted hereunder.
7. Exercisability of Options. Any Option shall become exercisable
in such amounts and at such intervals as the Board shall provide in such
Option, except as otherwise provided in this Section 7.
(a) The expiration date of an Option shall be determined
by the Board at the time of grant, but in no event shall an Option be exercised
after the expiration of ten (10) years from the date of grant of the Option.
-3-
<PAGE> 4
(b) Unless otherwise provided in any Option, each
outstanding Option shall become immediately fully exercisable;
(i) If the shareholders of the Company shall
approve a plan of merger, consolidation, reorganization, liquidation
or dissolution in which the Company does not survive (unless the
approved merger, consolidation, reorganization, liquidation or
dissolution is subsequently abandoned); or
(ii) if the shareholders of the Company shall
approve a plan for the sale, lease, exchange or other disposition of
all or substantially all of the property and assets of the Company
(unless such plan is subsequently abandoned).
(c) The Board may in its sole discretion accelerate the
date on which an Option may be exercised.
(d) No Option shall vest more than 25% per year on a
cumulative basis except that Options granted to Ron Barrera or Deborah J.
Martin may vest at a cumulative rate of 33 1/3% per year
8. Termination of Option Period.
(a) The unexercised portion of any Option shall
automatically and without notice terminate and become null and void three
months after the date on which the Optionee's employment is terminated for any
reason.
(b) After the occurrence of any event described in
Section 7(b)(i) or (ii), the Board in its sole discretion, may, after giving
appropriate written notice to any Optionee holding one or more outstanding
unexercised Options, cancel any Option which has not been exercised within
thirty (30) days (or such other period as the Board shall determine) after the
date of such notice.
9. Adjustment of Shares.
(a) If at any time while the Plan is in effect or
unexercised Options are outstanding there shall be any increase or decrease in
the number of issued and outstanding Shares through the declaration of a stock
dividend or through any recapitalization resulting in a stock split-up,
combination or exchange of Shares then and in such event:
-4-
<PAGE> 5
(i) appropriate adjustment shall be made in the
maximum number of Shares then subject to being optioned under the
Plan, so that the same proportion of the Company's issued and
outstanding Shares shall continue to be subject to being so
optioned; and
(ii) appropriate adjustment shall be made in the
number of Shares and the exercise price per Share thereof then subject
to any outstanding Option, so that the same proportion of the
Company's issued and outstanding Shares shall remain subject to
purchase at the same aggregate exercise price.
The Board may change the terms of Options outstanding under this Plan, with
respect to the option price or the number of Shares subject to the Options, or
both, when, in the Board's sole discretion, such adjustments become appropriate
by reason of a corporate transaction (as defined in Treasury Regulation
1.425-1(a)(1)(ii). Except as otherwise expressly provided herein, the issuance
by the Company of shares of its capital stock of any class, or securities
convertible into shares of capital stock of any class, either in connection
with direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to the number of or
exercise price of Shares then subject to outstanding Options granted under the
Plan.
(b) Without limiting the generality of the foregoing, the
existence of outstanding Options granted under the Plan shall not affect in any
manner the right or power of the Company to make, authorize or consummate (1)
any or all adjustments, recapitalizations, reorganizations or other changes in
the Company's capital structure or its business; (2) any merger or
consolidation of the Company; (3) any issue by the Company of debt securities,
or preferred or preference stock which would rank above the Shares subject to
outstanding stock which would rank above the Shares subject to outstanding
Options; (4) the dissolution or liquidation of the Company; (5) any sale,
transfer or assignment of all or any part of the assets or business of the
Company; or (6) any other corporate act or proceeding, whether of a similar
character or otherwise.
10. Nontransferability of Options. Options shall not be
transferable by the Optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime by the
Optionee.
-5-
<PAGE> 6
11. Issuance of Shares.
(a) No person shall be, or have any of the rights or
privileges of, a shareholder of the Company with respect to any of the Shares
issuable upon the exercise of any Option, unless and until certificates
representing such Shares shall have been issued and delivered.
(b) The time of issuance and delivery of certificates may
be postponed for such period as may be required to comply with the registration
requirements under the Securities Act of 1933, as amended (the "Act"), the
Securities Exchange Act of 1934, as amended, listing requirements of
applicable securities exchanges on which the Shares may then be listed, and the
requirements under other laws or regulations applicable to the issuance of such
Shares.
(c) Notwithstanding anything contained herein to the
contrary, the Company shall nor be required to sell or issue Shares under any
Option if the issuance thereof would constitute a violation by the Optionee or
the Company of any provision of any law or regulation of any governmental
authority or any national securities exchange or other forum in which Shares
are traded; and, as a condition of any sale or issuance of Shares under any
Option, the Board may obtain such agreements or undertakings, if any, as the
Board may deem necessary or advisable to assure compliance with any such law or
regulation.
(d) The Company shall not be required to register the
Shares under the Act. Shares issued upon the exercise of any Option without
registration of such Shares under the Act shall be "restricted securities"
under the federal securities laws because such Shares will have been acquired
from the Company in a transaction not involving a public offering. Under the
federal securities laws and applicable regulations, such Shares will be subject
to the terms of Rule 144 under the Act. The certificates representing any such
Shares shall bear an appropriate legend restricting transfer and the transfer
agent of the Company shall be given stop transfer instructions with respect to
such Shares.
(e) In no event shall a holder of unregistered Shares
issued upon the exercise of any Option dispose of any of the Shares unless and
until:
(i) there is then in effect a registration
statement under the Act covering such proposed disposition and such
disposition is made in accordance with said registration statement; or
-6-
<PAGE> 7
(ii) such holder shall have notified the Company
of the details of the proposed disposition and, if the Company
requests, shall have provided the Company with an opinion of counsel
for such holder, in form satisfactory to the Company to the effect
that such disposition will not require registration of the Shares
under the Act.
12. Options for 10% Shareholders. Notwithstanding any other
provisions of the Plan to the contrary, an Incentive Stock Option shall not be
granted to any person owning directly (or indirectly through attribution under
Section 425(d) of the Code) at the date of the grant, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company
(or of its parent (as defined in Section 425 of the Code) or a Subsidiary at
the date of grant) unless the option price of such Option is at least 110% of
the Fair Market Value of the Shares subject to such Option on the date the
Option is granted, and the period during which the Option may be exercised does
not exceed five (5) years from the date of grant.
13. Administration of the Plan.
(a) The Plan shall be administered by the Board. The
Board, in its sole discretion, however, may appoint a committee (herein called
the "Committee") consisting of not less than three (3) members of the Board to
administer the Plan. Except for the powers set forth in Section 15, the
Committee shall have all of the powers of the Board with respect to the Plan.
Any member of the Committee may be removed at any time, with or without cause,
by resolution of the Board and any vacancy occurring in the membership of the
Committee may be filled by appointment by the Board.
(b) The Board from time to time, may adopt rules and
regulations for carrying out the purposes of the Plan. The determinations and
the interpretation and construction of any provision of the Plan by the Board
shall be final and conclusive.
(c) Any and all decisions or determinations of the Board
(or the Committee) shall be made either (i) by a majority vote of the members
of the Board (or the Committee) at a meeting or (ii) without a meeting by the
written approval of a majority of the members of the Board (or the Committee).
14. Interpretation.
(a) The Plan shall be administered and interpreted so
that all Incentive Stock Options granted under the Plan will qualify as
Incentive Stock Options under section 422A of the Code. If any provision of the
Plan should be held invalid for the granting of Incentive Stock Options or
illegal for any reason, such determination shall not affect the remaining
provisions hereof, but instead the Plan shall be construed and enforced as if
such provision had never been included in the Plan.
-7-
<PAGE> 8
(b) This Plan shall be governed by the laws of the State
of Texas,
(c) Headings contained in this Agreement are for
convenience only and shall in no manner be construed as part of this Plan.
(d) Any reference to the masculine, feminine, or neuter
gender shall be a reference to such other gender as is appropriate.
15. Amendment and Discontinuation of the Plan. The Committee,
subject to the approval of the Board of Directors (and the shareholders to the
extent required by Section 422A of the Code), may from time to time amend the
Plan or any Option, provided, however, that (except to the extent provided in
Section 9) no such amendment may (a) without approval by the shareholders of
the Company increase the number of Shares reserved for Options or change the
class of employees eligible to receive Options, (b) permit the granting of any
Incentive Stock Option at an option price less than that determined in
accordance with Sections 5 and 12, (c) permit the granting of Section 7(a) or
Section 12, if applicable, or (d) extend the termination date of the Plan as
set forth in Section 16; and provided, further, that (except to the extent
provided in Section 8) no amendment or suspension of the Plan or any Option
issued hereunder shall modify (within the meaning of Section 425(h) of the
Code) any Incentive Stock Option, or substantially impair any Option,
previously granted to any Optionee without the consent of any Optionee.
16. Effective Date and Termination Date. The effective date of the
Plan is October 18, 1989 and the Plan shall terminate on the 10th anniversary
of the effective date.
-8-
<PAGE> 1
EXHIBIT 10.3
HEALTHCOR HOLDINGS, INC.
1996 LONG-TERM INCENTIVE PLAN
SCOPE AND PURPOSE OF PLAN
HEALTHCOR HOLDINGS, Inc., a Delaware corporation (the "Corporation"),
has adopted this 1996 Long-Term Incentive Plan (the "Plan") to provide for the
granting of:
(a) Incentive Options (hereafter defined) to certain Key Employees
(hereafter defined);
(b) Nonstatutory Options (hereafter defined) to certain Key
Employees and Non-Employee Directors (hereafter defined);
(c) Restricted Stock Awards (hereafter defined) to certain Key
Employees; and
(d) Stock Appreciation Rights (hereafter defined) to certain Key
Employees.
The purpose of the Plan is to provide an incentive for Key Employees
and directors of the Corporation or its Subsidiaries (hereafter defined) to
remain in the service of the Corporation or its Subsidiaries, to extend to them
the opportunity to acquire a proprietary interest in the Corporation so that
they will apply their best efforts for the benefit of the Corporation, and to
aid the Corporation in attracting able persons to enter the service of the
Corporation and its Subsidiaries.
SECTION 1. DEFINITIONS
1.1 "Acquiring Person" means any Person other than the
Corporation, any Subsidiary of the Corporation, any employee benefit plan of
the Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation, or any
trustee or other fiduciary holding securities under an employee benefit plan of
the Corporation or of a Subsidiary of the Corporation or of a corporation owned
directly or indirectly by the stockholders of the Corporation in substantially
the same proportions as their ownership of Stock of the Corporation.
1.2 "Affiliate" means (a) any Person who is directly or indirectly
the beneficial owner of at least 10% of the voting power of the Voting
Securities or (b) any Person controlling, controlled by, or under common
control with the Company or any Person contemplated in clause (a) of this
Subsection 1.2.
1.3 "Award" means the grant of any form of Option, Restricted
Stock Award, or Stock Appreciation Right under the Plan, whether granted
individually, in combination, or in tandem, to a Holder pursuant to the terms,
conditions, and limitations that the Committee may establish in order to
fulfill the objectives of the Plan.
1.4 "Award Agreement" means the written agreement between the
Corporation and a Holder evidencing the terms, conditions, and limitations of
the Award granted to that Holder.
1.5 "Board of Directors" means the board of directors of the
Corporation.
1.6 "Business Day" means any day other than a Saturday, a Sunday,
or a day on which banking institutions in the state of Texas are authorized or
obligated by law or executive order to close.
<PAGE> 2
1.7 "Change in Control" means the event that is deemed to
have occurred if:
(a) any Acquiring Person is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Corporation representing fifty
percent or more of the combined voting power of the then outstanding
Voting Securities of the Corporation; or
(b) members of the Incumbent Board cease for any reason
to constitute at least a majority of the Board of Directors; or
(c) a public announcement is made of a tender or exchange
offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Corporation, and the Board of
Directors approves or fails to oppose that tender or exchange offer in
its statements in Schedule 14D-9 under the Exchange Act; or
(d) the stockholders of the Corporation approve a merger
or consolidation of the Corporation with any other corporation or
partnership (or, if no such approval is required, the consummation of
such a merger or consolidation of the Corporation), other than a
merger or consolidation that would result in the Voting Securities of
the Corporation outstanding immediately before the consummation
thereof continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity or of a
parent of the surviving entity) a majority of the combined voting
power of the Voting Securities of the surviving entity (or its parent)
outstanding immediately after that merger or consolidation; or
(e) the stockholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale
or disposition by the Corporation of all or substantially all the
Corporation's assets (or, if no such approval is required, the
consummation of such a liquidation, sale, or disposition in one
transaction or series of related transactions) other than a
liquidation, sale, or disposition of all or substantially all the
Corporation's assets in one transaction or a series of related
transactions to a corporation owned directly or indirectly by the
stockholders of the Corporation in substantially the same proportions
as their ownership of Stock of the Corporation.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
1.9 "Committee" means the committee appointed pursuant to Section
3 by the Board of Directors to administer the Plan.
1.10 "Convertible Securities" means evidences of indebtedness,
shares of capital stock, or other securities that are convertible into or
exchangeable for shares of Stock, either immediately or upon the arrival of a
specified date or the happening of a specified event.
1.11 "Corporation" means HealthCor Holdings, Inc., a Delaware
corporation.
1.12 "Date of Grant" has the meaning given it in Subsection 5.3.
1.13 "Disability" has the meaning given it in Subsection 10.3.
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1.14 "Disinterested Person" means a Person that meets the
definition of both a "disinterested person" under Rule 16b-3(c)(2)(i) and an
"outside director" under Section 162(m).
1.15 "Effective Date" means the earlier of (a) the date the Plan is
adopted by the Board of Directors and (b) the date the Plan is approved by the
stockholders of the Corporation.
1.16 "Eligible Individuals" means (a) Key Employees and (b)
Non-Employee Directors only for purposes of Nonstatutory Options granted
hereunder. Notwithstanding the foregoing provisions of this Subsection 1.16,
to ensure that the requirements of the fourth sentence of Subsection 3.1 are
satisfied, the Board of Directors may from time to time specify individuals who
shall not be eligible for the grant of Awards or equity securities under any
plan of the Corporation or its Affiliates. Nevertheless, the Board of
Directors may at any time determine that an individual who has been so excluded
from eligibility shall become eligible for grants of Awards and grants of such
other equity securities under any plans of the Corporation or its Affiliates so
long as that eligibility will not impair the Plan's satisfaction of the
conditions of Rule 16b-3.
1.17 "Employee" means any employee of the Corporation or of any of
its Subsidiaries, including officers and directors of the Corporation who are
also employees of the Corporation or of any of its Subsidiaries.
1.18 "Exchange Act" means the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, or any successor law, as it
may be amended from time to time.
1.19 "Exercise Notice" has the meaning given it in Subsection 6.5.
1.20 "Exercise Price" has the meaning given it in Subsection 6.4.
1.21 "Fair Market Value" means, for a particular day:
(a) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges on any national or regional
securities exchange at the date of determining the Fair Market Value,
then the last reported sale price, regular way, on the composite tape
of that exchange on the last Business Day before the date in question
or, if no such sale takes place on that Business Day, the average of
the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system
with respect to securities listed or admitted to unlisted trading
privileges on that securities exchange; or
(b) If shares of Stock of the same class are not listed
or admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class in the
over-the-counter market are reported by the National Association of
Securities Dealers, Inc. Automated Quotations, Inc. ("Nasdaq") Stock
Market (or such other system then in use) at the date of determining
the Fair Market Value, then the last reported sales price so reported
on the last Business Day before the date in question or, if no such
sale takes place on that Business Day, the average of the high bid and
low asked prices so reported; or
(c) If shares of Stock of the same class are not listed
or admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices for shares of Stock of the same class are not
reported by the Nasdaq Stock Market (or a similar system then in use)
as provided in Subsection 1.21(b), and if bid and asked prices for
shares of Stock of the same class in the over-the-counter
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market are reported by Nasdaq (or, if not so reported, by the National
Quotation Bureau Incorporated) at the date of determining the Fair
Market Value, then the average of the high bid and low asked prices on
the last Business Day before the date in question; or
(d) If shares of Stock of the same class are not listed
or admitted to unlisted trading privileges as provided in Subsection
1.21(a) and sales prices or bid and asked prices therefor are not
reported by Nasdaq (or the National Quotation Bureau Incorporated) as
provided in Subsection 1.21(b) or Subsection 1.21(c) at the date of
determining the Fair Market Value, then the value determined in good
faith by the Committee, which determination shall be conclusive for
all purposes; or
(e) If shares of Stock of the same class are listed or
admitted to unlisted trading privileges as provided in Subsection
1.21(a) or sales prices or bid and asked prices therefor are reported
by Nasdaq (or the National Quotation Bureau Incorporated) as provided
in Subsection 1.21(b) or Subsection 1.21(c) at the date of determining
the Fair Market Value, but the volume of trading is so low that the
Board of Directors determines in good faith that such prices are not
indicative of the fair value of the Stock, then the value determined
in good faith by the Committee, which determination shall be
conclusive for all purposes notwithstanding the provisions of
Subsections 1.21(a), (b), or (c).
For purposes of valuing Incentive Options, the Fair Market Value of Stock shall
be determined without regard to any restriction other than one that, by its
terms, will never lapse. For purposes of the redemption provided for in
Subsection 9.3(d)(v), Fair Market Value shall have the meaning and shall be
determined as set forth above; provided, however, that the Committee, with
respect to any such redemption, shall have the right to determine that the Fair
Market Value for purposes of the redemption should be an amount measured by the
value of the shares of Stock, other securities, cash, or property otherwise
being received by holders of shares of Stock in connection with the
Restructuring and upon that determination the Committee shall have the power
and authority to determine Fair Market Value for purposes of the redemption
based upon the value of such shares of stock, other securities, cash, or
property. Any such determination by the Committee, as evidenced by a
resolution of the Committee, shall be conclusive for all purposes.
1.22 "Fair Value" means such value as is determined by a majority
of the "disinterested" directors of the Corporation, as evidenced by a
resolution of such disinterested directors, even if the disinterested directors
of the Corporation constitute less than a quorum. If the Corporation does not
have any disinterested directors, the Fair Value shall be such value as is
determined by a nationally recognized investment banking firm selected by the
Corporation, the expenses of which shall be borne by the Corporation.
1.23 "Holder" means an Eligible Individual to whom an outstanding
Award has been granted.
1.24 "Incumbent Board" means the individuals who, as of the
Effective Date, constitute the Board of Directors and any other individual who
becomes a director of the Corporation after that date and whose election or
appointment by the Board of Directors or nomination for election by the
Corporation's stockholders was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board.
1.25 "Incentive Option" means an incentive stock option as defined
under Section 422 of the Code and regulations thereunder.
1.26 "Key Employee" means any Employee whom the Committee
identifies as having a direct and significant effect on the performance of the
Corporation or any of its Subsidiaries.
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1.27 "Non-Employee Director" means a director of the Corporation
who while a director is not an Employee.
1.28 "Nonstatutory Option" means a stock option that does not
satisfy the requirements of Section 422 of the Code or that is designated at
the Date of Grant or in the applicable Award Agreement to be an option other
than an Incentive Option.
1.29 "Non-Surviving Event" means an event of Restructuring as
described in either Subsection 1.36(b) or Subsection 1.36(c).
1.30 "Normal Retirement" means the separation of a Holder from
employment with the Corporation and its Subsidiaries with the right to receive
an immediate benefit under a retirement plan approved by the Corporation.
1.31 "Option" means either an Incentive Option or a Nonstatutory
Option, or both.
1.32 "Person" means any person or entity of any nature whatsoever,
specifically including (but not limited to) an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity. A Person, together with
that Person's affiliates and associates (as "affiliate" and "associate" are
defined in Rule 12b-2 under the Exchange Act for purposes of this definition
only), and any Persons acting as a partnership, limited partnership, joint
venture, association, syndicate, or other group (whether or not formally
organized), or otherwise acting jointly or in concert or in a coordinated or
consciously parallel manner (whether or not pursuant to any express agreement),
for the purpose of acquiring, holding, voting, or disposing of securities of
the Corporation with that Person, shall be deemed a single "Person."
1.33 "Plan" means the Corporation's 1996 Long-Term Incentive Plan,
as it may be amended from time to time.
1.34 "Restricted Stock" means Stock that is nontransferable or
subject to substantial risk of forfeiture until specific conditions are met.
1.35 "Restricted Stock Award" means the grant or purchase, on the
terms and conditions of Section 8 or that the Committee otherwise determines,
of Restricted Stock.
1.36 "Restructuring" means the occurrence of any one or more of the
following:
(a) The merger or consolidation of the Corporation with
any Person, whether effected as a single transaction or a series of
related transactions, with the Corporation remaining the continuing or
surviving entity of that merger or consolidation and the Stock
remaining outstanding and not changed into or exchanged for stock or
other securities of any other Person or of the Corporation, cash, or
other property;
(b) The merger or consolidation of the Corporation with
any Person, whether effected as a single transaction or a series of
related transactions, with (i) the Corporation not being the
continuing or surviving entity of that merger or consolidation or
(ii) the Corporation remaining the continuing or surviving entity of
that merger or consolidation but all or a part of the outstanding
shares of Stock are changed into or exchanged for stock or other
securities of any other Person or the Corporation, cash, or other
property;
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(c) The transfer, directly or indirectly, of all or
substantially all of the assets of the Corporation (whether by sale,
merger, consolidation, liquidation, or otherwise) to any Person,
whether effected as a single transaction or a series of related
transactions.
1.37 "Rule 16b-3" means Rule 16b-3 under Section 16(b) of the
Exchange Act as adopted in Exchange Act Release No. 34-29131 (April 26, 1991),
or any successor rule, as it may be amended from time to time.
1.38 "Section 162(m)" means Section 162(m) of the Code, or any
successor section under the Code, as it may be amended from time to time and as
interpreted by final or proposed regulations promulgated thereunder from time
to time.
1.39 "Securities Act" means the Securities Act of 1933 and the
rules and regulations promulgated thereunder, or any successor law, as it may
be amended from time to time.
1.40 "Stock" means the Corporation's authorized common stock, par
value $.01 per share, or any other securities that are substituted for the
Stock as provided in Section 9.
1.41 "Stock Appreciation Right" means the right to receive an
amount equal to the excess of the Fair Market Value of a share of Stock (as
determined on the date of exercise) over, as appropriate, the Exercise Price of
a related Option or the Fair Market Value of the Stock on the Date of Grant of
the Stock Appreciation Right.
1.42 "Subsidiary" means, with respect to any Person, any
corporation, or other entity of which a majority of the Voting Securities is
owned, directly or indirectly, by that Person.
1.43 "Total Shares" has the meaning given it in Subsection 9.2.
1.44 "Voting Securities" means any securities that are entitled to
vote generally in the election of directors, in the admission of general
partners or in the selection of any other similar governing body.
SECTION 2. SHARES OF STOCK SUBJECT TO THE PLAN
2.1 Maximum Number of Shares. Subject to the provisions of
Subsections 2.2 and 2.5 and Section 9, the aggregate number of shares of Stock
that may be issued or transferred pursuant to Awards under the Plan shall be
two hundred thirty-seven thousand and five hundred (237,500). Awards to which
shares of such Stock relate may be awarded to any one Eligible Individual or
allocated among the Eligible Individuals, as determined by the Committee and
subject in all respects to the other terms hereof (including, without
limitation, Section 5).
2.2 Limitation of Shares. For purposes of the limitations
specified in Subsection 2.1, the following principles shall apply:
(a) the following shall count againstand decrease the
number of shares of Stock that may be issued for purposes of Subsection
2.1: (i) shares of Stock subject to outstanding Options, outstanding
shares of Restricted Stock, and shares subject to outstanding Stock
Appreciation Rights granted independent of Options (based on a good
faith estimate by the Corporation or the Committee of the maximum
number of shares for which the Stock Appreciation Right may be settled
(assuming
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payment in full in shares of Stock)), and (ii) in the case of Options
granted in tandem with Stock Appreciation Rights, the greater of the
number of shares of Stock that would be counted if one or the other
alone was outstanding (determined as described in clause (i) above);
(b) the following shall be added back to the number of
shares of Stock that may be issued for purposes of Subsection 2.1: (i)
shares of Stock with respect to which Options, Stock Appreciation
Rights granted independent of Options, or Restricted Stock Awards
expire, are canceled, or otherwise terminate without being exercised,
converted, or vested, as applicable, and (ii) in the case of Options
granted in tandem with Stock Appreciation Rights, shares of Stock as
to which an Option has been surrendered in connection with the
exercise of a related ("tandem") Stock Appreciation Right, to the
extent the number surrendered exceeds the number issued upon exercise
of the Stock Appreciation Right; provided that, in any case, the
holder of such Awards did not receive any dividends or other benefits
of ownership with respect to the underlying shares being added back,
other than voting rights and the accumulation (but not payment) of
dividends of Stock;
(c) shares of Stock subject to Stock Appreciation Rights
granted independent of Options (calculated as provided in clause (a)
above) that are exercised and paid in cash shall be added back to the
number of shares of Stock that may be issued for purposes of
Subsection 2.1, provided that the Holder of such Stock Appreciation
Right did not receive any dividends or other benefits of ownership,
other than voting rights and the accumulation (but not payment) of
dividends, of the shares of Stock subject to the Stock Appreciation
Right;
(d) shares of Stock that are transferred by a Holder of
an Award (or withheld by the Corporation) as full or partial payment
to the Corporation of the purchase price of shares of Stock subject to
an Option or the Corporation's or any Subsidiary's tax withholding
obligations shall not be added back to the number of shares of Stock
that may be issued for purposes of Subsection 2.1 and shall not again
be subject to Awards; and
(e) if the number of shares of Stock counted against the
number of shares that may be issued for purposes of Subsection 2.1 is
based upon an estimate made by the Corporation or the Committee as
provided in clause (a) above and the actual number of shares of Stock
issued pursuant to the applicable Award is greater or less than the
estimated number, then, upon such issuance, the number of shares of
Stock that may be issued pursuant to Subsection 2.1 shall be further
reduced by the excess issuance or increased by the shortfall, as
applicable.
Notwithstanding the provisions of this Subsection 2.2, no Stock shall
be treated as issuable under the Plan to (i) Eligible Individuals subject to
Section 16 of the Exchange Act if otherwise prohibited from issuance under Rule
16b-3 or (ii) Persons subject to Section 162(m) if otherwise prohibited from
issuance under Section 162(m).
2.3 Description of Shares. The shares to be delivered under the
Plan shall be made available from (a) authorized but unissued shares of Stock,
(b) Stock held in the treasury of the Corporation, or (c) previously issued
shares of Stock reacquired by the Corporation, including shares purchased on
the open market, in each situation as the Board of Directors or the Committee
may determine from time to time at its sole option.
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2.4 Registration and Listing of Shares. From time to time, the
Board of Directors and appropriate officers of the Corporation shall and are
authorized to take whatever actions are necessary to file required documents
with governmental authorities, stock exchanges, and other appropriate Persons
to make shares of Stock available for issuance pursuant to the exercise of
Awards.
2.5 Reduction in Outstanding Shares of Stock. Nothing in this
Section 2 shall impair the right of the Corporation to reduce the number of
outstanding shares of Stock pursuant to repurchases, redemptions, or otherwise;
provided, however, that no reduction in the number of outstanding shares of
Stock shall (a) impair the validity of any outstanding Award, whether or not
that Award is fully exercisable or fully vested, or (b) impair the status of
any shares of Stock previously issued pursuant to the exercise of an Award or
thereafter issued pursuant to a then-outstanding Award as duly authorized,
validly issued, fully paid, and nonassessable shares.
SECTION 3. ADMINISTRATION OF THE PLAN
3.1 Committee. The Committee shall administer the Plan with
respect to all Eligible Individuals who are subject to Section 16(b) of the
Exchange Act or Section 162(m), but shall not have the power to appoint members
of the Committee. The Board of Directors may administer the Plan with respect
to all other Eligible Individuals or may delegate all or part of that duty to
the Committee. Except for references in Subsections 3.1, 3.2, and 3.3, and
unless the context otherwise requires, references herein to the Committee shall
also refer to the Board of Directors as administrator of the Plan for Eligible
Individuals who are not subject to Section 16(b) of the Exchange Act or Section
162(m). The Committee shall be constituted so that, as long as Stock is
registered under Section 12 of the Exchange Act, each member of the Committee
shall be a Disinterested Person and so that the Plan in all other applicable
respects will qualify transactions related to the Plan for the exemptions from
Section 16(b) of the Exchange Act provided by Rule 16b-3 and the exemption from
the deductibility limitation imposed by Section 162(m) provided by the
performance-based compensation exception described in Section 162(m), to the
extent exemptions thereunder may be available. No discretion regarding Awards
to Eligible Individuals who are subject to Section 16(b) of the Exchange Act or
Section 162(m) shall be afforded to a Person who is not a Disinterested Person.
The number of Persons that shall constitute the Committee shall be determined
from time to time by a majority of all the members of the Board of Directors
and, unless that majority of the Board of Directors determines otherwise or
Rule 16b-3 or Section 162(m) is amended to require otherwise, shall be no less
than two Persons. Persons elected to serve on the Committee as Disinterested
Persons shall not be eligible to receive Awards or equity securities under any
plan of the Corporation or its affiliates while they are serving as members of
the Committee; shall not have received Awards or such equity securities under
any plan of the Corporation or its Affiliates within one year before their
appointment to the Committee becomes effective; and shall not be eligible to
receive Awards or such equity securities under any plan of the Corporation or
its Affiliates for such period following service on the Committee as may be
required by Rule 16b-3 for that person to remain a Disinterested Person, in
each case except for Awards or equity securities granted as provided in
paragraphs (c)(2)(i)(A), (B), (C), or (D) of Rule 16b-3. Notwithstanding the
foregoing, the Board of Directors may designate the Compensation Committee of
the Board of Directors to serve as the Committee hereunder, provided that each
member of such Compensation Committee is a Disinterested Person and satisfies
the requirements of the immediately preceding sentence.
3.2 Duration, Removal, Etc. The members of the Committee
shall serve at the discretion of the Board of Directors, which shall have the
power, at any time and from time to time, to remove members from or add members
to the Committee. Removal from the Committee may be with or without cause.
Any individual serving as a member of the Committee shall have the right to
resign from membership in the
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Committee by at least three days' written notice to the Board of Directors.
The Board of Directors, and not the remaining members of the Committee, shall
have the power and authority to fill all vacancies on the Committee. The Board
of Directors shall promptly fill any vacancy that causes the number of members
of the Committee to be below two or any other number that Rule 16b-3 or Section
162(m) may require from time to time.
3.3 Meetings and Actions of Committee. The Board of Directors
shall designate which of the Committee members shall be the chairman of the
Committee. If the Board of Directors fails to designate a Committee chairman,
the members of the Committee shall elect one of the Committee members as
chairman, who shall act as chairman until he ceases to be a member of the
Committee or until the Board of Directors elects a new chairman. The Committee
shall hold its meetings at those times and places as the chairman of the
Committee may determine. At all meetings of the Committee, a quorum for the
transaction of business shall be required and a quorum shall be deemed present
if at least a majority of the members of the Committee are present. At any
meeting of the Committee, each member shall have one vote. All decisions and
determinations of the Committee shall be made by the majority vote or majority
decision of all of its members present at a meeting at which a quorum is
present; provided, however, that any decision or determination reduced to
writing and signed by all of the members of the Committee shall be as fully
effective as if it had been made at a meeting that was duly called and held.
The Committee may make any rules and regulations for the conduct of its
business that are not inconsistent with the provisions of the Plan, the
Certificate of Incorporation of the Corporation, the by-laws of the
Corporation, and Rule 16b-3 and Section 162(m) so long as applicable, as the
Committee may deem advisable.
3.4 Committee's Powers. Subject to the express provisions of the
Plan and Rule 16b-3, the Committee shall have the authority, in its sole and
absolute discretion, to (a) adopt, amend, and rescind administrative and
interpretive rules and regulations relating to the Plan; (b) determine the
Eligible Individuals to whom, and the time or times at which, Awards shall be
granted; (c) determine the amount of cash and the number of shares of Stock,
Stock Appreciation Rights, or Restricted Stock Awards, or any combination
thereof, that shall be the subject of each Award; (d) determine the terms and
provisions of each Award Agreement (which need not be identical), including
provisions defining or otherwise relating to (i) the term and the period or
periods and extent of exercisability of the Options, (ii) the extent to which
the transferability of shares of Stock issued or transferred pursuant to any
Award is restricted, (iii) the effect of termination of employment of a Holder
on the Award, and (iv) the effect of approved leaves of absence (consistent
with any applicable regulations of the Internal Revenue Service); (e)
accelerate, pursuant to Section 9, the time of exercisability of any Option
that has been granted; (f) construe the respective Award Agreements and the
Plan; (g) make determinations of the Fair Market Value of the Stock pursuant to
the Plan; (h) delegate its duties under the Plan to such agents as it may
appoint from time to time, provided that the Committee may not delegate its
duties with respect to making Awards to, or otherwise with respect to Awards
granted to, Eligible Individuals who are subject to Section 16(b) of the
Exchange Act or Section 162(m); (i) subject to ratification by the Board of
Directors, terminate, modify, or amend the Plan; and (j) make all other
determinations, perform all other acts, and exercise all other powers and
authority necessary or advisable for administering the Plan, including the
delegation of those ministerial acts and responsibilities as the Committee
deems appropriate. Subject to Rule 16b-3 and Section 162(m), the Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
Plan, in any Award, or in any Award Agreement in the manner and to the extent
it deems necessary or desirable to carry the Plan into effect, and the
Committee shall be the sole and final judge of that necessity or desirability.
The determinations of the Committee on the matters referred to in this
Subsection 3.4 shall be final and conclusive.
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SECTION 4. ELIGIBILITY AND PARTICIPATION
4.1 Eligible Individuals. Subject to the limitations set forth in
Section 5, Awards may be granted pursuant to the Plan only to persons who are
Eligible Individuals at the time of the grant thereof.
4.2 Grant of Awards. Subject to the express provisions of the
Plan (including, without limitation, Section 5), the Committee shall determine
which Eligible Individuals shall be granted Awards from time to time. In
making grants, the Committee shall take into consideration the contribution
that the potential Holder has made or may make to the success of the
Corporation or its Subsidiaries and such other considerations as the Board of
Directors may from time to time specify. The Committee shall also determine
the number of shares subject to each of the Awards and shall authorize and
cause the Corporation to grant Awards in accordance with those determinations.
4.3 Date of Grant. Subject to the last sentence of this
Subsection 4.3 and clause (ii) of the first sentence of Subsection 10.9, the
date on which the Committee completes all action resolving to offer an Award to
an individual, including the specification of the number of shares of Stock to
be subject to the Award, shall be the date on which the Award covered by an
Award Agreement is granted (the "Date of Grant"), even though certain terms of
the Award Agreement may not be determined at that time and even though the
Award Agreement may not be executed until a later time. In no event shall a
Holder gain any rights in addition to those specified by the Committee in its
grant, regardless of the time that may pass between the grant of the Award and
the actual execution of the Award Agreement by the Corporation and the Holder.
4.4 Award Agreements. Each Award granted under the Plan shall be
evidenced by an Award Agreement that is executed by the Corporation and the
Eligible Individual to whom the Award is granted and incorporating those terms
that the Committee shall deem necessary or desirable. More than one Award may
be granted under the Plan to the same Eligible Individual and be outstanding
concurrently. In the event an Eligible Individual is granted both one or more
Incentive Options and one or more Nonstatutory Options, those grants shall be
evidenced by separate Award Agreements, one for each of the Incentive Option
grants and one for each of the Nonstatutory Option grants.
4.5 Limitation for Incentive Options. Notwithstanding any
provision contained herein to the contrary, (a) a person shall not be eligible
to receive an Incentive Option unless he is an Employee of the Corporation or a
corporate Subsidiary (but not a partnership Subsidiary) and (b) a Person shall
not be eligible to receive an Incentive Option if, immediately before the time
the Option is granted, that person owns (within the meaning of Sections 422 and
424(d) of the Code) stock possessing more than ten percent of the total
combined voting power or value of all classes of outstanding stock of the
Corporation or a Subsidiary. Nevertheless, Subsection 4.5(b) shall not apply
if, at the time the Incentive Option is granted, the Exercise Price of the
Incentive Option is at least one hundred ten percent of Fair Market Value and
the Incentive Option is not, by its terms, exercisable after the expiration of
five years from the Date of Grant.
4.6 No Right to Award. The adoption of the Plan shall not be
deemed to give any Person a right to be granted an Award.
SECTION 5. AWARDS TO NON-EMPLOYEE DIRECTORS
5.1 Ineligibility for Other Awards. Non-employee Directors shall
not be eligible to receive any Awards under the Plan other than the automatic
Awards specified in this Section 5.
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5.2 Automatic Grant of Awards. Awards of Nonstatutory Options
shall be made to Non-employee Directors as follows: Beginning in 1996, each
Non-employee Director who is a director of the Corporation as of both the day
immediately preceding the annual meeting of the Corporation's stockholders and
the day immediately following the annual meeting shall be granted a
Nonstatutory Option for the purchase of such number of shares of Stock as
determined by the Board of Directors prior to the annual meeting to be
effective on the date of the first meeting of the Board of Directors following
the annual meeting, whether or not that director is in attendance at that
meeting.
5.3 Available Stock. The Awards specified in Subsection 5.2 shall
be made in the amounts specified by the Board of Directors pursuant to
Subsection 5.2 only if the number of shares of Stock available to be issued,
transferred or exercised pursuant to such Awards under the Plan (as calculated
in Subsection 2) is sufficient to make all such grants required to be made in
Subsection 5.2 on the Date of Grant of those Awards. If a lesser number of
shares of Stock are available to be issued or transferred pursuant to such
Awards under the Plan on the Date of Grant of the Awards described in
Subsection 5.2, but their number is insufficient to permit the grant of the
entire number of shares specified in such Awards, then the number of available
shares shall be apportioned equally among such Awards made on that date, and
the number of shares apportioned to each such Award shall be the amount of
shares automatically subject to that Award.
5.4 Terms and Conditions of Automatic Award. Award Agreements for
Nonstatutory Option Awards to Non-employee Directors shall be in the form
attached hereto as Annex A and, except a expressly provided in those Award
Agreements, the automatic Awards to Non-employee Directors shall not be subject
to the provisions of Sections 9.2, 9.3 or 10. In addition, the following terms
and conditions shall apply to automatic Awards pursuant to Subsection 5.2: (a)
the exercise price for each share of Stock subject to the Option shall be the
Fair Market Value of a share of Stock on the Date of Grant of such Option; (b)
the Option shall become vested and exercisable with respect to 1,000 shares of
Stock (or, if less, one-fifth of the number determined pursuant to Subsection
5.3) on each of the first five anniversaries of that Date of Grant so long as
the Non-employee Director remains a director of the Corporation after the Date
of Grant through those dates; and (c) the Option shall terminate on the
earliest of (i) 11:59 p.m., Dallas, Texas, time, on the date ten years from the
Date of Grant, (ii) immediately when the Holder ceases to be a director, if the
Board demands or requests the Holder's resignation from the Board, (iii) 11:59
p.m., Dallas, Texas, time, on the date 90 days after the Holder ceases to be a
director for any reason other than the reasons specified in the preceding
clause (ii) or the following clause (iv), or (iv) 11:59 p.m., Dallas, Texas,
time, on the date one year after the Holder ceases to be a director because of
death or permanent disability (as defined in Annex A attached hereto).
5.5 Tax Withholding. The Corporation shall have the right to
require a Non-employee Director to pay to the Corporation the amount necessary
to satisfy the Corporation's current or future obligation to withhold federal,
state or local income or other taxes that the Non-employee Director incurs by
the granting, vesting or exercising of an Option. Tax withholding obligations
in respect of Options to Non-employee Directors may not be satisfied by the
Corporation's withholding of Stock subject to the Option or by the Non-employee
Director's transfer of Stock to the Corporation.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS
All Options granted under the Plan (other than Options granted to
Non-employee Directors pursuant to Section 5) shall comply with, and the
related Award Agreements shall be deemed to include and be subject to, the
terms and conditions set forth in this Section 6 (to the extent each term and
condition applies to the form of Option) and also to the terms and conditions
set forth in Sections 9 and 10; provided, however, that the Committee may
authorize an Award Agreement that expressly contains terms and provisions that
differ from
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the terms and provisions set forth in Subsections 9.2, 9.3, and 9.4 and any of
the terms and provisions of Section 10 (other than Subsections 10.8 and 10.9).
6.1 Number of Shares. Each Award Agreement shall state the total
number of shares of Stock to which it relates.
6.2 Vesting. Each Award Agreement shall state the time or periods
in which, or the conditions upon satisfaction of which, the right to exercise
the Option or a portion thereof shall vest and the number of shares of Stock
for which the right to exercise the Option shall vest at each such time,
period, or fulfillment of condition.
6.3 Expiration of Options. Options may be exercised during the
term determined by the Committee and set forth in the Award Agreement; provided
that no Incentive Option shall be exercised after the expiration of a period of
ten years commencing on the Date of Grant of the Incentive Option.
6.4 Exercise Price. Each Award Agreement shall state the exercise
price per share of Stock (the "Exercise Price"); provided, however, that the
exercise price per share of Stock subject to an Incentive Option shall not be
less than the greater of (a) the par value per share of the Stock or (b) 100%
of the Fair Market Value per share of the Stock on the Date of Grant of the
Option, and the exercise price per share of Stock subject to a Nonstatutory
Option shall not be less than the par value per share of the Stock (but may be
less than the Fair Market Value of a share of the Stock on the Date of Grant).
6.5 Method of Exercise. The Option shall be exercisable only by
written notice of exercise (the "Exercise Notice") delivered to the Corporation
during the term of the Option, which notice shall (a) state the number of
shares of Stock with respect to which the Option is being exercised, (b) be
signed by the Holder of the Option or, if the Holder is dead or becomes
affected by a Disability, by the person authorized to exercise the Option
pursuant to Subsection 10.3, (c) be accompanied by the Exercise Price for all
shares of Stock for which the Option is being exercised, and (d) include such
other information, instruments, and documents as may be required to satisfy any
other condition to exercise contained in the Award Agreement. The Option shall
not be deemed to have been exercised unless all of the requirements of the
preceding provisions of this Subsection 6.5 have been satisfied.
6.6 Incentive Option Exercises. Except as otherwise provided in
Subsection 10.3, during a Holder's lifetime, only the Holder may exercise an
Incentive Option.
6.7 Medium and Time of Payment. The Exercise Price of an Option
shall be payable in full upon the exercise of the Option (a) in cash or by an
equivalent means acceptable to the Committee, (b) on the Committee's prior
consent, with shares of Stock owned by the Holder (including shares received
upon exercise of the Option or shares of Restricted Stock already held by the
Holder) and having a Fair Market Value at least equal to the aggregate Exercise
Price payable in connection with such exercise, or (c) by any combination of
clauses (a) and (b). If the Committee elects to accept shares of Stock in
payment of all or any portion of the Exercise Price, then (for purposes of
payment of the Exercise Price) those shares of Stock shall be deemed to have a
cash value equal to their aggregate Fair Market Value determined as of the date
the certificate for such shares is delivered to the Corporation. If the
Committee elects to accept shares of Restricted Stock in payment of all or any
portion of the Exercise Price, then an equal number of shares issued pursuant
to the exercise shall be restricted on the same terms and for the restriction
period remaining on the shares used for payment.
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6.8 Payment with Sale Proceeds. In addition, at the request of a
Holder and to the extent permitted by applicable law, the Committee may (but
shall not be required to) approve arrangements with a brokerage firm under
which that brokerage firm, on behalf of the Holder, shall pay to the
Corporation the Exercise Price of the Option being exercised and the
Corporation shall promptly deliver the exercised shares of Stock to the
brokerage firm. To accomplish this transaction, the Holder must deliver to the
Corporation an Exercise Notice containing irrevocable instructions from the
Holder to the Corporation to deliver the Stock certificates representing the
shares of Stock directly to the broker. Upon receiving a copy of the Exercise
Notice acknowledged by the Corporation, the broker shall sell that number of
shares of Stock or loan the Holder an amount sufficient to pay the Exercise
Price and any withholding obligations due. The broker then shall deliver to
the Corporation that portion of the sale or loan proceeds necessary to cover
the Exercise Price and any withholding obligations due. The Committee shall
not approve any transaction of this nature if the Committee believes that the
transaction would give rise to the Holder's liability for short-swing profits
under Section 16(b) of the Exchange Act.
6.9 Payment of Taxes. The Committee may, in its discretion,
require a Holder to pay to the Corporation (or the Corporation's Subsidiary if
the Holder is an employee of a Subsidiary of the Corporation), at the time of
the exercise of an Option or thereafter, the amount that the Committee deems
necessary to satisfy the Corporation's or its Subsidiary's current or future
obligation to withhold federal, state, or local income or other taxes that the
Holder incurs by exercising an Option. In connection with the exercise of an
Option requiring tax withholding, a Holder may (a) direct the Corporation to
withhold from the shares of Stock to be issued to the Holder the number of
shares necessary to satisfy the Corporation's obligation to withhold taxes,
that determination to be based on the shares' Fair Market Value as of the date
of exercise; (b) deliver to the Corporation sufficient shares of Stock (based
upon the Fair Market Value as of the date of such delivery) to satisfy the
Corporation's tax withholding obligation, which tax withholding obligation is
based on the shares' Fair Market Value as of the later of the date of exercise
or the date as of which the shares of Stock issued in connection with such
exercise become includible in the income of the Holder; or (c) deliver
sufficient cash to the Corporation to satisfy its tax withholding obligations.
Holders who elect to use such a Stock withholding feature must make the
election at the time and in the manner that the Committee prescribes. The
Committee may, at its sole option, deny any Holder's request to satisfy
withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of
any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency in the
form of payment requested by the Committee.
6.10 Limitation on Aggregate Value of Shares That May Become First
Exercisable During Any Calendar Year Under an Incentive Option. Except as
otherwise provided in Subsection 9.3, with respect to any Incentive Option
granted under the Plan, the aggregate Fair Market Value of shares of Stock
subject to an Incentive Option and the aggregate Fair Market Value of shares of
Stock or stock of any Subsidiary (or a predecessor of the Corporation or a
Subsidiary) subject to any other incentive stock option (within the meaning of
Section 422 of the Code) of the Corporation or its Subsidiaries (or a
predecessor corporation of any such corporation) that first become purchasable
by a Holder in any calendar year may not (with respect to that Holder) exceed
$100,000, or such other amount as may be prescribed under Section 422 of the
Code or applicable regulations or rulings from time to time. As used in the
previous sentence, Fair Market Value shall be determined as of the Date of
Grant of the Incentive Option. For purposes of this Subsection 6.10,
"predecessor corporation" means (a) a corporation that was a party to a
transaction described in Section 424(a) of the Code (or which would be so
described if a substitution or assumption under that Section had been effected)
with the Corporation, (b) a corporation which, at the time the new incentive
stock option (within the
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meaning of Section 422 of the Code) is granted, is a Subsidiary of the
Corporation or a predecessor corporation of any such corporations, or (c) a
predecessor corporation of any such corporations. Failure to comply with this
provision shall not impair the enforceability or exercisability of any Option,
but shall cause the excess amount of shares to be reclassified in accordance
with the Code.
6.11 No Fractional Shares. The Corporation shall not in any case
be required to sell, issue, or deliver a fractional share with respect to any
Option. In lieu of the issuance of any fractional share of Stock, the
Corporation shall pay to the Holder an amount in cash equal to the same
fraction (as the fractional Stock) of the Fair Market Value of a share of Stock
determined as of the date of the applicable Exercise Notice.
6.12 Modification, Extension, and Renewal of Options. Subject to
the terms and conditions of and within the limitations of the Plan, Rule 16b-3,
and any consent required by the last sentence of this Subsection 6.12, the
Committee may (a) modify, extend, or renew outstanding Options granted under
the Plan, (b) accept the surrender of Options outstanding hereunder (to the
extent not previously exercised) and authorize the granting of new Options in
substitution for outstanding Options (to the extent not previously exercised),
and (c) amend the terms of an Incentive Option at any time to include
provisions that have the effect of changing the Incentive Option to a
Nonstatutory Option. Nevertheless, without the consent of the Holder, the
Committee may not modify any outstanding Options so as to specify a higher or
lower Exercise Price or accept the surrender of outstanding Incentive Options
and authorize the granting of new Options in substitution therefor specifying a
higher or lower Exercise Price. In addition, no modification of an Option
granted hereunder shall, without the consent of the Holder, alter or impair any
rights or obligations under any Option theretofore granted to such Holder under
the Plan except, with respect to Incentive Options, as may be necessary to
satisfy the requirements of Section 422 of the Code or as permitted in clause
(c) of this Subsection 6.12.
6.13 Other Agreement Provisions. Subject in all respects to
Section 5, the Award Agreements authorized under the Plan shall contain such
provisions in addition to those required by the Plan (including, without
limitation, restrictions or the removal of restrictions upon the exercise of
the Option and the retention or transfer of shares thereby acquired) as the
Committee may deem advisable. Each Award Agreement shall identify the Option
evidenced thereby as an Incentive Option or Nonstatutory Option, as the case
may be, and no Award Agreement shall cover both an Incentive Option and a
Nonstatutory Option. Each Award Agreement relating to an Incentive Option
granted hereunder shall contain such limitations and restrictions upon the
exercise of the Incentive Option to which it relates as shall be necessary for
the Incentive Option to which such Award Agreement relates to constitute an
incentive stock option, as defined in Section 422 of the Code.
SECTION 7. STOCK APPRECIATION RIGHTS
All Stock Appreciation Rights granted under the Plan shall comply
with, and the related Award Agreements shall be deemed to include and be
subject to, the terms and conditions set forth in this Section 7 (to the extent
each term and condition applies to the form of Stock Appreciation Right) and
also the terms and conditions set forth in Sections 9 and 10; provided,
however, that the Committee may authorize an Award Agreement related to a Stock
Appreciation Right that expressly contains terms and provisions that differ
from the terms and provisions set forth in Subsections 9.2, 9.3, and 9.4 and
any of the terms and provisions of Section 10 (other than Subsection 10.9).
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7.1 Form of Right. A Stock Appreciation Right may be granted to
an Eligible Individual (a) in connection with an Option, either at the time of
grant or at any time during the term of the Option, or (b) independent of an
Option.
7.2 Rights Related to Options. A Stock Appreciation Right granted
pursuant to an Option shall entitle a Holder, upon exercise, to surrender that
Option or any portion thereof, to the extent unexercised, and to receive
payment of an amount computed pursuant to Subsection 7.2(b). That Option shall
then cease to be exercisable to the extent surrendered. Stock Appreciation
Rights granted in connection with an Option shall be subject to the terms of
the Award Agreement governing the Option, which shall comply with the following
provisions in addition to those applicable to Options:
(a) Exercise and Transfer. Subject to Subsection 10.10,
a Stock Appreciation Right granted in connection with an Option shall
be exercisable only at such time or times and only to the extent that
the related Option is exercisable and shall not be transferable except
to the extent that the related Option is transferable.
(b) Value of Right. Upon the exercise of a Stock
Appreciation Right related to an Option, a Holder shall be entitled to
receive payment from the Corporation of an amount determined by
Multiplying:
(i) The difference obtained by subtracting the
Exercise Price of a share of Stock specified in the related
Option from the Fair Market Value of a share of Stock on the
date of exercise of the Stock Appreciation Right, by
(ii) The number of shares as to which that Stock
Appreciation Right has been exercised.
7.3 Right Without Option. A Stock Appreciation Right granted
independent of an Option shall be exercisable as determined by the Committee
and set forth in the Award Agreement governing the Stock Appreciation Right,
which Award Agreement shall comply with the following provisions:
(a) Number of Shares. Each Award Agreement shall state
the total number of shares of Stock to which the Stock Appreciation
Right relates.
(b) Vesting. Each Award Agreement shall state the time
or periods in which the right to exercise the Stock Appreciation Right
or a portion thereof shall vest and the number of shares of Stock for
which the right to exercise the Stock Appreciation Right shall vest at
each such time or period.
(c) Expiration of Rights. Each Award Agreement shall
state the date at which the Stock Appreciation Rights shall expire if
not previously exercised.
(d) Value of Right. Each Stock Appreciation Right shall
entitle a Holder, upon exercise thereof, to receive payment of an
amount determined by multiplying:
(i) The difference obtained by subtracting the
Fair Market Value of a share of Stock on the Date of Grant of
the Stock Appreciation Right from the Fair Market Value of a
share of Stock on the date of exercise of that Stock
Appreciation Right, by
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(ii) The number of shares as to which the Stock
Appreciation Right has been exercised.
7.4 Limitations on Rights. Notwithstanding Subsections 7.2(b) and
7.3(d), the Committee may limit the amount payable upon exercise of a Stock
Appreciation Right. Any such limitation must be determined as of the Date of
Grant and be noted on the Award Agreement evidencing the Holder's Stock
Appreciation Right.
7.5 Payment of Rights. Payment of the amount determined under
Subsection 7.2(b) or 7.3(d) and Subsection 7.4 may be made, in the sole
discretion of the Committee, unless specifically provided otherwise in the
Award Agreement, solely in whole shares of Stock valued at Fair Market Value on
the date of exercise of the Stock Appreciation Right, solely in cash, or in a
combination of cash and whole shares of Stock. If the Committee decides to
make full payment in shares of Stock and the amount payable results in a
fractional share, payment for the fractional share shall be made in cash.
7.6 Payment of Taxes. The Committee may, in its discretion,
require a Holder to pay to the Corporation (or the Corporation's Subsidiary if
the Holder is an employee of a Subsidiary of the Corporation), at the time of
the exercise of a Stock Appreciation Right or thereafter, the amount that the
Committee deems necessary to satisfy the Corporation's or its Subsidiary's
current or future obligation to withhold federal, state, or local income or
other taxes that the Holder incurs by exercising a Stock Appreciation Right.
In connection with the exercise of a Stock Appreciation Right requiring tax
withholding, a Holder may (a) direct the Corporation to withhold from the
shares of Stock to be issued to the Holder the number of shares necessary to
satisfy the Corporation's obligation to withhold taxes, that determination to
be based on the shares' Fair Market Value as of the date of exercise; (b)
deliver to the Corporation sufficient shares of Stock (based upon the Fair
Market Value as of the date of such delivery) to satisfy the Corporation's tax
withholding obligation, which tax withholding obligation is based on the
shares' Fair Market Value as of the later of the date of exercise or the date
as of which the shares of Stock issued in connection with such exercise become
includible in the income of the Holder; or (c) deliver sufficient cash to the
Corporation to satisfy its tax withholding obligation. Holders who elect to
have Stock withheld pursuant to (a) or (b) above must make the election at the
time and in the manner that the Committee prescribes. The Committee may, in
its sole discretion, deny any Holder's request to satisfy withholding
obligation through Stock instead of cash. In the event the Committee
subsequently determines that the aggregate Fair Market Value (as determined
above) of any shares of Stock withheld or delivered as payment of any tax
withholding obligation is insufficient to discharge that tax withholding
obligation, then the Holder shall pay to the Corporation, immediately upon the
Committee's request, the amount of that deficiency in the form of payment
requested by the Commission.
7.7 Other Agreement Provisions. The Award Agreements authorized
relating to Stock Appreciation Rights shall contain such provisions in addition
to those required by the Plan (including, without limitation, restrictions or
the removal of restrictions upon the exercise of the Stock Appreciation Right
and the retention or transfer of shares thereby acquired) as the Committee may
deem advisable.
SECTION 8. RESTRICTED STOCK AWARDS
All Restricted Stock Awards granted under the Plan shall comply with
and be subject to, and the related Award Agreements shall be deemed to include,
the terms and conditions set forth in this Section 8 and also to the terms and
conditions set forth in Sections 9 and 10; provided, however, that the
Committee may authorize an Award Agreement related to a Restricted Stock Award
that expressly contains terms and
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provisions that differ from the terms and provisions set forth in Subsections
9.2, 9.3, and 9.4 and the terms and provisions set forth in Section 10 (other
than Subsections 10.8 and 10.9).
8.1 Restrictions. All shares of Restricted Stock Awards granted
or sold pursuant to the Plan shall be subject to the following conditions:
(a) Transferability. The shares may not be sold,
transferred, or otherwise alienated or hypothecated until the
restrictions are removed or expire.
(b) Conditions to Removal of Restrictions. Conditions to
removal or expiration of the restrictions may include, but are not
required to be limited to, continuing employment or service as a
director, officer, consultant, or advisor or achievement of
performance objectives described in the Award Agreement.
(c) Legend. Each certificate representing Restricted
Stock Awards granted pursuant to the Plan shall bear a legend making
appropriate reference to the restrictions imposed.
(d) Possession. The Committee may require the
Corporation to retain physical custody of the certificates
representing Restricted Stock Awards during the restriction period and
may require a Holder of the Award to execute stock powers in blank for
those certificates and deliver those stock powers to the Corporation,
or the Committee may require the Holder to enter into an escrow
agreement providing that the certificates representing Restricted
Stock Awards granted or sold pursuant to the Plan shall remain in the
physical custody of an escrow holder until all restrictions are
removed or expire.
(e) Other Conditions. The Committee may impose other
conditions on any shares granted or sold as Restricted Stock Awards
pursuant to the Plan as it may deem advisable, including without
limitation (i) restrictions under the Securities Act or Exchange Act,
(ii) the requirements of any securities exchange upon which the shares
or shares of the same class are then listed, and (iii) any state
securities law applicable to the shares.
8.2 Expiration of Restrictions. The restrictions imposed in
Subsection 8.1 on Restricted Stock Awards shall lapse as determined by the
Committee and set forth in the applicable Award Agreement, and the Corporation
shall promptly deliver to the Holder of the Restricted Stock Award a
certificate representing the number of shares for which restrictions have
lapsed, free of any restrictive legend relating to the lapsed restrictions.
Each Restricted Stock Award may have a different restriction period as
determined by the Committee in its sole discretion. The Committee may, in its
discretion, prospectively reduce the restriction period applicable to a
particular Restricted Stock Award.
8.3 Rights as Stockholder. Subject to the provisions of
Subsections 8.1 and 10.9, the Committee may, in its discretion, determine what
rights, if any, a Holder shall have with respect to the Restricted Stock Awards
granted or sold, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto.
8.4 Payment of Taxes. The Committee may, in its discretion,
require a Holder to pay to the Corporation (or the Corporation's Subsidiary if
the Holder is an employee of a Subsidiary of the Corporation) the amount that
the Committee deems necessary to satisfy the Corporation's or its Subsidiary's
current or future obligation to withhold federal, state, or local income or
other taxes that the Holder incurs by reason of the
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Restricted Stock Award. A Holder may (a) direct the Corporation to withhold
from the shares of Stock to be issued to the Holder the number of shares
necessary to satisfy the Corporation's obligation to withhold taxes, that
determination to be based on the shares' Fair Market Value as of the date on
which tax withholding is to be made; (b) deliver to the Corporation sufficient
shares of Stock (based upon the Fair Market Value as of the date of such
delivery) to satisfy the Corporation's tax withholding obligation, which tax
withholding obligation is based on the shares' Fair Market Value as of the
later of the date of issuance or the date as of which the shares of Stock
issued become includible in the income of the Holder; or (c) deliver sufficient
cash to the Corporation to satisfy its tax withholding obligations. Holders
who elect to have Stock withheld pursuant to (a) or (b) above must make the
election at the time and in the manner that the Committee prescribes. The
Committee may, in its sole discretion, deny any Holder's request to satisfy
withholding obligations through Stock instead of cash. In the event the
Committee subsequently determines that the aggregate Fair Market Value (as
determined above) of any shares of Stock withheld or delivered as payment of
any tax withholding obligation is insufficient to discharge that tax
withholding obligation, then the Holder shall pay to the Corporation,
immediately upon the Committee's request, the amount of that deficiency.
8.5 Other Agreement Provisions. The Award Agreements relating to
Restricted Stock Awards shall contain such provisions in addition to those
required by the Plan as the Committee may deem advisable.
SECTION 9. ADJUSTMENT PROVISIONS
9.1 Adjustment of Awards and Authorized Stock. The terms of an
Award and the number of shares of Stock authorized pursuant to Subsection 2.1
for issuance under the Plan shall be subject to adjustment from time to time,
in accordance with the following provisions:
(a) If at any time, or from time to time, the Corporation
shall subdivide as a whole (by reclassification, by a Stock split, by
the issuance of a distribution on Stock payable in Stock, or
otherwise) the number of shares of Stock then outstanding into a
greater number of shares of Stock, then (i) the maximum number of
shares of Stock available for the Plan as provided in Subsection 2.1
shall be increased proportionately, and the kind of shares or other
securities available for the Plan shall be appropriately adjusted,
(ii) the number of shares of Stock (or other kind of shares or
securities) that may be acquired under any Award shall be increased
proportionately, and (iii) the price (including Exercise Price) for
each share of Stock (or other kind of shares or securities) subject to
then outstanding Awards shall be reduced proportionately, without
changing the aggregate purchase price or value as to which outstanding
Awards remain exercisable or subject to restrictions.
(b) If at any time, or from time to time, the Corporation
shall consolidate as a whole (by reclassification, reverse Stock
split, or otherwise) the number of shares of Stock then outstanding
into a lesser number of shares of Stock, (i) the maximum number of
shares of Stock available for the Plan as provided in Subsection 2.1
shall be decreased proportionately, and the kind of shares or other
securities available for the Plan shall be appropriately adjusted,
(ii) the number of shares of Stock (or other kind of shares or
securities) that may be acquired under any Award shall be decreased
proportionately, and (iii) the price (including Exercise Price) for
each share of Stock (or other kind of shares or securities) subject to
then outstanding Awards shall be increased proportionately, without
changing the aggregate purchase price or value as to which outstanding
Awards remain exercisable or subject to restrictions.
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(c) Whenever the number of shares of Stock subject to
outstanding Awards and the price for each share of Stock subject to
outstanding Awards are required to be adjusted as provided in this
Subsection 9.1, the Committee shall promptly prepare a notice setting
forth, in reasonable detail, the event requiring adjustment, the
amount of the adjustment, the method by which such adjustment was
calculated, and the change in price and the number of shares of Stock,
other securities, cash, or property purchasable subject to each Award
after giving effect to the adjustments. The Committee shall promptly
give each Holder such a notice.
(d) Adjustments under Subsections 9.1(a) and (b) shall be
made by the Committee, and its determination as to what adjustments
shall be made and the extent thereof shall be final, binding, and
conclusive. No fractional interest shall be issued under the Plan on
account of any such adjustments.
9.2 Changes in Control. Upon the occurrence of a Change in
Control, but only if approved by the Committee, (a) each Holder of an Option
shall immediately be granted corresponding Stock Appreciation Rights; (b) all
outstanding Stock Appreciation Rights and Options shall immediately become
fully vested and exercisable in full, including that portion of any Stock
Appreciation Right or Option that pursuant to the terms and provisions of the
applicable Award Agreement had not yet become exercisable (the total number of
shares of Stock as to which a Stock Appreciation Right or Option is exercisable
upon the occurrence of a Change in Control is referred to herein as the "Total
Shares"); and (c) the restriction period of any Restricted Stock Award shall
immediately be accelerated and the restrictions shall expire. The Committee
shall also have the power and discretion (at the time of grant of an Award or
thereafter) to provide any or all of such vesting, exercisability, acceleration
and expiration provisions in any Award Agreements. If a Change in Control
involves a Restructuring or occurs in connection with a series of related
transactions involving a Restructuring and if such Restructuring is in the form
of a Non-Surviving Event and as a part of such Restructuring shares of Stock,
other securities, cash, or property shall be issuable or deliverable in
exchange for Stock, then a Holder of an Award shall be entitled to purchase or
receive (in lieu of the Total Shares that the Holder would otherwise be
entitled to purchase or receive), as appropriate for the form of Award, the
number of shares of Stock, other securities, cash, or property to which that
number of Total Shares would have been entitled in connection with such
Restructuring (and, for Options, at an aggregate exercise price equal to the
Exercise Price that would have been payable if that number of Total Shares had
been purchased on the exercise of the Option immediately before the
consummation of the Restructuring). Nothing in this Subsection 9.2 shall
impose on a Holder the obligation to exercise any Award immediately before or
upon the Change of Control or cause the Holder to forfeit the right to exercise
the Award during the remainder of the original term of the Award because of a
Change in Control.
9.3 Restructuring Without Change in Control. In the event a
Restructuring shall occur at any time while there is any outstanding Award
hereunder and that Restructuring does not occur in connection with a Change in
Control or a series of related transactions involving a Change in Control,
then:
(a) no outstanding Option or Stock Appreciation Right
shall immediately become fully vested and exercisable in full merely
because of the occurrence of the Restructuring;
(b) no Holder of an Option shall automatically be granted
corresponding Stock Appreciation Rights;
(c) the restriction period of any Restricted Stock Award
shall not immediately be accelerated and the restrictions expire
merely because of the occurrence of the Restructuring; and
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(d) at the option of the Committee, the Committee may
(but shall not be required to) cause the Corporation to take any one
or more of the following actions:
(i) accelerate in whole or in part the time of
the vesting and exercisability of any one or more of the
outstanding Stock Appreciation Rights and Options so as to
provide that those Stock Appreciation Rights and Options shall
be exercisable before, upon, or after the consummation of the
Restructuring;
(ii) grant each Holder of an Option corresponding
Stock Appreciation Rights;
(iii) accelerate in whole or in part the expiration
of some or all of the restrictions on any Restricted Stock
Award;
(iv) if the Restructuring is in the form of a
Non-Surviving Event, cause the surviving entity to assume in
whole or in part any one or more of the outstanding Awards
upon such terms and provisions as the Committee deems
desirable; or
(v) redeem in whole or in part any one or more of
the outstanding Awards (whether or not then exercisable) in
consideration of a cash payment, as such payment may be
reduced for tax withholding obligations as contemplated in
Subsections 6.9, 7.6, or 8.4, as applicable, in an amount
equal to:
(A) for Options and Stock Appreciation
Rights granted in connection with Options, the excess
of (1) the Fair Market Value, determined as of the
date immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of
Stock subject to the Award and as to which the Award
is being redeemed over (2) the Exercise Price for
that number of shares of Stock;
(B) for Stock Appreciation Rights not
granted in connection with an Option, the excess of
(1) the Fair Market Value, determined as of the date
immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of
Stock subject to the Award and as to which the Award
is being redeemed over (2) the Fair Market Value of
the number of shares of Stock on the Date of Grant;
and
(C) for Restricted Stock Awards, the
Fair Market Value, determined as of the date
immediately preceding the consummation of the
Restructuring, of the aggregate number of shares of
Stock subject to the Award and as to which the Award
is being redeemed.
The Corporation shall promptly notify each Holder of any election or action
taken by the Corporation under this Subsection 9.3. In the event of any
election or action taken by the Corporation pursuant to this Subsection 9.3
that requires the amendment or cancellation of any Award Agreement as may be
specified in any notice to the Holder thereof, the Holder shall promptly
deliver that Award Agreement to the Corporation in order for that amendment or
cancellation to be implemented by the Corporation and the Committee. The
failure of the Holder to deliver any such Award Agreement to the Corporation as
provided in the preceding sentence shall not in any manner affect the validity
or enforceability of any action taken by the Corporation and the Committee
under this Subsection 9.3, including without limitation any redemption of an
Award as of the
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consummation of a Restructuring. Any cash payment to be made by the
Corporation pursuant to this Subsection 9.3 in connection with the redemption
of any outstanding Awards shall be paid to the Holder thereof currently with
the delivery to the Corporation of the Award Agreement evidencing that Award;
provided, however, that any such redemption shall be effective upon the
consummation of the Restructuring notwithstanding that the payment of the
redemption price may occur subsequent to the consummation. If all or any
portion of an outstanding Award is to be exercised or accelerated upon or after
the consummation of a Restructuring that does not occur in connection with a
Change in Control and is in the form of a Non-Surviving Event, and as a part of
that Restructuring shares of stock, other securities, cash, or property shall
be issuable or deliverable in exchange for Stock, then the Holder of the Award
shall thereafter be entitled to purchase or receive (in lieu of the number of
shares of Stock that the Holder would otherwise be entitled to purchase or
receive) the number of shares of Stock, other securities, cash, or property to
which such number of shares of Stock would have been entitled in connection
with the Restructuring (and, for Options, upon payment of the aggregate
exercise price equal to the Exercise Price that would have been payable if that
number of Total Shares had been purchased on the exercise of the Option
immediately before the consummation of the Restructuring) and such Award
Agreement shall be subject to adjustments that shall be as nearly equivalent as
may be practical to the adjustments provided for in this Section 9.
Notwithstanding the provisions of this Subsection 9.3, the Committee shall not
have the power or authority to take any action pursuant to this Subsection 9.3
that causes the Plan not to be in compliance with the requirements of Rule
16b-3 and any such action purported to be taken by the Committee shall be null
and void and without any force or effect.
9.4 Notice of Restructuring. The Corporation shall attempt to
keep all Holders informed with respect to any Restructuring or of any potential
Restructuring to the same extent that the Corporation's stockholders are
informed by the Corporation of any such event or potential event.
SECTION 10. ADDITIONAL PROVISIONS
10.1 Termination of Employment. If a Holder is an Eligible
Individual because the Holder is an Employee and if that employment
relationship is terminated for any reason other than (a) Normal Retirement, (b)
that Holder's death, or (c) that Holder's Disability (hereinafter defined),
then any and all Awards held by such Holder in such Holder's capacity as an
Employee as of the date of the termination that are not yet exercisable (or for
which restrictions have not lapsed) shall become null and void as of the date
of such termination and the portion, if any, of such Awards that are
exercisable as of the date of termination shall be exercisable for a period of
the lesser of (a) the remainder of the term of the Award or (b) the date which
is 180 days after the date of termination. If a Holder is an Eligible
Individual because such Holder is an Employee and if that employment
relationship is terminated as a result of (a) Normal Retirement, (b) that
Holder's death, or (c) that Holder's Disability, then any and all Awards held
by such Holder in such Holder's capacity as an Employee as of the date of
termination that are not yet exercisable (or for which restrictions have not
lapsed) shall become exercisable (and the restrictions thereon, if any, shall
lapse) as of the date of termination, and all such Awards held by that Holder
as of the date of termination that are exercisable (either as a result of this
sentence or otherwise) shall be exercisable for a period of the lesser of (a)
the remainder of the term of the Award or (b) the date which is 180 days after
the date of termination. Any portion of any such Award not exercised upon the
expiration of the lesser of the periods specified in (a) or (b) of the
preceding two sentences shall be null and void upon the expiration of such
period, as applicable.
10.2 Other Loss of Eligibility. If a Holder is an Eligible
Individual because the Holder is serving in a capacity other than as an
Employee and if that capacity is terminated for any reason other than the
Holder's death or Disability, then that portion, if any, of any and all Awards
held by the Holder that were granted
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because of that capacity which are not yet exercisable (or for which
restrictions have not lapsed) as of the date of the termination shall become
null and void as of the date of the termination; provided, however, that the
portion, if any, of any and all Awards held by the Holder that are then
exercisable as of the date of the termination shall survive the termination and
shall be exercisable for a period of the lesser of (a) the remainder of the
term of the Award or (b) 180 days following the date such capacity terminated.
If a Holder is an Eligible Individual because the Holder is serving in a
capacity other than as an Employee and if that capacity is terminated by reason
of the Holder's death or Disability, then the portion, if any, of any and all
Awards held by the Holder that are not yet exercisable (or for which
restrictions have not lapsed) as of the date of that termination for death or
Disability shall become exercisable (and the restrictions thereon, if any,
shall lapse) and all such Awards held by that Holder as of the date of
termination that are exercisable (either as a result of this sentence or
otherwise) shall be exercisable for a period of the lesser of (a) the remainder
of the term of the Award or (b) the date which is 180 days after the date of
termination. Any portion of an Award not exercised upon the expiration of the
lesser of the periods specified in (a) or (b) of the preceding two sentences
shall be null and void upon the expiration of such period, as applicable.
10.3 Death or Disability. Upon the death or Disability of a
Holder, any and all Awards held by the Holder that are not yet exercisable (or
for which restrictions have not lapsed) as of the date of the Holder's death or
Disability may be exercised by, in the case of the Holder's Disability, the
Holder, his guardian or his legal representative or, in the case of the
Holder's death, by the Holder's legal representatives, heirs, legatees, or
distributees, in each case for the periods prescribed in Subsection 10.1 or
Subsection 10.2, as applicable. "Disability" shall have the meaning given it
in the employment agreement of the Holder; provided, however, that if that the
Holder has no employment agreement, "Disability" shall mean, as determined by
the Board of Directors in the sole discretion exercised in good faith of the
Board of Directors, a physical or mental impairment of sufficient severity that
either the Holder is unable to continue performing the duties he performed
before such impairment or the Holder's condition entitles him to disability
benefits under any insurance or employee benefit plan of the Corporation or its
Subsidiaries and that impairment or condition is cited by the Corporation as
the reason for termination of the Holder's employment or participation as a
member of the Board of Directors.
10.4 Leave of Absence. With respect to an Award, the Committee
may, in its sole discretion, determine that any Holder who is on leave of
absence for any reason will be considered to still be in the employ of the
Corporation, provided that rights to that Award during a leave of absence will
be limited to the extent to which those rights were earned, vested, or
exercisable when the leave of absence began.
10.5 Transferability of Awards. In addition to such other terms
and conditions as may be included in a particular Award Agreement, an Award
requiring exercise shall be exercisable during a Holder's lifetime only by that
the Holder or by that the Holder's guardian or legal representative. An Award
requiring exercise shall not be transferrable other than by will or the laws of
descent and distribution.
10.6 Forfeiture and Restrictions on Transfer. Each Award Agreement
may contain or otherwise provide for conditions giving rise to the forfeiture
of the Stock acquired pursuant to an Award or otherwise and may also provide
for those restrictions on the transferability of shares of the Stock acquired
pursuant to an Award or otherwise that the Committee in its sole and absolute
discretion may deem proper or advisable. The conditions giving rise to
forfeiture may include, but need not be limited to, the requirement that the
Holder render substantial services to the Corporation or its Subsidiaries for a
specified period of time. The restrictions on transferability may include, but
need not be limited to, options and rights of first refusal in favor of the
Corporation and stockholders of the Corporation other than the Holder of such
shares of Stock who is a party
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to the particular Award Agreement or a subsequent holder of the shares of Stock
who is bound by that Award Agreement.
10.7 Delivery of Certificates of Stock. Subject to Subsection
10.8, the Corporation shall promptly issue and deliver a certificate
representing the number of shares of Stock as to which (a) an Option has been
exercised after the Corporation receives an Exercise Notice and upon receipt by
the Corporation of the Exercise Price and any tax withholding as may be
requested, (b) a Stock Appreciation Right has been exercised (to the extent the
Committee determines to pay such Stock Appreciation Right in shares of Stock
pursuant to Subsection 7.5) and upon receipt by the Corporation of any tax
withholding as may be requested, and (c) restrictions have lapsed with respect
to a Restricted Stock Award and upon receipt by the Corporation of any tax
withholding as may be requested. The value of the shares of Stock or cash
transferable because of an Award under the Plan shall not bear any interest
owing to the passage of time, except as may be otherwise provided in an Award
Agreement. If a Holder is entitled to receive certificates representing Stock
received for more than one form of Award under the Plan, separate Stock
certificates shall be issued with respect to Incentive Options and Nonstatutory
Options.
10.8 Conditions to Delivery of Stock. Nothing herein or in any
Award granted hereunder or any Award Agreement shall require the Corporation to
issue any shares with respect to any Award if that issuance would, in the
opinion of counsel for the Corporation, constitute a violation of the
Securities Act or any similar or superseding statute or statutes, any other
applicable statute or regulation, or the rules of any applicable securities
exchange or securities association, as then in effect. At the time of any
exercise of an Option or Stock Appreciation Right, or at the time of any grant
of a Restricted Stock Award, the Corporation may, as a condition precedent to
the exercise of such Option or Stock Appreciation Right or vesting of any
Restricted Stock Award, require from the Holder of the Award (or in the event
of his death, his legal representatives, heirs, legatees, or distributees) such
written representations, if any, concerning the Holder's intentions with regard
to the retention or disposition of the shares of Stock being acquired pursuant
to the Award and such written covenants and agreements, if any, as to the
manner of disposal of such shares as, in the opinion of counsel to the
Corporation, may be necessary to ensure that any disposition by that Holder (or
in the event of the Holder's death, his legal representatives, heirs, legatees,
or distributees) will not involve a violation of the Securities Act or any
similar or superseding statute or statutes, any other applicable state or
federal statute or regulation, or any rule of any applicable securities
exchange or securities association, as then in effect.
10.9 Certain Directors and Officers. With respect to Holders who
are directors or officers of the Corporation or any of its Subsidiaries and who
are subject to Section 16(b) of the Exchange Act, (i) Awards and all rights
under the Plan shall be exercisable during a Holder's lifetime only by the
Holder or the Holder's guardian or legal representative, but not for at least
six months after the date of grant, as determined in accordance with Rule
16b-3, and (ii) all Awards granted prior to the date the stockholders of the
Corporation shall have approved the Plan shall be subject to such stockholder
approval, may not be transferred or exercised, as applicable, until such
stockholder approval is obtained, and shall become null and void on the first
anniversary of the Effective Date if such stockholder approval is not obtained
on or before the Effective Date. In addition, no such officer or director
shall have shares of Stock withheld to pay tax withholding obligations within
the first six months after the date of grant of an Award, as determined in
accordance with Rule 16b-3, unless permitted under Rule 16b-3 and agreed to by
the Committee. Any election by any such officer or director to have tax
withholding obligations satisfied by the withholding of shares of Stock shall
be irrevocable and shall be communicated to the Committee during the period
beginning on the third day following the date of release of quarterly or annual
summary statements of sales and earnings and ending on the twelfth business day
following such date (the "Window Period"), by an irrevocable election
communicated to the Committee at least six months before the date of exercise
of the Award for which such withholding is desired, or as
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otherwise permitted under Rule 16b-3. Any election by such an officer or
director to receive cash in full or partial settlement of a Stock Appreciation
Right, as well as any exercise by such individual of a Stock Appreciation Right
for such cash, in either case to the extent permitted under the applicable
Award Agreement or otherwise permitted by the Committee, shall be made during
the Window Period or within any other periods that the Committee shall specify
from time to time.
10.10 Securities Act Legend. Certificates for shares of Stock, when
issued, may have the following legend, or statements of other applicable
restrictions, endorsed thereon and may not be immediately transferable:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES MAY NOT BE OFFERED FOR SALE, SOLD,
PLEDGED, TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER HEREOF
PROVIDES EVIDENCE SATISFACTORY TO THE ISSUER (WHICH, IN THE DISCRETION
OF THE ISSUER, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER) THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION
WILL NOT VIOLATE APPLICABLE FEDERAL OR STATE LAWS.
This legend shall not be required for shares of Stock issued pursuant to an
effective registration statement under the Securities Act.
10.11 Legend for Restrictions on Transfer. Each certificate
representing shares issued to a Holder pursuant to an Award granted under the
Plan shall, if such shares are subject to any transfer restriction, including a
right of first refusal, provided for under the Plan or an Award Agreement, bear
a legend that complies with applicable law with respect to the restrictions on
transferability contained in this Subsection 10.11, such as:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY IMPOSED BY THAT CERTAIN INSTRUMENT
ENTITLED "HEALTHCOR HOLDINGS, INC. 1996 LONG-TERM INCENTIVE PLAN" AS
ADOPTED BY HEALTHCOR HOLDINGS, INC. (THE "CORPORATION"), ON JUNE 24,
1996, AND AN AGREEMENT THEREUNDER BETWEEN THE CORPORATION AND THE
INITIAL HOLDER THEREOF DATED , 199 , AND MAY NOT BE
TRANSFERRED, SOLD, OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN
PROVIDED. THE CORPORATION WILL FURNISH A COPY OF SUCH INSTRUMENT AND
AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE ON
REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE.
10.12 Rights as a Stockholder. A Holder shall have no right as a
stockholder with respect to any shares covered by his Award until a certificate
representing those shares is issued in his name. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash or other property) or
distributions or other rights for which the record date is before the date that
certificate is issued, except as contemplated by Section 9 hereof.
Nevertheless, dividends, dividend equivalent rights and voting rights may be
extended to and made part of any Award (other than Options or Stock
Appreciation Rights) denominated in Stock or units of Stock, subject to such
terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of interest
on deferred cash payments and dividend equivalents for deferred payment
denominated in Stock or units of Stock.
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10.13 Furnish Information. Each Holder shall furnish to the
Corporation all information requested by the Corporation to enable it to comply
with any reporting or other requirement imposed upon the Corporation by or
under any applicable statute or regulation.
10.14 Obligation to Exercise. The granting of an Award hereunder
shall impose no obligation upon a Holder to exercise the same or any part
thereof.
10.15 Adjustments to Awards. Subject to the general limitations set
forth in Sections 5, 6, 7, and 9, the Committee may make any adjustment in the
exercise price of, the number of shares subject to, or the terms of a
Nonstatutory Option or Stock Appreciation Right by canceling an outstanding
Nonstatutory Option or Stock Appreciation Right and regranting a Nonstatutory
Option or Stock Appreciation Right. Such adjustment shall be made by amending,
substituting, or regranting an outstanding Nonstatutory Option or Stock
Appreciation Right. Such amendment, substitution, or regrant may result in
terms and conditions that differ from the terms and conditions of the original
Nonstatutory Option or Stock Appreciation Right. The Committee may not,
however, impair the rights of any Holder of previously granted Nonstatutory
Options or Stock Appreciation Rights without that Holder's consent. If such
action is effected by amendment, such amendment shall be deemed effective as of
the Date of Grant of the amended Award.
10.16 Remedies. The Corporation shall be entitled to recover from a
Holder reasonable attorneys' fees incurred in connection with the enforcement
of the terms and provisions of the Plan and any Award Agreement whether by an
action to enforce specific performance or for damages for its breach or
otherwise.
10.17 Information Confidential. As partial consideration for the
granting of each Award hereunder, a Holder shall agree with the Corporation
that he will keep confidential all information and knowledge that he has
relating to the manner and amount of his participation in the Plan; provided,
however, that such information may be disclosed as required by law and may be
given in confidence to the Holder's spouse, tax or financial advisors, or to a
financial institution to the extent that such information is necessary to
secure a loan. In the event any breach of this promise comes to the attention
of the Committee, it shall take into consideration that breach in determining
whether to recommend the grant of any future Award to that Holder, as a factor
mitigating against the advisability of granting any such future Award to that
Person.
10.18 Consideration. No Option or Stock Appreciation Right shall be
exercisable and no restriction on any Restricted Stock Award shall lapse with
respect to a Holder unless and until the Holder thereof shall have paid cash or
property to, or performed services for, the Corporation or any of its
Subsidiaries that the Committee believes is equal to or greater in value than
the par value of the Stock subject to such Award.
SECTION 11. EFFECTIVENESS, DURATION AND AMENDMENT OF PLAN
11.1 Effectiveness; Duration. Notwithstanding the provisions of
the Plan, Awards granted prior to the date the stockholders of the Corporation
approve the Plan shall be subject to such stockholder approval and may not be
transferred or exercised, as applicable, until such stockholder approval is
obtained. All such Awards shall become null and void, and the Plan shall
terminate, on the first anniversary date of the Effective Date if such
stockholder approval is not obtained on or before such date. No Awards may be
granted hereunder after the date that is ten years from the earlier of (a) the
date the Plan is adopted by the Board of Directors and (b) the date the Plan is
approved by the stockholders of the Corporation.
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11.2 Amendment. The Committee may, insofar as permitted by law and
subject to ratification of the Board of Directors, with respect to any shares
which, at the time, are not subject to Awards, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever and may amend any provision of
the Plan or any Award Agreement to make the Plan or the Award Agreement, or
both, comply with Section 16(b) of the Exchange Act and the exemptions from
those sections in the regulations thereunder. The Committee may also, subject
to ratification of the Board of Directors, amend, modify, suspend, or terminate
the Plan for the purpose of meeting or addressing any changes in other legal
requirements applicable to the Corporation or the Plan or for any other purpose
permitted by law. The Plan may not be amended without the consent of the
holders of a majority of the shares of Stock then outstanding to (a) increase
materially the aggregate number of shares of Stock that may be issued under the
Plan (except for adjustments pursuant to Section 9 hereof), (b) increase
materially the benefits accruing to Eligible Individuals under the Plan, or (c)
modify materially the requirements about eligibility for participation in the
Plan; provided, however, that such amendments may be made without the consent
of stockholders of the Corporation if changes occur in law or other legal
requirements (including Rule 16b-3 or Section 162(m)) that would permit such
changes. Notwithstanding the provisions of this Subsection 11.2, the Committee
specifically shall have the authority, subject to ratification by the Board of
Directors, to amend the Plan (without approval of the holders of the shares of
Stock then outstanding) to the extent required to cause the Plan, as it relates
to Options and Stock Appreciation Rights granted to Eligible Individuals
subject to Section 162(m), to comply with the requirements for classification
of Awards as "performance-based compensation" under Section 162(m)(4)(C),
except for such amendments that require such stockholder approval under Section
162(m).
SECTION 12. GENERAL
12.1 Application of Funds. The proceeds received by the
Corporation from the sale of shares pursuant to Awards may be used for any
general corporate purpose.
12.2 Right of the Corporation and Subsidiaries to Terminate
Employment. Nothing contained in the Plan, or in any Award Agreement, shall
confer upon any Holder the right to continue in the employ of the Corporation
or any Subsidiary or interfere in any way with the rights of the Corporation or
any Subsidiary to terminate the Holder's employment at any time.
12.3 No Liability for Good Faith Determinations. Neither the
members of the Board of Directors nor any member of the Committee shall be
liable for any act, omission or determination taken or made in good faith with
respect to the Plan or any Award granted under it; and members of the Board of
Directors and the Committee shall be entitled to indemnification and
reimbursement by the Corporation in respect of any claim, loss, damage, or
expense (including attorneys' fees, the costs of settling any suit, provided
such settlement is approved by independent legal counsel selected by the
Corporation, and amounts paid in satisfaction of a judgment, except a judgment
based on a finding of bad faith) arising therefrom to the full extent permitted
by law and under any directors' and officers' liability or similar insurance
coverage that may from time to time be in effect. This right to
indemnification shall be in addition to, and not a limitation on, any other
indemnification rights any member of the Board of Directors or the Committee
may have.
12.4 Other Benefits. Participation in the Plan shall not preclude
a Holder from eligibility in any other stock or stock option plan of the
Corporation or any Subsidiary or any old age benefit, insurance, pension,
profit sharing, retirement, bonus, or other extra compensation plans that the
Corporation or any Subsidiary has adopted, or may, at any time, adopt for the
benefit of its Employees. Neither the adoption of the Plan by the Board of
Directors nor the submission of the Plan to the stockholders of the Corporation
for approval shall be construed as creating any limitations on the power of the
Board of Directors to adopt such
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other incentive arrangements as it may deem desirable, including, without
limitation, the granting of stock options and the awarding of stock and cash
otherwise than under the Plan and such arrangements may be either generally
applicable or applicable only in specific cases.
12.5 Exclusion from Pension and Profit-Sharing Compensation. By
acceptance of an Award (regardless of form), as applicable, each Holder shall
be deemed to have agreed that the Award is special incentive compensation that
will not be taken into account in any manner as salary, compensation, or bonus
in determining the amount of any payment under any pension, retirement, or
other employee benefit plan of the Corporation or any Subsidiary unless any
pension, retirement, or other employee benefit plan of the Corporation or any
Subsidiary expressly provides that such Award shall be so considered for
purposes of determining the amount of any payment under any such plan. In
addition, each beneficiary of a deceased Holder shall be deemed to have agreed
that the Award will not affect the amount of any life insurance coverage, if
any, provided by the Corporation or a Subsidiary on the life of a Holder that
is payable to the beneficiary under any life insurance plan covering employees
of the Corporation or any Subsidiary.
12.6 Execution of Receipts and Releases. Any payment of cash or
any issuance or transfer of shares of Stock to a Holder, or to his legal
representative, heir, legatee, or distributee, in accordance with the
provisions hereof, shall, to the extent thereof, be in full satisfaction of all
claims of such persons hereunder. The Committee may require any Holder, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
12.7 Unfunded Plan. Insofar as it provides for Awards of cash and
Stock, the Plan shall be unfunded. Although bookkeeping accounts may be
established with respect to Holders who are entitled to cash, Stock, or rights
thereto under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Corporation shall not be required to segregate any assets
that may at any time be represented by cash, Stock, or rights thereto, nor
shall the Plan be construed as providing for such segregation, nor shall the
Corporation nor the Board of Directors nor the Committee be deemed to be a
trustee of any cash, Stock, or rights thereto to be granted under the Plan.
Any liability of the Corporation to any Holder with respect to a grant of cash,
Stock, or rights thereto under the Plan shall be based solely upon any
contractual obligations that may be created by the Plan and any Award
Agreement; no such obligation of the Corporation shall be deemed to be secured
by any pledge or other encumbrance on any property of the Corporation. Neither
the Corporation nor the Board of Directors nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by the Plan.
12.8 No Guarantee of Interests. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.
12.9 Payment of Expenses. All expenses incident to the
administration, termination, or protection of the Plan, including, but not
limited to, legal and accounting fees, shall be paid by the Corporation or its
Subsidiaries.
12.10 Corporation Records. Records of the Corporation or its
Subsidiaries regarding a Holder's period of employment, termination of
employment and the reason therefor, leaves of absence, re-employment, and other
matters shall be conclusive for all purposes hereunder, unless determined by
the Committee to be incorrect.
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12.11 Information. The Corporation and its Subsidiaries shall, upon
request or as may be specifically required hereunder, furnish or cause to be
furnished all of the information or documentation which is necessary or
required by the Committee to perform its duties and functions under the Plan.
12.12 No Liability of Corporation. The Corporation assumes no
obligation or responsibility to a Holder or his legal representatives, heirs,
legatees, or distributees for any act of, or failure to act on the part of, the
Committee.
12.13 Corporation Action. Any action required of the Corporation
shall be by resolution of its Board of Directors or by a person authorized to
act by resolution of the Board of Directors.
12.14 Severability. In the event that any provision of the Plan, or
the application hereof to any Person or circumstance, is held by a court of
competent jurisdiction to be invalid, illegal, or unenforceable in any respect
under present or future laws effective during the effective term of any such
provision, such invalid, illegal, or unenforceable provision shall be fully
severable; and the Plan shall then be construed and enforced as if such
invalid, illegal, or unenforceable provision had not been contained in the
Plan; and the remaining provisions of the Plan shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from the Plan. Furthermore, in lieu of each such
illegal, invalid, or unenforceable provision, there shall be added
automatically as part of the Plan a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid, and enforceable. If any of the terms or provisions of the Plan conflict
with the requirements of Rule 16b-3 (as those terms or provisions are applied
to Eligible Individuals who are subject to Section 16(b) of the Exchange Act),
then those conflicting terms or provisions shall be deemed inoperative to the
extent they so conflict with the requirements of Rule 16b-3 and, in lieu of
such conflicting provision, there shall be added automatically as part of the
Plan a provision as similar in terms to such conflicting provision as may be
possible and not conflict with the requirements of Rule 16b-3. If any of the
terms or provisions of the Plan conflict with the requirements for
classification of Awards as "performance-based compensation" under Section
162(m)(4)(C) of the Code (as those terms or provisions are applied to Options
or Stock Appreciation Rights granted to Eligible Individuals who are subject to
Section 162(m) of the Code), then those conflicting terms or provisions shall
be deemed inoperative to the extent they so conflict with such requirements of
Section 162(m)(4)(C) of the Code and, in lieu of such conflicting provision,
there shall be added automatically as part of the Plan a provision as similar
in terms to such conflicting provision as may be possible and not conflict with
such requirements of Section 162(m)(4)(C) of the Code. If any of the terms or
provisions of the Plan conflict with the requirements of Section 422 of the
Code (with respect to Incentive Options), then those conflicting terms or
provisions shall be deemed inoperative to the extent they so conflict with the
requirements of Section 422 of the Code and, in lieu of such conflicting
provision, there shall be added automatically as part of the Plan a provision
as similar in terms to such conflicting provision as may be possible and not
conflict with the requirements of Section 422 of the Code. With respect to
Incentive Options, if the Plan does not contain any provision required to be
included herein under Section 422 of the Code, that provision shall be deemed
to be incorporated herein with the same force and effect as if that provision
had been set out at length herein; provided, however, that, to the extent any
Option that is intended to qualify as an Incentive Option cannot so qualify,
that Option (to that extent) shall be deemed a Nonstatutory Option for all
purposes of the Plan.
12.15 Notices. Whenever any notice is required or permitted
hereunder, such notice must be in writing and personally delivered or sent by
mail. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered on the date on which it is actually received, addressed
to the applicable party as specified in the applicable Award Agreement. The
Corporation or a Holder may change, at any time and from time to time, by
written notice to the other, the address which it or he had previously
specified for
28
<PAGE> 29
receiving notices. Until changed in accordance herewith, the Corporation and
each Holder shall specify as its and his address for receiving notices the
address set forth in the Award Agreement pertaining to the shares to which such
notice relates. Any person entitled to notice hereunder may waive such notice.
12.16 Successors. The Plan shall be binding upon the Holder, his
legal representatives, heirs, legatees, and distributees, upon the Corporation,
its successors and assigns and upon the Committee and its successors.
12.17 Headings. The titles and headings of Sections and Subsections
are included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
12.18 Governing Law. All questions arising with respect to the
provisions of the Plan shall be determined by application of the laws of the
State of Delaware, without giving effect to any conflict of law provisions
thereof, except to the extent Delaware law is preempted by federal law.
Questions arising with respect to the provisions of an Award Agreement that are
matters of contract law shall be governed by the laws of the state specified in
the Award Agreement, except to the extent Delaware corporate law conflicts with
the contract law of such state, in which event Delaware corporate law, without
giving effect to any conflict of law provisions thereof, shall govern. The
obligation of the Corporation to sell and deliver Stock hereunder is subject to
applicable federal and state laws and to the approval of any governmental
authority required in connection with the authorization, issuance, sale, or
delivery of such Stock.
12.19 Availability of Exempt Transactions. Notwithstanding the
provisions of the Plan, nothing contained in the Plan shall prohibit any
transactions permitted by Rule 16a-2(d) promulgated under the Exchange Act to
the extent such transactions are approved by the Committee and are not in
violation of, and do not otherwise cause the Plan not to be in compliance with,
Rule 16b-3.
12.20 Word Usage. Words used in the masculine shall apply to the
feminine where applicable, and wherever the context of the Plan dictates, the
plural shall be read as the singular and the singular as the plural.
29
<PAGE> 30
IN WITNESS WHEREOF, HealthCor Holdings, Inc., acting by and through
its officer hereunto duly authorized, has executed this instrument this 24th
day of June, 1996.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
-------------------------------------
S. Wayne Bazzle
Chairman and Chief Executive Officer
30
<PAGE> 31
ANNEX A
HEALTHCOR HOLDINGS, INC.
INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
AWARD FOR NON-EMPLOYEE DIRECTORS
To: Date of Grant:
-------------------------- ----------------------------
Number of Shares: Exercise Price Per Share:
------------ ----------------
HEALTHCOR HOLDINGS, INC., a Delaware corporation (the "Corporation"),
is pleased to grant you a Nonstatutory Option (the "Option") to purchase shares
of the Corporation's common stock, par value $.01 per share. The number of
shares subject to this Option and the exercise price per share are stated
above. This Option is granted under Subsection 5.2 of the HealthCor Holdings,
Inc. 1996 Long-Term Incentive Plan dated June 24, 1996 (the "Plan") and is
governed by the terms of the Plan. All terms having their initial letters
capitalized have the meanings given them in the Plan unless otherwise defined
in this Agreement or unless the context requires otherwise.
THIS OPTION IS NOT BINDING ON THE CORPORATION UNTIL YOU COMPLETE YOUR
ADDRESS FOR NOTICE IN PARAGRAPH 7, SIGN THIS DOCUMENT, AND RETURN IT TO THE
CORPORATION'S HUMAN RESOURCES DEPARTMENT.
1. Vesting and Exercisability. This Option will vest and will be
exercisable at the times and with respect to the number of shares of Stock
indicated as follows:
<TABLE>
<CAPTION>
Number of shares of Stock as to
Option Exercisable On and After: which the Option may be exercised
- ------------------------------- ---------------------------------
<S> <C> <C>
________________, ______ ______ shares of Stock
________________, ______ ______ additional shares of Stock
________________, ______ ______ additional shares of Stock
________________, ______ ______ additional shares of Stock
________________, ______ ______ additional shares of Stock
________________, ______ ______ additional shares of Stock
</TABLE>
In accordance with the preceding schedule, the Option may be exercised, from
time to time, in whole or in part.
2. Method of Exercise. The Option shall be exercisable only by
written or recorded electronic notice of exercise delivered to the
Corporation's Human Resources Department or designee, in accordance with
instructions generally applicable to all optionholders, during the term of the
Option. The notice must (a) state the number of shares of Stock with respect
to which the Option is being exercised, (b) be signed or otherwise given by you
(or by your legal representative, legatee, or distributee in the case of your
death or by your guardian or legal representative in case of your disability),
(c) be accompanied by the Exercise Price for all shares of Stock for which the
Option is exercised (unless you have provided for the payment of such Exercise
Price pursuant to Subsection 6.7 of the Plan (regarding cashless exercises)),
and (d) be accompanied by the
A-1
<PAGE> 32
amount that the Corporation is required to withhold for federal income or other
tax purposes. The Option shall not be deemed to have been exercised unless all
of these requirements are satisfied.
3. Duration. The Option will terminate on the earliest of (a)
11.59 p.m., Dallas, Texas, time, on the date ten years from the Date of Grant;
(b) immediately when you cease to be a director of the Corporation, if the
Board of Directors of the Corporation demands or requests your resignation from
the Board of Directors; (c) 11:59 p.m. Dallas, Texas, time, on the date 90 days
after you cease to be a director of the Corporation for any reason other than
the reasons specified in the preceding clause (b) or the following clause (d);
or (d) 11:59 p.m., Dallas, Texas, time, on the date one year after you cease to
be a director because of your death or Disability. In this Option,
"Disability" means a physical or mental impairment of sufficient severity such
that, in the opinion of a physician selected by the Corporation (which may be
your physician or any other physician), you are unable to continue to serve as
a director of the Corporation and that in fact results in the cessation of your
service.
4. Transferability. This Option is not transferable other than
by will or the laws of descent and distribution.
5. Rights as a Stockholder. You will have no right as a
stockholder with respect to any shares subject to this Option until a
certificate representing those shares is issued in your name. No adjustment
will be made for dividends (ordinary or extraordinary, whether in cash or other
property) or distributions or other rights for which the record date is before
the date that certificate is issued, except as contemplated by the Plan.
6. Incorporation of Plan. The terms and provisions of the Plan
are hereby expressly incorporated herein and made a part of this Agreement and
shall be applicable for all purposes under this Agreement with any necessary
changes in points of detail.
7. Notice. For purposes of notice hereunder, which shall be
given in accordance with Subsection 2.15 of the Plan, the Corporation, the
Committee, and you agree that any notices shall be given to the Corporation or
you at the following addresses:
Corporation or HealthCor Holdings, Inc.
Committee: 5720 LBJ Freeway, Suite 550
Dallas, Texas 75240
Attn: Human Resources Department
Option Notice
You:
-------------------------------------
-------------------------------------
-------------------------------------
A-2
<PAGE> 33
The Corporation or you may change the address previously specified for
receiving notices at any time and from time to time by written notice to the
other in accordance with Subsection 12.15 of the Plan.
HEALTHCOR HOLDINGS, INC. DIRECTOR
By:
---------------------------------- -------------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. SIX
TO THE
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Article XV of the HealthCor Employee Stock Ownership Plan ("Plan")
authorizes the Employer to amend the Plan from time to time;
NOW, THEREFORE, the Plan shall be, and hereby is, amended, effective as of
the dates set forth herein, as follows:
1. Section 2.15 is amended effective as of April 1, 1990 by replacing it
in its entirety with the following paragraph:
2.15 "Employee" shall mean any person who is employed by one or
more Employers, is on an Employer's payroll, and whose wages are subject to
FICA withholding, and shall not include independent contractors.
2. Section 10.01 is hereby amended effective as of January 1, 1996 by
adding the following language immediately after the vesting schedule in such
section and immediately prior to the last paragraph:
Effective January 1, 1996, the following vesting schedule will apply:
<TABLE>
<CAPTION>
Nonforfeitable Percentage
Vesting Years of Service of Account
- ------------------------ -------------------------
<S> <C>
Less than 1 year 0%
1 year but less than 2 years 20%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
</TABLE>
Notwithstanding the foregoing, any Participant who is not credited
with an Hour of Service after December 31, 1995 will be subject to the
vesting schedule in effect prior to January 1, 1996.
3. Subsection 19.03(l) is hereby amended effective as of January 1, 1996
by replacing it in its entirety with the following paragraph:
19.03(1) Vesting. Any Participant who is credited with an Hour of
Service in the first Plan Year in which the Plan is a Top Heavy Plan, or in
any subsequent Plan Year after such first Plan Year (whether or not the
Plan is a Top Heavy Plan
<PAGE> 2
in such subsequent Plan Year) shall have his percentage of vested benefits
owing upon a Termination of Employment determined pursuant to the schedule
set forth in Section 10.01 hereof.
IN WITNESS WHEREOF, this Amendment has been executed this 4th day of June,
1996.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
---------------------------------
Name: S. Wayne Bazzle
-------------------------------
Title: Chairman
------------------------------
ATTEST:
- ----------------------------
<PAGE> 3
AMENDMENT NO. FIVE
TO THE
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, Article XV of the HealthCor Employee Stock Ownership Plan ("Plan")
authorizes the Employer to amend the Plan from time to time;
NOW, THEREFORE, the Plan shall be, and hereby is, amended, effective as of
the dates set forth herein, as follows:
1. Section 2.10 is amended effective as of January 1, 1994 by adding the
following paragraphs to the end of said Section:
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA
'93 annual compensation limit. The OBRA '93 annual compensation limit is
$150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under section 401(a)(17) of the Code shall mean
the OBRA '93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan
Year, the Compensation for that prior determination period is subject to
the OBRA '93 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods
beginning before the first day of the first Plan Year beginning on or
after January 1, l994, the OBRA '93 annual compensation limit is $150,000.
<PAGE> 4
2. Article XI is amended effective as of January 1, 1993 by adding a new
Section 11.11 as follows:
11.11 Direct Rollovers to Eligible Retirement Plans.
11.11(1) This Section applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election under this
Section, a Distributee may elect, at the time and in the manner prescribed
by the Committee, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee
in a Direct Rollover.
11.11(2) For purposes of this Section 11.11, the following
terms shall have the following meanings:
(i) "Eligible Rollover Distribution" means any
distribution of all or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or more; any
distribution to the extent such distribution is required under Code Section
401(a)(9); and the portion of any distribution that is not includable in
gross income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(ii) "Eligible Retirement Plan" means an individual
retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in Code
Section 401(a), that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution
to the surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(iii) "Distributee" means an Employee or former
Employee. In addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse who is the
Alternate Payee under a Qualified Domestic Relations Order are Distributees
with regard to the interest of the spouse or former spouse.
(iv) "Direct Rollover" means a payment by the Plan to
the Eligible Retirement Plan specified by the Distributee.
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been executed this 14th day of
October, 1994.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
----------------------------------
Name: S. Wayne Bazzle
--------------------------------
Title: Chairman, CEO and Secretary
-------------------------------
ATTEST:
[ILLEGIBLE]
- -----------------------------
<PAGE> 6
FOURTH AMENDMENT TO
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, HealthCor Holdings, Inc. (the "Company") adopted the HealthCor
Employee Stock Ownership Plan (the "Plan"), effective April 1, 1990; and
WHEREAS, pursuant to Article XV of the Plan, the Company reserved the right
to amend the Plan at any time; and
WHEREAS, the Company has determined that it is advisable to amend the Plan
as set forth below in order to change the entry date of the Plan due to the
change in plan year of the Plan as set forth in the Third Amendment to the
Plan; now, therefore,
The Plan is hereby amended, effective as of January 1, 1994, as follows:
I.
Valuation Date is defined in Section 2.40 to mean the last day of the Plan
Year. In 1993, there are two Valuation Dates, March 31 (the last day of the
April 1, 1992-March 31, 1993 Plan Year) and December 31 (the last day of the
April 1, 1993-December 31, 1993 Plan Year).
II.
Section 3.01 provides that an Eligible Employee who completes an
Eligibility Year of Service or 1000 Hours of Service shall become a Participant
on the April 1 immediately preceding the date on which he completes such
Eligibility Year of Service or 1000 Hours of Service. Section 3.01, as amended
below, will provide that an Eligible Employee who completes an Eligibility Year
of Service shall become a Participant on the January 1 immediately preceding
the date on which he completes an Eligibility Year of Service or 1000 Hours of
Service. However, in the event an Eligible Employee would have had an Entry
Date of April 1, 1993 under the Plan prior to the Third Amendment to the Plan,
but would have an Entry Date of January 1, 1994 under the Plan as amended by
the Third Amendment, such Eligible Employee shall have an Entry Date of April
1, 1993.
The first sentence of the second paragraph of Section 3.01 is amended,
effective January 1, 1994, to read as follows:
"Each other Eligible Employee, and each Eligible Employee employed
on or after the Effective Date, shall become a Participant as of the
January 1, or, if later, the Employee's Date of Employment (the "Entry
Date")
<PAGE> 7
immediately preceding the date upon which such Eligible Employee
completes either an Eligibility Year of Service or completes 1000
Hours of Service during a Plan Year."
IN WITNESS WHEREOF, HealthCor Holdings, Inc. has caused this Amendment to
be executed, effective January 1, 1994.
SIGNED this 31st day of March, 1994.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
---------------------------------
Title: Chairman
------------------------------
ATTEST:
[ILLEGIBLE]
- ---------------------------
<PAGE> 8
THIRD AMENDMENT TO
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, HealthCor Holdings, Inc. (the "Company") adopted the HealthCor
Employee Stock Ownership Plan (the "Plan"), effective April 1, 1990; and
WHEREAS, pursuant to Article XV of the Plan, the Company reserved the right
to amend the Plan at any time; and
WHEREAS, the Company has determined that it is advisable to amend the Plan
as set forth below in order to change the Plan Year of the Plan to the calendar
year to conform to the Company's fiscal year; now, therefore,
The Plan is hereby amended, effective as of April 1, 1993, as follows:
I.
Section 2.18 of the Plan is amended to read as follows:
"2.18 "Fiscal Year" shall mean the fiscal year of an Employer.
Effective April 1, 1993, the Fiscal Year of the Sponsoring Company
ends on December 31; prior to April 1, 1993, the Fiscal Year of the
Sponsoring Company ended on March 31."
II.
The first sentence of Section 2.26 is amended to read as follows:
"2.26 "Plan Year" shall mean the twelve (12) consecutive month
period beginning on January 1 and ending on December 31, effective
April 1, 1993; prior to April 1, 1993, the "Plan Year" shall mean the
twelve (12) consecutive month period beginning April 1 and ending on
March 31."
IN WITNESS WHEREOF, HealthCor Holdings, Inc. has caused this Amendment to
be executed, effective April 1, 1993.
<PAGE> 9
SIGNED this 1st day of April, 1993.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
---------------------------------------
Title: Chairman and Chief Executive Officer
------------------------------------
ATTEST
[ILLEGIBLE]
- ---------------------------
Secretary
- 2 -
<PAGE> 10
AMENDMENT NO. 2 TO THE
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
Pursuant to the authority set forth in Article XV of the HealthCor Employee
Stock Ownership Plan (the "Plan"), the Plan is hereby amended effective April
1, 1990, in the following respects only:
1. Section 2.09 is hereby deleted in its entirety and the following new
Section 2.09 is substituted in lieu thereof:
"2.09 "Company Stock" shall mean either (i) common stock of the
Sponsoring Company or of any corporation which is a member of the same
controlled group as the Sponsoring Company which has the greatest voting
power and greatest dividend rights or (ii) noncallable preferred stock of
the Sponsoring Company or of any corporation which is a member of the same
controlled group as the Sponsoring Company which is convertible at any time
and at a reasonable price into common stock described in (i) above. Except
as provided in Sections 11.01 and 11.05, all references to "shares of
Company Stock" shall include fractional shares of Company Stock."
2. Section 2.19 is hereby amended by deleting subparagraph 2.19(iv) and
by substituting the following new subparagraph 2.19(iv) in lieu thereof:
"(iv) was at any time during the prior Plan Year, or during the
current Plan Year if the employee is one of the one hundred (100) employees
who receive the most Limitation Year Compensation from the Employer during
the current Plan Year, an officer of an Employer who received Limitation
Year Compensation for a Plan Year in excess of fifty percent (50%) of the
amount in effect under Code Section 415(b)(1)(A) for such Plan Year (if
no officer of an Employer has Limitation Year Compensation in excess of
such amount, the officer having the highest Limitation Year Compensation
for such Plan Year shall be treated as an officer). For purposes of this
Subsection, not more than fifty (50) employees (or, if less, the greater of
three (3) employees or ten percent (10%) of employees) shall be treated as
officers."
3. Section 10.04 is hereby amended by deleting Subsection 10.04 and by
adding the following new subparagraphs 10.04 and 10.05 in lieu thereof:
"10.04 Forfeiture of Nonvested Amount.
<PAGE> 11
10.04(1) If a Participant has a Termination of Employment at a time
when he has no vested amount in his Accounts the amount in his Accounts shall be
forfeited as of the date on which such Participant incurs such Termination of
Employment.
10.04(2) If a partially vested Participant has a Termination of
Employment and has received a distribution of the vested amount in his Accounts
as provided for in Sections 10.01 and 11.01 hereof on or prior to the close of
the second Plan Year following the Plan Year in which such Termination of
Employment occurs, the excess of the amount in his Accounts over the vested
amount (the "Nonvested Amount") shall be forfeited as of the date on which
such Participant receives such cash-out distribution.
10.04(3) If a partially vested Participant has a Termination of
Employment and has not received a distribution of the vested amount in his
Accounts on or prior to the close of the second Plan Year following the Plan
Year in which such Termination of Employment occurs, the Nonvested Amount shall
be forfeited as of the last day of the Plan Year in which such Participant has
incurred five (5) consecutive One-Year Breaks in Service.
10.04(4) If a partially vested Participant who has a Termination of
Employment and has not received a distribution of the vested amount in his
Accounts as provided in Sections 10.01 and 11.01 hereof on or prior to the
close of the second Plan Year following the Plan Year in which such Termination
of Employment occurs, is reemployed prior to incurring five (5) consecutive
One-Year Breaks in Service, such Participant shall not forfeit the Nonvested
Amount, and the vested amount in his Accounts shall be determined in accordance
with the provisions of this Article X without regard to such Participant's
cessation of employment.
10.04(5) If a portion of a Participant's Account is forfeited,
Company Stock released under Section 5.02 hereof and allocated under Section
5.01 hereof must be forfeited only after other assets are forfeited. If
interests in more than one class of Company Stock have been allocated to a
Participant's Account, the Participant shall be treated as forfeiting the same
proportion of each such class of Company Stock. All amounts forfeited as
provided in this Section 10.04 are herein referred to as "Forfeitures." Subject
to the restorations pursuant to Section 10.05 hereof, any Forfeitures shall be
allocated as provided in Subsection 5.01 hereof.
- 2 -
<PAGE> 12
10.05 Restoration of Forfeited Nonvested Amount.
10.05(1) In the event a Participant: (i) who has received a
distribution of the vested amount in his Accounts in accordance with Subsection
10.04(2) hereof, or (ii) who has no vested amount in his Accounts at the time
of his Termination of Employment as described in Subsection 10.04(l) hereof is
reemployed by an Employer prior to the date on which such Participant has
incurred five (5) consecutive One-Year Breaks in Service, an amount equal to
his Nonvested Amount which was forfeited pursuant to Section 10.04 hereof
(without adjustment for any gains or losses in the Trust Fund subsequent to
such Forfeiture) shall be restored to such Accounts; provided, however, that if
a Participant received a distribution of the vested portion of his Accounts,
such restoration shall not occur unless and until: (i) such Participant repays
to the Plan,the full amount of his Accounts previously distributed to him, and
(i) such Participant's repayment is made before the earlier of the end of (I)
the five (5)-year period beginning with the Participant's Date of Reemployment
or (II) a period of five (5) consecutive One-Year Breaks in Service commencing
after the date on which such Participant received such distribution. Upon the
restoration of the Accounts as provided for hereinabove, the vested amount in
such Accounts (whether attributable to amounts restored, amounts, if any,
repaid by the Participant, or additional amounts added to such Account after
such reemployment) shall thereafter be determined in accordance with the
provisions of this Article X without regard to such Participant's original
Termination of Employment.
10.05(2) The restoration of a Participant's Nonvested Amount in his
Accounts as provided for in Subsection 10.05(l) above, shall be made from
the Forfeitures which occurred during the Plan Year of such restoration before
any use of such Forfeitures as otherwise provided in Subsection 5.01 hereof.
Should such Forfeitures be insufficient to restore the aggregate Nonvested
Amounts owing to any Participant under Subsection 10.05(l) above, the
additional amount necessary for restoration shall be contributed by the
Employer employing such Participant as a special contribution to be specially
allocated to the Accounts of such Participant."
4. Article XI is hereby amended by adding the following sentence:
"The Plan will not acquire securities from a particular security
holder at an indefinite time determined upon the happening of an event
such as the death of the holder."
- 3 -
<PAGE> 13
5. Section 11.06 is hereby amended by deleting the fifth paragraph of
such Section 11.06 and by substituting the following new fifth paragraph in
lieu thereof:
"Payment of the Option Price for shares of Company Stock subject to
the Put shall be made either in a lump sum or in installments as determined
by the Sponsoring Company. In the event payments are made in installments,
the installment obligation shall (1) be adequately secured as determined by
the Sponsoring Company, (2) bear interest equal to the Sponsoring Company's
long-term debt borrowing rate from its senior lenders (provided such rate
is reasonable) or such other reasonable rate of interest as determined by
the Sponsoring Company to be determined on uniform and nondiscriminatory
basis, (3) require that the payments be made in six annual installments,
(4) have a payment period of five (5) years from the date the Put is
exercised, (5) require that any payments pursuant to the installment
obligation must begin to be made no later than thirty (30) days after the
date the Put is exercised, and (6) permit the Sponsoring Company to prepay
the amount of any remaining installments without penalty."
6. Article XVII is hereby deleted in its entirety and the following new
Article XVII is substituted in lieu thereof:
"ARTICLE XVII
DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION
17.01 Suspension of Contributions. Should an Employer fail for any
reason to make Company Contributions in any one (1) or more years, such
failure shall not, of itself, terminate or discontinue this Plan and Trust
as to the Employer and its Participants, nor shall the Employer incur any
obligation to make up such Company Contributions in whole or in part.
17.02 Discontinuance of Contributions. Whenever an Employer
determines that it is impossible or inadvisable for it to make further
Company Contributions, such Employer may, without terminating the Trust,
permanently discontinue all further Company Contributions by such Employer.
A certified copy of such Employer's resolution or other formal written
instrument pursuant to Section 20.07 hereof, shall be delivered to the
Committee and the Trustee. Thereafter, the Committee and the Trustee shall
continue to administer all the provisions of the Plan which are necessary
and remain in force, other than the provisions relating to Company
Contributions by such Employer. Unless otherwise provided by such
- 4 -
<PAGE> 14
resolutions, the Trust shall remain in existence with respect to such
Employer and all of the provisions of the Trust Agreement shall remain in
force.
17.03 Termination of Plan and Trust. If an Employer determines to
terminate (as to such Employer) the Plan and Trust completely, it shall be
terminated insofar as they are applicable to such Employer as of the date
specified in certified copies of resolutions or other formal written
instrument pursuant to Section 20.07 hereof, delivered to the Committee and
the Trustee. Upon such termination of the Plan and Trust and before
liquidation of the Trust, the Committee shall require a special valuation
of the Trust, if the liquidation is not to occur as of a Valuation Date.
After payment of all expenses and proportional adjustment of Accounts of
Participants with respect to such Employer to reflect such expenses, Trust
Fund profits or losses, and subject to the limitations contained in Section
5.03 hereof, allocations of any previously unallocated funds to the date of
termination, such Employer's Participants shall be entitled to receive the
amount then credited to their respective Accounts in the Trust Fund in a
lump-sum payment. If, in the opinion of the Committee, assets in the Trust
Fund or certain of them may possibly not be readily salable (i) because of
federal or state securities laws, or the rules and regulations thereunder,
or (ii) at their fair market value, the Committee may direct and the
Trustee shall effect, a distribution of such assets in kind. If the entire
Plan is terminating, upon completion of liquidation and distribution of the
assets of the Trust to the Participants as provided for herein, the Trustee
shall thereby complete the Trustee's duties, and the Trust shall terminate.
17.04 Participant's Rights to Benefits upon Termination or Partial
Termination of Plan or Complete Discontinuance of Contributions. Upon the
termination or partial termination (as determined by the Internal Revenue
Service) of the Plan or the complete discontinuance of Company
Contributions by an Employer, the rights of each such Employer's Employees
who are then Participants (or, in the case of a partial termination, who
are then Participants affected by the partial termination) and the rights
of each other person, other than a person who has forfeited his Nonvested
Amounts pursuant to Section 10.04 hereof prior to the effective date of
such termination (or partial termination) or complete discontinuance, to
the amounts credited to his Accounts at such time shall be nonforfeitable
without reference to any formal action on the part of such Employer, the
Committee or the Trustee."
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<PAGE> 15
7. Section 18.03 is hereby deleted in its entirety and the following new
Section 18.03 is substituted in lieu thereof:
"18.03 Mistake of Fact or Disallowance of Deduction. If the Committee
in good faith determines that (a) a Company Contribution was made by reason
of a mistake of fact, or (b) a Company Contribution is conditioned on its
being deductible under Code Section 404, but the Internal Revenue Service
disallows such deduction, the Trustee shall, upon direction of the
Committee, return the amount of the excess Company Contributions to the
contributing Employer. All payments of returned Company Contributions under
this Section shall be made within one (1) year from the date of the payment
of such mistaken Company Contribution or the disallowance by the Internal
Revenue Service of the deduction, whichever is applicable. The amount of
the excess Company Contribution shall be the excess of (1) the amount
contributed over (2) the amount that would have been contributed had there
not occurred a mistake of fact or had the deduction not been disallowed.
Earnings attributable to the excess Company Contribution shall not be
returned to the contributing Employer, but losses attributable thereto
shall reduce the amount of such Company Contribution to be so returned.
Furthermore, if the withdrawal of the amount attributable to the mistaken
Company Contribution would cause the balance of a Participant's Account to
be reduced to an amount which is less than the balance which would have
been in said Account had the mistaken amount not been contributed, then the
amount to be returned to the Employer under this Section will be reduced so
as to avoid any such reduction."
IN WITNESS WHEREOF, this amendment is executed this 15th day of February,
1992.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
------------------------------
Title: President
---------------------------
- 6 -
<PAGE> 16
AMENDMENT NO. 1 TO THE
HEALTHCOR EMPLOYEE STOCK OWNERSHIP TRUST
Pursuant to the authority set forth in Article X of the HealthCor Employee
Stock Ownership Trust (the "Trust"), the Trust is hereby amended effective
April 1, 1990, in the following respect only:
Subsection 4.04(j) is hereby deleted in its entirety and the following new
Subsection 4.04(j) is substituted in lieu thereof:
"(j) To borrow money to finance the acquisition of Company Stock;
provided, however, if any loan is made or proposed to be made to the Trust
by a Disqualified Person (as defined in Code Section 4975(e)(2)) or any
other Party-in-Interest (as defined in Section 3(14) of ERISA) such loan
shall be limited to those loans authorized by Sections 4975(d)(3) and
4975(e)(7) of the Internal Revenue Code of 1986, as amended, and Section
408(b)(3) of ERISA (an "Exempt Loan"), and the proceeds thereof of any such
Exempt Loan may be used only in accordance with Treasury Reg. Section
54.4975(b)-7 and other applicable statutory or regulatory provisions. To
the extent the provisions set forth below are consistent with Treasury Reg.
Section 54.4975(b)-7 and such other applicable provisions, any Exempt Loan
may be obtained, and the proceeds thereof used, only in accordance with
such provisions:
(i) Primary Benefit Requirement. An Exempt Loan must be
primarily for the benefit of the Participants and their Beneficiaries.
(ii) Net Effect on Plan Assets. At the time that an Exempt
Loan is made, the interest rate for the Exempt Loan and the price of
securities to be acquired with the proceeds of the Exempt Loan should
not be such that the Trust Assets might be drained off, within the
meaning of Treasury Reg. Section 54.4975(b)-7(b)(4).
(iii) Arm's-Length Standard. The terms of an Exempt Loan,
whether or not between independent parties, must, at the time the loan
is made, be at least as favorable to the Trust as the terms of a
comparable loan resulting from arm's-length negotiations between
independent parties.
<PAGE> 17
(iv) Use of Loan Proceeds. The proceeds of an Exempt Loan
must be used within a reasonable time after their receipt by the Trust
only for any or all of the following purposes:
(a) To acquire Qualifying Employer Securities (as
defined in Treasury Regulation Section 54.4975-12).
(b) To repay such loan.
(c) To repay a prior Exempt Loan.
Except as expressly provided in the Plan or as otherwise required
by applicable law, no security acquired with the proceeds of an Exempt
Loan may be subject to a put, call or other option, or buy-sell or
similar arrangement while held by and when distributed from the Plan,
whether or not the Plan is then an ESOP as defined in Treasury Reg.
Section 54.4975-7(b)(1)(i).
(v) Liability and collateral of Trust for Loan. An Exempt
Loan must be without recourse against the Trust. Furthermore, the only
assets of the Trust that may be given as collateral on an Exempt Loan
are Qualifying Employer Securities (as defined in Treasury Reg.
Section 54.4975-12) of two classes: those acquired with the proceeds
of the loan and those that were used as collateral on a prior Exempt
Loan repaid with the proceeds of the current Exempt Loan. No person
entitled to payment under the Exempt Loan shall have any right to
assets of the Trust other than:
(a) Collateral given for the loan,
(b) Contributions (other than contributions of
Company Stock) that are made under the Trust to meet its obligations
under the loan, and
(c) Earnings attributable to such collateral and the
investment of such contributions.
The payments made with respect to an Exempt Loan by the Trust
during a Plan Year must not exceed an amount equal to the sum of such
contributions and earnings received during or prior to the Plan Year
(as defined in Section 2.25 of the Plan) less such payments in prior
years. Such contributions and earnings must be accounted for
separately in the
- 2 -
<PAGE> 18
books of account of the Trust until the loan is repaid.
(vi) Default. In the event of default upon an Exempt Loan,
the value of Trust assets transferred in satisfaction of the loan must
not exceed the amount of payments in default. If the lender is a
Disqualified Person, a loan must provide for a transfer of Trust
assets upon default only upon and to the extent of the failure of the
Trust to meet the payment schedule of the loan. For purposes of this
subparagraph (vi), the making of a guarantee does not make a person a
lender.
(vii) Reasonable Rate of Interest. The interest rate of an
Exempt Loan must not be in excess of a reasonable rate of interest.
All relevant factors will be considered in determining a reasonable
rate of interest, including the amount and duration of the loan, the
security and guarantee (if any) involved, the credit standing of the
Trust and the guarantor (if any), and the interest rate prevailing for
comparable loans. When these factors are considered, a variable
interest rate may be reasonable.
(viii) Release from Encumbrance.
(a) General Rule. In general, an Exempt Loan must
provide for the release from encumbrance under this subparagraph
(viii)(a) of Trust assets used as collateral for the loan. For each
Plan Year during the term of the loan, the number of shares or units
of encumbered securities released must equal or exceed the number of
shares or units of encumbered securities held immediately before
release for the current Plan Year, multiplied by the fraction
described below. The numerator of the fraction is the amount of
principal and interest paid on such loan during the Plan Year. The
denominator of the fraction is the sum of the numerator plus the
principal and interest to be paid for all future years, assuming all
payments are made on schedule. The number of future years under the
loan must be definitely ascertainable and must be determined without
taking into account any possible extensions or renewal periods. If the
interest rate under the loan is variable, the interest to be paid in
future years must be computed by using the interest rate applicable as
of the end of the Plan Year. If collateral includes more than one
class of
- 3 -
<PAGE> 19
securities, the number of securities of each class to be released for
a Plan Year must be determined by applying the same fraction to each
class.
(b) Special Rule. An Exempt Loan will not fail to be
exempt merely because the number of shares or units of securities to
be released from encumbrance is determined solely with reference to
principal payments. However, if release is determined with reference
to principal payments only, the following three additional rules
apply. The first rule is that the loan must provide for annual
payments of principal and interest at a cumulative rate that is not
less rapid at any time than level annual payments of such amounts for
ten (10) years. The second rule is that interest included in any
payment is disregarded only to the extent that it would be determined
to be interest under standard loan amortization tables. The third rule
is that this subparagraph (viii) (b) is not applicable from the time
that, by reason of a renewal, extension or refinancing, the sum of the
expired duration of the Exempt Loan, the renewal period, the extension
period and the duration of a new Exempt Loan exceeds ten (10) years.
(ix) Other Terms of Exempt Loan. An Exempt Loan must be for a
specific term. Such loan may not be payable at the demand of any
person, except in the case of default.
(x) Suspense Account. All assets acquired by the Trust with
the proceeds of an Exempt Loan must be added to and maintained in a
Suspense Account, as defined in Section 2.33 of the Plan. They are to
be withdrawn from the Suspense Account by applying subparagraph (viii)
above as if all securities in the Suspense Account were encumbered.
(xi) Income. Income with respect to securities acquired with
the proceeds of an Exempt Loan must be allocated as income of the
Trust except that income from such securities if not allocated may be
used to repay the Exempt Loan.
(xii) Exempt Loan Proceeds. If securities acquired with the
proceeds of an Exempt Loan available for distribution consist of more
than one class, a distributee must receive substantially the same
proportion of each such class.
- 4 -
<PAGE> 20
(xiii) Nonterminable Provisions. Even if the Plan ceases to be
an "employee stock ownership plan" for purposes of federal tax law,
Qualifying Employer securities acquired with the proceeds of an Exempt
Loan will continue (after repayment of such loan) to be subject to
Treasury Reg. Sections 54.4975-7(b)(4), (10), (11) and (12), relating
to put, call or other options and to buy-sell or other arrangements."
IN WITNESS WHEREOF, this amendment is executed 15th day of February, 1992.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
---------------------------------
Title: President
------------------------------
- 5 -
<PAGE> 21
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of April 1, 1990
<PAGE> 22
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
<TABLE>
<S> <C>
ARTICLE I -- PURPOSE AND ESTABLISHMENT OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Establishment of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III -- REQUIREMENTS FOR ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.01 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.02 Employment with a Predecessor Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.03 Eligibility Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.04 Breaks in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.05 Change in Status of Eligible Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.06 Participation in the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IV -- CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.01 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.02 Participant Contributions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.03 Rollover and Transfer Contributions Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.04 In-Service Withdrawals Prohibited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE V -- ALLOCATION TO PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.01 Method of Allocating Company Contributions and Forfeitures. . . . . . . . . . . . . . . . . . . . . . . 20
5.02 Release of Shares from Suspense Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.03 Limitation on Annual Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.04 Limitations on Annual Additions for Employers or Affiliated Companies
Maintaining Other Defined Contribution Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.05 Limitations on Annual Additions for Employers or Affiliated Companies
Maintaining Defined Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.06 Definitions for Purposes of Determining the Annual Addition Limitations . . . . . . . . . . . . . . . . 25
5.07 Cessation of Eligible Employee Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI -- ACCOUNTS AND VALUATION OF TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.01 Participant's Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.02 Accounts of Participants Transferred to an Affiliated Company Which Has
Not Adopted the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
<PAGE> 23
<TABLE>
<S> <C<C>
6.03 Accounting for Trust Fund Income or Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.04 Valuation of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.05 Annual Statement of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.06 Voting of Company Stock; Tender Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.07 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.08 Correction of Participants' Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.09 Emergency Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII -- RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII -- DISABILITY BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.01 Disability Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.02 Determination of Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE IX -- DEATH BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.01 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9.02 Designation of Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X -- EMPLOYMENT TERMINATION BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.01 Vesting upon Termination of Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.02 Determination of Vesting Years of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.03 Breaks in Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.04 Forfeiture of Nonvested Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE XI -- PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.01 Time and Method for Distribution of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.02 Limitations on Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.03 Payments on Personal Receipt Except in Case of Legal Disability . . . . . . . . . . . . . . . . . . . . 44
11.04 Benefits Payable Pursuant to a Qualified Domestic Relations Order.. . . . . . . . . . . . . . . . . . . 44
11.05 Distribution Following Diversification Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.06 Right to Require Repurchase of Shares of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.07 Further Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.08 Restrictions on Transfer of Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.09 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.10 Execution of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE XII -- MISCELLANEOUS PROVISIONS RESPECTING PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.01 Participants to Furnish Required Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
<PAGE> 24
<TABLE>
<S> <C<C>
12.02 Participants' Rights in Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.03 Inalienability of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.04 Conditions of Employment Not Affected by Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.05 Address for Mailing of Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.06 Unclaimed Account Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XIII -- ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.01 Appointment of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.02 Compensated Expenses of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.03 Secretary and Agents of the Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.04 Actions of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
13.05 Authority of Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
13.06 General Administrative Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.07 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.08 Duties of Administrative Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
13.09 Designation of Named Fiduciaries and Allocation of Responsibility . . . . . . . . . . . . . . . . . . . 59
13.10 Action by Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.11 Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.12 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
13.13 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE XIV -- PARTICIPATION BY EMPLOYERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.01 Adoption of Plan by Affiliated Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
14.02 Rights and Obligations of the Sponsoring Company and the Employers . . . . . . . . . . . . . . . . . . . 62
14.03 Withdrawal from Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE XV -- AMENDMENT OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE XVI -- PERMANENCY OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
16.01 Right to Terminate Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
16.02 Merger or Consolidation of Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
16.03 Continuance by Successor Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
ARTICLE XVII -- TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
17.01 Termination of Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
17.02 Participant's Rights to Benefits upon Termination or Partial
Termination of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XVIII -- EXCLUSIVE BENEFIT OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
18.01 Limitation on Reversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
18.02 Unallocated Amounts upon Termination of Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
18.03 Mistake of Fact or Disallowance of Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
18.04 Failure of Qualification of Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE XIX -- TOP HEAVY PLAN RULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
19.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
19.02 Determination of Top Heaviness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
19.03 Minimum Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
19.04 Minimum Benefits for Employers or Affiliated Companies Maintaining
Defined Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
19.05 Super Top Heavy Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE XX -- MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
20.01 Effect of Bankruptcy and Other Contingencies Affecting an Employer . . . . . . . . . . . . . . . . . . . 78
20.02 Benefits Payable by Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
20.03 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
20.04 Interpretation of the Plan and Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
20.05 Provisions Hereof for Sole Benefit of Parties Hereto and Participants . . . . . . . . . . . . . . . . . 78
20.06 Article and Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
20.07 Formal Action by Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
20.08 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
</TABLE>
<PAGE> 26
HEALTHCOR EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE I
PURPOSE AND ESTABLISHMENT OF THE PLAN
1.01 Establishment of the Plan: HealthCor Holding, Inc. (the
"Sponsoring Company") desires to adopt and establish an employee; stock
ownership plan for the exclusive benefit of its Eligible Employees and their
Beneficiaries. Effective as of April 1, 1990, the Sponsoring Company has by
execution of this document, created a plan which shall be known as the
"HealthCor Employee Stock Ownership Plan" (the "Plan"). The Plan is a stock
bonus plan intended to qualify under Section 401 of the Code and also
constitutes an employee stock ownership plan within the meaning of Section
4975(e)(7) of the Code.
1.02 Purpose. The purpose of the Plan is to reward Eligible Employees
of the Employers for their loyal and faithful service by providing them with an
opportunity to become stockholders of the Sponsoring Company. The Plan is
designed to invest primarily in Company Stock. The benefits provided by the
Plan will be paid from the Trust and will be in addition to the benefits
Eligible Employees are entitled to receive under any other programs of the
Employers and from the federal Social Security Act.
1.03 Trust Agreement. In furtherance of this Plan, the Employers have
entered into the Trust Agreement effective as of April 1, 1990, which is made a
part hereof, for the purpose of maintaining the Trust to fund the benefits of
this Plan as hereinafter set forth. The Trust is intended to be exempt from tax
under Code Section 501(a) and all provisions hereof shall be interpreted
accordingly.
<PAGE> 27
ARTICLE II
DEFINITIONS
As used in the Plan:
2.01 "Account" or "Accounts" shall mean all or any of the Company
Contribution Account, the QDRO Account, and any other account maintained by the
Committee under Article IV or any other Section of the Plan to record a
Participant's interest (or the undistributed interest of a Beneficiary or
Alternate Payee) in the Trust Fund to the extent any one or more of such
accounts have been created for a Participant, Beneficiary or Alternate Payee.
All references to the Account of any Participant shall include any subaccount
established pursuant to Section 5.01.
2.02 "Affiliated Company" shall mean any of the following which itself
is not an Employer: (i) a member of a controlled group of corporations of which
an Employer is a member as defined in Code Section 414(b), (ii) any trade or
business (whether or not incorporated) which is under common control with an
Employer as determined in accordance with Code Section 414(c) and regulations
issued thereunder, (iii) a member of an "affiliated service group" (whether or
not incorporated) as determined in accordance with Code Section 414(m) and
regulations issued thereunder, of which an Employer is a member, or (iv) any
other entity which is required to be aggregated with an Employer in accordance
with Code Section 414(o) and the regulations issued thereunder. "Affiliated
Company" as defined in clauses (i) and (ii) shall be modified as required by
Code Section 415(h) when used in Sections 5.03, 5.04 and 5.05 hereof with
respect to limitations on Annual Additions.
2.03 "Alternate Payee" shall mean an individual or trust entitled to
benefits under the Plan pursuant to a Qualified Domestic Relations Order.
2.04 "Beneficiary" shall mean any person or entity entitled to receive
benefits which are payable upon or after a Participant's death.
2.05 "Board" shall mean the Board of Directors of the Sponsoring
Company, as from time to time constituted, or such other person or group of
persons referred to in Section 20.07 hereof in case of a Sponsoring Company
which is not a corporation.
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<PAGE> 28
2.06 "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time. References to any section of the Internal Revenue Code shall
include any successor provision thereto.
2.07 "Committee" shall mean the Committee provided for in Section 13.01
hereof.
2.08 "Company Contribution Account" shall mean the separate account
maintained for each Participant reflecting Company Contributions and
Forfeitures, if any, allocated to such Participant, as adjusted in accordance
with the provisions of Article VI hereof.
2.09 "Company Stock" shall mean the voting common or preferred stock of
the Sponsoring Company or of any corporation which is a member of the same
controlled group as the Sponsoring Company. Except as provided in Sections
11.01 and 11.05, all references to "shares of Company Stock" shall include
fractional shares of Company Stock.
2.10 "Compensation" shall mean, subject to the provisions of Subsection
19.03(l) hereof, a Participant's total compensation for services rendered to an
Employer during a Plan Year, as reported on Form W-2 or other federal wage
statement as taxable for federal income tax purposes but determined without
regard to any rules that limit the amount taken into account based on the
nature or location of the employment or the services. Compensation for any
Self-Employed Individual shall be equal to his Earned Income during a Plan
Year.
Notwithstanding the foregoing, Compensation shall include the amount of a
Participant's elective salary deferral under an Employer's cafeteria plan
established pursuant to Code Section 125 or any other Employer plan established
pursuant to Code Section 401(k).
Effective for Plan Years beginning after December 31, 1988, Compensation
shall not include any Compensation in excess of Two Hundred Thousand Dollars
($200,000) or such larger amount as results from the adjustment provided for in
Code Section 401(a)(17). In applying this limitation, the family group of a
Highly Compensated Employee who is subject to the family member aggregation
rules of Code Section 414(q)(6) because such Employee is either a five percent
owner of the Employer or one of the ten (10) Highly Compensated Employees paid
the greatest Limitation Year Compensation during the year, shall be treated as
a single Participant, except that for this purpose, Family Members shall
include only the affected Participant's spouse and any lineal descendants who
have not
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<PAGE> 29
attained age nineteen (19) before the close of the year. In the event the
Highly Compensated Participant's and one or more Family Member's Compensation
for a Plan Year from an Employer are limited pursuant to the provisions of this
Section, then the Compensation of each such person for such Plan Year shall be
reduced proportionately based on the ratio of their respective Compensation to
the aggregate Compensation of both (or all) of such persons for such Plan Year.
2.11 "Date of Employment" or "Date of Reemployment" shall mean the day
on which an Employee first commences employment or reemployment following
Termination of Employment, retirement after attaining his Retirement Date or
recovery from Total and Permanent Disability, as the case may be, with an
Employer, an Affiliated Company, or a Company of which the Employer has
acquired a substantial part of its assets or business, or both, by performing
an Hour of Service. All references to Date of Employment or Date of
Reemployment shall include periods of self-employment for a Self-Employed
Individual.
2.12 "Earned Income" shall mean with respect to a Self-Employed
Individual, the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which the personal services
of the individual are a material income-producing factor. Net earnings will be
determined without regard to items not included in gross income and the
deductions allocable to such items as provided for in Code Section
401(c)(2)(A). Net earnings are reduced by contributions by the Employer to a
qualified plan to the extent deductible under Code Section 404. Additionally,
for taxable years beginning after December 31, 1989, net earnings shall be
determined with regard to the deduction allowed to the Employer by Code Section
164(f).
2.13 "Effective Date" shall mean April 1, 1990.
2.14 "Eligible Employee" shall mean any Employee except the following
individuals: (i) any Employee who is included in a unit of employees covered by
an agreement that the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives (within the meaning of Code Section
7701(a)(46)) and one (1) or more Employers if retirement benefits were the
subject of good faith bargaining between such parties, unless the collective
bargaining agreement expressly provided for the inclusion of such employees as
Eligible Employees under this Plan, (ii) a nonresident alien who receives no
earned income within the meaning of Code Section 911(b), and (iii) any person
who is a "leased employee" within the meaning of Code Sections 414(n)(2) or
414(o)(2).
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<PAGE> 30
2.15 "Employee" shall mean any person who is employed by one or more
Employers, is on an Employer's payroll, and whose wages are subject to FICA
withholding.
2.16 "Employer" shall mean the Sponsoring Company or any Affiliated
Company which adopts the Plan pursuant to Article XIV hereof.
2.17 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. References to any Section of ERISA shall
include any successor provision thereto.
2.18 "Fiscal Year" shall mean the fiscal year of an Employer. The
Fiscal Year of the Sponsoring Company ends on March 31.
2.19 "Highly Compensated Employee" shall mean any employee of an
Employer or Affiliated Company who is a highly compensated employee as defined
in Code Section 414(q) and the regulations thereunder. Generally, any such
employee is considered a Highly Compensated Employee if such employee:
(i) was at any time during the current Plan Year or the prior
Plan Year, a "five percent owner", as defined in Code Section 416(i)(1), with
respect to an Employer;
(ii) received Limitation Year Compensation from the Employer in
excess of Seventy-five Thousand Dollars ($75,000) as adjusted by the Secretary
of Treasury pursuant to Code Section 414(q)(1) during the prior Plan Year or,
during the current Plan Year if the employee is one of the one hundred (100)
employees who receive the most Limitation Year Compensation from the Employer
during the current Plan Year;
(iii) received Limitation Year Compensation from the Employer in
excess of Fifty Thousand Dollars ($50,000) as adjusted by the Secretary of
Treasury pursuant to Code Section 414(q)(1), and was in the top-paid group of
employees during the prior Plan Year, or during the current Plan Year if the
employee is one of the one hundred (100) employees who receive the most
Limitation Year Compensation from the Employer during the current Plan Year. An
employee is in the top-paid group of employees for any Plan Year if such
employee is in the group consisting of the top twenty percent (20%) of the
employees when ranked on the basis of Limitation Year Compensation paid during
the Plan Year. For purposes of determining the number of employees in the
top-paid group, there shall not be included employees who have not completed
six (6) months of service, normally work less than seventeen and one-half
(17-1/2) hours
- 5 -
<PAGE> 31
per week, normally work during six (6) or less months per year, have not
attained the age of twenty-one (21), are nonresident aliens with no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income (within the meaning of Code Section
861(a)(3)), or are included in a unit of employees covered by a collective
bargaining agreement (except to the extent provided in regulations);
(iv) was at any time during the prior Plan Year, or during the
current Plan Year if the employee is one of the one hundred (100) employees who
receive the most Limitation Year Compensation from the Employer during the
current Plan Year, an officer of an Employer who received Limitation Year
Compensation for a Plan Year in excess of one hundred fifty percent (150%) of
the amount in effect under Code Section 415(c)(1)(A) for such Plan Year (if no
officer of an Employer has Limitation Year Compensation in excess of such
amount, the officer having the highest Limitation Year Compensation for such
Plan Year shall be treated as an officer). For purposes of this Subsection, not
more than fifty (50) employees (or, if less, the greater of three (3)
For purposes of this Section, "Limitation Year Compensation" shall
have the same meaning as set forth in Subsection 5.02(7) hereof, subject to the
following: (i) the determination of "Limitation Year Compensation" shall
include amounts deferred pursuant to Code Sections 125, 401(k), 408(k)(6) and
403(b), and (ii) Limitation Year Compensation shall include compensation paid
by any employer required to be aggregated with an Employer under Code Section
414(b), (c), (m) or (o).
A Former Employee who is an Employee Participant shall be treated as a
Highly Compensated Employee if such Former Employee was a Highly Compensated
Employee when he separated from service with the Employer or was a Highly
Compensated Employee at any time after attaining age fifty-five (55). "Former
Employee" shall mean a person who has been an employee, but who ceased to be an
employee for any reason and later returned to employment with an Employer.
2.20 "Hour of Service" shall have the meaning respectively indicated
below:
2.20(1) Performance of Duties. Each hour for which an Employee is
directly or indirectly paid, or entitled to payment by an Employer or an
Affiliated Company for the performance of duties shall be an Hour of Service.
Each such Hour of Service shall be credited to the Employment Period (as
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<PAGE> 32
defined in Section 3.03 hereof) or the Plan Year, as the case may be, in which
the duties were performed. For purposes of this Section 2.20, the applicable
Employment Period or Plan Year, as the case may be, as the context requires,
shall be referred to as the "Computation Period."
2.20(2) Back Pay. Each hour for which back pay (irrespective of
mitigation of damages) has been either awarded or agreed to by an Employer or
an Affiliated Company shall be an Hour of Service. Each such Hour of Service
shall be credited to the Computation Period to which the agreement or award for
back pay pertains, rather than to the Computation Period in which the award,
agreement or payment is made. If back pay is either awarded or agreed to for a
period of time during which no duties are performed, the provisions of
Subsections 2.20(3) (a) through (c) hereof shall apply to the calculation and
crediting of Hours of Service for such period of time.
2.20(3) Non-Working Time. Each hour for which an Employee is
directly or indirectly paid, or entitled to payment, by an Employer or an
Affiliated Company for reasons other than the performance of duties
(irrespective of whether the employment relationship with such Employer or
Affiliated Company has terminated) (such as vacations, holidays, illness,
incapacity, disability, layoff, jury duty, military duty, Compensated Leave of
Absence or similar periods) shall be an Hour of Service. Each such Hour of
Service shall be calculated and credited on the following basis:
(a) Units of Time. If payments for reasons other than the
performance of duties are calculated on the basis of units of time, such as
hours, days, weeks or months, the number of Hours of Service to be credited
shall be the number of regularly scheduled working hours included in the units
of time on the basis of which the payments are calculated. In the case of an
Employee without a regular work schedule, such Employee shall be credited with
Hours of Service on the basis of the equivalency schedule set forth in
Subsection 2.20(7) below. Each such Hour of Service shall be credited to the
Computation Period in which the period during which no duties are performed
occurs, beginning with the first unit of time to which the payment relates.
(b) No Units of Time. If payments for reasons other than
the performance of duties are not calculated on the basis of units of time
(such as lump sum disability payments for an injury), the number of Hours of
Service to be credited shall be equal to the amount of the payment divided by
the Employee's most recent hourly rate of compensation before the period during
which no duties are performed.
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<PAGE> 33
(1) In the case of an Employee whose compensation is
determined on the basis of a fixed rate for specified periods of time (other
than hours), such as days, weeks or months, such Employee's hourly rate of
compensation shall be such Employee's most recent rate of compensation for a
specified period of time (other than hours), divided by the number of hours
regularly scheduled for the performance of duties during such period. In the
case of an Employee without a regular work schedule, such Employee's rate of
compensation shall be calculated on the basis of the schedule of equivalent
hours set forth in Subsection 2.20(7) below.
(2) In the case of an Employee whose compensation is
not determined on the basis of an hourly rate or on the basis of a fixed rate
for specified periods of time, such Employee's hourly rate of compensation
shall be the lowest hourly wage paid to employees in the same job
classification as that of such Employee or, if no employees in the same
classification have an hourly rate of compensation, the minimum wage as
established from time to time under Section 6(a)(1) of the Fair Labor Standards
Act of 1938, as amended.
(3) Each such Hour of Service shall be credited to
the Computation Period in which the period during which no duties are performed
occurs, except that if such period extends beyond one of such Computation
Periods, such Hours of Service shall be allocated by the Committee, in its sole
discretion, between not more than the first two of such Computation Periods on
a reasonable basis which is consistently applied with respect to all Employees
within the same job classification, reasonably defined.
(c) Exclusions. Notwithstanding the foregoing:
(1) An Employee shall not be credited on account of a
period during which no duties are performed with a number of Hours of Service
which is greater than the number of hours regularly scheduled for the
performance of duties during such period.
(2) In no event shall the number of Hours of Service
attributable to a single continuous period (whether or not such period involves
more than one Computation Period) for which no duties are performed exceed five
hundred one (501) Hours of Service.
(3) Hours of Service shall not be credited to a
period for which payments are made to an Employee where those payments solely
reimburse such Employee for medical or medically related expenses incurred by
such Employee.
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<PAGE> 34
(4) Hours of Service shall not be credited for a
period to which payments pertain if such payments are made or due under a plan
maintained solely for the purpose of complying with applicable worker's
compensation, unemployment compensation or disability insurance laws.
2.20(4) No Duplication of Credit. An Employee shall not be
credited with the same Hours of Service under both (i) Subsection 2.20(l) or
2.20(3), as the case may be, and (ii) Subsection 2.20(2).
2.20(5) Overlapping Payroll Period. In the case of Hours of
Service to be credited to an Employee for a period of no more than thirty-one
(31) days which overlaps two (2) Computation Periods, all such Hours of Service
shall be credited to either the first or the second of such Computation Periods
as the Committee, in its sole discretion, may determine on a consistent basis
with respect to all Employees within the same job classification, reasonably
defined.
2.20(6) Uncompensated Leaves of Absence. Solely for purposes of
determining whether an Employee has a One-Year Break in Service, Hour of
Service shall include each hour (credited on the basis of the schedule of
equivalent hours set forth in Subsection 2.20(7) below if any, or if not, on
the basis of eight (8) Hours of Service for each workday of such Leave of
Absence) for which an Employee is not paid but is on a Leave of Absence.
2.20(7) Determination of Hours of Service to be Credited to
Employees. The determination of the Hours of Service which must be credited to
an Employee in accordance with the provisions of this Section 2.20 shall be
based upon an equivalency schedule of forty-five (45) Hours of Service per week
in which an hourly-paid employee would be credited with an Hour of Service
under this Section 2.20, if compensated on a weekly basis and credited with one
(1) Hour of Service in the week.
2.21 "Leave of Absence" shall mean an absence from the active
employment of an Employer by reason of an approved absence granted by such
Employer on the basis of a uniform policy applied by such Employer without
discrimination. Such a Leave of Absence will not constitute a Termination of
Employment provided the Employee returns to the active employment of the
Employer at or prior to the expiration of his leave, or if not specified
therein, within the period of time which accords with such Employer's policy
with respect to permitted absences. If the Employee does not return to the
active employment of such Employer at or prior to the
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<PAGE> 35
expiration of his Leave of Absence, his employment will be considered
terminated as of the date on which his leave began. Notwithstanding the
foregoing provisions of this Section, absence from the active service of the
Employer because of military service will be considered a Leave of Absence
granted by an Employer and will not terminate the employment of an Employee if
he returns to the active employment of an Employer within the period of time
during which he has reemployment rights under any applicable federal law or
within sixty (60) days from and after discharge or separation from such
military service if no federal law is applicable. However, no provision of this
Section or of the remainder of the Plan shall require reemployment of any
Employee whose active service with an Employer was terminated by reason of
military service.
2.22 "One-Year Break in Service" shall mean a Plan Year during
which an Employee has five hundred (500) or fewer Hours of Service.
Notwithstanding any other provision of this Section 2.22 to
the contrary, solely for purposes of determining whether an Employee has a
One-Year Break in Service, Hours of Service shall include hours during which
an Employee is first absent from work for any period solely for one of the
following reasons: (i) by reason of (a) the Employee's pregnancy, (b) the birth
of the Employee's child, (c) the placement of a child with the Employee in
connection with the adoption of such child by the Employee, or (ii) for the
purpose of caring for such child for a period beginning immediately following
such birth or placement. Hours of Service shall be credited for purposes of
this Subsection to the Plan Year in which such absence from work begins,
provided crediting of such Hours of Service in such Plan Year would prevent the
Participant from incurring a One-Year Break in Service in such Plan Year solely
because of the crediting of hours in such Plan Year. In any other case, Hours
of Service shall be credited for purposes of this Subsection to the immediately
following Plan Year. The Hours of Service credited for purposes of this
Subsection shall be those hours which otherwise normally would have been
credited but for such absence, or, in any case in which the Committee is unable
to determine the hours normally credited, Hours of Service shall be calculated
on the basis of the schedule of equivalent hours set forth in Subsection
2.20(7), if any, or if not on the basis of eight (8) Hours of Service for each
workday of such absence. The total number of Hours of Service required to be
credited for any absence described in this Subsection shall not exceed five
hundred one (501). Notwithstanding the foregoing provisions of this Section, no
Hours of Service credit shall be given pursuant to this Subsection unless the
Employee furnishes the Committee with such information as the
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<PAGE> 36
Committee shall require to establish: (i) that the absence from work was solely
for the reasons referred to herein, and (ii) the number of days for which there
was such an absence.
2.23 "Participant" shall mean an Eligible Employee who participates
in the Plan as provided in Article III hereof or a former Employee who has a
vested interest in the Plan.
2.24 "Plan" shall mean the HealthCor Employee Stock Ownership Plan
as set forth in this document, and as hereafter amended.
2.25 "Plan Year" shall mean the twelve (12) consecutive month
period beginning April 1 and ending on March 31.
If any Plan Year consists of less than twelve (12) consecutive
months (hereinafter referred to as the "Short Plan Year"), the following rules
shall apply:
(1) Where Hours of Service are relevant to the allocation
of Company Contributions, a Participant receives credit for the requisite
number of hours required for purposes of receiving an allocation of Company
Contributions if the Participant receives credit for the Applicable Hours
during the Short Plan Year. For purposes of this paragraph, "Applicable Hours"
shall mean the product of (a) the requisite number of required hours times (b)
a fraction whose numerator is the number of complete months in the Short Plan
Year and whose denominator is 12.
(2) Where hours of service and years of service are
relevant for vesting purposes under this Plan, an Employee shall receive credit
for one (1) Vesting Year of Service for the Short Plan Year, if the Employee
completes 1,000 Hours of Service in the twelve (12) consecutive-month period
beginning on the first day of the Short Plan Year (the "Short Year Computation
Period") and shall receive credit for another Vesting Year of Service as
appropriate for the Plan Year in which such Short Year Computation Period ends
(the "Succeeding Computation Period") if the Employee completes 1,000 Hours of
Service in the Succeeding Computation Period. Hours of Service completed during
the period between the end of the Short Plan Year and the end of the Short Year
Computation Period shall be credited to both the Short Year Computation Period
and to the Succeeding Computation Period.
2.26. "Promissory Note" shall mean each purchase money obligation
executed by the Trustee for the purpose of acquiring shares of Company Stock
(i) from a "disqualified person" within the meaning of Code Section 4975 or a
"party in interest"
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<PAGE> 37
within the meaning of Section 3(14) of ERISA or (ii) from any other person if
the purchase money obligation payable to such other person is guaranteed by a
"disqualified person" or a "party in interest." Shares of Company Stock
acquired with each Promissory Note shall be held in separate Suspense Accounts.
The terms of each Promissory Note and any security agreements executed by the
Trustee in connection therewith shall be subject to the provisions set forth in
the Trust Agreement.
2.27 "QDRO Account" shall mean that part of any other Account which
has been isolated from such Account for the benefit of an Alternate Payee
pursuant to a Qualified Domestic Relations Order.
2.28 "Qualified Domestic Relations Order" shall mean a judgment,
order or decree which:
2.28(l) Relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child, or
other dependent of a Participant; and
2.28(2) Is made pursuant to a state domestic relations law
(including a community property law); and
2.28(3) Creates or recognizes the existence of an Alternate
Payee's right to, or assigns to an Alternate Payee the right to, receive all or
a portion of the benefits payable with respect to a Participant under the Plan;
and
2.28(4) Is determined by the Plan Administrator to meet all
applicable requirements pursuant to the procedure established by the Committee
for determining whether an order is a Qualified Domestic Relations Order
pursuant to Code Section 414(p).
2.29 "Required Beginning Date" shall mean, for Plan Years beginning
after December 31, 1988, April 1 of the calendar year following the calendar
year in which the Participant attains age seventy and one-half (70-1/2).
2.30 "Retirement Date" shall mean the first day of the month
coinciding with or next following the later of: (i) the date on which occurs
the sixty-fifth (65th) birthday of a Participant, and (ii) the fifth (5th)
anniversary of the date the Participant commenced participation in the Plan.
2.31 "Self-Employed Individual" means an individual who has Earned
Income for the taxable year from a trade or business which has established the
Plan, and, also, an individual who
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<PAGE> 38
would have had Earned Income but for the fact that the trade or business had no
net profits for the taxable year.
2.32 "Sponsoring Company" shall mean HealthCor Holdings, Inc.
2.33 "Suspense Account" means the record maintained by the
Committee pursuant to Section 5.02 of shares of Company Stock which have been
acquired by the Trustee with a Promissory Note and which have not been
allocated to the Accounts of Participants.
2.34 "Termination of Employment" shall mean the termination of
employment with all Employers and all Affiliated Companies, whether voluntarily
or involuntarily, other than by reason of a Participant's retirement after
attaining his Retirement Date or after sustaining Total and Permanent
Disability, or death. All references to Termination of Employment shall include
termination of self-employment for a Self-Employed Individual.
2.35 "Total and Permanent Disability" shall mean a physical or
mental condition of a Participant resulting from bodily injury, disease or
mental disorder which constitutes total and permanent disability under (i) the
long term disability plan maintained by the Employer or the Affiliated Company
which employs the Participant, and for which the Participant has submitted
evidence that he has actually been approved for long term disability benefits;
or (ii) in the absence of such a plan, the then existing rules and regulations
of the Social Security Administration.
2.36 "Trust" shall mean the legal entity resulting from the Trust
Agreement between the Sponsoring Company and the Trustee who receives the
contributions under the Plan, and holds, invests, and disburses funds to or for
the benefit of Participants and their Beneficiaries.
2.37 "Trust Agreement" shall mean the instrument establishing the
Trust, as amended from time to time.
2.38 "Trust Fund" shall mean all assets of whatsoever kind or
nature from time to time held by the Trustee pursuant to the Trust Agreement
without distinction as to income and principal.
2.39 "Trustee" shall mean the party or parties, individual or
corporate, named in the Trust Agreement and any duly appointed additional or
successor Trustee or Trustees acting thereunder.
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2.40 "Valuation Date" shall mean the last day of the Plan Year. In
the event of an emergency valuation pursuant to Section 6.07 hereof, the
Valuation Date shall be the date of the emergency valuation as determined by
the Committee.
2.41 "Valuation Period" shall mean the twelve (12) month period
ending on the last day of the Plan Year. In the event of an emergency valuation
pursuant to Section 6.09 hereof, the Valuation Period shall mean the period
from the last previous Valuation Date to the date of such emergency valuation
as determined by the Committee. The next Valuation Period following an
emergency valuation shall begin on the day following the day of the emergency
valuation and end on the next Valuation Date.
2.42 "Vesting Year of Service" shall mean a Plan Year, beginning
with the Plan Year in which the Employee commenced employment or reemployment
with an Employer or any Affiliated Company, during which a Participant has
completed one thousand (1,000) or more Hours of Service with an Employer or
Affiliated Company, subject to the provisions of Section 3.03 hereof.
2.43 Whenever a noun, or a pronoun in lieu thereof, is used in this
Plan in plural form and there be only one person, thing or institution within
the scope of the word so used, or in singular form and there be more than one
person, thing or institution within the scope of the word so used, such word,
or the pronoun used in lieu thereof, shall have a plural or singular meaning,
as the case may be. Pronouns of the masculine gender may mean the feminine and
vice versa.
2.44 The words "herein," "hereof," and "hereunder" shall refer to
the Plan.
2.45 The expressions listed below shall have the meanings stated in
the Sections or Subsections hereof respectively indicated:
"Annual Additions" Section 5.03
"Annual Statement" Section 6.05
"Company Contribution" Section 4.01
"Compensation" Section 2.10;
Subsection 19.03(l)
"Computation Period" Subsection 2.20(l)
"Defined Benefit Plan" Subsection 5.06(2);
Subsection 19.01(l)
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<PAGE> 40
"Defined Benefit Plan"
Fraction" Subsection 5.06(3)
"Defined Contribution Plan" Subsection 5.06(4);
Subsection 19.01(2)
"Defined Contribution
Plan Fraction" Subsection 5.06(5)
"Determination Date" Subsection 19.01(3)
"Effective Date" Section 2.13
"Eligibility Year of Service" Section 3.03
"Eligible Participant" Section 5.01
"Employment Period" Section 3.03
"Entry Date" Section 3.01
"Forfeiture" Subsection 10.04(5)
"Former Employee" Section 2.19
"Highly Compensated Employee" Section 2.19
"Indemnified Person" Section 13.12
"Key Employee" Subsection 19.01(4)
"Key Employee Participant" Subsection 19.01(5)
"Limitation Year" Subsection 5.06(6)
"Limitation Year Compensation" Section 2.19;
Subsection 5.06(7);
Subsection 19.01(6)
"Named Fiduciaries" Section 13.09
"Non-Key Employee" Subsection 19.01(7)
"Nonvested Amount" Subsection 10.04(2)
"Option Periods" Section 11.06
"Option Price" Section 11.06
"Participant Offier" Section 11.09
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<PAGE> 41
"Permissive Aggregation Group" Subsection 19.01(8)
"Plan Administrator" Section 13.07
"Put" Section 11.06
"Qualified Consent" Subsection 9.02(2)
"Qualified Plan" Section 4.03
"Required Aggregation Group" Subsection 19.01(9)
"Retirement Plan" Subsection 5.06(l)
"Super Top Heavy Plan" Subsection 19.02(2)
"Tender" Subsection 6.06(3)
"Third Party Offer" Section 11.09
"Top Heavy Plan" Subsection 19.02(l)
"Top Heavy Ratio" Subsection 19.02(3)
"Unclaimed Benefits Account" Subsection 12.06(2)
"Valuation Date" Section 2.40;
Subsection 19.01(10)
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ARTICLE III
REQUIREMENTS FOR ELIGIBILITY AND PARTICIPATION
3.01 Service. Each Employee who, as of the Effective Date, is an
Eligible Employee and who has received Compensation during the twelve (12)
month period ending March 31, 1991 (increased pro rata for employment of less
than one year) of at least $2,500, shall become a Participant in the Plan as of
the later of the Date of Employment or April 1, 1990, regardless of such
Employee's Hours of Service.
Each other Eligible Employee, and each Eligible Employee employed on
or after the Effective Date, shall become a Participant as of the April 1 or,
if later, the Employee's Date of Employment (the "Entry Date") immediately
preceding the date upon which such Eligible Employee completes either an
Eligibility Year of Service or completes 1000 Hours of Service during a Plan
Year. In the event an Eligible Employee suffers a Termination of Employment or
transfers to an Affiliated Company after completing an Eligibility Year of
Service but prior to the Entry Date upon which such Eligible Employee would
have participated in the Plan, and such Eligible Employee is reemployed by or
transfers back to an Employer after the Entry Date upon which the Eligible
Employee would have participated in the Plan but prior to a One-Year Break in
Service, such Eligible Employee shall participate in the Plan as of his Date of
Reemployment or date he transfers back to an Employer, as applicable.
3.02 Employment with a Predecessor Employer. If the Plan had
previously been maintained by a predecessor of an Employer, whether a
corporation, partnership, sole proprietorship or other business entity, any
period of employment with such predecessor shall be treated as a period of
employment with an Employer. If the Plan had not been previously maintained by
a predecessor of an Employer, employment with such predecessor shall not be
taken into account, except to the extent required pursuant to regulations
prescribed by the Secretary of the Treasury or his delegate.
3.03 Eligibility Year of Service. An "Eligibility Year of Service"
shall mean the Employment Period during which such Employee performs one
thousand (1,000) or more Hours of Service subject to the provisions of Section
3.02 hereof. For purposes of determining an Employee's Eligibility Year of
Service, the "Employment Period" to be used shall be the initial twelve (12)
consecutive month period beginning on an Employee's Date of Employment and
thereafter the Plan Year within which occurs the Employee's Date of Employment.
Any Employee who is credited
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with one thousand (1,000) or more Hours of Service with an Employer or any
Affiliated Company in both the initial twelve (12) month period beginning on
such Employee's Date of Employment and the Plan Year within which such initial
twelve (12) month period ends, shall be credited with two (2) Eligibility Years
of Service at the end of such Plan Year.
3.04 Breaks in Service. In the event that a Participant who has
suffered a Termination of Employment and has a period of One-Year Breaks in
Service is subsequently reemployed by an Employer, for purposes of determining
his eligibility to participate in the Plan after his reemployment, he shall
resume participation in the Plan effective as of his Date of Reemployment.
3.05 Change in Status of Eligible Employee.
3.05(1) In the event an Employee, including an Employee who
previously was not defined as an Eligible Employee under Section 2.14 hereof,
becomes defined as an Eligible Employee, such individual shall become a
Participant in the Plan as of the date he becomes defined as an Eligible
Employee, provided he has met the other requirements for eligibility set forth
in Section 3.01 hereof and previously would have begun to participate in the
Plan had he been defined as an Eligible Employee.
3.05(2) In the event a Participant who ceased to be defined
as an Eligible Employee under Section 2.14 hereof but who did not incur a
Termination of Employment with an Employer subsequently becomes defined as an
Eligible Employee again, such Eligible Employee shall recommence participation
in the Plan for all purposes without regard to the limitations imposed by
Section 5.07 hereof, as of the date he again becomes defined as an Eligible
Employee.
3.06 Participation in the Plan. Each Eligible Employee shall be
provided with such information as is required by ERISA within the time
prescribed for providing such information. In addition, each Participant shall
be provided with a designation of Beneficiary form which shall provide for a
designation of one or more Beneficiaries to receive benefits in the event of
the Participant's death.
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ARTICLE IV
CONTRIBUTIONS
4.01 Employer Contributions
4.01(1) Each Employer shall pay to the Trustee as a
contribution (the "Company Contribution") for a Plan Year such an amount, if
any, as shall be determined by the Board of Directors of such Employer. No
Employer shall be required to make a contribution for any Plan Year, and each
Employer's Board of Directors shall have the sole discretion to determine
whether any such contribution shall be made for a Plan Year; provided, however,
that subject to the limitations contained in Section 404(a) of the Code
including the carryover provisions, each Employer shall make a contribution for
each Plan Year in which a Promissory Note is outstanding in an amount which
shall not be less than the amount required to be paid under each Promissory
Note for such Plan Year and a contribution which may be necessary to make cash
distributions to Participants for any fractional shares pursuant to the
provisions of Section 11.01. Employer's Company Contributions may be made in
cash or in shares of Company Stock or in a combination of cash and shares of
Company Stock.
4.01(2) A contribution made by an Employer may be paid to the
Trustee on or before the date prescribed by the Code for filing the Employer's
federal income tax return for such taxable year (or such later date as may be
the extended filing date for such taxable year).
4.02 Participant Contributions Prohibited
A Participant may not make contributions to the Plan.
4.03 Rollover and Transfer Contributions Prohibited
The Trustee is not authorized to accept, from a Participant,
any part of the cash and other property (including the sales proceeds of such
property) distributed for the benefit of the Participant from another employee
benefit plan that is qualified under Section 401(a) of the Code (a "Qualified
Plan") or from an individual retirement account or annuity, as defined in
Section 7701(a)(37) of the Code. The Trustee is not authorized to accept a
direct transfer of assets to the Plan on behalf of a Participant from another
Qualified Plan.
4.04 In-Service Withdrawals Prohibited
In no event will a Participant be entitled to withdraw all or
any part of his Accounts.
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ARTICLE V
ALLOCATION TO PARTICIPANTS' ACCOUNTS
5.01 Method of Allocating Company Contributions and Forfeitures.
5.01(1) Allocations in General. Subject to Sections 5.03,
5.04, 5.05 and Subsection 19.03(3) hereof, the total Company Contributions for
each Plan Year shall be allocated among all Participants (the "Eligible
Participants") who have either: (i) completed one thousand (1,000) or more
Hours of Service with one or more Employers for such Plan Year and are employed
by an Employer on the last day of the Plan Year, or (ii) died, retired or
suffered Total and Permanent Disability during such Plan Year, regardless of
whether such Participants have completed one thousand (1,000) or more Hours of
Service for such Plan Year. Each Eligible Participant's allocable share of
Company Contributions shall be in the proportion that his Compensation for such
Plan Year bears to the total Compensation for all Eligible Participants for
such Plan Year.
The total of all Forfeitures under this Plan shall be applied
first to fund any restoration of Forfeitures pursuant to Section 10.05 hereof,
and thereafter shall be applied to reduce the amount of Company Contributions
under Section 4.01. Forfeitures shall be applied to reduce each Employer's
Company Contributions in the proportion that each Employer's Company
Contribution for such Plan Year bears to the total of all Company Contributions
for such Plan Year.
5.01(2) Allocation to a Participant Who Ceases to be an
Eligible Employee or Who is Transferred to an Affiliated Company Which Has Not
Adopted the Plan. If a Participant who is an Eligible Employee ceases to be an
Eligible Employee or is transferred from an Employer to an Affiliated Company,
he shall participate in the allocation of Company Contributions for the Plan
Year in which the cessation or transfer took place, provided the Employee
either (i) completes one thousand (1,000) Hours of Service with an Employer or
an Affiliated Company in such Plan Year and is employed by an Employer or an
Affiliated Company on the last day of the Plan Year or (ii) dies, retires, or
suffers Total and Permanent Disability during such Plan Year, regardless of
whether such Participant has completed one thousand (1,000) or more Hours of
Service for such Plan Year. Such allocation shall be made upon the basis of
such Participant's Compensation from the Employer up to the date of the
cessation of Eligible Employee status or transfer. In any subsequent Plan Year,
such Participant shall receive no further
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<PAGE> 46
allocations of any Company Contributions under the Plan unless and until he
subsequently becomes an Eligible Employee.
5.02 Release of Shares from Suspense Accounts
5.02(1) General. The Committee shall establish a separate
Suspense Account for shares of Company Stock acquired with each Promissory
Note. The earnings, including cash dividends paid on the shares of Company
Stock, if any, on allocated and unallocated shares of Company Stock acquired
with indebtedness represented by a Promissory Note shall be accounted for
separately from other assets of the Trust Fund and shall be used to pay
interest and/or principal on the Promissory Note until the Promissory Note has
been retired. For purposes of allocating to Participants' Accounts shares
released from a Suspense Account by reason of the payment of principal and/or
interest with earnings on such Company Stock, such earnings shall be deemed to
have been allocated first to Participants' Accounts pursuant to Section 6.03
and then charged to such Accounts in the manner provided in Section 5.02(2).
As of each Valuation Date there shall be released
from the applicable Suspense Account for allocation to Participants' Accounts
in the manner specified in Section 5.02(2) below a number of shares of Company
Stock equal to the number of shares of Company Stock in such Suspense Account
on such Valuation Date multiplied by a fraction, the numerator of which shall
be the amount of principal and interest payments under the terms of the
applicable Promissory Note made since the previous Valuation Date, and the
denominator of which shall be the sum of (1) the numerator and (2) the
remaining principal and interest to be paid under such Promissory Note for the
current Plan Year and all future Plan Years, without regard to any possible
extension or renewal periods of such Promissory Note. If the interest rate
under a Promissory Note is variable, the calculation of the remaining interest
to be paid in future Plan Years for the denominator of the fraction described
above shall be based on the interest rate in effect under such Promissory Note
on the Valuation Date with respect to which the fraction is applied. The
interest of each Participant in Company Stock released from a Suspense Account
shall be allocated to his Accounts in shares of such Company Stock.
5.02(2) Charges and Credits to Accounts. Each Participant's
Accounts shall be charged with the Participant's share of any cash or property
allocated to his Accounts which is used by the Trustee to purchase shares of
Company Stock free from encumbrance or to release shares of Company Stock from
the
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<PAGE> 47
Suspense Account in the manner described in Section 5.02(l) above, and the
shares of Company Stock so purchased or released shall be allocated to the
Participant's Accounts to the extent that such Accounts have been so charged.
In addition, if shares of Company Stock are acquired from a Participant's
Account to provide for a distribution pursuant to Section 11.01, such Account
shall be credited with the cash or property used to acquire such shares of
Company Stock. Further, each Participant's Account shall be credited with
stock dividends on Company Stock which are allocated to such Participant's
Accounts.
5.02(3) Prohibited Allocations. No portion of the assets of
the Plan attributable to Company Stock acquired by the Plan in a sale to which
Code Section 1042 applies may accrue to or be allocated, directly or
indirectly, under any plan of the Sponsoring Company (or any Affiliated
Company) meeting the requirements of Code Section 401(a), during the
"non-allocation period," for the benefit of: (i) any Participant who makes an
election under Code Section 1042(a) with respect to Company Stock; or (ii) any
individual who is related to such a Participant within the meaning of Code
Section 267(b); or (iii) for the benefit of any other person who owns (after
application of Code Section 318(a)) more than (x) 25% of any class of
outstanding stock of the corporation which issued the Company Stock or of any
corporation which is a member of the same controlled group of corporations
(within the meaning of Code Section 409(l)(4)) as such corporation, or (y) 25%
of the total value of outstanding stock of any such corporation. The "non-
allocation period" shall be the period beginning on the date of the sale of the
Company Stock and ending on the later of (i) the date which is 10 (ten) years
after the sale of Company Stock; or (ii) the date of allocation attributable to
the final payment under the Promissory Note incurred in connection with such
sale. The Trustee may establish subaccounts that it deems necessary in order to
comply with the provisions of this Section 5.02(3).
5.03 Limitation on Annual Additions.
5.03(1) Notwithstanding any other provision of the Plan, the
sum of the Annual Additions to a Participant's Account for any Limitation Year
shall not exceed the lesser of: (i) Thirty Thousand Dollars ($30,000) or, of
greater, one-fourth (1/4) of the defined benefit dollar limitation set forth in
Code Section 415(b)(1)(A) as in effect for the Limitation Year, or (ii)
twenty-five percent (25%) of such Participant's Limitation Year Compensation
for the entire Limitation Year (even though such Participant may not have been
a Participant for the entire Limitation Year). Notwithstanding
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the foregoing, if no more than one-third of the Employer Company Contributions
to the Plan for a Plan Year are allocated to the accounts of Highly Compensated
Employees, the following amounts shall be excluded in determining the Annual
Addition of each Participant for such Plan Year: (i) Forfeitures of Company
Stock acquired with the proceeds of a Promissory Note, or (ii) Employer Company
Contributions to the Plan which are used to pay the interest on a Promissory
Note and which are deductible under Code Section 404(a)(9)(B) and which are
charged against the Participant's Account. If a Limitation Year is less than a
12-consecutive month period, the above dollar limitations for the short
Limitation Year shall not exceed the amount determined in the first sentence of
this Section 5.03(l) multiplied by a fraction, the numerator of which is the
number of whole months in the short Limitation Year and the denominator of
which is twelve (12). The term "Annual Additions" to a Participant's Account
for any Limitation Year shall mean the sum of:
(a) such Participant's allocable share of the
Company Contributions credited to such Participant within such Limitation Year;
and
(b) such Participant's allocable share of
Forfeitures, if any, credited to such Participant within such Limitation Year;
and
(c) any amount allocated to an "individual
medical account," as defined in Code Section 415(l)(2), which is part of a
Defined Benefit Plan maintained by an Employer; and
(d) any amounts derived from contributions paid
or accrued after December 31, 1985, in taxable years ending after such date,
which are attributable to post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code Section 419A(d)(3))
under a welfare benefit fund (as defined in Code Section 419(e)) maintained by
an Employer.
A corrective allocation pursuant to Section 6.08 shall be
considered an Annual Addition for the Limitation Year to which it relates.
5.03(2) In the event that as a result of: (i) the allocation
of Forfeitures, (ii) a reasonable error in estimating Participant's Limitation
Year Compensation, or (iii) other facts and circumstances which the Internal
Revenue Service finds justify the availability of the provisions of this
Subsection 5.03(2) and Subsections 5.03(3) and 5.03(4), it
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is determined that, but for the limitations contained in Subsection 5.03(l),
the Annual Additions to a Participant's Account for any Limitation Year would
be in excess of the limitations contained herein, such Annual Additions shall
be reduced to the extent necessary to bring such Annual Additions within the
limitations contained in Subsection 5.03(l) by reducing such Participant's
allocable share of Forfeitures, if any, for the Plan Year ending within such
Limitation Year, then by reducing such Participant's allocable share of Company
Contributions for the Plan Year ending within such Limitation Year.
5.03(3) If, and to the extent that the amount of any
Participant's allocable share of Forfeitures, if any, or Company Contributions,
if any, is reduced in accordance with the provisions of Subsection 5.03(2)
above, the amount of such reduction shall, subject to the limitations of
Subsection 5.03(1), be allocated among all of the remaining Participants in the
Plan.
5.03(4) If, after the allocations in accordance with
Subsection 5.03(3), any amount remains which cannot be allocated to any
Participant as a result of the limitations contained herein, such amount shall
be maintained in a separate suspense account under the Trust to be allocated
among Participants in the next succeeding Plan Year in the same manner as
provided for in Subsection 5.03(3). Any suspense account established pursuant
to this Subsection 5.03(4) shall not be adjusted to reflect net income, loss,
appreciation or depreciation in the value of the Trust Fund as provided for a
Participant's regular Accounts pursuant to Section 6.03 hereof.
5.04 Limitations on Annual Additions for Employers or Affiliated
Companies Maintaining Other Defined Contribution Plans. In the event that any
Participant in this Plan is also a participant under any other Defined
Contribution Plan maintained by an Employer or an Affiliated Company (whether
or not terminated), the total amount of Annual Additions to such Participant's
accounts under all such Defined Contribution Plans shall not exceed the
limitations set forth in Subsection 5.03(1) hereof. If such total amount of
Annual Additions to a Participant's accounts under all such Defined
Contribution Plans does exceed the limitations set forth in Subsection 5.03(1)
hereof, then the Annual Additions to such Participant's Accounts in this Plan
shall be reduced, and such reduction shall be accomplished in accordance with
the provisions of Section 5.03 hereof.
5.05 Limitations on Annual Additions for Employers or Affiliated
Companies Maintaining Defined Benefit Plans. In the
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event that any Participant under this Plan is a participant under one or more
Defined Benefit Plans maintained by an Employer or an Affiliated Company
(whether or not terminated), then the sum of the Defined Benefit Plan Fraction
for such Limitation Year and the Defined Contribution Plan Fraction for such
Limitation Year shall not exceed one (1.0). If the sum of the Defined Benefit
Plan Fraction for any Limitation Year and the Defined Contribution Plan
Fraction for such Limitation Year does exceed one (1.0), then the Committee
shall adjust the numerator of the Defined Benefit Plan Fraction so that the sum
of both fractions shall not exceed 1.0 in any Limitation Year for such
Participant.
5.06 Definitions for Purposes of Determining the Annual Addition
Limitations. For purposes of Sections 5.03, 5.04 and 5.05 hereof and this
Section 5.06, the following definitions shall apply:
5.06(1) "Retirement Plan" shall mean (a) any profit-sharing,
pension or stock bonus plan described in Code Sections 401(a) and 501(a), (b)
any annuity plan or annuity contract described in Code Section 403(a) or
403(b), and (c) any simplified employee pension plan described in Code Section
408(k).
5.06(2) "Defined Benefit Plan" shall mean any Retirement Plan
which does not meet the definition of a Defined Contribution Plan.
5.06(3) "Defined Benefit Plan Fraction" shall mean a fraction
calculated in accordance with Code Section 415(e)(2). Notwithstanding the
preceding sentence, if the Participant was a Participant as of the first day of
the first Limitation Year beginning after December 31, 1986, in one or more
Defined Benefit Plans maintained by an Employer or an Affiliated Company which
were in existence on May 6, 1986, the denominator of the Defined Benefit Plan
Fraction will not be less than 125 percent of the sum of the projected annual
benefits under such plans which the Participant had accrued as of the close of
the last Limitation Year beginning before January 1, 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the Defined Benefit Plans individually and
in the aggregate satisfied the requirements of Code Section 415 for all
Limitation Years beginning before January 1, 1987.
5.06(4) "Defined Contribution Plan" shall mean a Retirement
Plan which provides for an individual account for each participant and for
benefits based solely on the amount contributed to the participant's account,
and any income,
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expenses, gains or losses, and any forfeitures of accounts of other
participants which may be allocated to such participant's account. For purposes
of Sections 5.03, 5.04 and 5.05, a Participant's voluntary nondeductible
contributions to a Defined Benefit Plan shall be treated as being part of a
separate Defined Contribution Plan.
5.06(5) "Defined Contribution Plan Fraction" shall mean a
fraction calculated in accordance with Code Sections 415(e)(3), (4) and (6). If
the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after December 31, 1986, in one or more Defined
Contribution Plans maintained by an Employer or an Affiliated Company which
were in existence on May 6, 1986, the numerator of the Defined Contribution
Plan Fraction will be adjusted if the sum of this fraction and the Defined
Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of the Defined Contribution
Plan Fraction, will be permanently subtracted from the numerator of the Defined
Contribution Plan Fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and
conditions of the plan made after May 5, 1986, but using the Code Section 415
limitation applicable to the first Limitation Year beginning on or after
January 1, 1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to treat all employee
contributions as Annual Additions.
5.06(6) "Limitation Year" shall mean the Plan Year.
5.06(7) "Limitation Year Compensation" shall mean the
aggregate of all wages, salaries, fees for professional services and other
amounts received (without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of employment with all
Employers and Affiliated Companies, to the extent the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips and bonuses, fringe benefits, reimbursements, and
expense allowances) as more fully described in Code Section 415(c)(3) and the
regulations thereunder, which are actually paid or made available to a
Participant who is an Employee but is not a Self-Employed Individual within a
Limitation Year. In
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the case of any Self-Employed Individual, "Limitation Year Compensation" shall
mean the individual's Earned Income for such Limitation Year. Limitation Year
Compensation shall not include the following:
(a) Contributions to a plan of deferred
compensation to the extent that, before the application of the limitations of
Code Section 415 to the Plan, the contributions are not included in the gross
income of the Participant for the taxable year in which contributed, or
contributions under a simplified employee pension plan to the extent the
contributions are deductible by the Participant, and any distributions from a
plan of deferred compensation other than an unfunded nonqualified plan of
deferred compensation;
(b) Amounts realized from the exercise of a
non-qualified stock option, or amounts realized under Code Section 83 with
respect to restricted property held by a Participant that becomes freely
transferable or is no longer subject to a substantial risk of forfeiture;
(c) Amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock option within the
meaning of Code Section 422A; and
(d) Moving expense reimbursements that are
deductible by the Employee under Code Section 217;
(e) Other amounts that receive special tax
benefits within the meaning of Treasury Regulation Section 1.415-2(d)(2), such
as premiums for group term life insurance (but only to the extent that premiums
are includible in the gross income of the Participant), or contributions made
by the Employer (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract covered by Code Section 403(b) (whether or not
the contributions are excludible from the gross income of the Participant).
5.07 Cessation of Eligible Employee Status. Subject to the
exception at Section 5.01(2), if any Participant does not incur a Termination
of Employment but ceases to be an Eligible Employee as defined in Section 2.14
hereof, then, during the period that such Participant is not an Eligible
Employee as defined in such Section 2.14 hereof: (i) such Participant shall not
receive any further allocation of any Company Contributions, if any under the
Plan pursuant to Section 5.01, (ii) such Participant's Accounts shall continue
to share in the earnings or losses of the Trust Fund, and (iii) such
Participant shall receive credit for vesting purposes pursuant to Section 10.01
hereof for any Vesting Years of Service completed during such period.
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ARTICLE VI
ACCOUNTS AND VALUATION OF TRUST FUND
6.01 Participant's Accounts. The assets of the Trust Fund shall
constitute a single fund in which each Participant, Beneficiary or Alternate
Payee shall have his proportionate interest as provided in this Plan. The
Committee shall maintain, or cause to be maintained, with respect to each
Employer, individual Accounts for each Participant, Beneficiary or Alternate
Payee. A Participant shall have a Company Contribution Account, and, where
appropriate, an Alternate Payee shall have a QDRO Account. In addition, the
Committee may establish, one or more subaccounts of a Participants' Accounts,
if the Committee determines that such subaccounts are necessary or appropriate
to administer the Plan. Each Account shall reflect the credits and charges
allocable thereto in accordance with the Plan. The Committee shall maintain, or
cause to be maintained, records which will adequately disclose at all times the
state of the Trust Fund and of each separate interest therein. The books, forms
and methods of accounting shall be entirely in the hands of and subject to the
supervision of the Committee.
6.02 Accounts of Participants Transferred to an Affiliated Company
Which Has Not Adopted the Plan. If a Participant is transferred to an
Affiliated Company, the amount in the Trust which is credited to his Accounts
shall continue to share in the earnings or losses of the Trust Fund, and such
Participant's rights and obligations with respect to such Accounts shall be
governed by the provisions of the Plan and Trust.
6.03 Accounting for Trust Fund Income or Losses
The Trustee, through its accounting records, shall clearly
segregate each Account hereunder and each subaccount thereof established
pursuant to Sections 5.02 and 6.01, and shall maintain a separate and distinct
record of all income and losses of the Trust Fund attributable to each such
Account or subaccount. Except as provided in the last paragraph of this
Section, income or loss of the Trust Fund shall include any unrealized increase
or decrease in the fair market value of the assets of the Trust Fund as such
values are determined by the Trustee pursuant to Section 6.04.
The share of net income or net loss of the Trust Fund to be
credited to, or deducted from, each Account of each Participant shall be the
allocable portion of the net income or net loss of the Trust Fund attributable
to each such Account
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<PAGE> 54
determined by the Trustee as of each Valuation Date in a uniform and
nondiscriminatory manner, based upon the ratio that the balance of each such
Account as of the previous Valuation Date bears to all such Account balances
after adjustment for withdrawals, distributions and other additions or
subtractions that may be appropriate.
The share of net income or net loss to be credited to, or
deducted from, any subaccount established for a Participant shall be an
allocable portion of the net income or net loss credited to or deducted from
the Account under which such subaccount is established.
The amount of cash dividends paid with respect to shares of
Company Stock held in the Trust Fund and allocated to the Account of each
Participant at a time when there are no Promissory Notes or other indebtedness
incurred by the Trustee outstanding may be paid to the Participant or his
Beneficiary no later than 90 days after the close of the Plan Year in which the
dividend is paid.
For purposes of this Section, the share of net income or net
loss of the Trust Fund allocable to the Accounts of Participants shall not
include any unrealized increase or decrease in the fair market value of Company
Stock held in a Suspense Account.
6.04 Valuation of Trust Fund
The fair market value of the total net assets comprising the
Trust Fund shall be determined by the Trustee as on the last day of the Plan
Year. The fair market value of shares of Company Stock that are not readily
tradeable on an established securities market shall be determined by an
independent appraiser meeting requirements similar to the requirements of the
Treasury Regulations under Section 170(a)(1) of the Code.
The Employers, the Committee and the Trustee do not guarantee
the Participants or their Beneficiaries against loss or depreciation or
fluctuation of the value of the assets comprising the Trust Fund.
6.05 Annual Statement of Accounts
The Committee shall furnish each Participant or his
Beneficiary, at least annually, a statement (referred to as the "Annual
Statement") showing: (a) the value of his Accounts at the end of the Plan Year,
(b) the allocations to and distributions from his Accounts during the Plan
Year, and
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<PAGE> 55
(c) his vested and nonforfeitable interest in his Accounts at the end of the
Plan Year, provided, however, that no Annual Statement shall be provided to a
Participant or his Beneficiary after such Participant's entire vested and
nonforfeitable interest in his Accounts has been distributed to the Participant
or his Beneficiary. In addition, the Annual Statement shall include other
information required to be furnished to each Participant or his Beneficiary
under applicable disclosure or reporting laws.
6.06 Voting of Company Stock; Tender Offers
6.06(1) Voting of Stock - Registered Stock. Each Participant
and former Participant shall be entitled to instruct the Trustee in the manner
of voting the number of shares of Company Stock in the Trust Fund which have
been allocated to his Account. For all purposes of this Section 6.06(l), the
shares of Company Stock allocated to an active Participant's Account (not
including former Participants) shall be treated as including a portion of the
unallocated shares of Company Stock held in a Suspense Account; for this
purpose the unallocated shares shall be considered allocated to active
Participants' Accounts by assuming that all such unallocated shares of Company
Stock had been allocated to active Participants in the Plan as of a date
selected by the Committee, based upon such active Participants' comparative
Company Stock account balances (i.e., Company Stock in an active Participant's
Account as a percentage of all Company Stock in the Accounts of all active
Participants). The Trustee shall establish procedures to solicit instructions
from Participants with respect to voting shares of Company Stock allocated to
their Accounts and transmit such instructions to the Trustee. The Trustee shall
be bound to follow the instructions of Participants, acting as named
fiduciaries under Section 403(a)(1) of ERISA, with respect to voting shares of
Company Stock which have been allocated (or treated as having been allocated)
to Accounts with fractional shares being voted on a combined basis to the
extent possible to reflect the directions of the voting Participants; provided,
however, that f Participant does not respond in a timely fashion to the
solicitation of voting instructions, the shares of Company Stock allocated (or
treated as having been allocated) to such (Participant's Accounts shall, to the
extent consistent with ERISA, be voted by the Trustee in the same manner (and
in the same proportions) as the shares for which the Trustee does receive
instructions from Participants. Reasonable means shall be employed by the
Trustee to provide confidentiality with respect to the voting by such
Participants and the Trustee shall hold such directions in confidence and shall
not divulge or release such directions to any person, including the
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<PAGE> 56
Employer or any director, officer, employee or agent of the Employer, it being
the intent of this provision of this Section to ensure that the Employer (and
its directors, officers, employees and agents) cannot determine the direction
given by any Participant.
6.06(2) Voting of Company Stock - Non-Registered Stock.
Notwithstanding the provisions of Subsection 6.06(1), if any Company Stock
allocated to a Participant's Account is not a "registration type class of
securities," the Participant shall be entitled to instruct the Trustee with
respect to voting such Company Stock (in accordance with the provisions of
Subsection 6.06(l)) only with respect to any corporate matter which involves
the approval or disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all assets of a trade or business, or such similar transaction as
the Secretary of the Treasury may prescribe in regulations pursuant to the
provisions of Section 409(e) of the Code.
If a matter is to be submitted to the holders of
Company Stock which is not a "registration type class of securities" and it is
not necessary that the Participant be entitled to instruct the Trustee with
respect to voting in accordance with this Section, the Trustee, in its
discretion, shall vote all shares of such Company Stock held by it (or exercise
dissenter's rights, if applicable) after consultation with the Committee.
"Registration type class of securities" shall mean any class of securities
required to be registered under Section 12 of the Securities Exchange Act of
1934, or exempt from such registration solely by reason of Section 12(g)(2)(h)
(concerning interests in pooled investment vehicles issued to annuity plans or
qualified pension, profit sharing, or stock bonus plans).
6.06(3) Tender or Exchange Offers. In the event of a tender
offer, exchange offer, or other offer for 10% or more of the shares of Company
Stock held in the Trust (such offer hereinafter referred to as an "Offer"), the
Trustee shall cause each.Participant to whose Account any shares are credited
to be advised in writing of the terms of the Offer as soon as practicable after
the commencement of the Offer and shall furnish each Participant with a form by
which the Participant may instruct the Trustee confidentially to tender shares
credited to his Account. For purposes of this Section, "Tender" shall mean
tender, exchange, sale or any other form of disposition in connection with an
Offer. The Trustee shall immediately notify the Committee of any Offer made to
the Trustee including all terms and conditions of any such offer. The Trustee
shall tender those shares which a Participant,
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<PAGE> 57
acting as a named fiduciary under Section 403(a)(1) of ERISA, has so instructed
it to tender, and the Trustee shall not tender shares which it is instructed
not to tender or for which no instructions are received. The provisions of this
Section 6.06(3) are intended to establish each Participant as a named fiduciary
as defined in Section 403(a)(1) of ERISA in connection with any such Tender;
however, to the extent the Trustee retains any fiduciary responsibility with
respect to any such Tender, the Trustee shall not be required to take any
action, or omit to take any action, which would cause the Trustee to commit a
breach of fiduciary duty under ERISA.
With respect to unallocated shares of Company Stock, rights to
tender in connection with an Offer shall be exercised at the discretion of the
Participants by assuming that all such shares of Company Stock had been
allocated to active Participants (not including Former Participants) in the
Plan as of a date selected by the Committee, based upon such Participants'
comparative Company Stock account balances (i.e., Company Stock in an active
Participant's Account as a percentage of all Company Stock in the Accounts of
all active Participants), and by permitting the respective Participants to
exercise tender rights as if such shares had been finally and completely
allocated to such Participants' Accounts.
In advising Participants of the terms of the Offer, the
Trustee shall advise the Participant that if the Trustee receives no
instructions, the shares allocated to the Participant's Accounts will not be
tendered, and shall provide Participants with such documents relating to the
Offer as are prepared by any person and provided to the shareholders of the
Sponsoring Company. In addition, the Trustee may provide Participants with such
other material concerning the Offer as the Trustee in its sole discretion
determines to be appropriate. Reasonable means shall be employed by the Trustee
to provide confidentiality with respect to the tendering directions by each
Participant and the Trustee shall hold such directions in confidence and shall
not divulge or release such directions to any person, including the Employer or
any director, officer, employee or agent of the Employer, it being the intent
of this provision to ensure that the Employer (and its directors, officers,
employees and agents) cannot determine the tendering directions given by any
Participant. A Participant's instructions to the Trustee to tender shares shall
not be deemed a withdrawal or suspension from the Plan or a forfeiture of any
portion of the Participant's interest in the Plan. The Committee shall advise
the Trustee of the commencement date of any Offer and, until receipt of such
advice, the Trustee shall not be obligated to take any action under this
Section.
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<PAGE> 58
Funds or property received in exchange for tendered stock
shall be credited to the Accounts of the Participants whose stock was tendered,
and to the Suspense Account with respect to unallocated shares of Company
Stock. In order to retain the qualified status of the Plan as an employee
stock ownership plan, such funds or property shall be reinvested in Company
Stock as soon as practicable. If Company Stock is available on a national
securities exchange, such funds or property shall be used by the Trustee to
purchase Company Stock commencing on the earlier of the following dates: (1)
the trading day following the first date on which the closing price of the
Company Stock on a national securities exchange on which the Company Stock is
then traded is within 20% of the closing price on the tenth trading day
preceding the commencement date of the Offer or (2) the thirtieth trading day
after the expiration date of the Offer, of which date the Committee shall
advise the Trustee. Pending investment in Company Stock pursuant to the
preceding sentence, the Trustee shall invest such funds in Securities and Other
Property permitted under the Trust Agreement.
6.07 Computations. All of the computations required to be made
under the provisions of this Article VI, when made, shall be conclusive with
respect thereto and shall be binding upon all the Participants, Beneficiaries,
Alternate Payees, and all other persons ever having an interest in the Trust
Fund.
6.08 Correction of Participants' Accounts. If an error or omission
is discovered in the Accounts of a Participant, or in the amount distributed to
a Participant, the Committee, as authorized by Section 13.05 hereof, shall make
such equitable adjustments in the records of the Plan as may be necessary or
appropriate to correct such error or omission as of the Plan Year in which such
error or omission is discovered. Further, an Employer may, in its discretion,
make a special contribution to the Plan which shall be allocated by the
Committee only to the Accounts of a Participant as is necessary to correct such
error or omission.
6.09 Emergency Valuation. In the exercise of its fiduciary powers
under the Plan, should the Committee in good faith determine that, because of
an extraordinary change in general economic conditions or the occurrence of an
event radically affecting the value of all or a substantial part of the Trust
Fund, an abnormal fluctuation in the value of the Trust Fund has occurred since
the end of the preceding Plan Year, and that it has become necessary to make a
distribution to one (1) or more Participants, Beneficiaries or Alternate Payees
under the provisions hereof, the Committee may, in its sole discretion, to
prevent any such person from receiving a
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<PAGE> 59
substantially greater or lesser amount than what he would be entitled to, based
on the fair market value of the Trust Fund, cause a valuation of the Trust Fund
to be made and an allocation of the interests therein as of the date such
person's right of distribution becomes fixed. The Committee's determination to
make such emergency evaluation and the valuation of the Trust Fund as
determined by the Trustee shall be conclusive and binding on all persons ever
interested hereunder.
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<PAGE> 60
ARTICLE VII
RETIREMENT BENEFITS
A Participant's Company Contribution Account shall fully vest on his
Retirement Date, provided such Participant is employed by an Employer or an
Affiliated Company on such date. A Participant who continues in the Employer's
employment after his Retirement Date shall continue to be a Participant in the
Plan until his actual retirement. Upon actual retirement on or after his
Retirement Date, a Participant shall be entitled to the benefits provided for in
this Article VII. Subject to the provisions of Subsections 11.02(l) and 12.03(2)
hereof, any Participant who becomes entitled to benefits under this Article VII
shall receive benefits equal to the total amounts in his Accounts valued as of
the Valuation Date immediately preceding the date on which such Participant
becomes entitled to such benefits plus any contributions due and owing to such
Participant pursuant to Article IV for the Plan Year in which he retired but
which have not been credited to his respective Accounts as of such Valuation
Date. Payment upon retirement shall be made by the Trustee at the direction of
the Committee at the time and manner provided in Article XI hereof. However,
upon retirement, the Committee may, at the request of the Participant, but prior
to the intended date of distribution, make an advance of a portion of the amount
to which a Participant is entitled to enable such Participant to meet certain
emergency circumstances in his financial affairs, including, but not limited to:
(i) the health and welfare needs of such Participant and his immediate family,
(ii) the establishment or preservation of the principal residence of such
Participant, or both, and (iii) the providing of schooling for such
Participant's children.
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ARTICLE VIII
DISABILITY BENEFITS
8.01 Disability Retirement Benefits. If a Participant retires by
reason of Total and Permanent Disability while in the employ of an Employer or
an Affiliated Company or on Leave of Absence, his Company Contribution Account
shall fully vest and, subject to the provisions of Subsections 11.01(2),
11.02(l) and 12.03(2) hereof, he shall be entitled to receive benefits equal to
the total amounts in his Accounts valued as of the Valuation Date immediately
preceding the date on which such Participant retires on account of Total and
Permanent Disability plus any contributions due and owing to such Participant
pursuant to Article IV for the Plan Year in which he retires on account of
Total and Permanent Disability but which have not been credited to his
respective Accounts as of such Valuation Date. However, if distribution is
delayed because the vested portion of Participant's Accounts exceeds $3,500,
such distribution shall be based upon the balance in such Participant's
Accounts as of the Valuation Date immediately preceding the earlier of (i) the
date of the Participant's election to receive such distribution, or (ii) the
date on which such Participant attains age sixty-five (65) or dies. Payments
resulting from a Participant's retirement on account of Total and Permanent
Disability shall be made by the Trustee at the direction of the Committee at
the time and in the manner provided in Article XI hereof. However, if
distribution is to be made at the time of retirement due to Total and Permanent
Disability, the Committee may, at the request of the Participant, following the
Participant's retirement but prior to the intended date of distribution, make
an advance of a portion of the amount to which the Participant is entitled to
enable such Participant to meet certain emergency circumstances in his
financial affairs, including, but not limited to: (i) the health and welfare
needs of such Participant and his immediate family, (ii) the establishment or
preservation of the principal, residence of such Participant, or both, and
(iii) the providing of schooling for such Participant's children.
8.02 Determination of Disability. The Committee shall determine
whether a Participant has suffered Total and Permanent Disability, and its
determination in that respect is binding upon the Participant, provided that
the Committee may rely upon professional medical advice in making such
determination. In making its determination, the Committee may require the
Participant to submit to medical examinations by doctors selected by the
Committee. The provisions of this Article VIII shall be uniformly and
consistently applied to all Participants.
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ARTICLE IX
DEATH BENEFITS
9.01 Death Benefits. Upon the death of a Participant while in the
employ of an Employer or an Affiliated Company or on Leave of Absence, subject
to the provisions of Subsections 11.01(2), 11.02(l) and 12.03(2) hereof, his
Beneficiary, determined in accordance with Section 9.02 hereof, shall receive,
provided proper proof of death has been filed with the Committee, the full
amount of his Accounts as of the Valuation Date immediately preceding the date
on which the Participant dies, plus any contributions due and owing to such
Participant pursuant to Article IV for the Plan Year in which he dies but which
have not been credited to his respective Accounts as of such Valuation Date.
However, if benefits are to commence upon a Participant's death, the Committee
may, at the request of the Beneficiary, but prior to the intended date of
distribution, make an advance of a portion of the amount to which a Beneficiary
is entitled to enable such Beneficiary to meet certain emergency circumstances
in his financial affairs, including, but not limited to: (i) the health and
welfare needs of such Beneficiary and his immediate family, (ii) the
establishment or preservation of the principal residence of such Beneficiary,
or both, and (iii) the providing of schooling for such Beneficiary's children.
Upon the death of a Participant who is no longer employed by
an Employer or an Affiliated Company, his Beneficiary, determined in accordance
with Section 9.02, shall receive the balance of such Participant's Accounts as
of the Valuation Date immediately preceding the date of death.
Payments resulting from the death of a Participant shall be
made by the Trustee at the direction of the Committee at the time and in the
manner provided in Article XI hereof.
9.02 Designation of Beneficiaries.
9.02(1) Subject to the provisions of Subsections 9.02(2) and
12.03(2) hereof, each Participant may designate a Beneficiary or Beneficiaries,
and contingent Beneficiary or Beneficiaries, if desired, including the executor
or administrator of his estate, to receive his interest in the Trust Fund in
the event of his death, but the designation of a Beneficiary shall not be
effective for any purpose unless and until it has been filed with the Committee
on the form provided therefor. If the Participant has a surviving spouse and
the surviving spouse consented to the naming of another Beneficiary in
accordance with Subsection 9.02(2) hereof, but the deceased
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Participant failed to name a Beneficiary in the manner herein prescribed, or
the Beneficiary or Beneficiaries so named predecease the Participant, the
amount, if any, which is payable hereunder in respect of such deceased
Participant shall be paid to the surviving spouse. If the Participant does not
have a surviving spouse and the deceased Participant failed to name a
Beneficiary in the manner herein prescribed, or the Beneficiary or
Beneficiaries so named predecease the Participant, the amount, if any, which is
payable hereunder in respect of such deceased Participant shall be paid to (a)
his living issue by right of representation, (b) if his issue are not living,
to his living parents, and (c) if none of the above are then living, to his
estate, by payment in a lump sum. Notwithstanding the foregoing, the Committee
may elect to have a court of applicable jurisdiction determine to whom a
payment or payments should be made. Any payment made to any person pursuant to
the power and discretion conferred upon the Committee by the preceding sentence
shall operate as a complete discharge of all obligations under the Plan in
respect of such deceased Participant and shall not be subject to review by
anyone, but shall be final, binding and conclusive on all persons ever
interested hereunder.
Subject to the provisions of Subsection 9.02(2)
below, a Participant may from time to time change any Beneficiary designated by
him without notice to such Beneficiary, under such rules and regulations as the
Committee may from time to time promulgate, but the last Beneficiary
designation filed with the Committee shall control.
9.02(2) With respect to a Participant who has been credited
with an Hour of Service on or after August 23, 1984, notwithstanding any other
provision herein to the contrary, but subject to the provisions of Subsection
12.03(2) hereof, if, as of such Participant's death, such Participant is
married, such Participant's Accounts shall, on his death, be paid to the
surviving spouse to whom he was married at the date of his death unless the
surviving spouse has made a Qualified Consent to the payment of any or all of
said Accounts to a designated Beneficiary other than the surviving spouse.
"Qualified Consent" means an irrevocable written consent executed by the
Participant's spouse which acknowledges the effect of the consent and is
witnessed by a Plan representative or a notary public. A Participant may, after
obtaining a Qualified Consent, change his Beneficiary designation as permitted
by Subsection 9.02(1) above, but any such change is subject to the requirements
of this Subsection 9.02(2) and will require another Qualified Consent should
the spouse, if surviving, not be the sole Beneficiary of all amounts in the
Account, unless a Qualified Consent previously executed by such
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<PAGE> 64
spouse expressly authorizes changes in the Beneficiary without further consent
of the spouse. A Qualified Consent is effective only with respect to the spouse
who executes it. If the Plan Administrator is satisfied that there is no
spouse, or that the spouse cannot reasonably be located, or in such other
circumstances as permitted by governmental regulations, no Qualified Consent
shall be required as a condition to payment, under Section 9.01 hereof, to a
Beneficiary who is not the surviving spouse.
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ARTICLE X
EMPLOYMENT TERMINATION BENEFITS
10.01 Vesting upon Termination of Employment. Subject to the
provisions of Section 10.04 and Subsections 11.01(2), 11.02(l) and 12.03(2)
hereof, in the event of the Termination of Employment of a Participant, such
Participant shall be entitled to receive the following percentage of the amount
in his Company Contribution Account and the entire balance in his other
Accounts, all valued as of the Valuation Date coinciding with or next following
the earlier of (i) the third anniversary of Participant's date of Termination
of Employment or (ii) the Participant's Retirement Date or as of such earlier
date determined by the Committee in accordance with uniform and
nondiscriminatory procedures, plus any contributions due and owing to such
Participant pursuant to Article IV for the Plan Year in which he suffers a
Termination of Employment but which have not been credited to his respective
Accounts as of such Valuation Date:
<TABLE>
<CAPTION>
Nonforfeitable Percentage
Vesting Years of Service of Account
- ------------------------ -------------------------
<S> <C>
Less than 3 years 0%
3 years but less than 4 years 20%
4 years but less than 5 years 40%
5 years but less than 6 years 60%
6 years but less than 7 years 80%
7 years or more 100%
</TABLE>
Payment pursuant to this Article X shall be made by the Trustee, at
the direction of the Committee, at the time and manner provided in Article XI
hereof.
10.02 Determination of Vesting Years of Service. All Vesting Years
of Service (whether or not continuous) shall be taken into account, except
Vesting Years of Service not taken into account under Section 10.03.
10.03 Breaks in Service. Except as otherwise provided in Section
10.02, subject to the provisions of Section 10.05 hereof, Vesting Years of
Service shall be disregarded as follows:
10.03(1) In the case of any Participant who suffers a
Termination of Employment and who has a one-Year Break in Service, Vesting
Years of Service before such break shall not be taken into account until such
Participant has completed a Vesting Year of Service after such break.
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<PAGE> 66
10.03(2) In the case of any Participant who suffers a
Termination of Employment and who has no vested amount in his Accounts in
accordance with the provisions of Section 10.01 hereof Vesting Years of Service
before any period of One-Year Breaks in Service shall not be taken into account
if such Participant had five (5) or more consecutive One-Year Breaks in Service
within such period. Such aggregate number of Vesting Years of Service before
such period shall be deemed not to include any Vesting Years of Service not
required to be taken into account under this Section 10.03 by reason of any
prior break in service.
10.03(3) In the case of any Participant who has at least five
(5) consecutive One-Year Breaks in Service, Vesting Years of Service after such
five (5)-year period shall not be taken into account for purposes of
determining the vested amount in his Accounts which accrued prior to such five
(5)-year period. However, Vesting Years of Service accrued both before and
after such five (5)-year period will count for purposes of determining the
vested amount in his Accounts which accrues after such five (5)-year period.
10.04 Forfeiture of Nonvested Amount.
10.04(1) If a Participant has a Termination of Employment, the
amount in his Accounts shall be forfeited as of the last day of the Plan Year
in which such Participant has incurred five (5) consecutive one-year Breaks in
Service.
10.04(2) All amounts forfeited as provided in this Section
10.04 are herein referred to as "Forfeitures." Any Forfeitures shall be
allocated as provided in Subsection 5.01 hereof.
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<PAGE> 67
ARTICLE XI
PAYMENT OF BENEFITS
11.01 Time and Method for Distribution of Benefits.
11.01(1) Upon a Participant's: (i) retirement on or after his
Retirement Date, (ii) retirement due to Total and Permanent Disability, (iii)
death, or (iv) Termination of Employment, subject to the provisions of this
Section 11.01 and Section 11.02, the Participant or his Beneficiary shall be
entitled to a distribution pursuant to and in an amount computed in accordance
with Article VII, VIII, IX or X, as the case may be. Except as otherwise
provided in the second paragraph of this Subsection 11.01(i) and in Subsection
11.01(3) hereof, such amounts shall be distributed in a single lump sum as soon
as administratively practicable after the completion of the independent
appraisal of the Company Stock for the Valuation Date upon which the amount of
the distribution is to be based as provided in Articles VII, VIII, IX or X, as
the case may be. The distribution shall be in the form of whole shares of
Company Stock plus cash for any fractional share. If the Participant's interest
in his Accounts exceeds the value of the whole shares of Company Stock
allocated to the Accounts, the excess shall be distributed in the form of whole
shares of Company Stock acquired by the Trustee from any source other than a
Suspense Account plus cash for any fractional share.
Notwithstanding any provision in this Section 11.01 to
the contrary, a distribution of a Participant's Accounts shall not include
Company Stock allocated to an Account which was acquired with the proceeds of a
Promissory Note until the end of the Plan Year in which any acquisition
indebtedness related to such Company Stock is repaid in full, including any
refinancings which are permitted to be treated as acquisition indebtedness in
accordance with rules prescribed by the Secretary of the Treasury.
11.01(2) Notwithstanding any other provision of this Plan to
the contrary, if actual distribution pursuant to Subsection 11.01(i) above is
delayed for any reason beyond the Valuation Date upon which the amount of such
distribution was to be based, the distribution shall be based on the value of
the Participant's Accounts as of the Valuation Date coinciding with or
immediately preceding the date on which such distribution is actually made.
11.01(3) Notwithstanding the provisions of this Section 11.01
and subject to Section 11.02 below, if upon
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termination of service for any reason, the vested portion of the Participant's
Accounts at such time exceed Three Thousand Five Hundred Dollars ($3,500), the
Participant may elect to defer the distribution until December 31 coinciding
with or next following the date such Participant attains age seventy and
one-half (70-1/2), unless such Participant delivers to the Committee his
written consent to an earlier distribution.
11.01(4) If, upon termination of service for any reason, or,
when distributions are required to commence to a Participant pursuant to
Subsection 11.02(1), the value of the vested portion of a Participant's
Accounts is $3,500 or less, then his total Accounts shall be paid to or for the
benefit of the Participant, or in the case of his death to or for the benefit
of his Beneficiary or Beneficiaries, in a single lump sum cash payment as soon
as administratively practicable after the end of the Plan Year in which the
Participant terminates service subject to deferral as provided in the second
paragraph of Subsection 11.01(1) above.
11.01(5) Subject to Subsection 11.01(3), in no event shall the
distribution under this Section 11.01 be later than the sixtieth (60th) day
after the close of the Plan Year in which occurs the latest of:
(a) The date on which the Participant attains or
would have attained sixty-five (65) years of age or if earlier, his Normal
Retirement Date;
(b) The tenth (10th) anniversary of the year in which
the Participant commenced participation in the Plan; or
(c) The date the Participant terminates his
employment with the Employer for any reason.
11.02 Limitations on Timing. Notwithstanding any other provision of
the Plan to the contrary, distributions must occur at least as rapidly as
required under this Section 11.02.
11.02(1) A Participant's entire interest in the Plan shall be
distributed to him no later than the Required Beginning Date based on the
balance in his Accounts as of the Valuation Date coinciding with or immediately
preceding the Required Beginning Date.
11.02(2) In the event of the death of a Participant prior to
distribution of his benefits under the Plan, distribution of such deceased
Participant's entire interest under the Plan shall be made within five (5)
years after the death of such Participant.
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11.03 Payments on Personal Receipt Except in Case of Legal
Disability. All payments to any Participant, Beneficiary or Alternate Payee
from the Trust Fund shall be made to the recipient entitled thereto in person
or upon his personal receipt, in a form satisfactory to the Committee, except
when the recipient entitled thereto shall be under a legal disability, or, in
the sole judgment of the Committee, shall otherwise be unable to apply such
payments in furtherance of his own interests and advantage. The Committee may,
in such event, in its sole discretion, direct all or any portion of such
payments to be made in any one or more of the following ways: (i) directly to
such person, (ii) to the guardian of his person or of his estate, even if
appointed by a court other than a Texas state court, (iii) to a custodian under
any applicable Uniform Gifts to Minors Act or Uniform Transfers to Minors Act,
or (iv) to a person appointed by the guardian of his person or of his estate
through a Power of Attorney. Notwithstanding the foregoing, the Committee may
elect to have a court of applicable jurisdiction determine to whom a payment or
payments should be made. The decision of the Committee, in each case, will be
final, binding and conclusive upon all persons ever interested hereunder, and
the Committee shall not be obliged to see to the proper application or
expenditure of any payments so made. Any payment made pursuant to the power
herein conferred upon the Committee shall operate as a complete discharge of
all obligations of the Trustee and the Committee, to the extent of the amounts
so paid.
11.04 Benefits Payable Pursuant to a Qualified Domestic Relations
Order. Notwithstanding any other provision of the Plan to the contrary,
immediate distribution of benefits payable to an Alternate Payee pursuant to a
Qualified Domestic Relations Order shall be permitted even though the
Participant whose benefits have been assigned to the Alternate Payee would not
be entitled to receive a distribution at such time, if all of the following
requirements are met: (i) the Participant's Accounts are one hundred percent
(100%) vested and nonforfeitable at such time pursuant to Section 10.01 hereof,
(ii) the entire amount payable to the Alternate Payee does not exceed Three
Thousand Five Hundred Dollars ($3,500), or the Alternate Payee has requested
immediate distribution in writing, (iii) allocation pursuant to Section 6.04
hereof of all amounts required to be paid to the Alternate Payee has been
completed, and (iv) the Qualified Domestic Relations Order requires or permits
immediate distribution.
In the event an Alternate Payee dies prior to distribution of
the amounts payable to the Alternate Payee pursuant to the Qualified Domestic
Relations Order, the amount payable shall be distributed as provided in the
Qualified
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Domestic Relations Order. If the Qualified Domestic Relations Order does not
specify how such amounts are to be distributed in the event of the Alternate
Payee's death, the Committee may ascertain the requirements of applicable law
by filing an interpleader or declaratory judgment action in a court of
competent jurisdiction.
11.05 Distribution Following Diversification Election
A Participant who has attained age 55 and completed at least
ten years of participation in the Plan may elect in writing, within 90 days
after the close of each Plan Year during the applicable election period, to
diversify the investment of 25% of his Account balances to the extent that such
portion of his Account balances exceeds the amount to which all prior elections
under this Section applies. With respect to the last Plan Year during the
election period, the Participant may elect to diversify the investment of 50%
of his Account balances less the amount subject to all prior elections. The
applicable election period for purposes of this Section shall be the six (6)
Plan Year period beginning with the Plan Year following the later of the Plan
Year in which the Participant attains age 55 or the Plan Year in which the
Participant completes ten years of participation in the Plan. If a Participant
elects to diversify his Account balances in accordance with this Section, he
shall receive a distribution of the portion of his Account balances subject to
the election, in whole shares of Company Stock plus no later than 180 days
after the last day of the Plan Year to which the election applies. No
fractional shares shall be distributed under this Section 11.05.
11.06 Right to Require Repurchase of Shares of Company Stock
Subject to the following provisions of this Section 11.06, if
at the time of distribution hereunder the shares of Company Stock distributed
from the Trust Fund to a Participant or his Beneficiary with respect to a Plan
Year are not publicly traded or are subject to a trading limitation (as
hereafter defined), the former Participant or Beneficiary shall have an option
(the "Put") to require the Sponsoring Company to purchase all shares of Company
Stock distributed from the Trust Fund to the former Participant or Beneficiary
for such Plan Year. For purposes of the preceding sentence, a "trading
limitation" is a restriction under any federal or state securities law, or any
regulation thereunder, or an agreement, which would make the shares of Company
Stock not as freely tradable as shares of Company Stock not subject to such
restriction.
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The Put may be exercised at any time during the two Option
Periods (as hereinafter defined) by giving the Sponsoring Company written
notice of the election to exercise the Put. The Option Price (as hereinafter
defined) shall be payable in cash and/or in installments (as provided below)
beginning not later than 30 days after the Sponsoring Company receives written
notice of the election by the former Participant or Beneficiary to exercise the
Put. The Put may be exercised by a former Participant or the Beneficiary only
during the Option Period in which the former Participant or Beneficiary
receives a distribution of shares of Company Stock under Section 11.01.
The "Option Periods" shall be the sixty (60) day periods
following (i) the day on which a Participant or his Beneficiary receives a
distribution of shares of Common Stock under Section 11.01 and (ii) the day the
Participant receives information regarding the fair market value of the Company
Stock as of the Valuation Date next following the date the Participant receives
a distribution of shares of Common Stock, provided, in no event will the Option
Period described in (ii) above lapse before the end of 15 months from the date
of distribution of the Company Stock. Notwithstanding the foregoing, the Option
Period shall be extended by the amount of time during which the Sponsoring
Company is unable to honor the Put by reason of applicable federal or state
law.
The "Option Price" shall be the fair market value as
determined pursuant to Treasury Regulations Section 54.4975-11(d)(5) of each
share of Company Stock as determined by the Sponsoring Company as of the
Valuation Date immediately preceding the date the Put is exercised, multiplied
by the number of shares to be sold under the Put. Notwithstanding the
provisions of this paragraph, the Option Price shall be determined on the date
the Put is exercised if the transaction involves a "disqualified person" within
the meaning of Code Section 4975.
Payment of the Option Price for shares of Company Stock
subject to the Put shall be made either in a lump sum or in installments as
determined by the Sponsoring Company. In the event payments are made in
installments, the installment obligation shall (1) be adequately secured as
determined by the Sponsoring Company, (2) bear interest equal to the Sponsoring
Company's long-term debt borrowing rate from its senior lenders or such other
reasonable rate of interest as determined by the Sponsoring Company to be
determined on uniform and nondiscriminatory basis, but in no event shall such
rate of interest be greater than the maximum non-usurious rate of interest
permitted to be charged on such indebtedness under
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Texas law, (3) require that the payments be made in six annual installments,
(4) have a payment period of five (5) years from the date the Put is exercised,
(5) require that any payments pursuant to the installment obligation must begin
to be made no later than thirty (30) days after the date the Put is exercised,
and (6) permit the Sponsoring Company to prepay the amount of any remaining
installments without penalty.
The Put granted to a former Participant or Beneficiary
hereunder shall not be assignable, except that the former Participant's donees
or, in the event of a Participant's death, his personal representative shall be
entitled to exercise the Put during the Option Period for which it is
applicable.
The Committee shall notify each former Participant or
Beneficiary who is eligible to exercise the Put of the fair market value of
each share of Company Stock for the Valuation Date next following the date the
Participant receives a distribution as soon as practicable following such
determination.
The Committee and the Sponsoring Company shall send all
notices required under this Section to the last known address of a former
Participant or Beneficiary, and it shall be the duty of such persons to inform
the Committee of any changes in address.
The Trustee in its discretion may, with the Sponsoring
Company's consent, assume the Sponsoring Company's obligation under this
Section at the time a former Participant or Beneficiary exercises the Put. If
the Trustee does assume the Sponsoring Company's obligations, the foregoing
provisions of this Section that apply to the Sponsoring Company shall also
apply to the Trustee.
The Put provided for in this Section shall also apply to
shares of Company Stock that are publicly traded without restriction when
distributed but which cease to be publicly traded or which become subject to a
trading limitation during the Option Period. In such event, the Committee shall
notify in writing each former Participant or Beneficiary to whom the Put
becomes applicable that the shares of Company Stock held by the former
Participant or Beneficiary are subject to the Put for the remainder of such
Option Period and shall inform the Participant or Beneficiary of the terms of
the Put. If written notice is given pursuant to this Section later than ten
days after the shares of Company Stock cease to be publicly traded or become
subject to a trading limitation, the period during which the Put may be
exercised shall be extended by the number
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of days between such tenth day and the date such notice is actually given.
11.07 Further Conditions
Except as otherwise provided in Section 11.06, shares of
Company Stock acquired with a Promissory Note shall not be subject to any other
put, call, or other option, or buy-sell or similar arrangement while held under
the Plan or when distributed from the Plan to a Participant or Beneficiary,
whether or not the Plan then constitutes an "employee stock ownership plan"
within the meaning of Section 4975(e)(7) of the Code. In addition, the
provisions of the preceding sentence and of Section 11.06 shall continue to
apply to shares of Company Stock acquired with a Promissory Note after the
Promissory Note has been satisfied and after the Plan ceases to constitute an
"employee stock ownership plan" as described above.
11.08 Restrictions on Transfer of Company Stock
11.08(1) Federal Securities Laws. The Sponsoring Company
presently does not intend to register under the Securities Act of 1933 (the
"1933 Act") the shares of Company Stock to be distributed to Participants or
their Beneficiaries. As a result, shares of Company Stock distributed under the
Plan may be "restricted securities." Restricted securities may not be sold
unless they are registered under the 1933 Act by the Sponsoring Company, or
unless an exemption from registration is available. If the Sponsoring Company
does not register the shares of Company Stock for resale by Participants or
their Beneficiaries, and if such persons desire to sell the shares of Company
Stock distributed to them, they will be required to sell the shares of Company
Stock in transactions exempt from registration under the 1933 Act. The
Sponsoring Company will not permit shares of Company Stock to be transferred
unless it is satisfied that any proposed transfer of Company Stock is exempt
from the registration requirements of the 1933 Act.
11.08(2) Other Restrictions. All transactions involving
shares of Company Stock, including distributions, purchases and sales, shall be
made only in compliance with applicable federal and state laws, regulations and
rules. All such transactions shall also be subject to all restrictions and
limitations imposed on all shares of Company Stock provided for in the
Sponsoring Company's Articles of Incorporation and Bylaws as amended from time
to time.
11.08(3) Legends. he Sponsoring Company reserves the right
to cause appropriate legends to be imprinted on the
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certificates representing shares of Company Stock distributed under this Plan
to reflect all restrictions and limitations referred to in this Section 11.08.
11.08(4) Notices. The Committee and the Sponsoring Company
shall send all notices required with respect to shares of Company Stock to the
last known address of each Participant or Beneficiary who is required to
receive notices regarding such stock, and it shall be the duty of the
Participant and Beneficiary to inform the Committee of any changes in address.
11.09 Right of First Refusal
(a) Except as provided in this Section 11.09, any
Participant, Beneficiary, or other person to whom shares of Company Stock have
been distributed shall, prior to any sale or other transfer of such shares
(whether voluntary, involuntary, or by operation of law, or bequest and whether
for consideration or gratuitous), first offer such shares to the Trustee in
writing, and then, if the offer is refused by the Trustee, to the Sponsoring
Company (such offer being hereinafter referred to as a "Participant Offer"). In
the event that the shares are offered because the distributee has received a
bona fide offer from a prospective purchaser (such offer being hereinafter
referred to as a "Third Party Offer"), then the Participant Offer shall state
the terms of the Third Party Offer received by the distributee, including the
number of shares and price offered for such shares. Subject to the provisions
of paragraph (b) of this Section 11.09, if the Trustee shall determine that
there are sufficient Trust assets, it may purchase the shares in accordance
with the written Participant Offer to the Trust. If the Trustee elects not to
purchase the shares, the Trustee shall notify the Sponsoring Company of the
written Participant Offer. If the Trustee does not purchase the shares, the
Company shall have the right to purchase the shares upon the terms provided
above.
(b) Notwithstanding the terms of any offer to purchase
shares of Company Stock under this Section 11.09, the purchase price for the
shares so offered shall be deemed to be greater of (i) the fair market value of
the shares of Company Stock as determined pursuant to Section 54.4975-11(d)(5)
of the Treasury Regulations or (ii) the price set out in the Participant's
Offer. The Company Stock so offered shall be paid for by the Trustee's (or if
the Trustee refuses the Participant Offer, by the Sponsoring Company) on the
same basis as the terms of payment provided in Section 11.06 as provided for
the exercise of a Put.
(c) If neither the Trustee nor the Sponsoring Company
purchases the shares as set above within fourteen (14) days
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after receipt of notice of the offer, then the distributee shall be free to
sell or otherwise dispose of the shares for the price, on the terms and for the
reason stated in the written Participant Offer to the Trustee.
(d) Notwithstanding anything to the contrary herein
contained, shares of Company Stock originally purchased by the Trustee with the
proceeds of a Promissory Note shall be subject to a right of first refusal
only on the following conditions:
(i) the Company Stock must not be publicly traded
at the time the right of first refusal is to be exercised.
(ii) the total period of time during which the
Trustee or the Sponsoring Company may exercise the right of first
refusal will be fourteen (14) days after notification of the offer is
received by the Trustee; and
(iii) The purchase price paid for the Company Stock
shall not be less than the greater of (A) the fair market value of the
Company Stock determined pursuant to section 54.4975-11(d)(5) of the
Treasury Regulations or (B) the price offered for the Company Stock by
a third party.
(e) Any certificate issued by a Sponsoring Company
representing shares of Company Stock to be distributed pursuant to this Plan
shall bear (together with any other legend customarily placed on certificates
representing such stock) a conspicuous legend describing the right of first
refusal provided under Section 11.07 and identifying the restrictions upon the
transfer of such shares imposed under federal and state securities laws and
regulations. The legend shall state that the shares have been issued without
registration under the federal or state securities laws, (and, if applicable,
are "restricted securities" as that term is defined in Rule 144 (promulgated
pursuant to the Securities Act of 1933)) and may be transferred only in
compliance with the restrictions on resale set forth in Rule 144. Anything to
the contrary herein notwithstanding, no purchase of Company Stock shall be made
pursuant to this Article if such purchase would violate federal or state law
statutes, regulations or rulings.
11.10 Execution of Documents
In the event that a purchase of shares is made by the Trustee
or the Sponsoring Company as provided for in Article XI, the distributes shall
execute, at such time as requested by the Trustee, such stock powers or other
documents required by the Trustee to transfer and convey ownership of the
shares purchased to the Trustee or the Sponsoring Company.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
RESPECTING PARTICIPANTS
12.01 Participants to Furnish Required Information.
12.01(1) Each Participant shall furnish to the Committee such
information as the Committee considers necessary or desirable for purposes of
administering the Plan, and the provisions of the Plan respecting any payments
hereunder are conditional upon the Participant's furnishing promptly such true,
full and complete information as the Committee may reasonably request.
12.01(2) Each Participant shall submit proof of such
Participant's age to the Committee. The Committee shall, if such proof of age
is not submitted as required, use as conclusive evidence thereof, such
information as is deemed by it to be reliable, regardless of the source of
such information. Any adjustment required by reason of lack of proof or the
misstatement of the age of persons entitled to benefits hereunder, by the
Participant or otherwise, shall be in such manner as the Committee deems
equitable.
12.01(3) Any notice or information which according to the
terms of the Plan or the rules of the Committee must be filed with the
Committee, shall be deemed so filed if addressed and either delivered in
person or mailed, postage fully prepaid, to the Committee. Whenever a
provision herein requires that a Participant (or the Participant's
Beneficiary) give notice to the Committee within a specified number of days or
by a certain date, and the last day of such period, or such date, falls on a
Saturday, Sunday, or Employer holiday, the Participant (or the Participant's
Beneficiary) will be deemed in compliance with such provision if notice is
delivered in person to the Committee or is mailed, properly addressed, postage
prepaid, and postmarked on or before the business day next following such
Saturday, Sunday or Employer holiday. The Committee may, in its sole
discretion, modify or waive any specified notice requirement; provided,
however, that such modification or waiver must be administratively feasible,
must be in the best interest of the Participant, and must be made on the basis
of rules of the Committee which are applied uniformly to all Participants.
12.02 Participants' Rights in Trust Fund. No Participant or other
person shall have any right, title or interest in, to or under the Trust Fund,
or any part of the assets thereof, except and to the extent expressly provided
in the Plan.
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12.03 Inalienability of Benefits.
12.03(1) Restrictions on Assignment. The benefits provided
hereunder are intended for the personal security of persons entitled to
payment under the Plan, and are not subject in any manner to the debts or other
obligations of the persons to whom they are payable. The interest of a
Participant or such Participant's Beneficiary or Beneficiaries may not be sold,
transferred, assigned or encumbered in any manner, either voluntarily or
involuntarily, and any attempt so to anticipate, alienate, sell, transfer,
assign, pledge, encumber, or charge the same shall be null and void; neither
shall the Trust Fund nor any benefits thereunder or hereunder be liable for or
subject to the debts, contracts, liabilities, engagements or torts of any
person to whom such benefits or funds are payable, nor shall they be subject to
garnishment, attachment, or other legal or equitable process nor shall they be
an asset in bankruptcy. All of the provisions of this Section 12.03, however,
are subject to Section 11.03 to withholding of any applicable taxes and to
assignments permitted by Code Section 401(a)(13).
12.03(2) Exception for Benefit Payable Pursuant to a Qualified
Domestic Relations Order.
(a) The prohibitions contained in Subsection
12.03(1) hereof shall not apply to the creation, assignment or
recognition of a right to any benefit payable with respect to a Participant
pursuant to a Qualified Domestic Relations Order.
(b) The Plan Administrator shall establish
written procedures for the determination of the qualified status of a
domestic relations order.
(c) Upon receiving a domestic relations order,
the Plan Administrator shall notify the Participant and Alternate Payee
named in the order, in writing, of the receipt of the order and the Plan's
procedures for determining the qualified status of the order. Within a
reasonable period of time after receiving the domestic relations order, the
Plan Administrator shall determine the qualified status of the order and shall
notify the Participant and the Alternate Payee, in writing, of its
determination. The Plan Administrator shall provide notice under this paragraph
by mailing such notice to the individual's address specified in the domestic
relations order, or in a manner consistent with Department of Labor
regulations.
(d) During any period in which the issue of
whether a domestic relations order is a Qualified
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Domestic Relations Order is being determined, notwithstanding any other
provision of the Plan to the contrary, the Committee shall segregate in a
separate account the amounts which would have been payable during such period
to an Alternate Payee pursuant to a Qualified Domestic Relations Order, if such
order had been determined to be a Qualified Domestic Relations Order. During
the period such amounts are segregated in a separate account under the Plan,
such amounts shall remain subject to the general investment provisions of the
Plan. If within the eighteen (18) month period beginning with the date on which
the first payment would be required to be made under such domestic relations
order, the domestic relations order is determined to be a Qualified Domestic
Relations Order, the Committee shall direct the Trustee to distribute to the
Alternate Payee the segregated amounts including any earnings (or losses)
thereon in accordance with Section 11.05 and the order. However, if within such
eighteen (18) month period, it is determined that such order is not qualified,
or if by the end of such eighteen (18) month period the issue of qualification
is not resolved, then the Committee shall pay the segregated amounts including
any earnings (or losses) thereon to the person or persons who would have been
entitled to such amounts if there had been no such order.
(e) Notwithstanding any other provision of the
Plan to the contrary, all rights and benefits, including rights to make
elections or to give directions, provided to a Participant under this Plan
shall be subject to the rights, benefits and elections or directions afforded
to an Alternate Payee, pursuant to a Qualified Domestic Relations Order, and
this Plan shall be interpreted and administered by the Committee in such manner
as to effectuate the provisions of any such Qualified Domestic Relations Order
as they relate to the rights, benefits and elections or directions afforded to
such Alternate Payee under such Qualified Domestic Relations Order.
Furthermore, to the extent provided in any such Qualified Domestic Relations
Order, a former spouse of a Participant shall be treated as a spouse or
surviving spouse for all applicable purposes under the Plan.
(f) The Trustee shall make any payments or
distributions required under this Subsection 12.03(2) by separate
benefit checks or other separate distribution to the Alternate Payee(s).
12.04 Conditions of Employment Not Affected By Plan. Neither the
Plan nor the Trust nor the Trust Agreement shall confer on any employee,
including any Participant, any right to be retained in the service of any
Employer or any Affiliated Company, and nothing contained herein or in the
Trust Agreement
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shall be construed in any way to limit or restrict the right of any Employer or
any Affiliated Company to discharge any employee, regardless of whether such
employee is a Participant, or to change such employee's position or the basis
or amount of such employee's compensation.
12.05 Address for Mailing of Benefits.
12.05(1) Each Participant and each other person entitled to
benefits hereunder shall file with the Committee from time to time in writing
such Participant's post office address and each change of address. Any check
representing payment hereunder and any communication addressed to a
Participant, an Employee or Beneficiary, at such person's last address filed
with the Committee, or if no such address has been filed, then at such person's
last address as indicated on the records of an Employer, shall be deemed to
have been delivered to such person on the date on which such check or
communication is deposited, postage prepaid, in the United States mail.
12.05(2) If the Committee is in doubt as to whether payments
are being received by the person entitled thereto, it shall, by registered mail
addressed to the person concerned, at his address last known to the Committee,
notify such person that all unmailed and future payments shall be withheld
until he provides the Committee with a sworn statement, properly notarized,
evidencing his continued life and his proper mailing address.
12.06 Unclaimed Account Procedure. Neither the Trustee nor the
Committee shall be obliged to search for, or ascertain the whereabouts of any
Participant, Beneficiary or Alternate Payee. The Committee, by certified or
registered mail addressed to such Participant's, Beneficiary's or Alternate
Payee's last known address, shall notify the Participant, Beneficiary or
Alternate Payee that such Participant, Beneficiary or Alternate Payee is
entitled to a distribution under this Plan, and the notice shall quote the
provisions of this Section 12.06. The Committee shall utilize the services of
the Internal Revenue Service (pursuant to its Policy Statement P-1-187 or any
successor thereto) in attempting to ascertain the current mailing address of a
Participant, Beneficiary or Alternate Payee. Any distribution or payment which
is not claimed by the person entitled thereto within a period of seven (7) full
years after such person is entitled thereto, or such shorter period as may be
necessary to prevent escheat under the state escheat laws, shall be forfeited.
Such forfeited amounts shall be added to Forfeitures and reallocated as herein
provided. Should such person make a claim for such
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forfeited benefit which is approved by the Committee, such benefit shall be
reinstated in such manner as the Committee determines to be equitable and in
accordance with law, specifically including the following manner:
The Employer for whom such Participant was employed shall immediately
contribute to the Plan an amount equal to the amount previously forfeited (but
without interest on such amount for the period from the date of such Forfeiture
to the date of such contribution), and such special contribution shall be
specially allocated for the benefit of such Participant or Beneficiary.
Immediately upon receipt of such contribution and allocation to such
Participant or Beneficiary, the Committee shall instruct the Trustee to
distribute in a lump sum, directly to such Participant or Beneficiary, the
amount of such contribution specially allocated to such Participant or
Beneficiary.
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ARTICLE XIII
ADMINISTRATION OF THE PLAN
13.01 Appointment of Committee. The administration of the Plan will
be the responsibility of the Committee which shall be appointed by the Board
and shall consist of one (1) or more members. Each member of the Committee
shall serve for a term of one (1) year and until his successor shall be
appointed. A member may serve for more than one (1) term. If the Committee
consists of more than one member, the Board shall appoint one (1) of the
members as Chairman. The Board shall be authorized to remove any member of the
Committee with or without cause by notifying such member and the Chairman, in
writing, and may fill vacancies in the Committee, however caused. A member of
the Committee may resign upon ten (10) days' prior notice by delivery of his
written resignation to the Board and other members of the Committee. The
Committee shall have the sole power, duty and responsibility for directing the
administration of the Plan in accordance with its provisions.
13.02 Compensated Expenses of the Committee. The members of the
Committee shall serve without compensation for their services as such, but the
reasonable and necessary expenses of the Committee shall be paid as provided in
Section 13.14. When, in its discretion, the Committee, or any Employer, deems
it advisable, the Committee shall be authorized to have the records of the
Committee and the Trustee audited by an independent auditor, and reasonable and
necessary expenses thereby incurred shall be paid as provided in Section 13.14
hereof.
13.03 Secretary and Agents of the Committee. The Committee may
appoint a Secretary who may, but need not, be a member of the Committee, and
may employ such agents and such clerical and other administrative personnel as
reasonably may be required for the purpose of administering the Plan. Such
administrative personnel shall carry out the duties and responsibilities
assigned to them by the Committee. Expenses necessarily incurred for such
purpose shall be paid by the Trust Fund unless paid by the Employers, as
provided in Section 13.14.
13.04 Actions of Committee.
13.04(1) A majority of the members of the Committee shall
constitute a quorum for the transaction of business, and shall have full power
to act hereunder. Action by the Committee shall be official if approved by a
vote of a
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majority of the members present at any official meeting. The Committee may,
without a meeting, authorize or approve any action by written instrument signed
by a majority of all of the members. Any written memorandum signed by the
Chairman, or any other member of the Committee, or by any other person duly
authorized by the Committee to act, in respect of the subject matter of the
memorandum, shall have the same force and effect as a formal resolution
adopted in open meeting. The Committee shall give to the Trustee any order,
direction, consent, certificate or advice required or permitted under the terms
of the Trust Agreement, and the Trustee shall be entitled to rely on, as
evidencing the action of the Committee, any instrument delivered to the Trustee
when: (i) if a resolution, it is certified by the Chairman and Secretary, or
(ii) if a memorandum, it is signed by a majority of all of the members of the
Committee, or by a person who shall have been authorized to act for the
Committee in respect of the subject matter thereof.
13.04(2) A member of the Committee may not vote or decide upon
any matter relating solely to him or vote in any case in which his individual
right or claim to any benefit under the Plan is specifically involved. If, in
any case in which a Committee member is so disqualified to act, the remaining
members then present cannot, by majority vote, act or decide, the Board will
appoint a temporary substitute member to exercise all of the powers of the
disqualified member concerning the matter in which he is disqualified.
13.04(3) The Committee shall maintain minutes of its meetings
and written records of its actions, and as long as such minutes and written
records are maintained, members may participate and hold a meeting of the
Committee by means of conference telephone or similar communications equipment
which permits all persons participating in the meeting to hear each other.
Participation in such a meeting constitutes presence in person at such meeting.
13.05 Authority of Committee. The Committee is authorized to take
such actions as may be necessary to carry out the provisions and purposes of
the Plan and shall have the authority to control and manage the operation and
administration of the Plan. in order to effectuate the purposes of the Plan,
the Committee shall have the fiduciary power to construe and interpret the
Plan, to supply any omissions therein, to reconcile and correct any errors or
inconsistencies, to decide any questions in the administration and application
of the Plan, and to make equitable adjustments for any mistakes or errors made
in the administration of the Plan. All such actions or determinations made by
the Committee, and the application of rules and regulations to a
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particular case or issue by the Committee, in good faith, shall not be subject
to review by anyone, but shall be final, binding and conclusive on all persons
ever interested hereunder. In construing the Plan and in exercising its
fiduciary power under provisions requiring Committee approval, the Committee
shall attempt to ascertain the purpose of the provisions in question and when
such purpose is known or reasonably ascertainable, such purpose shall be given
effect to the extent feasible. Likewise, the Committee is, in the exercise of
its fiduciary powers, authorized to determine all questions with respect to the
individual rights of all Participants and their Beneficiaries and Alternate
Payees under this Plan, including, but not limited to, all issues with respect
to eligibility, Compensation, service, valuation of Accounts, allocation of
consolidated contributions and Trust Fund earnings, and retirement or
Termination of Employment, and shall direct the Trustee concerning the
allocation, payment and distribution of all funds held in trust for purposes of
the Plan. The Committee, in the exercise of any discretionary powers hereunder,
shall not exercise that discretion so as to discriminate in favor of Employees
who are officers, shareholders, or highly compensated Employees. The Committee
shall establish investment objectives and monitor, or cause to be monitored,
the investment performance of the Trustee which may be appointed with respect
to any assets of the Plan, and shall make such reports and give such
recommendations to the Board as it requests with respect thereto.
13.06 General Administrative Powers. The Committee shall have
authority to make, and from time to time, revise, rules and regulations for the
administration of the Plan.
13.07 Plan Administrator. "Plan Administrator" shall mean the
Committee. The Plan Administrator shall exercise such authority and
responsibility as it deems appropriate to comply with the provisions of federal
law and governmental regulations issued thereunder and to carry out any duties
imposed hereby, including, but not limited to, records of Participants'
service, accrued benefits and the percentage of such benefits which are
nonforfeitable under the Plan, notification to Participants, annual
registration with the Internal Revenue Service, annual reports to the
Department of Labor, and furnishing the Trustee with any directions or
information regarding income tax withholding required by law. The Plan
Administrator is hereby designated as the agent for service of process unless
the Committee designates another person or entity.
13.08 Duties of Administrative Personnel. Administrative personnel
appointed pursuant to Section 13.03 hereof, shall be
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responsible for such matters as the Committee shall delegate to them by written
instrument, including, but not limited to communications to Employees at the
direction of the Committee, reports to the Committee involving questions of
eligibility and the amount of Compensation of Participants, assisting
Participants, Beneficiaries and Alternate Payees in the completion of forms
prescribed by the Committee, maintenance of records concerning terminated
vested Participants, Participants who have retired and Beneficiaries.
Administrative personnel may not make any decision as to Plan policy,
interpretations, practices or procedures unless the authority to make such
decisions has been delegated to them in writing by the Committee and they
accept fiduciary responsibilities in accordance with the provisions of Section
13.09 hereof. All administrative personnel shall perform their allocated
function within the policies, interpretations, rules, practices and procedures
established by the Committee, except that administrative personnel shall
coordinate matters related to the Plan with the appropriate departments of each
Employer as the Committee directs.
13.09 Designation of Named Fiduciaries and Allocation of
Responsibility. ERISA requires that certain persons, who are deemed to be
"fiduciaries," as defined in ERISA Section 3(21)(A), be designated as "Named
Fiduciaries" in the Plan. The Board, the Committee and the Plan Administrator
are hereby designated Named Fiduciaries. Each Named Fiduciary shall have only
the powers, duties and responsibilities specifically allocated to such
fiduciary pursuant to the terms of this Plan. The Board shall not have any
power or fiduciary responsibility hereunder other than (i) the power to name
and to remove the persons who shall comprise the Committee and to continue to
those persons such allocation of fiduciary responsibilities, (ii) the power to
establish or change the Investment Funds, and (iii) the power to appoint (and
remove) the Trustee. Each Named Fiduciary may, by written instrument, allocate
some or all of its responsibilities to another fiduciary or designate another
person to carry out some or all of its fiduciary responsibilities. The
Committee, Plan Administrator and each other fiduciary under the Plan
(including fiduciaries to whom responsibilities are allocated by a Named
Fiduciary) will be furnished a copy of the Plan, and their acceptance of such
responsibility will be made by agreeing in writing to act in the capacity
designated. No Named Fiduciary shall be liable for an act or omission of any
person who is allocated a fiduciary responsibility or who is designated to
carry out such responsibility by a Named Fiduciary, except to the extent that
the Named Fiduciary did not act in accordance with the standards contained in
Subsection 13.10(2) hereof with respect to the allocation or
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designation of a fiduciary duty. Any person or group of persons may serve in
more than one (1) fiduciary capacity with respect to the Plan.
13.10 Action by Fiduciaries.
13.10(1) Any action herein permitted or required to be taken
by an Employer shall, subject to the provisions of Section 20.07 hereof, be by
resolution of its board of directors or by written instrument signed by a
person or group of persons who has been authorized by resolution of such board
of directors as having authority to take such action. Any action herein
permitted or required to be taken by the Committee shall be in the manner
specified in Section 13.04 hereof.
13.10(2) Each fiduciary with respect to the Plan shall perform
all of his duties and responsibilities and exercise his powers hereunder with
the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of like character and with
like aims, and no fiduciary shall be liable for any act or failure to act on
his part (including reliance on the advice of counsel) which conforms to that
standard, unless: (i) he knowingly participates in or knowingly undertakes to
conceal an act or omission of another fiduciary of the Plan, with the knowledge
that such act or omission is a breach of fiduciary responsibility, or (ii)
knowing of a breach of fiduciary responsibility, he fails to make reasonable
efforts under the circumstances to remedy the breach, or (iii) by failing to
carry out his specific responsibilities, in accordance with such standard, he
has enabled another fiduciary of the Plan to commit a breach.
13.10(3) Each fiduciary shall furnish or cause to be furnished
to each other fiduciary all information needed for the proper performance of
its duties. Each fiduciary warrants that any directions given, information
furnished or action taken by it shall be in accordance with the provisions of
the Plan or the Trust Agreement, as the case may be, authorizing or providing
for such direction, information or action.
13.11 Bond. The Plan Administrator shall see that the appropriate
fiduciaries are bonded as required by federal law or regulation. Except as
required by the Board or by state or federal statute, irrespective of this
provision, no bond or other security shall be required of any fiduciary.
13.12 Indemnity. In the event and to the extent not insured against
under any contract of insurance with an
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insurance company, the Employers shall indemnify and hold harmless each
"Indemnified Person", as defined below, against any and all claims, demands,
suits, proceedings, losses, damages, interest, penalties, expenses
(specifically including, but not limited to counsel fees to the extent approved
by the Board or otherwise provided by law, court costs and other reasonable
expenses of litigation), and liability of every kind, including amounts paid in
settlement, with the approval of the Board, arising from any action or cause of
action related to the Indemnified Person's act or acts or failure to act. Such
indemnity shall apply regardless of whether such claims, demands, suits,
proceedings, losses, damages, interest, penalties, expenses, and liability
arise in whole or in part from (i) the negligence or other fault of the
Indemnified Person, except when the same is judicially determined to be due to
gross negligence, fraud, recklessness, willful or intentional misconduct of
such Indemnified Person or (ii) from the imposition on such Indemnified Person
of any penalties imposed by the Secretary of Labor, pursuant to Section 502(l)
of ERISA, relating to any breaches of fiduciary responsibility under Part 4 of
Title I of ERISA. "Indemnified Person" shall mean each member of the Board and
the Committee, each other individual who is allocated fiduciary responsibility
hereunder, and each individual otherwise acting in an administrative capacity
with respect to the Plan.
13.13 Payment of Expenses. The expenses of agents or advisers, and
any other reasonable expenses of the Committee approved by the Sponsoring
Company or as otherwise provided for in Section 13.02, shall be paid by the
Plan out of the Trust Fund unless paid by the Employers. If such expenses are
to be paid by the Employers, the portion thereof payable by each shall be
determined by the ratio that the number of Participants who are Employees of
each Employer bears to the total of all such Participants; provided, that if
any expense is incurred solely on account of a single Employer or group of
Employers, such expense shall be paid by such Employer or Employers to the
extent and in such proportion as the Sponsoring Company may determine.
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ARTICLE XIV
PARTICIPATION BY EMPLOYEES
14.01 Adoption of Plan by Affiliated Company. Any Affiliated Company,
whether or not presently existing, may adopt this Plan, effective as of the
date indicated in the instrument of adoption, if (i) its application is made in
writing to the Board, (ii) such application is accepted in writing by the
Board, and (iii) such Affiliated Company executes an instrument in writing duly
authorized by it adopting this Plan and the Trust forming a part hereof and
delivers a copy thereof to the Committee, the Trustee and to the Board. The
provisions of this Plan shall apply only to each Employer severally, except as
otherwise specifically provided herein or in such Employer's instrument of
adoption.
14.02 Rights and Obligations of the Sponsoring Company and the
Employers. Throughout this instrument, a distinction is purposely drawn between
rights and obligations of the Sponsoring Company and rights and obligations of
each other Employer. The rights and obligations specified as belonging to the
Sponsoring Company shall belong only to the Sponsoring Company. Each Employer
shall have the obligation, as hereinafter provided, to make Company
Contributions for its own Participants, and no Employer shall have the
obligation to make Company Contributions for the Participants of any other
Employer. Any failure by an Employer to fulfill its own obligations under this
Plan shall have no effect upon any other Employer. An Employer may withdraw
from this Plan without affecting any other Employer.
14.03 Withdrawal from Plan.
14.03(1) Notice of Withdrawal. Any Employer may, as of any
Valuation Date, withdraw from the Plan upon giving the Committee, the
Sponsoring Company and the Trustee at least sixty (60) days' notice in writing
of its intention to withdraw.
14.03(2) Trustee Segregation of Trust Assets Upon Withdrawal.
Upon the withdrawal by an Employer pursuant to this Article, the Trustee shall
segregate the share of the assets in the Trust Fund, the value of which shall
equal the total credited to the Accounts of Participants of the withdrawing
Employer. The determination as to which assets are to be so segregated shall be
made by the Trustee in its sole discretion.
14.03(3) Exclusive Benefit of Participants. Neither the
segregation and transfer of any Trust assets upon
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the withdrawal of an Employer nor the execution of a new agreement and
declaration of trust by such withdrawing Employer shall operate to permit any
part of the Trust Fund to be used for or diverted to purposes other than for
the exclusive benefit of the Participants.
14.03(4) Applicability of Withdrawal Provisions. The
withdrawal provisions contained in this Article XIV shall be applicable only if
the withdrawing Employer continues to cover its Participants and eligible
Employees in another defined contribution plan and trust qualified under Code
Sections 401 and 501. Otherwise, the termination provisions of the Plan and
Trust shall apply.
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ARTICLE XV
AMENDMENT OF THE PLAN
The Sponsoring Company reserves the right to amend the Plan with
respect to all Employers at any time and from time to time. Each Employer may
amend the Plan with respect to such Employer at any time, and from time to
time, provided the Sponsoring Company approves such amendment. No amendment
shall permit any part of the Trust Fund to revert to or be recoverable by an
Employer or be used for or diverted to purposes other than the exclusive
benefit of the Participants or their Beneficiaries, or deprive any Participant
of any interest he might have in the Trust Fund at the time of the amendment to
the extent that such interest would be available to the Participant under
Article X hereof were he to voluntarily resign as of the effective date of the
amendment.
(a) Under no condition, shall such amendment, amendments, or
restatements increase the duties or responsibilities, or decrease the
compensation, privileges, and immunities of the Trustee without the Trustee's
written consent.
(b) Under no condition, shall such amendment change the vesting
schedule to one which would result in the nonforfeitable percentage of the
accrued benefit derived from Company Contributions (determined as of the later
of the date of the adoption of the amendment or of the effective date of the
amendment) of any Participant being less than such nonforfeitable percentage
computed under the Plan without regard to such amendment; no amendment shall
change the vesting schedule unless each Participant with three (3) or more
Vesting Years of Service (determined without regard to the provisions of
Section 10.02) as of the expiration date of the election period described
below, is permitted to elect, within the election period described below, to
have his nonforfeitable percentage computed under the Plan without regard to
the amendment. The election period described herein shall begin no later than
the date upon which the amendment is adopted and shall end no later than the
latest of the following dates: (i) the date which is sixty (60) days after the
day the amendment is adopted, (ii) the date which is sixty (60) days after the
day the amendment becomes effective, or (iii) the date which is sixty (60) days
after the day the Participant is issued a written notice of the amendment by
the Sponsoring Company.
(c) Subject to the above stated limitations and the requirement
that no amendment shall eliminate, except with respect to any future
contributions or future accrual of benefits, any nondiscretionary optional form
of payment (as
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provided in Treasury Regulation Section 1.411(d)-4, and Treasury Regulation
Section 1.401(a)(4)-4(d) with respect to Plan Years beginning after January 1,
1992, and Code Section 411(d)(6)) with respect to any Participant who is a
Participant immediately prior to the amendment, the Sponsoring Company shall
have the power to amend the Plan and Trust Agreement, retroactively or
otherwise, in any manner in which it deems desirable, including, but not by way
of limitation, the power to change any provisions relating to the
administration of the Plan and Trust Fund, and to change any provisions
relating to the benefits or payment of any of the assets of the Trust Fund.
Each such amendment shall become effective when executed by the Sponsoring
Company unless a different effective date is specified in the amendment.
(d) Notwithstanding anything herein to the contrary, this Plan may
be amended at any time by the Sponsoring Company if necessary or desirable in
order to have it conform to the provisions and requirements of the Code or any
federal statute with respect to qualified employees' plans and trusts, and no
such amendment shall be considered prejudicial to the rights of any Participant
hereunder or of any Beneficiary, Alternate Payee or Employee. Further, it is
understood that any provisions of this Plan as herein contained which are
contrary to the requirements of the Code for a qualified tax exempt employees'
plan and trust shall be deemed void and of no effect, without affecting the
validity of other provisions hereof.
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ARTICLE XVI
PERMANENCY OF THE PLAN
16.01 Right to Terminate Plan. Each Employer contemplates that the
Plan shall be permanent and that it shall be able to make contributions to the
Plan. Nevertheless, in recognition of the fact that future conditions and
circumstances cannot now be entirely foreseen, the Sponsoring Company reserves
the right to terminate the Plan and each Employer reserves the right to
terminate the Plan as to such Employer.
16.02 Merger or Consolidation of Plan and Trust. Neither the Plan
nor the Trust may be merged or consolidated with, nor may its assets or
liabilities be transferred to, any other plan or trust, unless each Participant
would (if the Plan then terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the merger,
consolidation, or transfer (if the Plan had then terminated).
16.03 Continuance by Successor Company. In the event of the
liquidation, dissolution, merger, consolidation or reorganization of an
Employer, the successor company may adopt the Plan and Trust for the benefit of
the Employees of such Employer. If such successor company does adopt the Plan
and Trust, it shall, in all respects, be substituted for such Employer under
the Plan and Trust. Any such substitution of such successor company shall
constitute an assumption of Plan liabilities by such successor company, and
such successor company shall have all of the powers, duties and
responsibilities of such Employer under the Plan and Trust. If such successor
company does not adopt the Plan and Trust, the Plan and Trust shall be
terminated with respect to such Employer in accordance with the provisions of
the Plan and Trust Agreement.
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ARTICLE XVII
TERMINATION
17.01 Termination of Plan and Trust. If an Employer determines to
terminate (as to such Employer) the Plan and Trust completely, it shall be
terminated insofar as they are applicable to such Employer as of the date
specified in certified copies of resolutions or other formal written instrument
pursuant to Section 20.07 hereof, delivered to the Committee and the Trustee.
Upon such termination of the Plan and Trust and before liquidation of the
Trust, the Committee shall require a special valuation of the Trust, if the
liquidation is not to occur as of a Valuation Date. After payment of all
expenses and proportional adjustment of Accounts of Participants with respect
to such Employer to reflect such expenses, Trust Fund profits or losses, and
subject to the limitations contained in Section 5.03 hereof, allocations of any
previously unallocated funds to the date of termination, such Employer's
Participants shall be entitled to receive the amount then credited to their
respective Accounts in the Trust Fund in a lump sum payment. If, in the opinion
of the Committee, assets in the Trust Fund or certain of them may possibly not
be readily salable (i) because of federal or state securities laws, or the
rules and regulations thereunder, or (ii) at their fair market value, the
Committee may direct and the Trustee shall effect, a distribution of such
assets in kind. If the entire Plan is terminating, upon completion of
liquidation and distribution of the assets of the Trust to the Participants as
provided for herein, the Trustee shall thereby complete the Trustee's duties,
and the Trust shall terminate.
17.02 Participant's Rights to Benefits upon Termination or Partial
Termination of Plan. Upon the termination or partial termination (as determined
by the Internal Revenue Service) of the Plan by an Employer, the rights of each
such Employer's Employees who are then Participants (or, in the case of a
partial termination, who are then Participants affected by the partial
termination) and the rights of each other person, other than a person who has
forfeited his Nonvested Amounts pursuant to Section 10.04 hereof prior to the
effective date of such termination (or partial termination) to the amounts
credited to his Accounts at such time shall be nonforfeitable without reference
to any formal action on the part of such Employer, the Committee or the
Trustee.
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ARTICLE XVIII
EXCLUSIVE BENEFIT OF THE PLAN
18.01 Limitation on Reversions. Except as otherwise provided in this
Article XVIII, it shall be impossible, at any time, for any part of the Trust
Fund, other than such part as is required to pay taxes and administration
expenses or such part as may otherwise be permitted by law to be returned to
the Employer, to be recoverable by an Employer, or to be used for, or diverted
to, purposes other than for the exclusive benefit of the Participants,
Beneficiaries and Alternate Payees.
18.02 Unallocated Amounts upon Termination of Plan and Trust. In the
event the Plan and Trust are terminated, any previously unallocated amounts
maintained in the suspense account in accordance with the provisions of Section
5.03 hereof which cannot be allocated to Participants upon the termination of
the Plan and Trust pursuant to Section 17.01 hereof because of the limitations
contained in Sections 5.03 through 5.06 hereof, shall revert to the Employer or
Employers employing the Participant at the time of such termination.
18.03 Mistake of Fact or Disallowance of Deduction. If the Committee
in good faith determines that (a) a Company Contribution was made by reason of
a mistake of fact, or (b) a Company Contribution is conditioned on its being
deductible under Code Section 404, but the Internal Revenue Service disallows
such deduction, or (c) a Company Contribution is conditional upon its being
reimbursed by the Health Care Financing Administration or its intermediary and
such reimbursement is disallowed, the Trustee shall, upon direction of the
Committee, return the amount of the excess Company Contributions to the
contributing Employer. All payments of returned Company Contributions under
this Section shall be made within one (1) year from the date of the payment of
such mistaken Company Contribution or the disallowance by the Internal Revenue
Service of the deduction or disallowance by the Health Care Financing
Administration of the reimbursement, whichever is applicable. The amount of the
excess Company Contribution shall be the excess of (1) the amount contributed
over (2) the amount that would have been contributed had there not occurred a
mistake of fact or had the deduction or expense not been disallowed. Earnings
attributable to the excess Company Contribution shall not be returned to the
contributing Employer, but losses attributable thereto shall reduce the amount
of such Company Contribution to be so returned. Furthermore, if the withdrawal
of the amount attributable to the mistaken Company Contribution would cause the
balance of a Participant's Account to be reduced to an amount which is less
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than the balance which would have been in said Account had the mistaken amount
not been contributed, then the amount to be returned to the Employer under this
Section will be reduced so as to avoid any such reduction.
18.04 Failure of Qualification of Plan and Trust. The initial
establishment of the Plan and Trust by any Employer is contingent upon
obtaining the approval of the Internal Revenue Service. In the event that the
Internal Revenue Service fails initially to approve the Plan and Trust as to
any Employer and the application for determination of the initial qualification
of the Plan was made within the time prescribed by law for filing the
Employer's Federal income tax return for the taxable year in which the Plan was
adopted, or such later date as the Secretary of the Treasury may prescribe, the
Trustee shall, after paying any expenses attributable to such initial
establishment, return to such Employer any remaining Company Contribution made
by such Employer. Such remaining Company Contribution shall be returned as
promptly as practicable, but in no event later than one (1) year after the date
of the final denial of qualification of the Plan as to such Employer, including
the final resolution of any appeals before the Internal Revenue Service or the
courts.
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ARTICLE XIX
TOP HEAVY PLAN RULES
19.01 Definitions. As used in this Article XIX:
19.01(1) "Defined Benefit Plan" shall have the meaning set
forth in Subsection 5.06(2) hereof.
19.01(2) "Defined Contribution Plan" shall have the meaning
set forth in Subsection 5.06(4) hereof.
19.01(3) "Determination Date" shall mean with respect to any
Plan Year, the last day of the preceding Plan Year, except that in the case of
the first Plan Year of any plan, the last day of such first Plan Year.
19.01(4) "Key Employee" shall mean any person employed or
formerly employed by any Employer or Affiliated Company (and the beneficiaries
of any such person) who is, at any time during the Plan Year, or who was,
during any one or more of the four (4) preceding Plan Years, any one or more of
the following:
(a) An officer of an Employer or an Affiliated
Company having Limitation Year Compensation for the applicable Plan Year
greater than fifty percent (50%) of the maximum dollar limitation under Code
Section 415(b)(1)(A) (as in effect for the calendar year in which the
Determination Date for such Plan Year falls).
(b) one of the ten (10) persons employed by an
Employer or an Affiliated Company having Limitation Year Compensation for the
applicable Plan Year greater than the maximum dollar limitation under Code
Section 415(c)(1)(A) as in effect for the calendar year in which the
Determination Date for such Plan Year falls, and owning (or considered as
owning within the meaning of Code Section 318) both more than one-half of one
percent (1/2 of 1%) interest and the largest interests in the Employer or an
Affiliated Company. For purposes of this Subsection (b): (i) a person who has
some ownership interest is considered to be one of the top ten (10) owners
unless at least ten (10) other persons own a larger interest than that person,
and (ii) if two (2) or more persons have the same ownership interest in the
Employer or an Affiliated Company, the person having greater annual Limitation
Year Compensation from all Employers and Affiliated Companies shall be treated
as having the larger interest.
(c) Any person owning (or considered as owning
within the meaning of Code Section 318) more than five
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percent (5%) of the outstanding stock of an Employer or an Affiliated Company
or stock possessing more thin five percent (5%) of the total combined voting
power of such stock or more than five percent (5%) of the capital or profits
interest of an Employer or an Affiliated Company which is not a corporation.
(d) A person who would be described in Subsection
(c) above if "one percent (1%)" were substituted for "five percent (5%)" each
place it appears in said Subsection (c), and whose aggregate annual Limitation
Year Compensation from all Employers and Affiliated Companies is more than One
Hundred Fifty Thousand Dollars ($150,000).
(e) Notwithstanding any other provision in this
Plan to the contrary, for purposes of determining ownership under this
Subsection 19.01(4), the rules of Code Sections 414(b), (c) and (m) shall not
apply in defining who is an Employer.
The determination of who is a Key Employee hereunder shall be made in
accordance with the provisions of Code Section 416(i)(1) and the regulations
thereunder.
19.01(5) "Key Employee Participant" shall mean a Participant
in this Plan who is a Key Employee.
19.01(6) "Limitation Year Compensation" shall have the meaning
set forth in Subsection 5.06(7) hereof but including amounts contributed by an
Employer or Affiliated Company pursuant to a salary reduction agreement which
are excludible from the Employee's gross income under Code Sections 125,
402(a)(8), 402(h) or 403(b), except that if the Limitation Year and the Plan
Year under the applicable plan are not the same, then for purposes of this
Article XIX, "Plan Year" shall be substituted for "Limitation Year" every place
it occurs in said Subsection 5.06(7).
19.01(7) "Non-Key Employee" shall mean any person employed or
formerly employed by any Employer or Affiliated Company, including the
Beneficiaries of any such person, who is not a Key Employee.
19.01(8) "Permissive Aggregation Group" shall mean the
Required Aggregation Group, plus any other plan or plans of any Employer or
Affiliated Company selected by the Sponsoring Company, provided that such
selected plans, when considered as a group) with the Required Aggregation
Group, would continue to satisfy the requirements of Code Sections 401(a)(4)
and 410.
19.01(9) "Required Aggregation Group" shall mean the group of
plans consisting of: (i) all tax qualified plans
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maintained by the Employers or Affiliated Companies in which at least one Key
Employee participates, and (ii) any other tax qualified plan maintained by the
Employers or Affiliated Companies which enables a plan described in clause (i)
above to meet the requirements of Code Sections 401(a)(4) or 410.
19.01(10) "Valuation Date" shall mean: (i) in the case of a
Defined Contribution Plan, the last day of the Plan Year for the appropriate
plan, and (ii) in the case of a Defined Benefit Plan, the date used for
computing plan costs for minimum funding, regardless of whether a valuation is
performed that year.
19.01(11) All of the definitions set forth in Article II
hereof and not set forth herein shall have the same meaning in this Article.
19.02 Determination of Top Heaviness.
19.02(1) This Plan shall be a "Top Heavy Plan" with respect to
any Plan Year if, as of the Determination Date for said Plan Year, any of the
following conditions exists:
(a) The Top Heavy Ratio for this Plan exceeds
sixty percent (60%), and this Plan is not part of a Required Aggregation Group
or a Permissive Aggregation Group.
(b) This Plan is part of a Required Aggregation
Group, but not part of a Permissive Aggregation Group, and the Top Heavy Ratio
for the Required Aggregation Group exceeds sixty percent (60%).
(c) This Plan is part of a Required Aggregation
Group and part of a Permissive Aggregation Group, and the Top Heavy Ratio for
the Permissive Aggregation Group exceeds sixty percent (60%).
19.02(2) This Plan shall be a "Super Top Heavy Plan" if it
would be a Top Heavy Plan under the provisions of Subsection 19.02(1) above if
"ninety percent (90%)" were substituted for "sixty percent (60%)" everywhere
sixty percent (60%) appears in said Subsection 19.02(1).
19.02(3) The "Top Heavy Ratio" referred to in Subsection
19.02(1) above shall be determined as follows:
(a) If the Employers or Affiliated Companies maintain
or have maintained one or more Defined Contribution Plans but have never
maintained a Defined Benefit Plan which during the five (5) year period ending
on the
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Determination Date(s) has covered or could cover a Participant in this Plan,
the Top Heavy Ratio for this Plan alone or for the Required Aggregation Group
or the Permissive Aggregation Group, as appropriate, is a fraction, the
numerator of which is the sum of the account balances under the Defined
Contribution Plans for all Key Employees as of the Determination Date
(including any part of any such account balance distributed in the five (5)
year period ending on the Determination Date), and the denominator of which is
the sum of all account balances under the Defined Contribution Plans for all
participants as of the Determination Date (including any part of any such
account balance distributed in the five (5) year period ending on the
Determination Date), both computed in accordance with Code Section 416 and the
regulations thereunder. Both the numerator and the denominator of the Top Heavy
Ratio shall be increased to reflect any contribution not actually made as of
the appropriate Determination Date but which is required to be taken into
account on that date under Code Section 416 and the regulations thereunder. In
determining the account balances which have been distributed in the five (5)
year period ending on the Determination Date, distributions under a terminated
plan shall be included, provided such terminated plan, if it had not been
terminated, would have been included in a Required Aggregation Group.
(b) If the Employers or Affiliated Companies
maintain one or more Defined Contribution Plans and maintain or have maintained
one or more Defined Benefit Plans which during the five (5) year period ending
on the Determination Date(s) have covered or could cover a Participant in this
Plan, the Top Heavy Ratio for any Required Aggregation Group or Permissive
Aggregation Group is a fraction, the numerator of which is the sum of account
balances under the aggregated Defined Contribution Plans for all Key Employees
determined in accordance with Subsection 19.03(3)(a) above, and the present
value of accrued benefits under the aggregated Defined Benefit Plans for all
Key Employees, both calculated as of the Determination Date, and the
denominator of which is the sum of the account balances under the aggregated
Defined Contribution Plans for all participants determined under Subsection
19.03(3)(a) above, and the present value of accrued benefits under the Defined
Benefit Plans for all participants, both calculated as of the Determination
Date, all determined in accordance with Code Section 416 and the regulations
thereunder. The accrued benefits under a Defined Benefit Plan in both the
numerator and denominator of the Top Heavy Ratio are increased for any
distribution of an accrued benefit made in the five (5) year period ending on
the appropriate Determination Date. In determining the account balances or
accrued benefits which have been distributed in the five (5)
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<PAGE> 99
year period ending on the Determination Date, distributions under a terminated
plan shall be included, provided such terminated plan, if it had not been
terminated would have been included in a Required Aggregation Group.
(c) For purposes of Subsections (a) and (b)
above, the value of account balances and the present value of accrued benefits
shall be determined as of the most recent Valuation Date that falls within or
ends with the twelve (12) month period ending on the Determination Date except
as provided in Code Section 416 and the regulations thereunder for the first
and second plan years of a Defined Benefit Plan. The present value of accrued
benefits under Defined Benefit Plans shall be determined using the single
accrual method used for all plans of the Employers and Affiliated Companies, or
if no such single method exists, using a method which results in benefits
accruing not more rapidly than the slowest accrual rate permitted under Code
Section 411(b)(1)(C) as of said Valuation Date as if the person voluntarily
terminated employment as of such Valuation Date. For Plan Years beginning prior
to January 1, 1987, the present value of accrued benefits shall be determined
under the provisions of the applicable Defined Benefit Plan without regard to
the preceding sentence. If any Participant was a Key Employee as set forth in
Subsection 19.01(4) above for any prior Plan Year, but such Participant ceases
to be a Key Employee for any Plan Year, such Participant's account balances
and accrued benefits shall not be taken into account for purposes of
determining whether or not this Plan is a Top Heavy Plan or a Super Top Heavy
Plan as of the Determination Date of said Plan Year. Accounts and accrued
benefits shall be calculated to include all amounts attributable to both
contributions by an Employer or an Affiliated Company and contributions by
persons employed by the Employer or Affiliated Company, but shall exclude
amounts attributable to voluntary deductible contributions by said persons. The
calculation of the Top Heavy Ratios, and the extent to which distributions,
rollovers and transfers are taken into account shall be made in accordance with
Code Section 416 and the regulations thereunder. When aggregating plans for
purposes of a Permissive Aggregation Group or a Required Aggregation Group, the
value of account balances and accrued benefits will be calculated with
reference to the Determination Dates that fall within the same calendar year.
Notwithstanding the provisions of Subsections (a) and (b) above, in determining
the fractions referred to therein, there shall not be taken into account the
accrued benefits or account balances of any person who has not performed
services for any Employer or Affiliated Company maintaining any Defined
Contribution Plan or Defined Benefit Plan referred to in such Subsections at
any time during the five (5) year period ending on the Determination Date.
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<PAGE> 100
19.03 Minimum Requirements. Notwithstanding any other provision of
this Plan to the contrary, if the Plan is a Top Heavy Plan for any Plan Year,
then the following provisions shall apply:
19.03(1) Compensation. For any Plan Year in which the Plan is
a Top Heavy Plan, only the first Two Hundred Thousand Dollars ($200,000) (or
such higher amount of which such amount shall be adjusted by the Secretary of
the Treasury or his delegate pursuant to Code Section 416(d)(2) to reflect
increases in the cost of living) of a Participant's Compensation shall be taken
into account for purposes of determining such Participant's allocable share of
any Company Contributions under the Plan.
19.03(2) Vesting. Any Participant who is credited with an Hour
of Service in the first Plan Year in which the Plan is a Top Heavy Plan, or in
any subsequent Plan Year after such first Plan Year (whether or not the Plan is
a Top Heavy Plan in such subsequent Plan Year) shall have his percentage of
vested benefits owing upon a Termination of Employment determined pursuant to
the following schedule, in lieu of the schedule set forth in Section 10.01
hereof:
Vesting Years of Service Percentage
------------------------ ----------
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
19.03(3) Required Minimum Allocation of Company Contributions.
Except as otherwise provided in this Article XIX and notwithstanding any other
provision of this Plan to the contrary, for any Plan Year in which the Plan is
a Top Heavy Plan, the Company Contributions allocated on behalf of each
Participant who is a Non-Key Employee shall not be less than the lesser of: (i)
three percent (3%) of such Participant's Limitation Year Compensation, or (ii)
the largest percentage of Company Contributions as a percentage of the first
Two Hundred Thousand Dollars ($200,000) of the Key Employee Participant's
Compensation, allocated on behalf of any Key Employee Participant for that Plan
Year; provided, however, that the provisions of clause (ii) hereof shall not
apply to any plan included in a Required Aggregation Group if such plan enables
a Defined Benefit Plan included in such Required Aggregation Group to meet the
requirements of Code Section 401(a)(4) or 410. The minimum allocation provided
for herein shall be
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<PAGE> 101
determined without taking into account any Social Security contributions and
shall be made without regard to any contrary provisions of the Plan regarding
the allocation of Company Contributions and Forfeitures to affected
Participants which might otherwise result in such Participant being entitled to
no allocation or a lesser allocation due to the Participant's failure to
complete one thousand (1,000) Hours of Service (or the equivalent) during the
Plan Year, the Participant's failure to make mandatory employee contributions,
or, in the case of a cash or deferred arrangement, elective contributions, or
the Participant's failure to earn a stated amount of Compensation; provided,
however, that such minimum allocation shall not be required to be made on
behalf of any Participant who is not actively employed by an Employer on the
last day of the applicable Plan Year. For purposes of this Section 19.03, all
Defined Contribution Plans required to be included in a Required Aggregation
Group shall be treated as one plan.
19.04 Minimum Benefits for Employers or Affiliated Companies
Maintaining Defined Benefit Plans. If any Participant who is a Non-Key Employee
is also a participant under a Defined Benefit Plan maintained by an Employer or
Affiliated Company which is also a Top Heavy Plan, then Subsection 19.03(3)
shall not apply, and such Participant shall receive an allocation of Company
Contributions and Forfeitures in an amount no less than five percent (5%) of
such Participant's Compensation under the Plan for the applicable Plan Year.
Such allocation shall be made without regard to the amount allocated under the
Plan on behalf of any Key Employee Participant for such Plan Year. For purposes
of this Section 19.04, all Defined Contribution Plans required to be included
in a Required Aggregation Group shall be treated as one plan.
19.05 Super Top Heavy Plans. If in any Plan Year in which the Plan
is a Top Heavy Plan: (i) it is also a Super Top Heavy Plan, or (ii) it does not
provide minimum benefits under Subsection 19.03(3) after substituting "four
percent (4%)" for "three percent (3%)" contained in clause (i) of the first
sentence of said Subsection, or (iii) if Section 19.04 hereof applies, it does
not provide minimum benefits under said Section 19.04 after substituting "seven
and one-half percent (7-1/2%)" for "five percent (5%)" contained in the first
sentence of said Section, then, in any such event, for purposes of the
definitions set forth in Subsections 5.06(3) and 5.06(5) hereof, the dollar
limitations contained in Code Sections 415(e)(2)(B) and 415(e)(3)(B) shall be
multiplied by 1.0 rather than 1.25. Notwithstanding the foregoing provisions of
this Section 19.05, if the application of said provisions would cause any
individual to exceed the combined limits of Section 5.05 hereof, if applicable,
then the requirements of this
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<PAGE> 102
Section 19.05 shall be suspended as to such individual until such time as he no
longer exceeds the limitations of said Section 5.05 as modified by this Section
19.05, and during the period of such suspension, said individual shall receive
no allocation of Company Contributions or Forfeitures, if any, and shall be
entitled to make no voluntary employee contributions, if any, under this Plan
or any other Defined Contribution Plan, maintained by an Employer or an
Affiliated Company, and there shall be no accruals of benefits for such
individual under any Defined Benefit Plan maintained by an Employer or an
Affiliated Company.
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<PAGE> 103
ARTICLE XX
MISCELLANEOUS
20.01 Effect of Bankruptcy and Other Contingencies Affecting an
Employer. Neither the bankruptcy, receivership, insolvency, liquidation,
dissolution, merger, consolidation or reorganization of an Employer, or any
other eventuality affecting the Employer, shall terminate the Trust or render
ineffectual this Plan or discharge any Employer from any liabilities to the
Trust for which it shall already have become obligated, but the same shall
continue in full force and effect as though such eventuality had not occurred;
however, the Committee shall in such event be authorized hereby to make any and
all rules and regulations not inconsistent with the purposes of the Plan as
shall be necessary to deal with such change in the situation of the Plan and
Trust.
20.02 Benefits Payable by Trust. All benefits payable under the Plan
shall be paid or provided for solely from the Trust Fund. No Employer assumes
any liability or responsibility therefor.
20.03 Withholding. The Plan Administrator shall determine whether or
not federal income tax withholding is required with respect to any distribution
or withdrawal hereunder, shall direct the Trustee to withhold any amounts
required by law to be withheld, and shall furnish the Trustee with any
information required by Treasury regulations regarding withholding.
Notwithstanding any other provision of this Plan to the contrary, all rights
and benefits of a Participant, Beneficiary or Alternate Payee are subject to
withholding of any tax required by law to be withheld.
20.04 Interpretation of the Plan and Trust. It is the intention of
the Employers that the Plan, and the Trust established by the Employers to
implement the Plan, shall comply with the provisions of Code Sections 401,
4975(e)(7), and 501 and the requirements of ERISA, and the corresponding
provisions of any subsequent laws, and the provisions of the Plan and Trust
Agreement shall be construed to effectuate such intention.
20.05 Provisions Hereof for Sole Benefit of Parties Hereto and
Participants. All of the covenants, stipulations and agreements contained in
this Plan are and shall be for the sole and exclusive benefit of and binding
upon the parties hereto, their successors and assigns, and the Participants and
their Beneficiaries.
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<PAGE> 104
20.06 Article and Section Headings. The titles or headings of the
respective Articles and Sections in this Plan are inserted merely for
convenience and shall be given no legal effect.
20.07 Formal Action by Employer. Any formal action herein permitted
or required to be taken by an Employer shall be:
(a) if and when a partnership, by written instrument
executed by one or more of its general partners or by written instrument
executed by a person or group of persons who has been authorized by written
instrument executed by one or more general partners as having authority to take
such action;
(b) if and when a proprietorship, by written instrument
executed by the proprietor or by written instrument executed by a person or
group of persons who has been authorized by written instrument executed by the
proprietor as having authority to take such action;
(c) if and when a corporation, by resolution of its board
of directors or other governing board, or by written instrument executed by a
person or group of persons who has been authorized by resolution of its board
of directors or other governing board as having authority to take such action;
or
(d) if and when a joint venture, by written instrument
executed by one of the joint venturers or by written instrument executed by a
person or group of persons who has been authorized by written instrument
executed by one of the joint venturers as having authority to take such action.
20.08 APPLICABLE LAW. THIS PLAN SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS TO THE EXTENT NOT PREEMPTED BY APPLICABLE FEDERAL LAW.
IN WITNESS WHEREOF, HealthCor Holdings, Inc. has caused this Plan to be
executed by its duly authorized representative this 25 day of March, 1991,
effective as of April 1, 1990.
HEALTHCOR HOLDINGS, INC.
BY:/s/ S. W. BAZZLE
-------------------------------------
Title: President
----------------------------------
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<PAGE> 1
EXHIBIT 10.5
WARRANT AGREEMENT
for
60,000 Shares of Common Stock of
HEALTHCOR HOLDINGS, INC.
Expiring June 1, 1997
WARRANT AGREEMENT (this "Agreement") dated June 1, 1992 is by and among
HealthCor Holdings, Inc., a Delaware corporation (the "Company"), William G.
Ritter ("Ritter"), and Shadanana P. Attaluri ("Attaluri"). Ritter and Attaluri
shall collectively be referred to as the "Holders."
The Company proposes to issue warrants as hereinafter described (the
"Warrants") exercisable up to June 1, 1997, to purchase up to an aggregate of
60,000 shares of the common stock of the Company, par value $.01 per share (the
"Common Stock"), at a purchase price of $5.00 per share of Common Stock (as
adjusted pursuant to the terms of this Agreement, the "Exercise Price").
In consideration of the foregoing and for the purpose of defining the
terms and provisions of the Warrants and the respective rights and obligations
of the Company and the Holders, the Company and the Holders hereby agree as
follows:
ARTICLE I
Form of Warrant Certificates; Exercise of Warrant
1.1 Form of Warrant Certificates. The Warrant Certificates (and the
form of election to purchase shares of Common Stock and of assignment to be
attached thereto) to be delivered pursuant to this Agreement shall be
substantially in the form set forth in Exhibit A hereto. Each Warrant
Certificate shall, for the period ending on June 1, 1997 (the "Expiration
Date"), entitle the holder thereof to purchase one share of Common Stock for
each Warrant evidenced by such Warrant Certificate, initially at the Exercise
Price set forth therein, but the number of such shares and such Exercise Price
shall be subject to adjustments as provided herein.
1.2 Method of Exercise. The Warrants may be exercised in full or in
increments of 1,000 at any time and from time to time prior to the Expiration
Date, but subject to the
<PAGE> 2
restrictions and conditions specified herein. To exercise the Warrants in whole
or in part, the holder thereof shall, prior to the Expiration Date, deliver to
the Company, at the principal office of the Company, (a) the form of election
to purchase shares of Common Stock attached to the Warrant Certificate (the
"Exercise Notice"), giving notice of such holder's election to exercise the
Warrants, which shall specify the number of shares of Common Stock to be
purchased, (b) payment of the Exercise Price for the number of shares of Common
Stock to be purchased (in the manner described below) and (c) the Warrant
Certificate. The Warrants shall be deemed to be exercised on the date when
delivery to the Company of the items required by (a), (b) and (c) of the
immediately preceding sentence is made, and any such date is referred to herein
as the "Exercise Date." Subject to Section 3.1(a)(viii), upon exercise, the
Company shall issue and deliver to such holder a certificate for the number of
full shares of Common Stock to which such holder is entitled. The full amount
of the Exercise Price shall be payable by the holder in cash by certified or
cashier's check. The person in whose name the certificate for Common Stock is
to be issued shall be deemed to have become a holder of record of such Common
Stock on the applicable Exercise Date.
1.3 Fractional Shares. Instead of any fractional shares of Common
Stock which would otherwise be issuable upon exercise of the Warrant, the
Company shall issue a certificate for the next higher number of whole shares of
Common Stock.
ARTICLE II
Transfer of Warrants
2.1 Ownership of Warrant. The Company may deem and treat the persons
in whose names the Warrants are registered as the holders and owners thereof
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of the Warrants for registration of
transfer as provided in this Article II.
2.2 Transfer of Warrants. The Company agrees to maintain at its
principal office books for the registration of the Warrants and the
registration of transfers of the Warrants. The Warrants may be transferred in
whole or in part to any other person, subject to any restrictions on transfer
imposed under Article IV hereof. Upon surrender of the Warrants together with a
duly executed written assignment in the form attached to the Warrant
Certificate, the Company shall execute and deliver a new Warrant or Warrants in
the name of the
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<PAGE> 3
assignee (and in the name of the assignor if only a part hereof is
transferred), and the old Warrant or Warrants shall promptly be cancelled.
2.3 Expenses of Delivery of Warrants. The Company shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the Company's preparation, issuance and delivery of Warrants
hereunder or Common Stock issuable upon the exercise thereof.
ARTICLE III
Anti-Dilution Provisions
3.1 Exercise Price Adjustments.
(a) The Exercise Price shall be subject to adjustment from
time to time as follows:
(i) If the Company shall at any time or from time to time the
Company shall issue any shares of Common Stock other than Excluded Stock
(as hereinafter defined) for a consideration per share less than the
Exercise Price in effect immediately prior to such issuance the Exercise
Price in effect immediately prior to each such issuance shall forthwith
be lowered to a price equal to such consideration per share; provided,
however, that the Exercise Price shall not pursuant to this Section
3.1(a) be lowered below $4.00 (subject to equitable adjustments for
stock splits, dividends, subdivisions, combinations and like items).
For the purposes of any adjustment of the Exercise Price pursuant to
clause (i) above, the following provisions shall be applicable:
(A) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid
therefor.
(B) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair market value thereof
as determined in good faith by the Board of Directors of the
Company, irrespective of any accounting treatment; provided,
however, that the aggregate fair market value of such non-cash
and cash consideration shall not exceed the Current Market
Price (as hereinafter defined) of the shares of Common Stock
being issued.
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<PAGE> 4
(C) In the case of the issuance of (i) options to purchase or rights
to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock or (iii)
options to purchase or rights to subscribe for such convertible
or exchangeable securities:
(1) the shares of Common Stock deliverable upon exercise 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 subdivisions A and B above), if any, received by
the Company upon the issuance of such options or rights plus the
purchase price provided in such options or rights for the Common Stock
covered thereby;
(2) the shares of Common Stock deliverable upon conversion of
or in exchange 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 subsequent conversion or
exchange thereof shall be deemed to have issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to the consideration received by the Company for any
such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Company 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 subdivisions (A) and (B));
(3) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or rights of
conversions of or exchange for such convertible or exchangeable
securities, other than a change resulting from the antidilution
provisions thereof, the Exercise Price shall forthwith be readjusted to
such Exercise Price as would have obtained had the adjustment made upon
the issuance of such options, rights or securities not converted prior
to such change or options or rights related to such securities not
converted prior to such change been made upon the basis of such change;
and
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<PAGE> 5
(4) on 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, in each case without any such
options or rights having been exercised, the Exercise Price
shall forthwith be readjusted to such Exercise Price as would
have obtained had such options, rights, securities or options or
rights related to such securities not been issued.
(D) Anything contained herein to the contrary notwithstanding, no
adjustment shall be made to the Exercise Price pursuant to
Section 3.1(a) hereof (i) when the subject issuance (or deemed
issuance) of Common Stock or series of related issuances (or
deemed issuances) involves aggregate proceeds to the Company of
less than $150,000 (unless the price (or deemed price) per share
of Common Stock in the subject issuance or series of related
issuances is less than $1.00 (such per share price subject to
equitable adjustment for stock splits, dividends, subdivisions,
combinations and like items) (in which event all adjustments
otherwise required by Section 3.1(a) hereof shall be made)) (any
issuances or deemed issuances of Common Stock within any
six-month period being conclusively presumed for this purpose to
constitute a "series of related issuances" (a "series of related
issuances" not, however being limited to issuances occurring
within any such six-month period)).
(ii) "Excluded Stock" shall mean shares of Common
Stock issued by the Company (1) as a stock dividend or upon any
stock split or other subdivision or combination of the
outstanding shares of Common Stock; (2) upon exercise of the
Warrants at any time outstanding; (3) to officers or employees
of the Company pursuant to the 1989 Stock Option Plan; (4) upon
conversion of shares of the Company's Series A Convertible
Preferred Stock, $.01 par value (the "Series A Stock"); (5) upon
conversion of the shares of the Company's Series B Convertible
Preferred Stock, $.01 par value (the "Series B Stock"); and (6)
as approved in writing as "Excluded Stock" by the holders of not
less than a majority in voting power of both the Series A Stock
and Series B Stock at the time outstanding;
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<PAGE> 6
(iii) If, at any time the number of shares of Common
Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares
of Common Stock, then following the record date fixed for the
determination of holders of Common Stock entitled to receive
such stock dividend, subdivision or split-up, the number of
shares of Common Stock issuable on exercise of each Warrant
shall be increased in proportion to such increase in outstanding
shares.
(iv) If, at any time the number of shares of Common
Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record
date for such combination, the number of shares of Common Stock
issuable on exercise of each Warrant shall be decreased in
proportion to such decrease in outstanding shares.
(v) In case, at any time, of any capital
reorganization, or any reclassification of the stock of the
Company (other than a change in par value or from par value to
no par value or from no par value to par value or as a result of
a stock dividend or subdivision, split-up or combination of
shares), or the consolidation or merger of the Company with or
into another person (other than a consolidation or merger in
which the Company is the continuing corporation and which does
not result in any change in the Common Stock) or of the sale or
other disposition of all or substantially all the properties and
assets of the Company as an entirety to any other person, each
Warrant shall after such reorganization, reclassification,
consolidation, merger, sale or other disposition be convertible
into the kind and number of shares of stock or other securities
or property of the Company or of the corporation resulting from
such consolidation or surviving such merger or to which such
properties and assets shall have been sold or otherwise disposed
to which the holder of the number of shares of Common Stock
deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation, merger, sale or
other disposition) upon conversion of such share would have been
entitled upon such reorganization, reclassification,
consolidation, merger, sale or other disposition. The provisions
of this Section 3.1(a) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers,
sales or other dispositions.
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<PAGE> 7
(vi) All calculations under this paragraph (a) shall be made
to the nearest cent ($.01) or to the nearest one-tenth of a share, as
the case may be.
(vii) For the purpose of any computation pursuant to this
Section 3.1(a), the Current Market Price at any date of one share of
Common Stock shall be deemed to be the average of the daily closing
prices for the 30 consecutive business days ending no more than 15 days
before the day in question (as adjusted for any stock dividend,
split-up, combination or reclassification that took effect during such
30 business day period). The closing price for each day shall be the
last reported sales price regular way or, in case no such reported sales
took place on such day, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading (or
if the Common Stock is not at the time listed or admitted for trading on
any such exchange, then such price as shall be equal to the average of
the last reported bid and asked prices, as reported by the National
Association of Securities Dealers Automated Quotations System ("NASDAQ")
on such day, or if, on any day in question, the security shall not be
quoted on the NASDAQ, then such price shall be equal to the last
reported bid and asked prices on such day as reported by the National
Quotation Bureau, Inc. or any similar reputable quotation and reporting
service, if such quotation is not reported by the National Quotation
Bureau, Inc.); provided, however, that if the Common Stock is not traded
in such manner that the quotations referred to in this clause (vii) are
available for the period required hereunder, the Current Market Price
shall be determined as the price determined by a nationally recognized
independent investment banking firm selected by the holders of the
Company's then outstanding Series A Stock, Series B Stock and the
Company, and any other stock that is preferred as to dividends and
liquidation preference (the "Preferred Stock"); provided, however, if
there is no Preferred Stock then outstanding, then by the Company (or if
such selection cannot be made, by a nationally recognized independent
banking firm selected by the American Arbitration Association in
accordance with its rules).
(viii) In any case in which the provisions of this Section
3.1(a) shall require that an adjustment shall become effective
immediately after a record date for
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<PAGE> 8
an event, the Company may defer until the occurrence of such event
issuing to the holder of any Warrant exercised after such record date
and before the occurrence of such event the additional shares of capital
stock issuable upon such exercise by reason of the adjustment required
by such event over and above the shares of capital stock issuable upon
such exercise before giving effect to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive
such additional shares, upon the occurrence of the event requiring such
adjustment.
(b) Whenever the Exercise Price shall be adjusted as provided in
Section 3.1(a) above, the Company shall forthwith file, at the principle
executive office of the Company or at such other place as may be designated by
the Company, a statement, signed by its independent certified public
accountants, showing in detail the facts requiring such adjustment and the
Exercise Price that shall be in effect after such adjustment. The Company shall
also cause a copy of such statement to be sent by first-class, certified mail,
return receipt requested, postage prepaid, to each holder of the Warrants at
such holder's address appearing on the Company's records. Where appropriate,
such copy may be given in advance and may be included as part of a notice
required to be mailed under the provisions of Section 3.1(c) below.
(c) In the event the Company shall propose to take any action of
the types described in clauses (i), (iii), (iv), or (v) or Section 3.1(a) above,
the Company shall give notice to each holder of the Warrants, in the manner set
forth in Section 3.1(b) above, which notice shall specify the record date, if
any, with respect to any such action and the date on which such action is to
take place. Such notice shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the Exercise
Price and the number, kind or class of shares or other securities or property
which shall be deliverable or purchaseable upon the occurrence of such action
or deliverable upon exercise of the Warrants. In the case of any action which
would require the fixing of a record date, such notice shall be given at least
20 days prior to the date so fixed, and in case of all other action, such
notice shall be given at least 30 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, shall not affect
the legality or validity of any such action.
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<PAGE> 9
(d) The Company shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Company upon exercise of the Warrants; provided, however,
that the Company shall not be required to pay any taxes which may be payable
in respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
Warrants in respect of which such shares are being issued.
(e) The Company shall reserve, free from preemptive rights, out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the exercise of the Warrants sufficient shares to provide for the
exercise of all outstanding Warrants.
(f) All shares of Common Stock which may be issued in connection
with the exercise provisions set forth herein will, upon issuance by the
Company, be validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof, and free from all taxes, liens or
charges with respect thereto.
(g) This Article III shall terminate upon the consummation of a
firm commitment underwritten public offering of shares of Common Stock
registered under the Securities Act of 1933, as amended, which results in
aggregate gross cash proceeds to the Company of not less than $7,500,000, at a
net offering price per share of not less than $10.36.
ARTICLE IV
Transfer of Securities.
4.1 Restriction on Transfer. The Warrants and any shares of
capital stock received in respect thereof, whether by reason of a stock split
or share reclassification thereof, a stock dividend thereon or otherwise, shall
not be transferable except in full or in increments of 1,000 and upon the
conditions specified in this Article IV, which conditions are intended to
ensure compliance with the provisions of the Securities Act in respect of the
transfer of such securities.
4.2 Definitions. As used in this Article IV, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission,
or any other federal agency at the time administering the Securities
Act.
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<PAGE> 10
"Person" shall mean and include an individual, a corporation, a
partnership, a trust, an unincorporated organization and a government or
any department, agency or political subdivision thereof.
"Restricted Shares" shall mean shares of Common Stock
constituting Restricted Securities.
"Restricted Securities" shall mean the Warrants and any shares
of capital stock received in respect of the foregoing, in each case
which have not been sold to the public pursuant to (a) registration
under the Securities Act or (b) Rule 144 (or similar or successor rule)
promulgated under the Securities Act subsequent to the Company's initial
public offering of securities registered under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall include any disposition of any shares of
Restricted Securities or of any interest therein which would constitute
a sale thereof within the meaning of the Securities Act.
4.3 Restrictive Legends. Each certificate for Restricted Securities
and any shares of capital stock received in respect thereof, whether by reason
of a stock split or share reclassification thereof, a stock dividend thereon or
otherwise, and each certificate for any such securities issued to subsequent
transferees of any such certificate shall (unless otherwise permitted by the
provisions of Section 4.4) be stamped or otherwise imprinted with legends in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN ARTICLE IV OF THE WARRANT AGREEMENT TO PURCHASE
COMMON STOCK OF HEALTHCOR HOLDINGS, INC. EXPIRING JUNE 1, 1997 DATED
JUNE 1, 1992, AMONG HEALTHCOR HOLDINGS, INC. AND THE OTHER PERSONS AND
ENTITIES SIGNATORY THERETO OR THEIR PERMITTED ASSIGNS THEREUNDER AND NO
TRANSFER OF THESE
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<PAGE> 11
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, HEALTHCOR
HOLDINGS, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW
CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED
HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF THE
AFOREMENTIONED AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF THE RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
HEALTHCOR HOLDINGS, INC."
4.4 Notice of Transfer. The holder of any Restricted Securities, by
acceptance of such Restricted Securities hereunder, agrees, prior to any
Transfer of any such Restricted Securities in a transaction not registered
under the Securities Act, to give written notice to the Company of such
holder's intention to effect such Transfer and agrees to comply in all other
respects with the provisions of this Article IV. Each such notice shall
describe the manner and circumstances of the proposed Transfer and shall be
accompanied by the written opinion, addressed to the Company, of counsel for
the holder of such securities, that in the opinion of such counsel, which
counsel and opinion shall be reasonably satisfactory to the Company, such
proposed Transfer involves a transaction not requiring registration of such
Restricted Securities under the Securities Act, provided, however, that no such
opinion shall be required (i) in connection with a transaction complying with
the requirements of Rule 144 (as amended from time to time) promulgated under
the Securities Act (or successor rule thereto) or (ii) in connection with a
Transfer by a holder which is a partnership to a partner of such holder or a
retired partner of such holder who retires after the date hereof, or the estate
of any such partner or retired partner or to a trust for the benefit of its
partners, retired partners and/or former partners; provided, further, however,
that in the case of (ii) above the transferee agrees in writing to be subject
to the terms of this Article IV to the same extent as if such transferee were
an original signatory to, or permitted assignee under, this Agreement. Upon
receipt by the Company of any such notice and other documents, if in such
opinion of such counsel the proposed transfer of Restricted Securities may be
effected without registration of such securities under the Securities Act, the
holder of such securities shall thereupon be entitled to transfer such
securities in accordance with the terms of the notice delivered by it to the
Company. Each certificate or other instrument evidencing the securities issued
upon the Transfer of any such securities (and each certificate or other
instrument evidencing any untransferred balance of such securities) shall bear
the legends set forth in Section 4.2
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<PAGE> 12
unless (A) in such opinion of such counsel, if required as set forth above,
registration of future Transfer is not required by the applicable provisions of
the Securities Act or (b) the Company shall have waived the requirement of such
legends; provided, however, that such legend shall not be required (1) on any
certificate or other instrument evidencing the securities issued upon such
Transfer in the event such Transfer shall be made in compliance with the
requirements of Rule 144 (as amended from time to time) promulgated under the
Securities Act (or any similar or successor Rule thereto) or (2) on any
certificate or other instrument which is immediately resalable under Rule
144(k) (or any similar or successor Rule thereto). The holder of Restricted
Securities shall not so Transfer such Restricted Securities until such opinion
of counsel has been given to the Company (unless waived by the Company or
unless such opinion is not required in accordance with the provisions of this
Section 4.4).
4.5 Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Article IV, the restrictions imposed by this Article IV upon
the transferability of any Restricted Securities shall cease and terminate when
any such Restricted Securities are sold or otherwise disposed of in accordance
with the intended method of disposition by the seller or sellers thereof set
forth in an effective registration statement or pursuant to Rule 144. Whenever,
the restrictions imposed by the Article IV shall terminate, as herein provided,
the holder of any Restricted Securities shall be entitled to receive from the
Company, without expense, a new certificate not bearing the restrictive legends
set forth in Section 4.3 and not containing any other reference to the
restrictions imposed by this Article IV.
4.6 Prohibited Transfers. Each Holder hereby agrees that it, he or
she shall not at any time Transfer any Restricted Securities to any entity
actively and directly engaged in a Competing Business except (i) under
circumstances involving the Sale of all of the outstanding shares of Common
Stock of the Company, (ii) a distribution registered pursuant to the Securities
Act or (iii) a transaction exempt from registration pursuant to Rule 144
promulgated under the Securities Act. As used herein, "Competing Business"
shall mean any business principally and directly engaged in the provision of
home health care services or durable medical equipment in the geographic
regions in which the Corporation or its Affiliates, operate, now or in the
future.
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<PAGE> 13
ARTICLE V
Covenant of the Company
The Company covenants and agrees that this Agreement shall be binding
upon any corporation succeeding to the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets.
ARTICLE VI
Miscellaneous
6.1 Entire Agreement. This Warrant contains the entire agreement
between the holder of the Warrants and the Company with respect to the shares
which it can purchase upon exercise thereof and the related transactions and
supersedes all prior arrangements or understanding with respect thereto.
6.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
6.3 Waiver and Amendment. Any term or provision of this Agreement
may be waived at any time by the party which is entitled to the benefits
thereof and any term or provision of this Agreement may be amended or
supplemented at any time by agreement of the holder of the Warrants hereof and
the Company, except that any waiver of any term or condition, or any amendment
or supplementation, of this Agreement must be in writing. A waiver of any
breach or failure to enforce any of the terms or conditions of this Agreement
shall not in any way affect, limit or waive a party's rights hereunder at any
time to enforce strict compliance thereafter with every term or condition of
this Agreement.
6.4 Illegality. In the event that any one or more of the provisions
contained in this Agreement shall be determined to be invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in any other respect and the remaining
provisions of this Agreement shall not, at the election of the party for whom
the benefit of the provision exists, be in any way impaired.
6.5 Filing of Agreement. A copy of this Agreement shall be filed
among the records of the Company.
6.6 Notice. Any notice or other document required or permitted to
be given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, each such holder at the last address shown on
the books of the
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<PAGE> 14
Company maintained at the principal office of the Company for the registration
of and the registration of transfers of the Warrants or at any more recent
address of which the holder thereof shall have notified the Company in writing.
Any notice or other document required or permitted to be given or delivered to
the Company, other than such notice or documents required to be delivered to
the principal office of the Company, shall be delivered at, or sent by
certified or registered mail to, the office of the Company at 5720 LBJ Freeway,
Suite 550, Dallas, Texas 75240 or such other address within the Continental
United States as shall have been furnished by the Company to the holders of the
Warrants.
6.7 Limitation of Liability; Not Stockholders. No provision of this
Agreement shall be construed as conferring upon the holder of the Warrants the
right to vote, consent, receive dividends or receive notice other than as
herein expressly provided in respect of meetings of stockholders for the
election of directors of the Company or any other matter whatsoever as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the holder of the Warrants to purchase shares of Common Stock, and no
mere enumeration herein of the rights or privileges of the holder of the
Warrants, shall give rise to any liability of such holder for the purchase
price of any shares of Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
- 14 -
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and delivered by one of its duly authorized officers in its corporate
name and Ritter and Attaluri have executed this Agreement as of the date set
forth below.
Dated: June 1, 1992.
HEALTHCOR HOLDINGS, INC.
By: /s/ S. WAYNE BAZZLE
___________________
S. Wayne Bazzle
Chairman and Chief
Executive Officer
/s/ WILLIAM G. RITTER
------------------------
William G. Ritter
/s/ SHADANANA P. ATTALURI
-------------------------
Shadanana P. Attaluri
<PAGE> 16
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE
CONDITIONS SPECIFIED IN ARTICLE IV OF THE WARRANT AGREEMENT TO PURCHASE
COMMON STOCK OF HEALTHCOR HOLDINGS, INC. EXPIRING JUNE 1, 1997 DATED
JUNE 1, 1992, AMONG HEALTHCOR HOLDINGS, INC. AND THE OTHER PERSONS AND
ENTITIES SIGNATORY THERETO OR THEIR PERMITTED ASSIGNS THEREUNDER AND NO
TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH
CONDITIONS, HEALTHCOR HOLDINGS, INC. HAS AGREED TO DELIVER TO THE HOLDER
HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES
REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES
OF THE AFOREMENTIONED AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF THE RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF HEALTHCOR HOLDINGS, INC."
______ WARRANTS TO PURCHASE COMMON STOCK OF
HEALTHCOR HOLDINGS, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
This certifies that, for value received, the registered holder hereof
or registered assigns (the Holder) is entitled to purchase from HealthCor
Holdings, Inc. (the Company), a Delaware corporation, at any time during the
period commencing at ____________ A.M., Central Standard Time, on June 1, 1992
and ending at 5:00 P.M., Central Standard Time, on June 1, 1997, (the
"Expiration Date") at the purchase price per share (the "Exercise Price") of
$5.00, the number of shares of Common Stock, $.01 par value, of the Company
which is equal to the number of Warrants set forth above or, if designated, on
the Exercise Notice on the reverse side hereof. The number of shares
purchasable upon exercise of this Warrant and the Warrant Price per share shall
be subject to adjustment from time to time as set forth in the Warrant
Agreement referred to below.
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<PAGE> 17
This Warrant may be exercised in whole or in part prior to the
Expiration Date by presentation of this Warrant with the Exercise Notice on the
reverse side hereof duly executed and simultaneous payment of the Exercise Price
(subject to adjustment) at the principal office of the Company in the
continental United States. Payment of such price shall be made at the option of
the Holder hereof in cash or by certified check or bank cashier's check.
This Warrant is one of a duly authorized issue of Warrants evidencing
the aggregate right of the holders of all such Warrants to purchase up to a
maximum of 60,000 shares of Common stock, $.01 par value, of the Company and is
issued under and in accordance with a Warrant Agreement dated as of June 1,
1992 (the Warrant Agreement) between the Company and __________________, and is
subject to the terms and provisions contained in the Warrant Agreement, all of
which are hereby consented to by the Holder by acceptance hereof. A copy of
the Warrant Agreement may be obtained for inspection by the Holder hereof upon
written request to the Company.
Upon any partial exercise of this Warrant, there shall be countersigned
and issued to the Holder hereof a new Warrant in respect of the shares as to
which this Warrant shall not have been exercised. Subject to the restrictions
on transfer in the Warrant Agreement, this Warrant may be exchanged at the
office of the Company by surrender of this Warrant properly endorsed either
separately or in combination with one or more other Warrants for one or more
new Warrants of the same aggregate number of shares of Common Stock evidenced by
the Warrant or Warrants exchanged. No fractional shares will be issued upon the
exercise of rights to purchase hereunder, but the Company shall issue a
certificate for the next higher number of whole shares of Common Stock. This
Warrant is transferable at the principal office of the Company in the manner and
subject to the limitations set forth in the Warrant Agreement.
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company any notice to the contrary
notwithstanding, and until such transfer on such books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of
a stockholder of the Company.
- 17 -
<PAGE> 18
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
DATED June 1, 1992.
HEALTHCOR HOLDINGS, INC.
By:
--------------------------------------
S. Wayne Bazzle
Its:
---------------------------------
ATTEST:
-----------------------------------------
Secretary
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<PAGE> 19
EXHIBIT A (CONTINUED)
TO
WARRANT AGREEMENT
EXERCISE NOTICE
To be Executed by the Registered Holder
Desiring to Exercise the Attached Warrant of
HealthCor Holdings, Inc.
The undersigned registered holder hereby exercises the right to
purchase _________ shares of Common Stock covered by the attached Warrant,
according to the conditions thereof, and herewith makes payment in full of the
Exercise Price of such shares, in the amount of $__________. By its execution
and delivery hereof, the undersigned represents and warrants that the shares of
Common Stock being acquired hereby are being acquired by the undersigned for
its own account and not with a view to, or for resale in connection with, any
distribution thereof.
Name of Registered
Holder _________________________________
Signature ______________________________
Title __________________________________
Address ________________________________
________________________________
Dated: ________________ , 19____.
- 19 -
<PAGE> 20
EXHIBIT A (CONTINUED)
TO
WARRANT AGREEMENT
ASSIGNMENT FORM
To be Executed by the Registered Holder
Desiring to Transfer the Attached Warrant of
HealthCor Holdings, Inc.
FOR VALUE RECEIVED, the undersigned registered holder hereby sells,
assigns and transfers unto ___________________ the right to purchase _______
shares of Common Stock covered by the attached Warrant, and does hereby
irrevocably constitute and appoint ____________________ Attorney to transfer
the said Warrant on the books of the Company (as defined in such Warrant), with
full power of substitution.
Name of Registered
Holder
------------------------------
Signature
---------------------------
Title
-------------------------------
Address
-----------------------------
-----------------------------
Dated: 19
-----------------, --.
In the presence of
- -------------------------------
NOTICE:
The signature to the foregoing Assignment Form must correspond to the name as
written upon the face of the attached Warrant in every particular, without
alteration or enlargement or any change whatsoever.
- ------------------ -------------------- -------------------
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<PAGE> 1
EXHIBIT 10.7
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into as of this ___ day of ___ 1996, by and between HealthCor Holdings, Inc., a
Delaware corporation (the "Company"), and _____________________, a Texas
resident ("Indemnitee").
RECITALS:
A. Competent and experienced persons are reluctant to serve or to
continue to serve corporations as directors or in other capacities unless they
are provided with adequate protection through insurance or indemnification (or
both) against claims and actions against them arising out of their service to
and activities on behalf of those corporations.
B. The current uncertainties relating to the availability of
adequate insurance for directors and officers have increased the difficulty for
corporations to attract and retain competent and experienced persons.
C. The Board of Directors of the Company has determined that the
continuation of present trends in litigation will make it more difficult to
attract and retain competent and experienced persons, that this situation is
detrimental to the best interests of the Company's stockholders, and that the
Company should act to assure its directors and officers that there will be
increased certainty of adequate protection in the future.
D. The Certificate of Incorporation of the Company requires the
Company to indemnify its directors and officers to the fullest extent permitted
by law.
E. It is reasonable, prudent, and necessary for the Company to
obligate itself contractually to indemnify its directors and officers to the
fullest extent permitted by applicable law in order to induce them to serve or
continue to serve the Company.
F. Indemnitee is willing to serve, continue to serve, and to take
on additional service for or on behalf of the Company on the condition that he
be indemnified to the fullest extent permitted by law.
G. Concurrently with the execution of this Agreement, Indemnitee
is agreeing to serve or to continue to serve as a director or officer of the
Company.
<PAGE> 2
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises,
Indemnitee's agreement to serve or continue to serve as a director or officer
of the Company, and the covenants contained in this Agreement, the Company and
Indemnitee hereby covenant and agree as follows:
1. Certain Definitions:
(a) Acquiring Person: shall mean any Person other than
(i) the Company, (ii) any of the Company's Subsidiaries, (iii) any employee
benefit plan of the Company or of a Subsidiary of the Company or of a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
(iv) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of a Subsidiary of the Company or of a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
or (v) any Person who, as of January 1, 1994, was the "beneficial owner" (as
hereinafter defined), directly or indirectly, of securities of the Company
representing twenty percent or more of the combined voting power of the Voting
Securities of the Company outstanding as of such date.
(b) Change in Control: shall be deemed to have occurred
if:
(i) any Acquiring Person is or becomes the
"beneficial owner" (as defined in Rule l3d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), directly or indirectly, of
securities of the Company representing twenty percent or more of the combined
voting power of the then outstanding Voting Securities of the Company; or
(ii) members of the Incumbent Board cease for
any reason to constitute at least a majority of the Board of Directors of the
Company; or
(iii) After the Company has become a reporting
company under the Exchange Act, a public announcement is made of a tender or
exchange offer by any Acquiring Person for fifty percent or more of the
outstanding Voting Securities of the Company, and the Board of Directors of the
Company approves or fails to oppose that tender or exchange offer in its
statements in Schedule 14D-9 under the Exchange Act; or
(iv) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation or
partnership (or, if no such approval is required, the consummation of such a
merger or consolidation of the Company), other than a merger or consolidation
that would result in the Voting Securities of the Company outstanding
immediately prior to the consummation thereof continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity or of a parent of the surviving entity) a majority of the
combined voting power of the Voting Securities of the surviving entity (or its
parent) outstanding immediately after that merger or consolidation; or
2
<PAGE> 3
(v) the stockholders of the Company approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's assets
(or, if no such approval is required, the consummation of such a liquidation,
sale, or disposition in one transaction or series of related transactions)
other than a liquidation, sale, or disposition of all or substantially all the
Company's assets in one transaction or a series of related transactions to a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
(c) Claim: any threatened, pending, or completed action,
suit, or proceeding (including, without limitation, securities laws actions,
suits, and proceedings), or any inquiry or investigation (including discovery),
whether conducted by the Company or any other party, that Indemnitee in good
faith believes might lead to the institution of any action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or other.
(d) Expenses: all costs, expenses (including attorneys'
and expert witnesses' fees), and obligations paid or incurred in connection
with investigating, defending (including affirmative defenses and
counterclaims), being a witness in, or participating in (including on appeal),
or preparing to defend, be a witness in, or participate in, any Claim relating
to any Indemnifiable Event.
(e) Indemnifiable Event: any event or occurrence related
to the fact that Indemnitee is or was a director, officer, employee, agent, or
fiduciary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, trustee, agent, or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust, or other
enterprise, or by reason of any thing done or not done by Indemnitee in any
such capacity. For purposes of this Agreement, the Company agrees that
Indemnitee's service on behalf of or with respect to any Subsidiary of the
Company shall be deemed to be at the request of the Company.
(f) Person: shall mean any person or entity of any
nature whatsoever, specifically including an individual, a firm, a company, a
corporation, a partnership, a trust, or other entity. A Person, together with
that Person's Affiliates and Associates (as those terms are defined in Rule
12b-2 under the Exchange Act), and any Persons acting as a partnership, limited
partnership, joint venture, association, syndicate, or other group (whether or
not formally organized), or otherwise acting jointly or in concert or in a
coordinated or consciously parallel manner (whether or not pursuant to any
express agreement), for the purpose of acquiring, holding, voting, or disposing
of securities of the Company with such Person, shall be deemed a single
"Person."
(g) Potential Change in Control: shall be deemed to have
occurred if (i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control; (ii) any Person
(including the Company) publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change in Control;
(iii) after the Company has become a reporting company under the Exchange Act,
any Acquiring Person who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the then outstanding Voting Securities
3
<PAGE> 4
of the Company increases his beneficial ownership of such securities by 5% or
more over the percentage so owned by that Person on the date hereof; or (iv)
the Board of Directors of the Company adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control has occurred.
(h) Reviewing Party: any appropriate person or body
consisting of a member or members of the Company's Board of Directors or any
other person or body appointed by the Board (including Special Counsel referred
to in Section 3) who is not a party to the particular Claim for which
Indemnitee is seeking indemnification.
(i) Special Counsel: special, independent counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld), and who has not otherwise performed services for the
Company or for Indemnitee within the last three years (other than as Special
Counsel under this Agreement or similar agreements).
(j) Subsidiary: with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly,
by that Person.
(k) Voting Securities: any securities that vote
generally in the election of directors or in the selection of any other similar
governing body.
2. Basic Indemnification and Expense Reimbursement Arrangement.
(a) In the event Indemnitee was, is, or becomes a party
to or witness or other participant in, or is threatened to be made a party to
or witness or other participant in, a Claim by reason of (or arising in part
out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than 30 days after written demand is presented to the Company, against
any and all Expenses, judgments, fines, penalties, and amounts paid in
settlement (including all interest, assessments, and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties, or amounts paid in settlement) of or with respect to that Claim.
Notwithstanding the foregoing, the obligations of the Company under Section
2(a) shall be subject to the condition that the Reviewing Party shall not have
determined (in a written opinion, in any case in which Special Counsel referred
to in Section 3 hereof is involved) that Indemnitee would not be permitted to
be indemnified under applicable law. Nothing contained in this Agreement shall
require any determination under this Section 2(a) to made by the Reviewing
Party prior to the disposition or conclusion of the Claim against the
Indemnitee; provided, however, that Expense Advances shall continue to be made
by the Company pursuant to and to the extent required by the provisions of
Section 2(b).
(b) If so requested by Indemnitee, the Company shall pay
any and all Expenses incurred by Indemnitee (or, if applicable, reimburse
Indemnitee for any and all Expenses incurred by Indemnitee and previously paid
by Indemnitee) within two business days after such request (an
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<PAGE> 5
"Expense Advance"). The Company shall be obligated to make or pay an Expense
Advance in advance of the final disposition or conclusion of any Claim. In
connection with any request for an Expense Advance, if requested by the
Company, Indemnitee or Indemnitee's counsel shall submit an affidavit stating
that the Expenses incurred were reasonable. Any dispute as to the
reasonableness of any Expense shall not delay an Expense Advance by the
Company, and the Company agrees that any such dispute shall be resolved only
upon the disposition or conclusion of the underlying Claim against the
Indemnitee. If, when, and to the extent that the Reviewing Party determines
that Indemnitee would not be permitted to be indemnified with respect to a
Claim under applicable law, the Company shall be entitled to be reimbursed by
Indemnitee and Indemnitee hereby agrees to reimburse the Company without
interest (which agreement shall be an unsecured obligation of Indemnitee) for
all related Expense Advances theretofore made or paid by the Company; provided,
however, that if Indemnitee has commenced legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance, and the Company shall be obligated to continue
to make Expense Advances, until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed). If there has not been a Change in Control, the Reviewing Party
shall be selected by the Board of Directors of the Company. If there has been
a Change in Control, the Reviewing Party shall be advised by or shall be
Special Counsel referred to in Section 3 hereof, if and as Indemnitee so
requests. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation in any court in the states of
Massachusetts, Delaware, or Texas having subject matter jurisdiction thereof
and in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect
thereof, and the Company hereby consents to service of process and to appear in
any such proceeding. Any determination by the Reviewing Party otherwise shall
be conclusive and binding on the Company and Indemnitee.
3. Change in Control. The Company agrees that, if there is a
Change in Control and if Indemnitee requests in writing that Special Counsel
advise the Reviewing Party or be the Reviewing Party, then the Company shall
not deny any indemnification payments (and Expense Advances shall continue to
be paid by the Company pursuant to Section 2(b)) that Indemnitee requests or
demands under this Agreement or any other agreement or law now or hereafter in
effect relating to Claims for Indemnifiable Events. The Company further agrees
not to request or seek reimbursement from Indemnitee of any related Expense
Advances unless, with respect to a denied indemnification payment, Special
Counsel has rendered its written opinion to the Company and Indemnitee that the
Company would not be permitted under applicable law to pay Indemnitee such
indemnification payment. The Company agrees to pay the reasonable fees of
Special Counsel referred to in this Section 3 and to indemnify fully Special
Counsel against any and all expenses (including attorneys' fees), claims,
liabilities, and damages arising out of or relating to this Agreement or
Special Counsel's engagement pursuant hereto.
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4. Establishment of Trust. In the event of a Potential Change in
Control, the Company shall, upon written request by Indemnitee, create a trust
for the benefit of Indemnitee (the "Trust") and from time to time upon written
request of Indemnitee shall fund the Trust in an amount sufficient to satisfy
any and all Expenses reasonably anticipated at the time of each such request to
be incurred in connection with investigating, preparing for, and defending any
Claim relating to an Indemnifiable Event, and any and all judgments, fines,
penalties, and settlement amounts (including all interest, assessments, and
other charges paid or payable in connection with or in respect of such
expenses, judgments, fines, penalties, and settlement amounts) of any and all
Claims relating to an Indemnifiable Event from time to time actually paid or
claimed, reasonably anticipated, or proposed to be paid. The amount or amounts
to be deposited in the Trust pursuant to the foregoing funding obligation shall
be determined by the Reviewing Party, in any situation in which Special Counsel
referred to in Section 3 is involved. The terms of the Trust shall provide
that, upon a Change in Control, (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of Indemnitee; (ii) the
trustee of the Trust shall advance, within two business days of a request by
Indemnitee, any and all Expenses to Indemnitee (and Indemnitee hereby agrees to
reimburse the Trust under the circumstances in which Indemnitee would be
required to reimburse the Company for Expense Advances under Section 2(b) of
this Agreement); (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above; (iv) the trustee of the
Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall
be entitled to indemnification pursuant to this Agreement or otherwise; and (v)
all unexpended funds in that Trust shall revert to the Company upon a final
determination by the Reviewing Party or a court of competent jurisdiction, as
the case may be, that Indemnitee has been fully indemnified under the terms of
this Agreement. The trustee of the Trust shall be chosen by Indemnitee.
Nothing in this Section 4 shall relieve the Company of any of its obligations
under this Agreement.
5. Indemnification for Additional Expenses. The Company shall
indemnify Indemnitee against any and all costs and expenses (including
attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall
(within two business days of that request) advance those costs and expenses to
Indemnitee, that are incurred by Indemnitee in connection with any claim
asserted against or action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or provision of the Company's Certificate of Incorporation or By-laws
now or hereafter in effect relating to Claims for Indemnifiable Events or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to that indemnification, advance expense payment, or
insurance recovery, as the case may be.
6. Partial Indemnity. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the Expenses, judgments, fines, penalties, and amounts paid in
settlement of a Claim but not, however, for all of the total amount thereof,
the Company shall nevertheless indemnify Indemnitee for the portion thereof to
which Indemnitee is entitled. Moreover, notwithstanding any other provision of
this Agreement, to the extent that Indemnitee has been successful on the merits
or otherwise in defense of any or all Claims relating in whole or in part to an
Indemnifiable Event or in defense of any issue or matter therein,
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<PAGE> 7
including dismissal without prejudice, Indemnitee shall be indemnified against
all Expenses incurred in connection therewith.
7. Contribution.
(a) Contribution Payment. To the extent the
indemnification provided for under any provision of this Agreement is
determined (in the manner hereinabove provided) not to be permitted under
applicable law, then in the event Indemnitee was, is, or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company, in lieu of indemnifying Indemnitee,
shall contribute to the amount of any and all Expenses, judgments, fines, or
penalties assessed against or incurred or paid by Indemnitee on account of that
Claim and any and all amounts paid in settlement of that Claim (including all
interest, assessments, and other charges paid or payable in connection with or
in respect of such Expenses, judgments, fines, penalties, or amounts paid in
settlement) for which such indemnification is not permitted ("Contribution
Amounts"), in such proportion as is appropriate to reflect the relative fault
with respect to the Indemnifiable Event giving rise to the Contribution Amounts
of Indemnitee, on the one hand, and of the Company and any and all other
parties (including officers and directors of the Company other than Indemnitee)
who may be at fault with respect to such Indemnifiable Event (collectively,
including the Company, the "Third Parties") on the other hand.
(b) Relative Fault. The relative fault of the Third Parties and
the Indemnitee shall be determined (i) by reference to the relative fault of
Indemnitee as determined by the court or other governmental agency assessing
the Contribution Damages or (ii) to the extent such court or other governmental
agency does not apportion relative fault, by the Reviewing Party (which shall
include Special Counsel) after giving effect to, among other things, the
relative intent, knowledge, access to information, and opportunity to prevent
or correct the applicable Indemnifiable Event and other relevant equitable
considerations of each party. The Company and Indemnitee agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation or by any other method of allocation which
does take account of the equitable considerations referred to in this Section
7(b).
8. Burden of Proof. In connection with any determination by the
Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified under any provision of this Agreement or to receive contribution
pursuant to Section 7 of this Agreement, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
9. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit, or proceeding, by judgment, order,
settlement (whether with or without court approval), or conviction, or upon a
plea of nolo contendere, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
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<PAGE> 8
10. Action of Others. The knowledge and/or actions, or failure to
act, of any director, officer, agent, or employee of the Company shall not be
imputed to the Indemnitee for purposes of determining the right to
indemnification under this Agreement.
11. Indemnitee's Individual Capacity. The Company acknowledges
that the Indemnitee is undertaking to act as a director of the Company at the
request of the Company and solely in the Indemnitee's individual capacity and
not in any capacity as a director, officer, member, partner, employee, trustee,
or other representative of any other corporation, partnership, association,
business trust, trust, or similar organization or entity. The Company
covenants and agrees to indemnify any such organization or entity from and
against any and all judgments, fines, or penalties assessed against or incurred
or paid by such organization or entity and any and all amounts paid in
settlement (including all interest, attorneys' and expert witnesses' fees, and
other charges paid or payable in connection with such judgments, fines,
penalties, or amounts paid in settlement) with respect to any action or
inaction taken in the course of the Indemnitee's duties as a director of the
Company.
12. Non-exclusivity. The rights of Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's By-laws
or Certificate of Incorporation or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater indemnification by
agreement than would be afforded currently under the Company's By-laws or
Certificate of Incorporation and this Agreement, it is the intent of the
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by that change.
13. Liability Insurance. Except as otherwise agreed to by the
Company and Indemnitee in a written agreement, to the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by that policy or those
policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Company director or officer.
14. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Company or any
affiliate of the Company against Indemnitee or Indemnitee's spouse, heirs,
executors, or personal or legal representatives after the expiration of three
years from the date of accrual of that cause of action, and any claim or cause
of action of the Company or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within that
three-year period; provided, however, that, if any shorter period of
limitations is otherwise applicable to any such cause of action, the shorter
period shall govern.
15. Amendments. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall that waiver constitute a continuing waiver.
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<PAGE> 9
16. Subrogation. In the event of payment under this Agreement,
the Company shall, subject to the conflicting rights of an insurer pursuant to
any policy contemplated by Section 13 hereof, be subrogated to the extent of
that payment to all of the rights of recovery of Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure
those rights, including the execution of the documents necessary to enable the
Company effectively to bring suit to enforce those rights.
17. No Duplication of Payments. The Company shall not be liable
under this Agreement to make any payment in connection with any claim made
against Indemnitee to the extent Indemnitee has otherwise actually received
payment (under any insurance policy, provision of the Company's Certificate of
Incorporation or By-laws, or otherwise) of the amounts otherwise indemnifiable
hereunder.
18. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective successors, assigns (including any direct or indirect successor by
purchase, merger, consolidation, or otherwise to all or substantially all of
the business or assets of the Company), spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company or
another enterprise at the Company's request.
19. Severability. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, that provision shall be fully severable; this Agreement
shall be construed and enforced as if that illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of that illegal, invalid, or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in terms to the illegal, invalid, or unenforceable provision as may be
possible and be legal, valid, and enforceable.
20. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in that state without giving
effect to the principles of conflicts of laws.
21. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
22. Notices. Whenever this Agreement requires or permits notice
to be given by one party to the other, such notice must be in writing to be
effective and shall be deemed delivered and received by the party to whom it is
sent upon actual receipt (by any means) of such notice. Receipt of a notice by
any officer of the Company shall be deemed receipt of such notice by the
Company.
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23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
EXECUTED as of the date first written above.
HEALTHCOR HOLDINGS, INC.
By:
------------------------------------
S. Wayne Bazzle
Chairman and Chief Executive Officer
------------------------------------
, Indemnitee
-------------
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports for HealthCor Holdings, Inc. and Subsidiaries dated March 29, 1996,
except as to paragraph 3 in Note 13 for which the date is July 26, 1996,
Specialty Med-Equip, Inc., Superior Med-Equip, Inc., and Cross Timbers Visiting
Nurses, Inc., dated December 27, 1995, C. Edward Elsey d/b/a A.M. Medical and
Discount Medical Equipment Company dated December 15, 1995, Colorado I.V.
Associates, Inc. and Specialized Nursing Services, Inc. dated December 21, 1995,
RTA Homecare, Inc. and Subsidiary dated November 30, 1995, and Home Hospital
Equipment, Inc. dated July 17, 1995 and to all references to our Firm included
in or made part of this registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas
August 6, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports for I Care of Arkansas, Inc. and Affiliate, I Care, Inc. d/b/a I Care
Health Services dated April 18, 1996 and to all references to our Firm included
in or made part of this registration statement.
BELL & COMPANY, PA
August 6, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports for Physicians Home Health Network, Inc. dated December 23, 1994 and to
all references to our Firm included in or made part of this registration
statement.
IFFT & BARBER, CHARTERED
Leawood, Kansas
August 6, 1996
